Flagstar Financial Inc (NYCB) 2007 Q4 法說會逐字稿

(OPERATOR INSTRUCTIONS) Hello, and welcome to the fourth quarter 2007 earnings conference call.

Today's call is being recorded.

For opening remarks and introductions, I would like to turn the call over to the Executive Vice President and Director of Investor Relations, Ms.

Ilene Angarola.

Please go ahead, maam.

Thank you.

Good morning everyone, and thank you for joining the management team of New York Community Bancorp for our quarterly post-earnings conference call.

Today's discussion of our fourth quarter 2007 and full-year performance, will be led by our Chairman, President, and Chief Executive Officer, Joseph Ficalora and our Senior Executive President and Chief Financial Officer, Thomas Cangemi.

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

Our comments today will feature certain forward-looking statements which are intended to be covered by the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those we currently anticipate due to a number of factors many of which are beyond our control.

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

You will find a more detailed list of the risk factors associated with our forward-looking statements in our recent SEC filings and on page 10 of this morning's earnings release.

The release also includes reconciliation of our GAAP and non-GAAP earnings and capital measure which will also be discussed on this morning's call.

If you like a copy of the earnings release, please call our investor relations department at (516 )683-4420 or visit our web site, www.myNYCB.com.

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

Mr.

Ficalora?

Thank you, Ilene, and good morning, everyone.

Thank you for joining us for today's discussion of our fourth quarter and full-year performance, and for the opportunity to highlight the unique features that have enabled us to distinguish ourselves from our peers during a time of intense adversity.

In addition to the benefit of last year's acquisitions, I will be speaking to the increase in our organic loan production, the improvement in our net interest income and net interest margin, the growth of our earnings, and the increasing strength of our tangible capital.

But first, I would like to speak about the continuing quality of our assets, which in the current cycle, represents the most discernible and important distinction between us and our peers.

In fact, while many of our industry have been battered by the current credit crisis, this has not been the case with NYB.

As I have stated before, we have no subprime or all-day loans in our loan portfolio, nor have we any such loans imbedded in our portfolio securities.

In addition, it should be said that construction loans represent less than 6% of our loans outstanding, and that one-to-four family loans represent less than 2% of total loans.

In case you missed this morning's release, we were pleased to report that our nonperforming assets represented just 0.07% of total assets, consistent with a ratio at the end of September, and one basis point improvement from the ratio at year-end 2006.

Nonperforming loans equaled 0.11% of total loans at the end of this year, last year, and in the same period in September.

Although we do not expect to remain immune to the credit cycle, it is important to note that last year was our 28th consecutive year without a loss in our niche business of multi-family lending, and we now are well into our 14th year without any losses in our construction loan portfolios.

In fact, the minimal losses we have recorded in the past three years have been limited to loans we have required and primarily consisted of consumer and unsecured loans.

In 2007, as in the last year, charge-offs represented a meager 0.002% of average loans.

Our record of asset quality speaks loudly to the conservative nature of our credit and the underwriting standards that we pursue, and the nature of the structure of our loans that we produce.

For example, our multi-family loans had an average loan-to-value ratio of 64.5% at the end of December.

Our commercial real estate loans had an average LTV of just 56.9%.

Another distinguishing feature of our fourth quarter performance was the completion of our eighth transition, the acquisition of Synergy Financial Group.

Like our prior acquisitions, the Synergy transaction expanded our footprint and boosted share of market, adding 21 branches to our community bank franchise in New Jersey, with two branches on tap to open later this year.

Between our PennFed acquisition in April, and Synergy in October, we grew our New Jersey franchise from eight to 53 branches in 2007, and our market rank in the counties we serve from 18th to fifth among thrifts.

The transition also contributed to the growth of our interest-earning assets and enabled us to contain our funding costs.

The infusion of deposits enabled us to sit out the competition for deposits that prevailed in the fourth quarter, and to engage in a planned reduction of higher cost liabilities.

Our average interest-earning assets rose $1.3 billion year-over-year to $26.4 billion in the fourth quarter of 2007.

And our deposits rose $538 million to $13.2 billion at December 31st.

Our interest-earning asset growth was also fueled by increased production.

Originations totaled $1.5 billion in the fourth quarter of 2007, a $274 million increase from the volume in the third quarter, and a $479 million increase from the volume in the fourth quarter of 2006.

After several quarters of refraining from lending extensively and what we felt was a highly irrational market, we chose to increase our lending in the fourth quarter of last year.

Not only did we capitalize on the opportunity to lend as the conduits and other competitors left the market, we also increased our lending at more attractive spreads.

During the quarter, the average spreads on new multi-family and commercial real estate loans, exceeded the average five-year CMT by 228 basis points.

A substantially wider spread than the 150 to 160 basis point spread at which our loans were priced over the past few years.

As a result of our acquisitions, the loans we produced and the higher spreads at which we produced them, we succeeded in tempering the impact of the dramatic decline in payment penalties.

In the first three quarters of the year, our margin was boosted by record or near-record levels of prepayment penalty income, as several of our borrowers opted to sell their properties or refinance their loans.

In the fourth quarter of the year, it was a rather different story.

With prepaid penalty income falling significantly, as refinancing activity abruptly tapered off in the midst of economic uncertainty and the anticipation of rate declines.

Nonetheless, our margin rose nine basis points year-over-year to 2.36% in the quarter, and on a lean quarter basis, our margin declined a modest five basis points.

Absent prepayment penalty income, our margin was 2.29% in the fourth quarter of 2007, representing a 14 basis point increase from the 215 in the trailing quarter, and 16 basis point increase from the 213 in the fourth quarter of 2006.

Similarly, our net interest income rose $13.6 million, or 9.7%, year-over-year, to $154.4 million in the fourth quarter, and was comparable to the level recorded in the third quarter of the year.

For the full year, our net interest income rose $55 million, or 9.8% to $616.5 million.

This was the first time since 2004 that we realized year-over-year increase in net interest income.

It was also the first time since 2004 that our GAAP earnings rose year-over-year.

The increasing strength of our capital was yet another distinguishing feature of our performance as conveyed by our tangible capital ratios at December 31st.

Excluding the after tax mark to market on securities, our tangible equity represented 5.88% of tangible assets, up 14 basis points from the trailing quarter end measure, and 22 basis points from the metric at year end 2006.

Including this adjustment, our ratio of tangible equities and tangible assets improved to 5.83% at the end of December, from 5.69% and 5.47% at the previous period ends.

Our ability to strengthen our capital while also maintaining our strong dividend payment, speaks in part to the consistent quality of our assets and the discipline with which we originate our loans.

It also speaks to our ability to generate cash earnings.

I am pleased to say that our fourth quarter cash earnings rose on lean quarter basis to $79.8 million, equivalent to diluted cash earnings per share of $0.25.

For the full year, our cash earnings rose $88 million or 33% to $352.7 million.

That is equivalent to 22.8% rise in diluted cash earnings per share to $1.13.

In addition, our 2007 GAAP earnings rose to $279.1 million, equivalent to a 11% rise in diluted earnings per share to $0.90.

Our fourth quarter gap earnings also rose from the year earlier level, resulting in a 16.7% increase in diluted earnings per share to $0.21.

In view of these -- our board once again reaffirmed the commitment we have made to our investors over the past 15 quarters to maintain our quarterly dividend at the current rate of $0.25 per share.

The next dividend will be paid February 15 to shareholders of record at the close of business, February 6th.

At the start of the year I noted that 2007 would be a year of transition, and so it proved to be.

We are pleased by the strides we have made in growing our franchise and our value, and in positioning our balance sheet to withstand the adversity being faced by our industry today.

We look forward to distinguishing ourselves further in 2008 by maintaining quality of our assets, the strength of our capital, and the integrity of our balance sheet.

Before I take your questions, I do want to mention that this afternoon and for the next two days, Tom and I will be meeting with investors from all over the country, Europe, and Asia, who have expressed an interest in learning more about the Company's performance and strategies.

These also will be the topics of a presentation I will be making tomorrow morning between 8:00am, and 8:45 Eastern time at the City Financial Services Conference in New York.

The presentation will be simultaneously webcast and archived at our website, together with the accompanying PowerPoint.

If you would like to listen in, just click on Investor Relations and follow the prompts.

At this time, I would be happy to take your questions.

As always, we will do our best to get to everybody in a timely manner.

But, in the event that we should missed your call, please feel free to contact us directly.

Thank you.

Thank you, sir.

The question and answer session will be conducted electronically.

(OPERATOR INSTRUCTIONS) First, we will hear from Salvatore DiMartino.

Good morning, Sal.

Good morning.

Sorry about that.

I have two questions.

One is on capital and the other one is on expenses.

On capital, excuse me, on capital, I noticed that your tangible equity is probably the highest it has been --- in maybe, going back to '02 or '03, and I was wondering if you can comment on how low you are comfortable taking the capital down to?

And --- how you would prioritize use of capital, whether it would be M & A, balance sheet growth, or buy backs?

And my second question is on operating expenses.

I mean, even with the charges, they came in higher than we expected, were there any nonrecurring items in there or anything related to Synergy?

--- other than ---.

(inaudible) operating expenses.

With regard to capital, I think the good news for us is that over the course of the last many, many quarters, we have been building our capital.

And I think that the existence of a larger capital position than we probably have had since 2001, is something that we gives us the flexibility to do M & A, or deal with adversity, or deal with other kinds of opportunities as they may arise.

So, capital at this juncture for us is a very positive thing, and a very important component of our overall strategy of continuing to pay a strong dividend while in fact, we are continuing to build our capital.

Not too many of our peers have been building capital in the last year.

With regards to the expenses, Tom?

Sal, it is Tom.

On the expense side, keep in mind, Synergy came on October 1, so we have a full quarter of Synergy, that is reflecting in the fourth quarter operating expenses, and you also have a full quarter of Doral Financial, that the, the branches we acquired, personnel costs and what not for full quarter.

And also, we have had some increases in general for staffing and the commercial bank as well.

We have hired on a group of lenders at the end of the quarter We continue to build that department as we move forward towards expanding that specific entity.

I would say at a run rate, to give you some color on a run rate, I would use between $80 to $82 million per quarter going forward, exclusive of the CDI.

Okay, and if I can go back to the capital question.

I mean credit quality is superb.

You are seeing wider spreads, there is less competition.

Why wouldn't you grow at this point in the cycle?

Well, we could.

Sal, what I would tell you on the capital side, obviously, we have significant room to grow the balance sheet as we see the business opportunities arise.

Clearly, on the expense side, we are built up on a departmental, for employees to start putting on some very nice credits in our backyard.

We are very excited about the widening of our business model and respective spreads.

And that being said, as the competition continues to wane, competition has significantly declined in the multi-family space.

Granted, we are dealing with Fannie Mae.

But absent that, we are seeing across the board, spreads widening.

We are well-positioned to capitalize on that in this environment and we have good capital levels to seize good balance sheet growth in 2008.

I think the important theme here, Sal, is that the capital we have gives us flexibility of choice.

And the choices are actually good choices.

There is no question that as we go in to this evolving cycle, the existence of our capitol will in fact, be an important component, what makes us a better buyer or makes us a better grower just organically.

Thank you.

You are welcome.

Next, we will hear from Tony Davis.

Good morning, Joe.

Good morning, Tom.

Good morning, Tony.

I just want to get on the balance sheet for a second here.

What changes, Tom, have you made in Synergy's balance sheet since the end of the year?

The immediate changes, Tony, is obviously, we restructured the debt portfolio.

That was paid off and new structure was put on at lower cost.

The securities were sold immediately upon acquisition, and put into short-term callables, which we expect to have called in this environment, then hopefully placed into loans, into '08.

We do have a lot of opportunities on the loan side that we are working through.

As everyone should be aware of, the fourth quarter was a very [ill-liquid] market for asset sales.

We expect to have a securitization done probably first/second week of February, regarding Synergy, in the one-to-four family loans, and continue to cherry pick some loans that we feel uncomfortable in holding a along time.

But, we are monitoring the market.

Fourth quarter was a very difficult market to sell assets.

So clearly, we see things cleaning up a little bit here in the marketplace, and we hope to be able to continue with that strategy going into '08.

Tom, with $12 billion in wholesale funding, can you give us a little more color on that, the repo advance mix, the duration, kind of the flow through effect we all expect here from the recent Fed funds cuts?

We have got about $4 billion in repo, the rest is with the federal home loan bank advance market.

Clearly, going back to what Sal indicated, we are utilizing the capitol to grow with the company would be very advantageous in light of the current funding.

We are not going to see a significant amount of expense reduction on the wholesale side, but we will see a substantial amount of interest expense reduction on the retail side.

So obviously, as the --- cuts rates, we are within days cutting, inconsistent with the Fed.

But on the growth side, as we grow the balance sheet, both on retail as well as on wholesale, we are getting tremendous funding opportunities.

So that is why I think you will get significant benefit to the margins as the Company grows.

By most of our wholesale liabilities are relatively fixed in this environment, average life you are probably looking around, probably three and a half years.

Okay, okay.

One thing, just finally, on the loan production, I just wondered if there has been any change of note, in the level of property sales in that market over the last few months?

Of the $990 million in repayments last quarter for example, how much was triggered by sales?

A lot of sale activity, as you might well imagine, a lot of the sale activity has slowed.

I think we have talked about this on the road at various times.

But, as you go into this point in the cycle, you are going to have a lot of people hesitate, and worse, you are going to have people that had expectations, that conduits were going to provide huge amounts of dollars that just are not there.

So, there is a period during which there is going to be a readjustment in the marketplace.

So, people are going to be rethinking the prices at which they will buy or sell assets.

This is an adjustment period we are dealing with here.

The directional movement of our particular niche is very positive.

The immediate consequence of the market changes that have been occurring, and are anticipated to be occurring, is really slowing activity.

So even though we had an increase in our lending in the fourth quarter, it is diminimus in comparison to the opportunities that the future would hold.

So, we are going through a bit of an adjustment period.

The important thing here, is that this particular niche is not at risk of large amounts or increasing amounts of loss, as is the rest of lending.

You are going to see, quarter by quarter, increased non-performance and losses being taken, in house loans by example.

That is already baked into the cycle.

So, that is going to continue to evolve.

With regards to what we are dealing with, there is an adjustment period, but once the adjustment period is passed, there is going to be lending activity that will increase based on the available.

Whether they are selling or refinancing their existing portfolio, we are going to a lot of people that have made the decision, the time is now right to move.

Or, as we talked many times, they can not wait the calendar out.

Tony, I would add to that, in respect to the coupons that is embedded in the multi-family portfolio, it is below the current marketplace, which is also a very favorable benefit.

Right.

Now obviously, we can not predict where rates are going in the next six or nine months, but in this environment, we are still getting a pickup as the loans refi.

Just in a general sense, then finally, this will the last question, I promise.

In terms of impact, should we expect 1031 exchange redeployments or conduit lender retrenchment to be a more important driver?

I think 1031 is going to be more the more important issue as we go down the road, because the important distinction, and I can not over emphasize this.

In every cycle, the people that we lend to, typically never lose their properties.

And they have 1031 needs as they go into the cycle, because there is no question that they have carried this over from the earlier transactions.

They need to buy and redeploy their funds.

So, we are going to see more and that in the months and quarters ahead.

Thank you.

You are welcome.

Next, we will hear from Mark Fitzgibbon.

Good morning, Mark.

Close enough.

I will take it.

Thanks, guys.

First question, just want to clarify, Tom.

You said $80 to $82 million of expenses going forward, including CDI?

No, excluding CDI.

Excluding CDI.

Okay.

Great.

And then secondly, what is the contract rate today on your five-year multi-family loans?

Where are those kind of getting?

The spreads are significantly higher than they were pre August, I would tell you right now, we are probably in the high twos, mid to high twos, somewhere between five and one half to five and three-quarters, depending on the marketplace.

Weave in closing loans in around 6% over the past three or four weeks.

It is a very favorable spread.

Funding is much cheaper than respect to, we have seen in previous years.

Incrementally, if we incrementally grow the balance sheet here, you are seeing positive next to the margin.

So, the spread environment has changed dramatically.

But, the competition has changed, no question.

You know, there is the agency bid for papers out there, in respect to to Fannie Mae, but after that, I think most of the competition is lined up at that level.

So, we are very comfortable at those levels, and we are not looking to reduce our pricing.

Also, I wonder if you could talk a little bit about your deposit strategy, maybe where you are positioning, what maturity CDs you are going after?

Is competition easing up maybe with Countrywide pulling in the reins, and some other folks starting to ease off?

Yes, I think the irrational presence of Countrywide, in particular, was a national phenomenon.

So, whether that we were competing with Countrywide, we were never showing any deposit flows to Countrywide of any measure.

We were showing flows to banks that were competing with Countrywide.

So, I think the ultimate decline in the rates Countrywide is offering is going to be beneficial to all banks.

It is inevitable and it is important that it occur.

I think there has been a realization on the part of most of the banks in our particular market, that they need to be more rational in their pricing.

Some of the irrational pricing that was occurring in the last month or two quarters, has been something that we have been consciously deciding that we are not going to be competing with.

So, we have actually let our deposit flows run out where we have higher costing deposits, in particular in the institutions that we have acquired.

We keep the relationship, but give up that, what I call hot money, that is ready to move to whatever is the hottest rate in town that day.

Mark, I would answer that.

The liquidity level that the Company experiences is very high right now.

We are sitting on some excess cash positions.

So, to be aggressive in this environment, we are more comfortable letting the 5.5% money that was acquired from other institutions and/or taken to appropriate the positive relationship, run off.

We are looking at about 88% of our entire CD book is mature than in one year.

Those levels are in the high fours, close to 475.

[with] the cut rates, we are actively cutting our CD rates.

You are looking at about $5 million of money, that is going be priced, hopefully, at these lower levels, which will be also beneficial to our margin.

The important thing to think about when you look at the quarter, much of the savings on the liability side, really did not occur early in the quarter.

Much of the new earnings on the asset side occurred at the end of the quarter.

So, the contribution of asset growth is going to be seen in the quarters ahead.

The benefit from savings on the liabilities side will again be seen in the quarters ahead.

This is a transitional time, and the transitional direction is definitely good.

How should we be thinking about the margin for the first quarter let's' say, prepayment penalties will presumably somewhat seasonally higher?

Yes, I think that is right, Mark.

If you think about it, we had a very, very, we will call it a light showing in the fourth quarter.

But, the three quarters previous were a tremendous prepay.

We went through the year, we are getting very nice prepayment activity, stimulating our margin.

But, if you call that out, every single quarter in '06, our margins, since the fourth quarter of '06, our margin has increased without prepays.

We are looking at a very small prepay quarter in Q4, with 14 basis points, on a lean quarter upbeat on basis points.

That going forward, assuming there is no prepayment, we are seeing good margin growth.

We believe that prepays will continue.

Obviously, when rates are this volatile, people are on the sidelines.

But, we had a tremendous 2007, as far as compared to '06, in the level of prepayment activity.

We do not think it is going to dry out, we just think right now, it is temporarily on hold.

With that being said, we are starting with such a low base in respect to prepays, and you see where our numbers are.

We are seeing increases in the core Company's margin

And the last question I had, you guys had said during the fourth quarter that with the credit markets locked up, it would be harder to do deals, given your propensity to restructure the target's balance sheet.

Does that still hold true or are the markets eased up enough that you think you could do acquisitions and restructure?

Mark, I will tell you that if you look back, four to five weeks ago, compared to today, the market has eased up.

You know, change in LIBOR rates, change in overall funding rates have at least put some reasonable liquidity bids on some loans We were very, very focused on making sure when we look at a company, we can dismantle assets we uncomfortable at.

Right now, we feel that we are making very good progress on some of the Synergy assets that will be executed in the weeks and months ahead.

That was a very difficult experience in the fourth quarter.

As you know, it has been a liquidity lock down.

We are seeing some good changes since then.

We are very comfortable that we will be able to achieve the Synergy transition, and we are looking at more opportunities in front of us.

Thank you.

Thank you, Mark.

We will hear from Mr.

James Abbott.

Yes, hi.

Just a piggyback off of one of Mark's questions.

My questions were related to the CD funding base, as to how quickly you might be able to ratchet that down?

I think the overall cost of CDs were down only three basis points in the quarter.

But, there is probably some Synergy effect there.

As we look forward in to the first quarter and second quarter, can you bring that down quickly or would your propensity to be, to keep the rates a little bit higher to fund some of the loan growth coming on.

I guess you got two, a ying and yang, you have got to deal with here?

Jim, it is a interesting point, but we are very liquid right now.

We are looking at significant callables on a (inaudible) book which we are welcoming right now.

But, not at high -- very reasonable coupons.

We are going to make money just by reinvesting that cash flow.

That will be a positive for us, sitting on excess cash from the Synergy transaction.

But more importantly, the way we operate when the Fed is cutting rates this aggressively, we are cutting literally, within the 24-hour period, sometimes parallel, sometimes close to be parallel as far as the move.

But, we are very focused on not competing in a rational level.

So by way of example, 75 basis points were cut.

You probably have 50 across the board on CDs.

The next move will probably cut on the percentage base, depending where offerings are, but we are not looking to hold our rates.

We are comfortable in letting hot money leave the company, as we have liquidity and cash flow.

As indicated when I spoke to Mark on the call, we have over $5 billion, at four and three-quarter money, that has to be priced.

Some of that we priced in January, some prices within March.

But, over the next 12 months, it is a substantial amount of CDs that have to be priced to market.

In addition, all our money market funds get affected immediately.

Money market funds, in general, throughout the industry, are still priced too high.

So as everyone brings their rates down, we should see some benefits there.

The area that we are not going to get much incremental benefit on the current book, is the wholesale volumes that are relatively fixed.

But as we grow, if we utilize wholesale volume, the funding costs and wholesale borrowings are substantially lower than they were six months ago.

Would you be inclined to allow the CD portfolio, it sounds like to me, you would be inclined to go quickly to the bottom of the rate sheets, if you will.

If you look at everybody's rate sheet, you might be willing to go to the bottom.

Jim, we have been at the bottom, I tell you over the past year, because of our acquisitions.

Having liquidity, having flexibility to price our CDs much lower than the market, we do not have --- 5% or 5.5% that was the fourth quarter offer.

We were in the mid to upper fours just to compete.

We will aggressively drop those rates, because we have very good liquidity right now.

Obviously, if loan demand picks up dramatically, we will look to other funding sources to fund our business, not high cost CDs.

You prefer to take on the call, some structured advances?

Probably more structured advances, less [optionality] risks.

You can, twenty basis points differential between a ten-year due, and a five-year due.

It is very attractive funding right now.

Extraordinarily better than going into the deposit market.

Okay, and my other question is from a strategic perspective, is you occur widening here, are you guys, you guys are still reducing securities?

Or at least you did in the fourth quarter.

Are you anticipating perhaps taking advantage of that as we go into the wider yield curve environment?

Obviously, looking at the marketplace, if we are looking at substantial loan growth, we are going to use all the liquidities to put it into our products.

Obviously, it depends on the level of loans that we see coming in and the type of paper we can put on the books.

We have not been in the market to by securities.

What we welcome it substantial amount of cash flow from out [Dementia] portfolio, as expected.

The PennFed acquisition gave us the ability to put in a significant amount of cash, in Dementia, that we expected to come within the next year.

This is now coming to fruition, and helping us continue to fund our loan books.

This was put in place on expectation that would have been called.

In addition to that, some of the legacy [dementias] that are in the mid to upper fours are also being called in this environment ,which also gives us a nice benefit.

So, this is a good change for our balance sheet.

Okay.

Thanks again.

Thank you, Jim.

Next, we will go to Thomas McGovern.

Good morning, Tom.

Good morning.

Just wondering, you mentioned the construction loans are a small percentage of your book.

Some lenders are having issues with the rising delinquencies in those types of portfolios.

Are you seeing anything in the horizon in your construction portfolio now?

We monitor that extremely closely.

Every mortgage meeting, we discuss the existing portfolio and obviously, we have been very diligent as to what we would add to our portfolio.

So, the growth in our construction lending has definitely slowed, and our portfolio, as we currently monitor it, has been 100% performing.

So, we are very pleased with how we are positioned, in what we know to be, a potentially difficult environment.

An important component of our construction lending is that we typically lend to people that have great experience in operating through cycles.

We have not had a loss in our construction lending for 14 years.

That is during the best of times.

But, I think it is also indicative of the fact that we are lending to people that understand where the risks are, and they typically position themselves so they are able to ride through this declining cycle.

I would add to that --- the construction portfolio.

Historically, we have always put embedded floors in our product.

So, if rates continue to decline, you may see a lot of refis.

That's why rates are significantly higher than the market.

We do have embedded floors in our contracts.

Joe, it is Bruce Harding.

Can you hear me?

We are both on the same line, Tom and I.

If I understand what you are saying on the margin, you are saying, margin will gradually move higher in '08, and prepay any fee related there, is going to be lumpy, but lumpy sort of waiting --- your clients tend to gain the Fed easing a little bit, and so until they feel that the Fed done with its work, you will not see the jump in that.

I think you understand it well, definitely.

And then, do you, on the negative side, if Fannie and Freddie are given the power by Congress here with this bill that seems to be pending to do the higher loan amounts in your marketplace, how does that play out in multi-family --

That should actually help us.

The bottom line is that Fannie Mae and Freddie Mac have a mission requirement to provide funding for low and moderate income housing.

To the extent that they are in multi-family housing, they are diverting their limited resources to investor housing, rather than providing houses for individuals.

As everybody knows, the only reason for changing any of the limits on Fannie Mae and Freddie Mac, is to provide support to one-to-four family.

Multi-family housing is not in crisis here.

One-to-four family housing is in crisis.

In some of the things that I have heard from various Congressmen, I think there is going to be a need for Fannie Mae to be more focused on providing one-to-four family housing, and they are going to enter into the jumbo market, or at least take on a larger share of the one-to-four family housing market.

When they do that, they will be diverting assets away from what they are currently investing in multi-family.

So I think, all in for us, the evolving cycle represents a potential improvement in the absence of competitors, and an improvement in the overall performance metrics.

And the risk spreads, with regard to lending, have improved greatly.

As we mentioned earlier, we are looking at 225 to 275, even 300 basis points over.

As we go down the road, we will continually see an improving environment for our particular niche.

The Fed change, Fannie Mae and Freddie Mac, will in fact by necessity, because Congress is giving them an opportunity to divert their limited resources to more housing, that is one-to-four family housing, not multi-family housing.

Okay.

Any comments on how this unwinding market problem or whatever, is impacting the relative attractiveness of M & A for you?

Sorry if I missed that earlier.

You may have.

But, I think that our comments have been that we are very cautious about the asset side of a transaction.

We have had many opportunities to do deals over of the course of the last 12 months, and in every deal, we consider very diligently, what is the disposition of the asset likely to be?

That has to be measured from the date of announcement to the date of disposition, and since it is a sizable component to what we do in particular ---.

When we do a deal with a commercial bank, we have to be comfortable that we are going to keep a larger percentage of their assets.

When we do a deal with a thrift, we have to be comfortable that we are going to be able to dispose of a larger portion of their assets.

We do not want to be in house loans.

We said that consistently since we became a public company in 1993.

Our diminimus position is likely to continue to go down and our therefore, our exposure is likely to continue to go down.

We are not going to do a deal where we are going to increase our one-to-four family portfolio, at the very time when non-performance in one-to-four family is going to be continually going up.

That is going to be a very real consideration, but as pricing and other factors come into play, we will have an opportunity to consider many opportunities that are already in the market, as well as opportunities that are going to come into the market.

So, I look at the future as being very bright with regard to the opportunity of making choices.

To add to that, currently in this market condition, we are getting a significant amount of interest of opportunities going forward to look at potential M & A clientele which is very attractive for us, and we are welcoming opportunities in this market.

But, obviously prices come down quite a bit.

From a guidance perspective, do you make your dividend?

I mean I know that is not a criteria to continue to pay it, but are you giving any '08, bottom line?-

We do not typically give guidance, except in what we have been saying.

We have been saying, pretty consistently over the last several quarters, that our spreads and margins continue to widen.

Therefore, when we look at our dividend, we are very comfortable that we are going in the right direction to keep our dividend in place.

Okay.

Thank you.

You are welcome.

Next, we go to Sandra Osborn.

Good morning, guys.

Can you tell me what you are able to dividend up to the holding company at year end, and also what the cash position of the holding company was?

I do not have those numbers, but typically --- if you are available, you can call me a back directly on my line.

Okay.

Thanks.

I have some more questions if that is okay.

What is the dollar amount of multi-family loans that will contractually reprice or mature in 2008?

Typically --- only specific guidance, exactly what is -- it has been around 30% to 40% in an 18-month.

That number is still consistent.

It is about 30% to 40% every 18 months.

You what it is, we do not contractually reprice.

We have an average life between three and four years, which means the various segments of the portfolio reprices very early.

In other words, early in last year, we had some properties that we were repricing after 13 and 14 months.

So, that changed the numbers very dramatically.

As we look at the year ahead, there is going to be activity, which is typical of our portfolio that has nothing to do with the contractual repricing.

It has to do with how the market actually evolves.

Okay.

I understand.

If we could go back to the construction portfolio for a minute.

Is it possible to get the percentage within residential construction and the average expected selling price of the home?

We probably could get you a number.

What I would say is that most of the construction is in fact communities and the pricing varies from particular project to project.

Even though there are vertical projects as well.

I think it would be best if we had some of those numbers put together and we had a conversation after the call.

Just to give you some more color on that, we typically underwrite that a rental basis, not on a quote sell-off basis.

Okay, and how much of that is in market and do you have the geographical distribution?

All in market.

All in market.

Okay.

And for CIE and multi-family portfolios, those are all out of -- what percentage of that in market?

The vast majority.

I think it is about 5% of the total portfolio is out of market, the 95% of --- market.

Okay.

Great.

You are welcome.

Next, we will go to Rick Weiss.

Hi.

Good morning.

Most of my questions have been answered.

On the origination for multi-family, does most of that come toward the back half of the quarter?

Yes, I would focus on the average balance sheet --- in the back half of the fourth quarter.

October was a very slow closing month.

November was building up, and December was a very significant closing month for us.

So clearly, on average, we had most of our loans close in December.

So I think it is important to recognize that the earning assets really were not earning for the quarter.

The change in the numbers reflect additions to earning assets that occurred very late in the quarter.

And those yields are around six, little bit north of 6%.

Okay, and most of these originations then were not refis at all, I take it.

Lot of new business.

Refis obviously slowing.

You can see the level of prepays.

And again, this is an interesting rate climb.

You may see a substantial change where people are very comfortable in refi-ing.

What is interesting, I go back to my previous statement, the coupon is still in the low to mid fives.

So, we are looking to fill that --- at a situation if there is rapid refi, we are not going to get hurt on the active yield side, especially if we pay the coming in.

We feel pretty comfortable that we will see a continuation of the bill on the active yield.

Okay, and the other question is, what kind of tax rate would be a good run raid rate for '08?

I would guesstimate at this stage of the game, 31% or 32%, somewhere in that range or early.

But obviously, last year we had some --- when you look at the projection and earnings and what not, we came in around, I would say 30, 20, 02, 31% to 32% --- into '08.

Okay.

Thank you very much.

Next, we will hear from Matthew Kelley.

Hi, guys.

Good.

On the --- the borrowings were put on during the quarter, what was the structure and rate of those?

We have been moving towards less optionality risk --- five-years, five threes and five twos at very attractive levels.

We are paying about 20 to 25 basis points, more on the cost of funds versus the typical ten-year structure.

We were cutting our optionality risk in half.

Okay.

So, five-year final maturities with two and three year note calls.

Okay.

And then, of the $8 billion of current FHOB advances then, most of that has ten-year final maturities with some type of callable feature?

We have a lot of --- legacies --- on paper that we have on the books was material for the Company.

Yes, it is correct.

Okay.

Like I said previously, you are not going to have much movement on the existing book.

Any new growth that we take on the advanced side will have significant movement down in cost of funds, but the current book is at this level.

But, you look at the historic interest expense on advances and repo, it has been relatively stable over the past year.

Right.

So, most of the funding improvement going forward is coming as that $5 billion in CDs rolls over and then adding new borrowings?

You have new borrowings, you have $5 billion in CDs, you have your entire money market accounts that also is going to be structured out.

Okay, and then just on the construction loans, is most of that going back to the Roslyn/Oyster Bay-type projects?

Has that business gown since then?

It is partially that.

We have a lot of communities that allow --- to sell out their projects.

We are very comfortable with the customers that we deal with.

The customers are the same.

We have had some increases in multi-family projects, that again, underwritten as a rental, not as a gross sell-out.

In the event --- if there is a situation where it is not sold out, what will be rental income drive to pay off our principle and interest?

And, that is how we look at our properties.

So, as Joe indicated, no credit change there, respected delinquencies and/or MPAs.

We are pretty comfortable that the book is continuing to run off.

My guess, considering we have significant flaws in the product, rates are much lower.

They can refinance elsewhere if the --- are --- and then people will only give the dollars.

Very comfortable that keeping --- in our book of --- in a declining rate --- will help our margin.

But, we may see some runoff in that portfolio because obviously there is less construction going on in the New York area.

What are those floors?

Typically, it is prime plus one and it is pretty much set at a floor in that point in time.

Okay.

As prime goes down to --- basis points, they are paying a much higher rates of interest --- versus the current market rates.

Okay.

And typically renewed on an annual basis.

How many developers do folks deal with?

I would say an allowance probably maybe ten to twelve, topped out.

Yes, I think, of the top ten, we probably have nine.

In New York City, some of the multi- family -- that own ---- some ---.

Yes, and then there were others, in other ---.

a lot of that is from the legacy --- transaction, as well as the Richmond transaction, we do some on Staten Island, it is about $130 million on Staton Island, and the rest being, the mostly Long Island paper.

Alright, thanks a lot, guys.

Now, we hear again from Salvatore DiMartino.

Yes, Sal.

I know you mentioned the LTVs for the commercial real estate and multi-family.

Can you give us the LTV on the construction book?

I do not have the specific number in front of me, Sal, but they are lower than on commercial, and I would say, it is lower than our commercial and multi.

It is -- the way we underwrite our credits are different than your typical lock indications for construction.

Going back to those --- selling as a rental.

We look at our deals as rental properties and that is our fall back.

So, I would say if you look at it on a gross sell out basis, you are probably looking at substantially lower LTV.

Sal, we are typically not an end loan lender, so virtually we lend -- for example, when a guy is building a new community, we lend on contract for the new units that are going to be built.

Therefore, somebody else is actually doing the lending on let's say, the house.

And, we are just lending on that short construction period from contract to close.

And then --- just another question.

Is a portion of the coop city line in the construction book?

Yes.

Do you know how much that is?

I do not think it is in the construction book.

We -- annually.

No, it is not in the construction book.

It is part of our loan portfolio.

Even though, we are reimbursed, we are renovating the property, it is not really part of our construction portfolio.

Okay.

That is all I had.

Thanks.

Alright.

Thank you.

And now for closing remarks, I will turn it over back to Mr.

Ficalora.

Thank you again for your participation in this morning's discussion.

We appreciate the opportunity to discuss our performance and those features that have distinguished us from our peers in a time of uncertainty.

Our record of asset quality, which has stood firm in the midst upheaval, our strategy of growing our franchise and our value, to accretive transactions in market banks, enhancement of our balance sheet which has positioned us to withstand the adversity that may still lie before us, and the strength of our tangible capital which has enabled us to pay our shareholders a meaningful dividend in the past 15 consecutive quarters, and to capitalize on opportunities as they arise for the value enhancing growth.

Thank you all.

That concludes today's conference call.

Thank you for your participation.

You may now disconnect.