Flagstar Financial Inc (NYCB) 2010 Q3 法說會逐字稿

Good day, everyone, and welcome to the New York Community Bancorp's third quarter 2010 earnings conference call.

Today's call is being recorded.

At this time, all participants have been placed in a listen-only mode.

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

Please go ahead.

Thank you.

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

Today's discussion of our third quarter earnings will be led by Chairman, President, and Chief Executive Officer, Joseph Ficalora, together with Thomas Cangemi, our Chief Financial Officer.

Also joining us on the call are Robert Wann, our Chief Operating Officer, and John Pinto, our Chief Accounting Officer.

Certain of our comments will contain forward-looking statements, which are intended to be covered by the Safe Harbor Provisions of 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 general economic conditions and trends, both nationally and within our local markets, changes in the financial or operating performance of our customers' businesses, or changes in real estate values which could impact the quality of the assets securing our loan, changes in interest rates, which may affect our net income, prepayment penalty income, and other future cash flows, or the market value of our assets, including our investment securities, and changes in legislation, regulation and policies including but not limited to the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

You will find a more detailed list of the risk factors associated with our forward-looking statements in our 2009 annual report on Form 10-K, our second quarter 2010 10-Q, and beginning on Page Nine of this morning's earnings release.

The release also includes reconciliations of certain GAAP and non-GAAP earnings, revenues and capital measures which will be discussed during this conference call.

If you would like a copy of the earnings release, please call our Investor Relations department at 516-683-4420 or visit us on the web at ir.mynycb.com.

I would now like to turn this call over to Mr.

Ficalora, who will speak to you briefly before opening the lines for Q&A.

Mr.

Ficalora?

Thank you, Ilene, and good morning, everyone.

We appreciate your joining us for today's discussion of our third quarter 2010 performance, which featured a combination of very favorable metrics, together with some very encouraging trends.

Among the highlights were the significant growth of our operating revenues and our operating earnings, a decline in total delinquencies for the second consecutive quarter, and a decline in loans 30 to 89 days past due for the third time this year, an increase in our production of loans held for investment, and our fifth consecutive quarter of increased capital strength.

Starting off with the earnings growth, we reported a 49% year-over-year increase in operating earnings to $134.4 million, equivalent to a 19.2% increase in diluted operating earnings per share to $0.31.

Our GAAP earnings rose 37.6% year-over-year to $135.6 million, and also were equivalent to $0.31 cents per diluted share.

On a cash earnings basis, that was a 29.3% year-over-year rise to $148 million and were equivalent to $0.34 per diluted share.

The significant year-over-year increase in our operating earnings was attributable to a significant level of operating revenue growth.

In the third quarter of 2010, our operating revenues totaled $390.9 million, representing an increase of $141.9 million, or 57%.

Net interest income accounted for $286.2 million of operating revenues in the current third quarter, having grown $59.8 million, or 26.4% year-over-year.

There obviously is a theme here.

We keep growing by fairly substantial percentages, the relevant earnings metrics of the company.

The next one's even better.

Operating non-interest income accounted for the remaining $104.7 million, having grown $82 million, or 362.5% year-over-year.

The net increase in operating non-interest income was driven by our mortgage banking operation, which funded $3.5 billion of loans for the sale to GSEs in the last three months.

Mortgage banking income totaled $76.5 million in the current third quarter, including income from mortgage originations of $58.9 million and servicing income of $17.6.

It's now been ten months since we acquired our mortgage banking operation in the AmTrust bank transaction, and we are very pleased to have realized so quickly such meaningful benefits.

Operating revenues rose $27 million, or 7.4%, on a link quarter basis, notwithstanding a modest drop in net interest income during this time.

Although our net interest margin grew 19 basis points to 3.36% from the year earlier measure, the link quarter comparison reflects a modest decrease of 6 basis points.

With the link quarter growth of our operating revenues exceeding the increase in our operating expenses, our operating efficiency ratio improved 44 basis points to 36.12%.

Perhaps the most significant aspect of our third quarter performance was the continued reduction in total delinquencies and in particular, the improvement from the March 31 high, reflecting a 61.4% decline in the balance of loans 30 to 89 days past due, and a 9.5% decline in non-performing assets.

Total delinquencies fell $205.1 million, or 21.2% over the last six months.

On a link quarter basis the reductions in loans 30 to 89 days past due and other real estate owned exceeded a modest increase in non-performing loans resulting in a 7% improvement in total delinquencies.

While continued uncertainty in our markets make it difficult to predict that this trend will continue, we are very pleased by these improvements and by the low level of net charge-offs we have experienced both this year and last.

Net charge-offs fell 11.4% from the trailing quarter level, and represented a modest 0.06% of average loans in the last three months.

This metric compares very favorably, as has been the consistent case, with the SNL Bank and Thrift index, which to date has reported an average ratio of net charge-offs-to-loans of 0.70% for the third quarter.

That represents about half of the reporting banks at this juncture.

Notwithstanding the improvements in these asset quality measures, we increased our loan loss provision to $32 million from $22 million, that sacrifices maybe an extra $0.03 or $0.04 in earnings per share, or putting it differently, puts it into the reserve instead of putting it into capital.

As our asset quality improves, so too, did our loan production.

With total originations increasing from the year-earlier level, including $128 million increase in loans originated for portfolio, to $1 billion.

Together, multi-family and CRE loans represented 81.8% of loans produced for investment, representing a year-over-year increase of 18%.

We also are very pleased by the volume of loans in our pipeline, which is just about $4.7 billion as of today.

Loans originated for portfolio represented approximately $1.1 billion of that figure, with multi-family loans accounting for approximately 81% of that amount.

The remainder of the pipeline consists of loans originated for sale by our mortgage banking operation.

As of this morning, we are looking at approximately $3.6 billion in loans originated for sale.

We also are pleased with our tangible capital and the related tangible capital measures, which have increased nicely since the end of December and since the end of June.

Excluding AOCL, tangible stockholder's equity represented 7.67% of tangible assets at the end of the quarter, representing a 16-basis-point improvement over the course of the quarter, and a 42-basis-point improvement over the past nine months.

These improvements were paralleled by improvements in our regulatory capital levels.

The community bank had a leverage capital ratio of 856 at the end of quarter, while the commercial bank had a leveraged capital ratio of 1269.

Both of these measures are well above the 5% required for classification as well-capitalized institutions and both exceed the ratios at December 31, 2009 and June 30, 2010.

In view of the strength of our earnings and our tangible capital position, the Board of Directors last night declared our 27th consecutive quarterly cash dividend of $0.25 per share.

The dividend will be paid on November 17 to shareholders of record of November 8.

Based on last night's closing stock price, this represents a yield just shy of 6%.

In closing, we believe that our third quarter performance underscores the merits of our business model and our ability to generate continued earnings and capital growth.

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

As always, we will do our best to get to everybody in the time allocated, but if we should miss you, please feel free to call our Investor Relations department or leave a message and one of us will get back to you as we can.

Now, for your first question please.

(Operator Instructions) We'll take our first question from Bob Ramsey with FBR Capital Markets.

Please go ahead.

Morning, Bob.

Good morning.

Could you talk about how much of the servicing income in the quarter was derived from the FDIC's sub-servicing and when you expect that that sale may close?

And when it does, if there are any possible expense offsets to those revenue losses?

Hey Bob, it's Tom.

I would estimate that approximately $10 million of the $17 is related to the FDIC asset class.

It is our expectations by the end of this quarter it will disappear.

We are not able to disclose the actual transaction, but it is my understanding that transaction has closed and will exit our portfolio by the year's end.

So, assume for the quarter, approximately about $9 million of reduction given for 2010, and probably the next year, the full amount for the quarter around $11 million.

And I'm sorry, assume that reduction in the fourth quarter?

We'll have the drop-off in Q4.

They transacted in the midst of the quarter.

Okay.

And then, could you maybe talk a little bit about TDRs in the quarter and whether there was any impact to non-performing loans of TDRs that are returning to performing status?

This quarter the activity was really low on TDRs.

Not a whole lot of activity, a small amount.

We had a bunch of items that were moving out of MTAs, some moving in.

But all in, as Joe indicated in his opening remarks, significant positive improvement over last equality.

We saw the delinquencies come down dramatically, mostly from no-sales, as well as from actual paydowns, customers paying back the bank on their outstanding balances.

Overall, a very good showing, which we expect to continue to see during the back half of this year.

So, we are looking forward for further improvement in asset quality going forward.

We have seen some very positive signs.

Okay and then how are you thinking about provision expense in that context?

Obviously it continued in an upward trajectories.

Is this a level you'll build on from here or how -- ?

You know Bob, I think the important thing to recognize here is that, we have at least ten quarters of coverage based on what we've already done.

And as a result, if you think about it, the way we are charging against our reserves, we can cover two and a half years.

I would suggest anybody could go out and look at other banks, other reserves and see how much coverage they actually have in their reserves, based on their charges this quarter or last quarter or the last, you know, four or five quarters.

So, the ability for us to add to our reserve is based on the fact that we have a robust income stream, and there is no question that we are looking at this in a very, you know, conservative way.

So, we are building our reserve more so than we need to cover losses, necessarily, but we are building our reserve in a way that will make people a little more comfortable that there is more money sitting out there.

Bob, I would just add going forward, think about the charge-offs being around this range and we are not going to take the reserve down.

So assuming we have X amount of charge-offs, we'll provide for the reserves.

Okay.

Great.

Thank you, guys.

We'll take our next question from Collyn Gilbert with Stifel Nicolaus.

Please go ahead.

Great, thanks.

Good morning, guys.

Hi, Collyn.

How are you?

Good, thanks.

Could you just give kind of your high level thoughts on how big you want to grow this -- the mortgage banking operation?

Or how big you think you can grow it or how do you want to manage that as we look out into the next year?

Well you know, the reality is, it represents a huge opportunity.

We are being very conservative in our approach.

You know, the FICOs for the loans that we're generating are in the 770s, the LTDs are on the 62s or so.

So, we are virtually being restrained in how we approach this business, and the marketplace is very rich, and the systems and the people that we have in place are very proficient at getting this done.

So, I would say to you that we have no specific goal, but we have a clear understanding that we have a capacity to do a significant amount of what's out there to be done.

And we are going to likely do that.

And, by the way, we can do jumbos and we can do, you know, commercial loans and so on.

We are doing none of that right now.

Okay.

So, when you say you are restrained, what is it -- ?

What's the primary, is it capital?

Is it --

No.

The good news is, we could fund twice what we are doing.

We could do significantly greater volumes.

We are being restrained in that we don't want to be overzealous in creating a new potential for you know, future, you know, business consequences.

You know, we all know that this is a business model that is different than our standard business model.

It's very, very profitable.

It's definitely discernible as to the risks inherent in it, and we are just being restrained.

Okay, that's helpful.

And then just really quickly, what were the current loan yields on the CRE and multi-family originations during the quarter?

Actually, we had a substantial amount of loans going into the quarter early with a very strong pipeline and it was challenging closing that pipeline.

Obviously with rates backing down about 100 basis points.

I would say approximately 5%, just south of 5% in respect to the overall yield on CRE and multi, which is substantially above the 300 basis points better than the five-year treasury on average.

I would imagine the CRE is bringing that up?

It is a combination of both.

We had very high loan yields going into the quarter, however there is a drop-off.

So, you have to negotiate your with your borrowers to try to get these guys to close.

And at the end of the day, our team did a great job in closing the loans.

Okay.

My point is they were at high rates at the beginning of the quarter but the rate market dropped dramatically in the summer, about 100 basis points in the five-year.

Meanwhile the pipeline is probably stronger this quarter than it's been in quite some time.

Okay.

Okay that's helpful.

I'll hop out and then come back in, thanks guys.

We'll take our next question from Matthew Clark with KBW.

Your line is open.

Good morning, guys.

Can you speak to the dollars of net interest income and I would expect you would want to reverse that trend this quarter.

Can you just talk to what your plans are for maybe growing the securities portfolio from here or maybe considering other sources of loan growth outside of multi-family?

Hey, Matt.

It is Tom.

I would tell you we have been very reluctant in, I would probably say for the past nine months to put any securities on this environment given where yields are, we are not looking to take on a lot of duration risk.

So, we have been very cautious on growing that securities portfolio.

If you look at the average balance it's been down dramatically.

I believe that this will probably be the end of the significant repayment we are getting so that will take some pressure off going forward and if yields are more in line to our long-term investment thesis we'll be in the market.

At these levels at 10% securities assets, it is pretty small for us, should be somewhere 12 to 15, probably more in-line.

So, if rates start to be more attractive for us, we'll go there.

I think as the numbers reflect, we're going to be doing more lending with regard to our core product, multi-family, and we are going to be funding a very strong pipeline with regard to the mortgage bank.

So, the returns on both of those are much better than returns on securities.

As we look to the year ahead, we could easily see a significant amount of uptick in our origination of mortgage product.

So, I think with all of that in mind, the need for securities is less and certainly these rates are extraordinarily unattractive.

We do internally finance ourselves on the wholesale side for the mortgage operation.

So, that is around a 4% to 4.5% yield that we have on our books and the average balance has been over a $1 billion.

So, that is been helpful toward profitability there.

Okay.

Okay and then just on the income side, you know, as we all discussed, we are going to lose the FDIC asset by the end of the year.

That will take, going forward next year about $9 million or $10 million per quarter off the overall gross revenues.

I said in the previous quarter we are pretty bullish by our ability to offset that by originations on the mortgage side.

We're looking at, as Joe indicated, other products, product mixes.

We believe the jumbo prime market will be very viable in 2011 and that could be a very unique product to originate for other balance sheets.

We are excited about the opportunity the mortgage bank is up and running and doing great business.

And I mean, in a relatively low rate environment, we are seeing a lot of opportunities here.

We believe we will make up that shortfall.

And bear in mind that we are putting on significant MSR of our own rights.

So, we are going to build into what we lost probably in the next 18 months to replace the full FDIC asset.

Plus another thing about our business model that is pretty consistent is the availability of what we always talk about, our prepayment penalties.

Our prepayment penalties are going to continue to be very attractive and grow quarter by quarter by quarter as they have been growing in the last few quarters.

Not dramatically, next year they should grow far more dramatically than we have seen in the last four quarters, but that is going to be a consistent contributor to our margins and certainly to our bottom line.

Okay and then can you give us the expenses associated with the mortgage business last quarter and this quarter?

And how much of that was attributed to this sub-servicing agreement?

The expenses, what we have internally, people that manage the portfolio also manage our loss share relationship, they manage the company's loan portfolio.

So, I will tell you that we are not expecting significant reduction in expense for the MSR.

Because obviously, we're building our own MSR.

We're putting on, a rough estimate of $1 billion a month of new business from loan origination.

So, we don't break it out separately, but I can give you some guidance in respect to the fourth quarter expenses.

We were a little high in Q3.

We've had some additional accruals on the compensation side, my guess is that somewhere between $135 million, $136 million versus the previous quarter.

So, probably slightly down on Q3 versus Q4.

You know, our standards with regard to servicing are driven by the reality that we do have loss share and we do have a need to be very diligent about how we do servicing.

So, our people have been tasked with finding new relationships.

In other words, we could do servicing for others, and I think that will be something that, down the road, you'll find that with a good team in place, we should be able to find product.

Okay, great.

Thanks, guys.

Sure.

And our next question comes from Rick Weiss with Janney Montgomery Scott.

Please go ahead.

Morning, Rick.

Hey, guys.

Hey I was wondering if I could follow up on, I guess it was Collyn's question, with regard to the loan pricing on multi-family, I know it is coming down.

Is that purely a function of the interest rate environment or are you seeing more competition again?

No, I think the reality is it is the interest rate environment, plus the reality that Fannie Mae is incredibly aggressive in how they are pricing.

So, as long as Fannie Mae continues to be in the market, they will impact the pricing on this particular product.

As we all know, they are clearly this main reason why pricing on home mortgages is as low as it is, given the environment.

And they are also having an impact because they are a national lender, as well as being in our niche, they are a national lender on multi-family and there they are also aggressively below the market.

Hey, Rick, I would just add that for modeling purposes, assume we're getting 300 on the multi-product and 325 on the commercial.

Okay.

That will change depending on the movement of the five-year treasury.

It should clearly from here go up, but it depends on the degree to which, you know, Fannie is distorting the market.

Okay.

Thank you.

You are welcome.

Our next question comes from Jack Micenko with Susquehanna Financial Group.

Please go ahead.

Morning, Jack.

Hi, guys.

How are you?

Wondering if you can talk about any sort of pipeline conversion rate, given that mortgage banking has become a real part of the revenue stream here and looking at the backlog and you know, what is your sort of term to close?

What are you converting in the quarter?

Is that something we can possibly model?

You know, I think in general, with the significant drop off in rates in the summer, the refi rate was very strong.

That continued throughout the early part of the fall here.

However, the summer months were very, very powerful in respect to the level of activity.

We have a very strong pipeline going into Q4, on the mortgage origination side.

But again, Q3 was a strong quarter throughout the whole industry, not just ourselves, but all the people in the mortgage base.

I think we ended up number nine with Fannie Mae in the country on origination to Fannie.

We are very bullish about the activity, we believe that Q3 was a very strong quarter.

I'm not going to say we can mimic it in Q4, but it is depending on rates.

We had a substantial drop off from July to August and the pipeline built dramatically.

As far as closing, we are continuing to produce the activity for the agencies and we're getting the transactions closed and we see good business volume.

It is very hard to gauge Q3 versus Q4.

It's a little too early and rates all depending on rates.

And refis were probably 80% of the business, maybe 83% of the business.

You guys running like maybe 60, 75 days from application?

Or is it even too hard -- ?

It's shorter than that.

We'll tell you the gain on sale margins was very powerful in Q3, throughout the industry.

They were well north of 125.

So, it was very robust opportunities and we took advantage of a very unique opportunity in the marketplace.

With rates so low, and loan growth being what it is, you know, are you seeing any threats?

Are you concerned about threats around the prepayment penalty structure around your core asset type, whether it's been Fannie in the marketplace or other banks starting to come in or look for other ways to grow loans given the traditional CRE is sort of -- ?

Q3 was more the challenge on closing given the significant drop-off on rates.

We had a very large pipeline going into the third quarter and rates were down 100 basis points.

We had - Our team had to bring those loans to the portfolio.

We feel more inclined at come Q4, if rates start to, let's say, tick up here, you'll see a lot of the closings and typically Q4 is already a growth quarter for us.

I don't think historically we ever missed our target on overall net loan growth for our press release.

But typically Q4 is a robust quarter.

Buyers are still open to the prepayment penalty notion of the structure of your multi-family loans?

Absolutely.

That's standardized.

We are not changing our model.

It is exciting.

We're going to see a lot of the financing opportunities.

I think, Jack, we are the main player that has the capacity to go forward and be there through this cycle.

There is no question, there are people out there that are compromising prepayment.

And therefore, they are suggesting to property owners that they don't necessarily have to make their prepayment penalties.

But those that compromise the business model will go out of business, and they won't be there four quarters, five quarters down the road and all those people will be back, you know, refinancing the rest of their portfolios with the bank that actually has the ability to sustain itself.

This is not inconsistent with what we've seen previously.

Banks do compromise their business model when, in fact, they are desperate for earnings.

That desperate act is not something that we are likely to follow.

Great.

Thank you.

We'll take our next question from Greg Ketron with Citigroup, please go ahead.

Good morning, Greg.

Good morning, guys.

Hi, Greg.

On the mortgage pipeline, I know you guys are dealing with a lot of questions here.

It looks like the pipeline going into the fourth quarter on the mortgage side is strong, if not stronger, than it was in the third.

I guess it really depends on the production margins -- if they hold up in the fourth.

Is that something you would expect the fourth quarter production income to be?

As strong, if those factors hold in and if that is the case, would you kind of look at what we maybe suspect this quarter, use some of that revenue to help fortify the loan loss reserve?

Yes.

Well.

Are you talking about the production for portfolio or are you talking about the production from the mortgage bank?

Production from the mortgage side.

I think on the mortgage side, again I'm going to repeat myself, we had a very strong Q3 and the industry had a very strong Q3.

It wasn't just us standing alone.

We went from number 15 to number nine as the top originator for Fannie Mae in the given quarter, and we're excited about the opportunity.

But, remember rates were as low as 2.35 in the ten year and drove refi dramatically.

And about 83% of our business was probably all refi.

So, it is an exciting opportunity out there.

We are seeing some good volumes in Q4 and it is still very strong but it is way too early to say Q3 and Q4 are going to be similar type of net revenue numbers.

It is great opportunity out there.

As Joe indicated, we're looking at new products.

We believe there is a tremendous opportunity in the jumbo prime market in 2011.

We are working very hard to solidify some great opportunities for the bank, and that is another business model down the road that we could add to this great infrastructure that we have out there in Cleveland.

I understand.

And then as you look into 2011, is there a possibility that the pricing could be good enough on products like prime jumbo that you might consider committing that to portfolio?

Too soon to tell.

Yes.

That is not something we have historically done, so that kind of a change would take a lot of digestion.

I would add, though, very significant amount of money in our players, investment banks have the desire for the product and we have the platform to deliver.

So, we are excited about the opportunity.

The good news about having the tool, is that we can be selective as to what is that we would take.

We can set standards that would be so extraordinarily high that we would mitigate risks substantially, but that is something that is down the road for us to consider.

The good news is that we have that flexibility to make these choices.

Okay.

And then one last question.

Is there any mortgage repurchase risk that remains from AmTrust?

No.

Okay, so that was taken care of through -- ?

The entire deal.

We did not buy the MSR after.

We serviced it for approximately one year for the FDIC.

But we opted not to take on the prior risk from the origination stream.

So, we had none of that and we won't have it in the future from the FDIC deal.

Great.

Thank you.

Next question from Steven Alexopoulos with JP Morgan.

Your line is open.

Good morning, everyone.

Good morning, Steven.

Maybe I'll start, given your comments to match provision to charge-offs, do we expect the reserve to loan ratio to drift down from here as loan growth materializes?

No, I don't think so.

We are likely to be increasing our reserve.

That is something that we've done over the last several quarters.

We have been increasing our reserve and we are likely to continue to increase our reserve.

And, Steve, I would just add is what we expect to see, again we gave some pretty good clarity back in March and June about what we are seeing in the market on credit.

We expect to see significant drop-off going forward, especially into next year of NPAs and delinquencies.

We are seeing that.

We saw a $205 million drop from the highs of March.

We see some significant movement coming into Q4 and credit trends are performing much better than expected.

So, were excited about that opportunity.

So, as NPAs come down and delinquencies come down, our overall performances ratios on the allowance side should be more indicative of our historical performance on charters, which are very low.

Maybe a second.

How quickly can you move down the cost of CDs where they are now as an offset to some of this loan yield pressure?

We have some good opportunity out there currently.

I would expect rates are around 1% on average for all CDs in the marketplace.

So, we have about 150 to 160 probably the current portfolio, which we have most of that is repricing in the given year and a half.

So, we are excited about the fact that rates are going to remain relatively low for probably a reasonable period of time here and we should benefit on the CD side.

50, 60 basis points on the overall CD portfolio.

Do you have the amount of CDs renewing in the fourth quarter.

About 2.3 billion.

Just under 2.3 billion, at about 160.

What about full year next year?

Full year next year should be approximately 6.5 billion at 150.

So, that will definitely add to the reduction of cost of funds.

And how much of a factor were the loan prepayment fees in the current quarter?

Oh, very little.

A couple, I'd say --

Improved, but little.

Remember, we said this is in the previous calls, every quarter we have seen an increase on the link quarter sequential basis.

So, we're looking at Q1 versus Q2, Q2 versus Q3, and the like of higher prepayment active.

That is going to be the trend.

We believe in 2011 we'll see significantly more prepayment activity, given the environment.

It is a very low interest rate environment.

If you have a 5% type coupon you should be in the market to refi.

And having the opportunities to buy assets, which we're seeing currently, is driving investors to make portfolio decisions which will end up in prepayment activity.

Perfect, thanks, guys.

Thank you.

And we'll take our next question from Mark Fitzgibbon with Sandler O'Neill.

Please go ahead.

Thanks for taking my question.

Excluding the impact of prepayment penalties, are you suggesting that the margin should be relatively stable?

Or should we see some compression?

You know, Mark, I'll tell from the previous two quarters, we had a big slug of cash flow from the securities portfolio was significant.

Between GFC buying back the NPA assets in the portfolio pools, as well as having our portfolio being called, you know, much earlier than expect, that drove a lot of pressure on the overall yield.

And back then, it was probably back in July, I expected, you know, continuing pressure up into the fourth quarter, as we look at our models, I would say we are probably going to be flat.

That pressure has abated we are seeing good signs on the origination side.

So, I think we are going to manage the margins at the level where it is relatively flat give or take five bits up or down.

And then, just a second question on M&A activity, obviously picking up here in the northeast.

Are you all ready to get back into the M&A fray?

Did you feel like you are in a position to be able to do transactions again?

The reality is our performance metrics, compared to the individual institutions that we might acquire are significantly better.

So, the likelihood that we could play is very, very real.

Our history has been that we look at many, many different things, and are very, very selective as to what we ultimately will do.

So, I would suggest that there are going to be many choices, not just in the immediate quarters but right through the years ahead.

And we are going to be very interested in ways in which we could create value for shareholders through acquisitions.

That is our business model.

But you know, there is ample evidence here that doing a transaction such as the AmTrust deal was basically the kind of thing that we really do want to do, and we would be more receptive to such a deal than we would be to doing a straight-up deal.

Not to say that we wouldn't, it is just to say the economics have to justify.

Mark, I would just add, that it is significantly strong as far as the activity.

It's robust, we are looking at opportunities every day, and we believe that will continue, even more so into next year.

However, given that you know the industry is seeing not too much growth, we believe acquisition will be a substantial part of all banks that are looking to grow their overall to value.

Thank you.

Thank you, Mark.

Our next question comes from Tom Alonso with Macquarie Please go ahead.

Morning guys.

Good morning, Tom.

How are you?

Not too bad.

Most of my questions have been answered.

Just real quick.

The jump in commercial real estate non-performers this quarter.

You know, just any kind of color you can give us there.

It's probably a single property.

You know the important thing to recognize is that we do have large properties that from time to time go non-performing and as a result, the numbers change fairly dramatically, but the consistency with regard to lost content is the key.

So, non-performing in any one quarter may be higher, but we have the ability to remedy that in the quarters ahead without there being much consequence to the overall performance of the company.

Tom, I would tell you that the lost content in the CRE book is extremely low.

Obviously if you look at the past year and even the past quarter, I think we had about a $200,000 amount of charges that would pertain to CRE.

Over the past year the number was you know, significant lower than all the other classes of our portfolio.

The average LTB books around 51%, 52% and as Joe indicated you probably have some lumpiness.

But again, giving guidance on NPAs, we're expecting to see a decline here.

We are making some good progress on getting some of the more seasoned NPAs off the books via no-sale, via payoff.

It's a very exciting environment given that people are looking to buy assets that are cash flowing and the cash flow assets are good, long-term investments you can finance at this level.

Okay, fair enough.

Is that going to keep net charge-offs quote-unquote elevated?

I would say no.

I would say the charge-off levels that we're seeing have been relatively consistent over the past two or three quarters, given the range.

Okay.

Fair enough.

Thanks, guys.

All right.

We'll take our next question from Ken Bruce at Bank of America.

Your line is open.

Hi, Ken.

Hey, Ken.

Morning, thanks.

You know what, by many measures, Q3 was a pretty impressive quarter, mortgage banking in particular, and it is not going unnoticed how you are transitioning into you know more heavy lifting in that particular business line.

I guess, pulling back a bit, I'm interested in your thoughts as to how you want to manage that business you know as an overall mix for New York Community Bancorp.

If you think about the history of the mortgage business, it's tended to be very lumpy.

That volatility tends to basically capture a lower margin or excuse me, a lower multiple in the market.

How are you thinking about managing that as the overall part of the business?

And how do you see yourself dealing with some of the vagaries of the mortgage banking business?

I think the good news is, it is a gift.

It is an income stream contributor that has been more meaningful than we would have contemplated, and we are likely to continue to accept the bottom line contribution, but it is not our primary business, and we have every expectation that in the quarters ahead, our primary business is going to become larger and larger and larger.

So, there is nothing changing about our expectation that we will gain share of this particular niche, or market, over the quarters in front of us, and that our market is becoming more and more active.

So, we are going to have more prepayments, we are going to have more in the way of new originations.

The contribution of mortgage banking ultimately to the bottom line may be a lesser percentage.

But from quarter to quarter, there is no reason not to take the money.

I would just add, Bruce, that obviously we are managing it with the focus toward the GSE right now.

There may be some opportunities in the future.

But we are not looking to portfolio the activity.

We are clearly looking at the large potential relationships in the marketplace that really want the portfolio growth for their portfolio and we can deliver the product.

Obviously that current appetite is with the GSE.

We went from 15 to number nine.

In general, we estimate our share of the mortgage business to be about 1.15% of the national market.

Are we going to go to 2%?

Probably unlikely.

However, we could probably get inroads on the jumbo products for many institutions that want assets for their portfolio.

As Joe indicated, we have a portfolio of multi-family CRE book in market that we do very well and we have loan growth.

We are not concerned about not having loan growth.

Other mortgage banks operators that were putting stuff in the portfolio with bad assets were part of the demise of the system.

We are very focused on our core business model.

This is clearly an added benefit for the shareholders.

I think the distribution model has got a lot of upside potential to it and as Joe pointed out, there is some specific risks if you can manage around that it can be a profitable business.

I think, for us, obviously we identified the risk and the way we are managing it as on the MSR side.

And we clearly did not take the plunge in buying the FDIC MSR given the history there with some of the credit call issues back in the old originations.

In this environment, MSR values are relatively low, we're comfortable at these levels, and we're going to be able to replace a lot of that through our loan origination.

We are building a nice servicing platform and we're building a very strong origination platform.

How much was with the FDIC again?

About $20 billion, approximately.

And, lastly as you pointed out, I guess the GSEs are a bit of a friend and foe here, you've got them obviously contributing to your mortgage banking key profitability, yet they're a key competitor on the core multi-family business.

Do you think they're going to be a key -- are they going to be a persistent fixture in that market?

I mean, are they here to stay?

The bottom line is, there is a need for someone to do that.

And whether they do it as they are currently structured or they do it in a modified way down the road, or somebody else does it, we have the vehicle through which production flows.

So, I think the good news is, we've already heard from major players in the marketplace that they'd like flow.

We can provide flow.

So, it doesn't matter if the end point out is Fannie, or the end point is, and I'm just going to use a name, MetLife or B of A, big players, they are totally different, but they are in the market as well and want flow.

So, the good news for all of us is that there is no escaping the reality that new loans have to be made.

They don't have to be made by Fannie or Freddie, but they have to be made.

So, there will be a structure in place to lend.

Remember before there was a Fannie and Freddie, loans were available.

Are you suggesting that you will be an agent in the multi-family arena as well?

We actually could be.

We have actually had people approaching us asking that we would do that.

If you think about it, we are not going to compromise what we put into our portfolio.

But our standards are different than other people's standards.

There is a lot of flow that we can create that would go to others that would make them very happy.

So, the ability for us to produce earnings as a result of providing others with product is something that we've already begun to demonstrate.

And we are very confident we'll be able to do, not just for the standard, you know, qualifying assets, but also for the jumbo assets, and also for the commercial assets.

Exciting.

I look forward to hearing about that.

Thank you.

Sure.

We'll take our next question from Matthew Kelley with Sterne, Agee, and Leach.

Please go ahead.

Hey, guys.

Just a couple things to clarify on mortgage banking.

What was the actual dollar amount of loans sold?

I know you originated $3.5 billion but what was actually sold in the quarter to compare versus the $59 million in income?

I believe it was close to $3.8 billion.

Let me get back with you on the specific number there, Matt.

It might be a number different than Tom is recollecting, because he doesn't have it if front of him right now, but we have the number.

What are you expecting for, you know, gain on sale margins?

You touched on it earlier in the call but --?

Well, gain on sale was very attractive in the quarter, given the movement of interest rates and the opportunity in the marketplace.

We are very pleased to have levels north of 125 in general, so let's assume on a modeling basis you are going to be 115 and 120 just for modeling purposes.

But we typically, we feel very confident that our guys will deliver numbers hopefully better than that.

But that is modeling and we feel pretty confident that we'll get our share of business.

It was a very, very strong Q3 with respect to gain on sales throughout the industry.

And then on the servicing that you guys are generating, still 25 basis points of income on that going forward?

Not to interrupt I just got the numbers.

The numbers we funded for Q3 was about $3.5 billion.

So, the gain on sale margin is like 170 in the third quarter?

A little bit south of that, around 140 something.

Okay.

And 25 basis points of servicing income on what you generate?

That's correct.

Okay.

Now, the Mortgage Banker's Association is looking for overall activity nationwide to be down about 30% in 2011.

How do you think you guys will compare year-over-year?

I think -- I would be surprised to lose share on our competition is around 1.15%.

But if you look at our activity for the given quarters, we went from not doing business from the first week that we owned this company to being number 15 to number nine.

So, I think that's only an agency market.

I believe that we will be able to do jumbo prime loans in the future and that will give us additional activity.

So, given there will probably be a slow down next year, no question about it, but there will be more products for us to offer in different types of - for other balance sheets.

I think what Joe was indicating is a strong desire to take on assets, especially whether rates are so low, and we have the platform and ability to gather a share of those assets.

We will probably open up the balance sheet to enjoy the opportunity so we can sell agency and jumbo prime loans and good loans that banks can't originate or aren't originating.

What are the spreads in jumbo prime for being on sale?

It is consistent, 1 to 1, or 1.25-ish.

Got you.

On the expense side, you had mentioned expenses coming down.

The G&A was up $4 or $5 million sequentially.

What's going to come back out of there to cause that to go down in the fourth quarter?

We had some merge related expenses we had in the fourth quarter and additional compensation expenses that we most likely will anticipate in Q4.

So, I would say probably about, I think I gave guides for around $135 million for Q4.

I gave specific guidance there, about that.

All right.

And last question, what do you think you will see for covered loan growth for full year 2011?

What do you think is reasonable?

Covered loan growth?

You mean decline?

Unless we do another FDIC deal.

Excuse me.

I mean non-covered.

So, your originated portfolio.

The Q4 is typically a strong quarter for us.

We feel pretty good --

I think the year will be better than this year.

So, if we do something in the high single digits this year we'll be in the double digits next year.

For net portfolio growth?

Yes.

I think for modeling purposes, Matt, it is always good to be conservative here.

We start off at mid-single digits and we typically end up in high single digit level and as Joe indicated, if things go really well, we could be in double digit land.

All right and then the reality is we definitely expect 2011 to be better than 2010.

That's right.

Okay, got you.

And we are positioned on the capital base for, you know, continuing loan growing.

We are awaiting the opportunity.

Obviously, we'd like to see higher rates but they are what they are and funding cost is very low and we can have a nice business model north of 300 basis points that can generate some good returns.

Okay.

Got you.

And the yields right now in your core multi-family product are in the low 4s, you said?

I would say they are in this environment.

Last quarter they were much high and we had to negotiate through the quarter, we still put on 5% -- south of 5%.

But, you know, rates are low and they move around a lot.

We can have rate gyration in the treasury curve that could change that in the given week.

I guess I'm having a tough time reconciling then how, if you are going to have that type of loan growth, how the margin can stay stable.

I think what I indicated previously, we had about $6 billion of CDs in one year coming off 159, 160.

That will help you there.

And we are looking at the wholesale liability book we have in our portfolio with some opportunities there as well, to drive, of course, the funds down.

You'll see further declines in the cost of funds in general.

And I think you are going to see very strong growth on the net loan book.

And you'll also see significant increases in pre-payments, which are all added to the margin.

Yes.

Prepaid should be very robust the in 2011.

Got it.

All right.

Thanks.

All right.

We'll take our next question from Bruce Harting with Barclays Capital.

Please go ahead.

Good morning, Bruce.

Good morning.

Just three easy questions for you.

One is, the multi-REO, you know just what is going on below the surface.

Last time I was out with you Joe, you mentioned that you were generally you know, during the summer, firms were -- various hedge funds and others and insurance --

Yes.

I'll give you an example.

When we were out together, we had a large, $13 million multi that was, you know, going through the process and into REO.

And that is traded away to a deal that we got paid $13.5.

So, there was perception that property might have been worth $8 and we virtually, successfully executed on the $13.5 deal.

So, the likelihood of successful execution is high, and we have been seeing it.

A lot of the charges that you are seeing are for properties which are actually going into the portfolio, not necessarily going out of the portfolio.

So, what isn't evident is that we have had a lot of resolution.

So, there has been some very favorable resolution of assets, new assets go into the portfolio as non-performing, and assets that are in the portfolio have been resolving at either de minimus loss or de minimus gain.

That is not a common thing for a portfolio, let's say CapOne's credit card portfolio doesn't react that way.

But this is pretty consistent over long periods of time, with regard to us.

The dollar volumes are higher, so obviously, we have had you know, $16 million in charges.

But that, as a percentage, still remains extraordinarily low, and we have every reason to believe that that's going to be the ongoing case.

Okay.

And these are, you have managed this process yourself?

Yes.

All done from within.

Okay.

The second is just, what's the ideal rate environment?

You have talked a lot in the Q&A you know about various specifics.

But you know, it seems like the market's completely confused whether we're going to have QE2-induced yield rate flattening and now you are starting to hear about inflation.

So, what would -- And I know you're hedged in either direction but you know, what would really open up the margin?

Thanks.

I'll tell you Bruce, we liked where it was in March and April.

That changed pretty rapidly.

We are in a good position here.

We have a slightly active balance sheet.

If rates were higher, we'd make a little bit more money here.

If rates were dramatically lower we'd make a little less money.

The good news is we are position with capital and liquidity to react and we have been reacting.

We believe that in this environment, we'll make good returns.

If rates were slightly higher, we'd make better returns.

Okay.

And then finally, just from a headcount perspective, are you aware -- are you where you need to be right now?

In terms of knowing you from when you were a much smaller company, is it seems like the management structure -- how do you guys do it is sort of one question.

The second is are you on the road all the times, visiting your geographies?

No.

We don't need to -- let me put it differently.

There are people in every geography that we do business in, that are meeting the specific needs of the company.

Some of them are from here, some of them are from there but the reality is, they are very competent people that have been able to cohesively do what is necessary to meet our regulatory requirements and to meet all of the competitive requirements, and operate systems very effectively and efficiently.

So, nothing about the geography has presented an unexpected adversity.

In any case, it is pretty evident from the numbers.

We are more efficient, even with this larger geography, even with paying for people to fly from place to place, because there are many, many ways in which the actual operating businesses are efficient enough so as to accommodate the distances that exist.

So, the good news for us is that geography is not representing an unreasonable challenge to us, it has actually been melding extraordinarily well.

And you'll see it in the numbers.

Our return on the assets is better than most of our competitors.

Our efficiency ratio, how much money we spend to earn a dollar is significantly better than most of our peers.

That consistency demonstrates how well the franchise operates.

Thank you.

You are welcome.

Last question, is this -- the consensus seems to be that the FDIC-assisted acquisition benefits are largely played out, now what is left is just smaller companies, is that a correct consensus view?

Yes, that is the moment in time.

You know the future is filled with all kinds of national challenges and some of those challenges are going to clearly be in banking.

I mean, it is a pretty outrageous situation when the Congress of the United States passes law, and says you know, we'll figure out what's in the law later.

And you look at new regulation coming down the pike with a genuine expectation that it will decrease the earnings that are added to the bottom line of banking at a time when banking is dealing with many other challenges.

So, this is not a period of great stability.

I think it is a period of great instability.

The good news about our business model, there is a lot of consistency in it.

When we think about how we perform into the future period we think we perform better than most of our peers.

That is going to be an opportunity.

Bruce?

Yes.

Okay.

Oh, sorry.

I guess in the cash usage, the $2 billion, any comment on that?

Bruce, it's Tom.

I will tell you that the mortgage warehouse portfolio we have here, that line has been very helpful throughout the past six months.

I said on a previous call that we had approximately $1 billion on average out there.

That number should increase as we continue to be in that business.

It's been very helpful.

A lot of the cash has been used to reduce the mortgage loan for the origination platform out of the Cleveland and we have the portfolio book that we expect and we feel pretty confident we can grow the loan book.

Even though you hear a lot of stories about the loan demands being very challenging, we're a unique player in this marketplace and we have a strong desire to build our portfolio and we get our share of the business.

That will be loan growth.

So, between loan growth and the mortgage banking operation we should put that cash to work.

I think that some of the release, Bruce, is that clearly the company has a better balance sheet today, a demonstrated capacity to earn more money.

And I'm talking about earn more money against our prior metrics.

And we have a high level of confidence that prospectively, we are likely to have continued growth in our principle asset and in our income streams that will make us very, very competitive in the market ahead.

Next question?

We'll take our next question from Ken Zerbe with Morgan Stanley.

Please go ahead.

Great, thanks.

I was hoping you could talk a little more theoretically about the correlation between early stage delinquencies and either reserve build or NPA growth.

Because I think the early stage were down the last two or three quarters in a row pretty substantially, but we are still seeing higher NPAs to some extent.

Again, I said March was the high.

I stand by that.

I feel pretty confident that March was the high for the year and hopefully that will be the high for our history here.

Looking at the significant drop off in June, and a very small uptick in NPAs in September, the total delinquencies, and we look at total delinquencies, not just NPAs, total delinquencies was down $205 million from the high.

We're seeing some very strong trends of resolution.

So, we expect to see our NPA book decline here.

So, hopefully coming out at the end of the year we'll have lower NPAs.

My guess is that come 2011, we'll see asset quality improvements within the New York space, including ourselves, and that is going to be a very strong catalyst for the company.

You'll have less foreclosure expenses, you'll have less distractions with management dealing with workout.

At the end of the day, we are seeing a significant improvement in the New York region.

A lot of the uptick that we had was a lot of out of market credit.

Most of the charges we had were out of market credit.

The in-market portfolio has been stellar.

The CRE book, we had $200,000 in charge-offs in the given quarter.

The CRE book, In the past four or five years the charges have been de minimus.

So, we are very confident that the cash flowing assets, that non-performance will come out with very minimal loss.

I think with respect to the reserve bill and charge offs, we are probably, you know, going forward here we'll have charge-offs on over time, because we'll see a meaningful reduction in overall NPAs

When you look at the size of our NPAs and we have been saying this for years now, the non-performing loans goes up dramatically during cycle turns, certainly a lot less than our peers, but goes up dramatically during cycle turns.

But the loss content is so low, and that's been consistent, even as we sit today, the loss content in our non-performing loans compares extremely well to the industry as a whole.

So, there is nothing inconsistent about our expectations into the future.

We think that our non-performing will not result in significant charges to our reserves and as I mentioned, we have two and a half years coverage in our existing reserve with regard to the way we are charging against that reserve.

There are very few banks that were in that position in the years that have just passed.

And certainly, as you look at the numbers for September 30, I'm going to guess there are going to be very few banks the size that have that kind of coverage capacity.

I mean I would certainly imagine your charge-offs to stay low and NPAs to come down over time.

I guess maybe the question was more just to verify that it was probably incorrect to look at early stage delinquencies and expect an improvement in say, reserve build or something going forward.

Oh yes, I think you are right in that regard.

They just don't correlate.

That was it.

Perfect, thank you.

And we'll take our next question from David Hoxton with Buckingham Research.

Please go ahead.

Morning, David.

Good morning.

Hi, David.

Hi.

Just wondering, could you provide a little more color on the improvement in delinquencies and kind of where those are coming from?

You know, I think across the board, David, we are seeing asset quality improvements.

Back in 2008 and 2009, we had a significant amount of inflow.

A lot of that stuff was out of market, we dealt with it and we are still dealing with it right now.

And it's moving out of the portfolio.

But we are seeing less problem relationship, less problem assets coming on.

The numbers have been consistently on a sequential basis, substantial improvement on a 30- to 89-day bucket.

And that is pretty much your future problems.

So, I think you know, given what we are seeing with our loan workout guys are working on right now, we feel that you are going to see a meaningful drop off of NPAs going forward and without much on the uptick side.

So, the lumpiness that came on, should be the lumpiness that comes off in 2011.

Could we just go back to your comment about reducing your cost of borrowing.

How much flexibility is there to reduce the cost of borrowings?

We have some flexibility, we have opted to do some toward the back half of the Q3, in respect to wholesale financing in the home loan bank.

Home loan bank has allowed bank to do work recently.

It has been late to the party but we are back in looking at that opportunity both on the lend-and-extend side, looking fixed rate going to floating rate.

But, there has been opportunities on the wholesale side, and we're working with all our counter-parties.

It all depends on what their desire and their balance sheet is.

A year ago, you couldn't have the conversation with the money center banks because the government wouldn't allow them to extend on terms.

That has changed.

It is a good business model for them and then to do business with their customers.

So, having the opportunity to talk to our counter-parties and do some, we'll call it restructuring of our liabilities, it's definitely fluid conversations,.

We have a sizable wholesale book, significantly lower than what it was in prior years, we're around 30% of total assets, but we have some flexibility there.

I'm not going to quantify a dollar amount, but I will tell you that we have been working diligently in trying to get benefit there.

And the slight increase in average costs from Q2 to Q3?

That was probably just some maturities, maturities of some of the bars that came off the balance sheet at lower costs.

Okay.

And then, on mortgage banking, have you decided definitively to keep that business?

Are you still considering -- ?

Well, obviously it is very valuable.

Right.

Keeps getting more valuable.

Yes.

It is a wonderful operation.

They have a very strong culture there.

They have a lot of experience.

We are very comfortable with the people managing it, we deal with them on a daily basis, and we have some great opportunities ahead of us.

It's a well managed organization and we are very fortunate to have them join the team of NYCB family.

That means you are going to keep 100% of it?

Sounds that way.

Okay.

Great.

Thanks a lot.

And we'll take our next question from Christopher Nolan with CRT Capital.

Please go ahead.

Good morning, Chris.

Hey, guys.

Quick question, any plans on redeeming the trust or extending the maturity for the 3% unsecured notes?

Well you know, right now, we are looking at, obviously, the Collins Amendment and we spend a lot of time there.

Some opportunities.

It's not a significant rush, given that some of those trusts are at very low cost to fund in this environment, some are at 165, 160.

But no, we are evaluating it and we have nothing public to say about that, but it is something that we are looking at.

Great.

And, Tom, did you say earlier the expectations for operating expenses in the fourth quarter was $134 million?

About $135.

We had an uptick in Q3.

I would not expect the same level of expenses in Q4.

I'm giving you specific guidance about $135 million for the given quarter.

And finally Joe, in your comments, you sort of alluded toward an accelerating pace of prepayments starting in the fourth quarter or so, is that what you are seeing right now?

Yes, we are already beginning to see that we expect to see more of that quarter by quarter by quarter.

As the cycle evolves, typically that does occur.

There is no question that people are very much aware that rates are at about the lowest levels they are likely to be.

So, people are going to be more inclined to refi, and also the opportunity to buy has been going up and that is another driver of refi.

So, we would expect to see increase in our prepayments as we go into the period ahead.

Chris, it's starts in the beginning of the year.

Every quarter sequentially our prepays have been up on a meaningful percentage basis but the dollar amount is very small.

Indicative to -- we have a very large portfolio both on the CRE side and on the multi side.

So, if you think about the potential it is very real.

When we had a much smaller portfolio of $7, $8 billion, we booked $50 million in the given year.

Our numbers are dramatically higher now as far as the total portfolio balances, but the prepay is still very low, based on historical trends.

Great.

Thank you for taking my call.

Thank you.

And we'll take our next question from Theodore Kovaleff with Horowitz and Associates.

Please go ahead.

Hey, Ted.

Two quick questions for you.

With regard to the loans that you have sold, are there any put backs on them?

I think we originated approximately 25,000 loans.

Of that 25,000 loans we probably had 33 or 34 in delinquent status.

Haven't had any put back.

Okay, thank you.

Again, given the culture, the economic climate with the overall underlying standards that are out there right now, it is a substantially different environment than it was in 2005 through 2008 and we are operating under that new environment.

Okay and then, what is your model for where rates will be one year out?

Our model is your model, Ted.

I guess we run off of consensus and obviously, forecasting not a meaningful rise in interest rates.

Thank you.

Going by consensus.

Good enough.

Thank you.

And we'll close with a question from Bob Ramsey with FBR Capital Markets.

Your line is open.

Thanks for taking the follow-up.

Just as a point of clarification on the expense guidance that you all have given of $135 to $136 million, is that before the intangible amortization?

Yes.

And in terms of, I guess one of your competitors talked about a recent change in New York State and city savings bank tax rate.

Does that have any impact on NYB?

It is in our tax rate, so we have adjusted for that throughout Q3.

So, next year our tax rate will be higher, given that we will lose that benefit.

But we have taken into account in the current quarter the loss of that deduction.

So, is the rate in the third quarter a good rate to use in the fourth and next year?

I would say fourth quarter may be slightly higher.

I'd use 35.8%, 35.75%, around that range, fourth quarter.

Then probably next year you'll see an uptick.

If you want to model 2011, use like 36.7%.

That is a conservative number, obviously definitely impacting the industry and we're making more money and I'm assuming in my tax rate higher income.

Great.

Thank you very much.

You're very welcome.

Sure.

This concludes our Q&A session.

I would turn the call back over to Mr.

Ficalora for our closing remarks.

On behalf of our Board and management team, I thank you for your interest in our company and in our third quarter 2010 performance.

We wish you all a joyful and healthy holiday season and look forward to discussing our fourth quarter results with you in January of next year.

Thank you all.

(Operator Instructions) We'll take our first question from Bob Ramsey with FBR Capital Markets.

Please go ahead.

Morning, Bob.

Good morning.

Could you talk about how much of the servicing income in the quarter was derived from the FDIC's sub-servicing and when you expect that sale may close?

And when it does, if there are any possible expense offsets to those revenue losses?

Hey Bob, it's Tom.

I would estimate that approximately $10 million of the $17 is related to the FDIC asset class.

It is our expectations by the end of this quarter it will disappear.

We are not able to disclose the actual transaction, but it is my understanding that transaction has closed and will exit our portfolio by the year's end.

So, assume for the quarter, approximately about $9 million of reduction given for 2010, and probably the next year, the full amount for the quarter around $11 million.

And I'm sorry, assume that reduction in the fourth quarter?

We'll have the drop-off in Q4.

They transacted in the midst of the quarter.

Okay.

And then, could you maybe talk a little bit about TDRs in the quarter and whether there was any impact to non-performing loans of TDRs that are returning to performing status?

This quarter the activity was really low on TDRs.

Not a whole lot of activity, a small amount.

We had a bunch of items that were moving out of MTAs, some moving in.

But all in, as Joe indicated in his opening remarks, significant positive improvement over last equality.

We saw the delinquencies come down dramatically, mostly from no-sales, as well as from actual paydowns, customers paying back the bank on their outstanding balances.

Overall, a very good showing, which we expect to continue to see during the back half of this year.

So, we are looking forward for further improvement in asset quality going forward.

We have seen some very positive signs.

Okay and then how are you thinking about provision expense in that context?

Obviously it continued in an upward trajectories.

Is this a level you'll build on from here or how -- ?

You know Bob, I think the important thing to recognize here is that, we have at least ten quarters of coverage based on what we've already done.

And as a result, if you think about it, the way we are charging against our reserves, we can cover two and a half years.

I would suggest anybody could go out and look at other banks, other reserves and see how much coverage they actually have in their reserves, based on their charges this quarter or last quarter or the last, you know, four or five quarters.

So, the ability for us to add to our reserve is based on the fact that we have a robust income stream, and there is no question that we are looking at this in a very, you know, conservative way.

So, we are building our reserve more so than we need to cover losses, necessarily, but we are building our reserve in a way that will make people a little more comfortable that there is more money sitting out there.

Bob, I would just add going forward, think about the charge-offs being around this range and we are not going to take the reserve down.

So assuming we have X amount of charge-offs, we'll provide for the reserves.

Okay.

Great.

Thank you, guys.

We'll take our next question from Collyn Gilbert with Stifel Nicolaus.

Please go ahead.

Great, thanks.

Good morning, guys.

Hi, Collyn.

How are you?

Good, thanks.

Could you just give kind of your high level thoughts on how big you want to grow this -- the mortgage banking operation?

Or how big you think you can grow it or how do you want to manage that as we look out into the next year?

Well you know, the reality is, it represents a huge opportunity.

We are being very conservative in our approach.

You know, the FICOs for the loans that we're generating are in the 770s, the LTDs are on the 62s or so.

So, we are virtually being restrained in how we approach this business, and the marketplace is very rich, and the systems and the people that we have in place are very proficient at getting this done.

So, I would say to you that we have no specific goal, but we have a clear understanding that we have a capacity to do a significant amount of what's out there to be done.

And we are going to likely do that.

And, by the way, we can do jumbos and we can do, you know, commercial loans and so on.

We are doing none of that right now.

Okay.

So, when you say you are restrained, what is it -- ?

What's the primary, is it capital?

Is it --

No.

The good news is, we could fund twice what we are doing.

We could do significantly greater volumes.

We are being restrained in that we don't want to be overzealous in creating a new potential for you know, future, you know, business consequences.

You know, we all know that this is a business model that is different than our standard business model.

It's very, very profitable.

It's definitely discernible as to the risks inherent in it, and we are just being restrained.

Okay, that's helpful.

And then just really quickly, what were the current loan yields on the CRE and multi-family originations during the quarter?

Actually, we had a substantial amount of loans going into the quarter early with a very strong pipeline and it was challenging closing that pipeline.

Obviously with rates backing down about 100 basis points.

I would say approximately 5%, just south of 5% in respect to the overall yield on CRE and multi, which is substantially above the 300 basis points better than the five-year treasury on average.

I would imagine the CRE is bringing that up?

It is a combination of both.

We had very high loan yields going into the quarter, however there is a drop-off.

So, you have to negotiate your with your borrowers to try to get these guys to close.

And at the end of the day, our team did a great job in closing the loans.

Okay.

My point is they were at high rates at the beginning of the quarter but the rate market dropped dramatically in the summer, about 100 basis points in the five-year.

Meanwhile the pipeline is probably stronger this quarter than it's been in quite some time.

Okay.

Okay that's helpful.

I'll hop out and then come back in, thanks guys.

We'll take our next question from Matthew Clark with KBW.

Your line is open.

Good morning, guys.

Can you speak to the dollars of net interest income and I would expect you would want to reverse that trend this quarter.

Can you just talk to what your plans are for maybe growing the securities portfolio from here or maybe considering other sources of loan growth outside of multi-family?

Hey, Matt.

It is Tom.

I would tell you we have been very reluctant in, I would probably say for the past nine months to put any securities on this environment given where yields are, we are not looking to take on a lot of duration risk.

So, we have been very cautious on growing that securities portfolio.

If you look at the average balance it's been down dramatically.

I believe that this will probably be the end of the significant amount of repayment that we are getting so that will take some pressure off going forward and if yields are more in line to our long-term investment thesis we'll be in the market.

At these levels at 10% securities assets, it is pretty small for us, we should be somewhere 12 to 15, probably more in-line.

So, if rates start to be more attractive for us, we'll go there.

I think as the numbers reflect, we're going to be doing more lending with regard to our core product, multi-family, and were also going to be funding a very strong pipeline with regard to the mortgage bank.

So, the returns on both of those are much better than returns on securities.

As we look to the year ahead, we could easily see a significant amount of uptick in our origination of mortgage product.

So, I think with all of that in mind, the need for securities is less and certainly these rates are extraordinarily unattractive.

We do internally finance ourselves on the wholesale side for the mortgage operation.

So, that is around a 4% to 4.5% yield that we have on our books and the average balance has been over a $1 billion.

So, that is been helpful toward profitability there.

Okay.

Okay and then just on the income side, you know, as we all discussed, we are going to lose the FDIC asset by the end of the year.

That will take, going forward next year about $9 million or $10 million per quarter off the overall gross revenues.

I said in the previous quarter we are pretty bullish by our ability to offset that by originations on the mortgage side.

We're looking at, as Joe indicated, other products, product mixes.

We believe the jumbo prime market will be very viable in 2011 and that could be a very unique product to originate for other balance sheets.

We are excited about the opportunity the mortgage bank is up and running and doing great business.

And I mean, in a relatively low rate environment, we are seeing a lot of opportunities here.

We believe we will make up that shortfall.

And bear in mind that we are putting on significant MSR of our own rights.

So, we are going to build into what we lost probably in the next 18 months to replace the full FDIC asset.

Plus another thing about our business model that is pretty consistent is the availability of what we always talk about, our prepayment penalties.

Our prepayment penalties are going to continue to be very attractive and grow quarter by quarter by quarter as they have been growing in the last few quarters.

Not dramatically, next year they should grow far more dramatically than we have seen in the last four quarters, but that is going to be a consistent contributor to our margins and certainly to our bottom line.

Okay and then can you give us the expenses associated with the mortgage business last quarter and this quarter?

And how much of that was attributed to this sub-servicing agreement?

The expenses, what we have internally, people that manage the portfolio also manage our loss share relationship, they manage the company's loan portfolio.

So, I will tell you that we are not expecting significant reduction in expense for the MSR.

Because obviously, we're building our own MSR.

We're putting on, a rough estimate of $1 billion a month of new business from loan origination.

So, we don't break it out separately, but I can give you some guidance in respect to the fourth quarter expenses.

We were a little high in Q3.

We've had some additional accruals on the compensation side, my guess is that somewhere between $135 million, $136 million versus the previous quarter.

So, probably slightly down on Q3 versus Q4.

You know, our standards with regard to servicing are driven by the reality that we do have loss share and we do have a need to be very diligent about how we do servicing.

So, our people have been tasked with finding new relationships.

In other words, we could do servicing for others, and I think that will be something that, down the road, you'll find that with a good team in place, we should be able to find product.

Okay, great.

Thanks, guys.

Sure.

And our next question comes from Rick Weiss with Janney Montgomery Scott.

Please go ahead.

Morning, Rick.

Hey, guys.

Hey I was wondering if I could follow up on, I guess it was Collyn's question, with regard to the loan pricing on multi-family, I know it is coming down.

Is that purely a function of the interest rate environment or are you seeing more competition again?

No, I think the reality is it is the interest rate environment, plus the reality that Fannie Mae is incredibly aggressive in how they are pricing.

So, as long as Fannie Mae continues to be in the market, they will impact the pricing on this particular product.

As we all know, they are clearly this main reason why pricing on home mortgages is as low as it is, given the environment.

And they are also having an impact because they are a national lender, as well as being in our niche, they are a national lender on multi-family and there they are also aggressively below the market.

Hey, Rick, I would just add that for modeling purposes, assume we're getting 300 on the multi-product and 325 on the commercial.

Okay.

That will change depending on the movement of the five-year treasury.

It should clearly from here go up, but it depends on the degree to which, you know, Fannie is distorting the market.

Okay.

Thank you.

You are welcome.

Our next question comes from Jack Micenko with Susquehanna Financial Group.

Please go ahead.

Morning, Jack.

Hi, guys.

How are you?

Wondering if you can talk about any sort of pipeline conversion rate, given that mortgage banking has become a real part of the revenue stream here and looking at the backlog and you know, what is your sort of term to close?

What are you converting in the quarter?

Is that something we can possibly model?

You know, I think in general, with the significant drop off in rates in the summer, the refi rate was very strong.

That continued throughout the early part of the fall here.

However, the summer months were very, very powerful in respect to the level of activity.

We have a very strong pipeline going into Q4, on the mortgage origination side.

But again, Q3 was a strong quarter throughout the whole industry, not just ourselves, but all the people in the mortgage base.

I think we ended up number nine with Fannie Mae in the country on origination to Fannie.

We are very bullish about the activity, we believe that Q3 was a very strong quarter.

I'm not going to say we can mimic it in Q4, but it is depending on rates.

We had a substantial drop off from July to August and the pipeline built dramatically.

As far as closing, we are continuing to produce the activity for the agencies and we're getting the transactions closed and we see good business volume.

But, It is very hard to gauge Q3 versus Q4.

It's a little too early and rates all depending on rates.

And refi's were probably 80% of the business, maybe 83% of the business.

You guys running like maybe 60, 75 days from application?

Or is it even too hard -- ?

It's shorter than that.

We'll tell you the gain on sale margins was very powerful in Q3, throughout the industry.

They were well north of 125.

So, it was very robust opportunities and we took advantage of a very unique opportunity in the marketplace.

With rates so low, and loan growth being what it is, you know, are you seeing any threats?

Are you concerned about threats around the prepayment penalty structure around your core asset type, whether it's been Fannie in the marketplace or other banks starting to come in or look for other ways to grow loans given the traditional CRE is sort of -- ?

Q3 was more the challenge on closing given the significant drop-off on rates.

We had a very large pipeline going into the third quarter and rates were down 100 basis points.

We had - Our team had to bring those loans to the portfolio.

We feel more inclined at come Q4, if rates start to, let's say, tick up here, you'll see a lot of the closings and typically Q4 is already a growth quarter for us.

I don't think historically we ever missed our target on overall net loan growth for our press release.

But typically Q4 is a robust quarter.

Buyers are still open to the prepayment penalty notion of the structure of your multi-family loans?

Absolutely.

It's That's standardized.

We are not changing our model.

It is exciting.

We're going to see a lot of the financing opportunities.

I think, Jack, we are the main player that has the capacity to go forward and be there through this cycle.

There is no question, there are people out there that are compromising prepayment.

And therefore, they are suggesting to property owners that they don't necessarily have to make their prepayment penalties.

But those that compromise the business model will go out of business, and they won't be there four quarters, five quarters down the road and all those people will be back, you know, refinancing the rest of their portfolios with the bank that actually has the ability to sustain itself.

This is not inconsistent with what we've seen previously.

Banks do compromise their business model when, in fact, they are desperate for earnings.

That desperate act is not something that we are likely to follow.

Great.

Thank you.

We'll take our next question from Greg Ketron with Citigroup, please go ahead.

Good morning, Greg.

Good morning, guys.

Hi, Greg.

On the mortgage pipeline, I know you guys are dealing with a lot of questions here.

It looks like the pipeline going into the fourth quarter on the mortgage side is strong, if not stronger, than it was in the third.

I guess it really depends on the production margins -- if they hold up in the fourth.

But, Is that something you would expect the fourth quarter production income to be?

As strong, if those factors hold in and if that is the case, would you kind of look at what we maybe suspect this quarter, use some of that revenue to help fortify the loan loss reserve?

Yes.

Well.

Are you talking about the production for portfolio or are you talking about the production from the mortgage bank?

Production from the mortgage side.

I think on the mortgage side, again I'm going to repeat myself, we had a very strong Q3 and the industry had a very strong Q3.

It wasn't just us standing alone.

We went from number 15 to number nine as the top originator for Fannie Mae in the given quarter, and we're excited about the opportunity.

But, remember rates were as low as 2.35 in the ten year and drove refi dramatically.

And about 83% of our business was probably all refi.

So, it is an exciting opportunity out there.

We are seeing some good volumes in Q4 and it is still very strong but it is way too early to say Q3 and Q4 are going to be similar type of net revenue numbers.

It is great opportunity out there.

As Joe indicated, we're looking at new products.

We believe there is a tremendous opportunity in the jumbo prime market in 2011.

We are working very hard to solidify some great opportunities for the bank, and that is another business model down the road that we could add to this great infrastructure that we have out there in Cleveland.

I understand.

And then as you look into 2011, is there a possibility that the pricing could be good enough on products like prime jumbo that you might consider committing that to portfolio?

Too soon to tell.

Yes.

That is not something we have historically done, so that kind of a change would take a lot of digestion.

I would add, though, very significant amount of money in our players, investment banks have the desire for the product and we have the platform to deliver.

So, we are excited about the opportunity.

The good news about having the tool, is that we can be selective as to what is that we would take.

We can set standards that would be so extraordinarily high that we would mitigate risks substantially, but that is something that is down the road for us to consider.

The good news is that we have that flexibility to make these choices.

Okay.

And then one last question.

Is there any mortgage repurchase risk that remains from AmTrust?

No.

Okay, so that was taken care of through -- ?

The entire deal.

We did not buy the MSR after.

We serviced it for approximately one year for the FDIC.

But we opted not to take on the prior risk from the origination stream.

So, we had none of that and we won't have it in the future from the FDIC deal.

Great.

Thank you.

Next question from Steven Alexopoulos with JP Morgan.

Your line is open.

Good morning, everyone.

Good morning, Steven.

Maybe I'll start, given your comments to match provision to charge-offs, do we expect the reserve to loan ratio to drift down from here as loan growth materialized?

No, I don't think so.

You know, We are likely to be increasing our reserve.

That is something that we've done over the last several quarters.

We have been increasing our reserve and then we are likely to continue to increase our reserve.

And, Steve, I would just add is what we expect to see, again we gave some pretty good clarity back in March and June about what we are seeing in the market on credit.

We expect to see significant drop-off going forward, especially into next year of NPAs and delinquencies.

We are seeing that.

We saw a $205 million drop from the highs of March.

We see some significant movement coming into Q4 and credit trends are performing much better than expected.

So, were excited about that opportunity.

So, as NPAs come down and delinquencies come down, our overall performances ratios on the allowance side should be more indicative of our historical performance on charters, which are very low.

Maybe a second.

How quickly can you move down the cost of CDs where they are now as an offset to some of this loan yield pressure?

We have some good opportunity out there currently.

I would expect rates are around 1% on average for all CDs in the marketplace.

So, we have about 150 to 160 probably the current portfolio, which we have most of that is repricing in the given year and a half.

So, we are excited about the fact that rates are going to remain relatively low for probably a reasonable period of time here and we should be able to benefit on the CD side.

50, 60 basis points on the overall CD portfolio.

Do you have the amount of CDs renewing in the fourth quarter.

About 2.3 billion.

Just under 2.3 billion, at about 160.

What about full year next year?

Full year next year should be approximately 6.5 billion at 150.

So, that will definitely add to the reduction of cost of funds.

And how much of a factor were the loan prepayment fees in the current quarter?

Oh, very little.

A couple, I'd say --

Improved, but little.

Remember, we said this is in the previous calls, every quarter we have seen an increase on the link quarter sequential basis.

So, we're looking at Q1 versus Q2, Q2 versus Q3, and the like of higher prepayment active.

That is going to be the trend.

We believe in 2011 we'll see significantly more prepayment activity, given the environment.

It is a very low interest rate environment.

If you have a 5% type coupon you should be in the market to refi.

And having the opportunities to buy assets, which we're seeing currently, is driving investors to make portfolio decisions which will end up in prepayment activity.

Perfect, thanks, guys.

Thank you.

And we'll take our next question from Mark Fitzgibbon with Sandler O'Neill.

Please go ahead.

Thanks for taking my question.

Excluding the impact of prepayment penalties, are you suggesting that the margin should be relatively stable?

Or should we see some compression?

You know, Mark, I'll tell from the previous two quarters, we had a big slug of cash flow from the securities portfolio was significant.

Between GFC buying back the NPA assets in the portfolio pools, as well as having our portfolio being called, you know, much earlier than expect, that drove a lot of pressure on the overall yield.

And back then, it was probably back in July, I expected, you know, continuing pressure up into the fourth quarter, as we look at our models, I would say we are probably going to be flat.

So, That pressure has abated we are seeing good signs on the origination side.

So, I think we are going to manage the margins at the level where it is relatively flat give or take five bits up or down.

Okay, And then, just a second question on M&A activity, obviously picking up here in the Northeast.

Are you all ready to get back into the M&A fray?

Did you feel like you are in a position to be able to do transactions again?

The reality is our performance metrics, compared to the individual institutions that we might acquire are significantly better.

So, the likelihood that we could play is very, very real.

Our history has been that we look at many, many different things, and are very, very selective as to what we ultimately will do.

So, I would suggest that there are going to be many choices, not just in the immediate quarters but right through the years ahead.

And we are going to be very interested in ways in which we could create value for shareholders through acquisitions.

That is our business model.

But you know, there is ample evidence here that doing a transaction such as the AmTrust deal was basically the kind of thing that we really do want to do, and we would be more receptive to such a deal than we would be to doing a straight-up deal.

Not to say that we wouldn't, it is just to say the economics have to justify.

Mark, I would just add, that it is significantly strong as far as the activity.

It's robust, we are looking at opportunities every day, and we believe that will continue, even more so into next year.

However, given that you know the industry is seeing not too much growth, we believe acquisition will be a substantial part of all banks that are looking to grow their overall shareholders value.

Thank you.

Thank you, Mark.

Our next question comes from Tom Alonso with Macquarie Please go ahead.

Morning guys.

Good morning, Tom.

How are you?

Not too bad.

Most of my questions have been answered.

Just real quick.

The jump in commercial real estate non-performers this quarter.

You know, just any kind of color you can give us there.

It's probably a single property.

You know the important thing to recognize is that we do have large properties that from time to time go non-performing and as a result, the numbers change fairly dramatically, but the consistency with regard to lost content is the key.

So, non-performing in any one quarter may be higher, but we have the ability to remedy that in the quarters ahead without there being much consequence to the overall performance of the company.

Tom, I would tell you that the lost content in the CRE book is extremely low.

Obviously if you look at the past year and even the past quarter, I think we had about a $200,000 amount of charges that would pertain to CRE.

Over the past year the number was you know, significant lower than all the other classes of our portfolio.

The average LTB books around 51%, 52% and as Joe indicated you probably have some lumpiness.

But again, giving guidance on NPAs, we're expecting to see a decline here.

We are making some good progress on getting some of the more seasoned NPAs off the books via no-sale, via payoff.

It's a very exciting environment given that people are looking to buy assets that are cash flowing and the cash flow assets are good, long-term investments you can finance at this level.

Okay, fair enough.

Is that going to keep net charge-offs quote-unquote elevated?

I would say no.

I would say the charge-off levels that we're seeing have been relatively consistent over the past two or three quarters, given the range.

Okay.

Fair enough.

Thanks, guys.

All right.

We'll take our next question from Ken Bruce at Bank of America.

Your line is open.

Hi, Ken.

Hi, Ken.

Morning, thanks.

You know what, by many measures, Q3 was a pretty impressive quarter, mortgage banking in particular, and it is not going unnoticed how you are transitioning into you know more heavy lifting in that particular business line.

I guess, pulling back a bit, I'm interested in your thoughts as to how you want to manage that business you know as an overall mix for New York Community Banc.

If you think about the history of the mortgage business, it's tended to be very lumpy.

That volatility tends to basically capture a lower margin or excuse me, a lower multiple in the market.

How are you thinking about managing that as the overall part of the business?

And how do you see yourself dealing with some of the vagaries of the mortgage banking business?

I think the good news is, it is a gift.

It is an income stream contributor that has been more meaningful than we would have contemplated, and we are likely to continue to accept the bottom line contribution, but it is not our primary business, and we have every expectation that in the quarters ahead, our primary business is going to become larger and larger and larger.

So, there is nothing changing about our expectation that we will gain share of this particular niche, or market, over the quarters in front of us, and that our market is becoming more and more active.

So, we are going to have more prepayments, we are going to have more in the way of new originations.

The contribution of mortgage banking ultimately to the bottom line may be a lesser percentage.

But from quarter to quarter, there is no reason not to take the money.

I would just add, Bruce, that obviously we are managing it with the focus toward the GSE right now.

There may be some opportunities in the future.

But we are not looking to portfolio the activity.

We are clearly looking at the large potential relationships in the marketplace that really want the portfolio growth for their portfolio and we can deliver the product.

Obviously that current appetite is with the GSE.

We went from 15 to number nine.

In general, we estimate our share of the mortgage business to be about 1.15% of the national market.

Are we going to go to 2% ?

Probably unlikely.

However, we could probably get inroads on the jumbo products for many institutions that want assets for their portfolio.

As Joe indicated, we have a portfolio of multi-family CRE book in market that we do very well and we have loan growth.

We are not concerned about not having loan growth.

Other mortgage banks operators that were putting stuff in the portfolio with bad assets were part of the demise of the system.

We are very focused on our core business model.

This is clearly an added benefit for the

I think the distribution model has got a lot of upside potential to it and as Joe pointed out, there is some specific risks if you can manage around that it can be a profitable business.

I think, for us, obviously we identified the risk and the way we are managing it as on the MSR side.

And we clearly did not take the plunge in buying the FDIC MSR given the history there with some of the credit call issues back in the old originations.

But going forward In this environment, MSR values are relatively low, we're comfortable at these levels, and we're going to be able to replace a lot of that through our loan origination.

We are building a nice servicing platform and we're building a very strong origination platform.

How much servicing was with the FDIC deal again?

About $20 billion, approximately.

And, lastly as you pointed out, I guess the GSEs are a bit of a friend and foe here, you've got them obviously contributing to your mortgage banking profitability, yet they're a key competitor on the core multi-family business.

Do you think they're going to be a key -- are they going to be a persistent fixture in that market?

I mean, are they here to stay?

The bottom line is, there is a need for someone to do that.

And whether they do it as they are currently structured or they do it in a modified way down the road, or somebody else does it, we have the vehicle through which production flows.

So, I think the good news is, we've already heard from major players in the marketplace that they'd like flow.

We can provide flow.

So, it doesn't matter if the end point out is Fannie, or the end point is, and I'm just going to use a name, MetLife or B of A, big players, they are totally different, but they are in the market as well and want flow.

So, the good news for all of us is that there is no escaping the reality that new loans have to be made.

They don't have to be made by Fannie or Freddie, but they have to be made.

So, there will be a structure in place to lend.

Remember before there was a Fannie and Freddie, loans were available.

Are you suggesting that you will be an agent in the multi-family arena as well?

We actually could be.

We have actually had people approaching us asking that we would do that.

Now, If you think about it, we are not going to compromise what we put into our portfolio.

But our standards are different than other people's standards.

There is a lot of flow that we can create that would go to others that would make them very happy.

So, the ability for us to produce earnings as a result of providing others with product is something that we've already begun to demonstrate.

And we are very confident we'll be able to do, not just for the standard, you know, qualifying assets, but also for the jumbo assets, and also for the commercial assets.

Exciting.

I look forward to hearing about that.

Thank you.

Sure.

We'll take our next question from Matthew Kelley with Sterne, Agee, and Leach.

Please go ahead.

Hey, guys.

Just a couple things to clarify on mortgage banking.

What was the actual dollar amount of loans sold?

I know you originated $3.5 billion but what was actually sold in the quarter to compare versus the $59 million in income?

I believe it was close to $3.8 billion.

Let me get back with you on the specific number there, Matt.

It might be a number different than Tom is recollecting, because he doesn't have it if front of him right now, but we have the number.

What are you expecting for, you know, gain on sale margins?

You touched on it earlier in the call but --?

Well, gain on sale was very attractive in the quarter, given the movement of interest rates and the opportunity in the marketplace.

We are very pleased to have levels north of 125 in general, so let's assume on a modeling basis you are going to be 115 and 120 just for modeling purposes.

But we typically, we feel very confident that our guys will deliver numbers hopefully better than that.

But that is modeling and we feel pretty confident that we'll get our share of business.

It was a very, very strong Q3 with respect to gain on sales throughout the industry.

Right, And then on the servicing that you guys are generating, still 25 basis points of income on that going forward?

Not to interrupt I just got the numbers.

The number that we funded for Q3, I think was about $3.5 billion.

Okay, So, the gain on sale margin is like 170 in the third quarter?

A little bit south of that, around 140 something.

Okay.

And 25 basis points of servicing income on what you generate?

That's correct.

Okay.

Now, the Mortgage Banker's Association is looking for overall activity nationwide to be down about 30% in 2011.

How do you think you guys will compare year-over-year?

I think -- I would be surprised to lose share on our competition is around 1.15%.

But if you look at our activity for the given quarters, we went from not doing business from the first week that we owned this company to being number 15 to number nine.

So, I think that's only an agency market.

I believe that we will be able to do jumbo prime loans in the future and that will give us additional activity.

So, given there will probably be a slow down next year, no question about it, but there will be more products for us to offer in different types of - for other balance sheets.

I think what Joe was indicating is a strong desire to take on assets, especially when rates are so low, and we have the platform and ability to gather a share of those assets.

We will probably open up the balance sheet to enjoy the opportunity so we can sell not just agency loans but jumbo prime loans and good loans that banks can't originate or aren't originating.

Okay, What are the spreads in jumbo prime for being on sale?

It is consistent, 1 to 1, or 1.25-ish.

Got you.

On the expense side, you had mentioned expenses coming down.

The G&A was up $4 or $5 million sequentially.

What's going to come back out of there to cause that to go down in the fourth quarter?

We had some merge related expenses we had in the fourth quarter and we also had some additional compensation expenses that we most likely will anticipate in Q4.

So, I would say probably about, I think I gave guides for around $135 million for Q4.

I gave specific guidance there, about that.

All right.

And last question, what do you think you will see for covered loan growth for full year 2011?

What do you think is reasonable?

Covered loan growth?

You mean decline?

Unless we do another FDIC deal.

Excuse me.

I mean non-covered.

So, your originated portfolio.

The Q4 is typically our strong quarter for us.

We feel pretty good --

I think the year will be better than this year.

So, if we do something in the high single digits this year we'll be in the double digits next year.

For net portfolio growth?

Yes.

I think for modeling purposes, Matt, it is always good to be conservative here.

We start off at mid-single digits and we typically end up in high single digit level and as Joe indicated, if things go really well, we could be in double digit land.

All right and then the reality is we definitely expect 2011 to be better than 2010.

That's right.

Okay, got you.

And we are positioned on the capital base for, you know, continuing loan growing.

We are awaiting the opportunity.

Obviously, we'd like to see higher rates but they are what they are and funding cost is very low and we can have a nice business model north of 300 basis points that can generate some good returns.

Okay.

Got you.

And the yields right now in your core multi-family product are in the low 4s, you said?

I would say they are in this environment.

Last quarter they were much high and we had to negotiate through the quarter, we still put on 5% -- south of 5%.

But, you know, rates are low and they move around a lot.

We can have rate gyration in the treasury curve that could change that in the given week.

Right, I guess I'm having a tough time reconciling then how, if you are going to have that type of loan growth, and your pretty close to reaching the bottom of the finding side how the margin can stay stable.

I think what I indicated previously, we had about $6 billion of CDs in one year coming off 159, 160.

That will help you there.

And we are looking at the wholesale liability book we have in our portfolio with some opportunities there as well, to drive, of course, the funds down.

You'll see further declines in the cost of funds in general.

And I think you are going to see very strong growth on the net loan book.

And you'll also see significant increases in pre-payments, which are all added to the margin.

Yes.

Prepaid should be very robust the in 2011.

Got it.

All right.

Thanks.

All right.

We'll take our next question from Bruce Harting with Barclays Capital.

Please go ahead.

Good morning, Bruce.

Good morning.

Just three easy questions for you.

One is, the multi-REO, you know just what is going on below the surface.

Last time I was out with you Joe, you mentioned that you were generally you know, during the summer, firms were -- various hedge funds and others and insurance --

Yes.

I'll give you an example.

When we were out together, we had a large, $13 million multi that was, you know, going through the process and into REO.

And that is traded away to a deal that we got paid $13.5 .

So, there was perception that property might have been worth $8 and we virtually, successfully executed on the $13.5 deal.

So, the likelihood of successful execution is high, and we have been seeing it.

A lot of the charges that you are seeing are for properties which are actually going into the portfolio, not necessarily going out of the portfolio.

So, what isn't evident is that we have had a lot of resolution.

So, there has been some very favorable resolution of assets, new assets go into the portfolio as non-performing, and assets that are in the portfolio have been resolving at either de minimus loss or de minimus gain.

That is not a common thing for a portfolio, let's say CapOne's credit card portfolio doesn't react that way.

But this is pretty consistent over long periods of time, with regard to us.

The dollar volumes are higher, so obviously, we have had you know, $16 million in charges.

But that, as a percentage, still remains extraordinarily low, and we have every reason to believe that that's going to be the ongoing

Okay.

And these are, you have managed this process yourself?

Yes.

All done from within.

Okay.

The second is just, what's the ideal rate environment?

You have talked a lot in the Q&A you know about various specifics.

But you know, it seems like the market's completely confused whether we're going to have QE2-induced yield rate flattening and now you are starting to hear about inflation.

So, what would -- And I know you're hedged in either direction but you know, what would really open up the margin?

Thanks.

I'll tell you Bruce, we liked where it was in March and April.

That changed pretty rapidly.

We are in a good position here.

We have a slightly active balance sheet.

If rates were higher, we'd make a little bit more money here.

If rates were dramatically lower we'd make a little less money.

The good news is we are position with capital and liquidity to react and we have been reacting.

We believe that in this environment, we'll make good returns.

But, If rates were slightly higher, we'd make better returns.

Okay.

And then finally, just from a headcount perspective, are you aware -- are you where you need to be right now?

In terms of knowing you from when you were a much smaller company, is it seems like the management structure -- how do you guys do it is sort of one question.

The second is are you on the road all the times, visiting your geographies?

No.

We don't need to -- let me put it differently.

There are people in every geography that we do business in, that are meeting the specific needs of the company.

Some of them are from here, some of them are from there but the reality is, they are very competent people that have been able to cohesively do what is necessary to meet our regulatory requirements and to meet all of the competitive requirements, and operate systems very effectively and efficiently.

So, nothing about the geography has presented an unexpected adversity.

In any case, it is pretty evident from the numbers.

We are more efficient, even with this larger geography, even with paying for people to fly from place to place, because there are many, many ways in which the actual operating businesses are efficient enough so as to accommodate the distances that exist.

So, the good news for us is that geography is not representing an unreasonable challenge to us, it has actually been melding extraordinarily well.

And you'll see it in the numbers.

Our return on the assets is better than most of our competitors.

Our efficiency ratio, how much money we spend to earn a dollar is significantly better than most of our peers.

That consistency demonstrates how well the franchise operates.

Thank you.

You are welcome.

Last question, is this -- the consensus seems to be that the FDIC-assisted acquisition benefits are largely played out, now what is left is just smaller companies, is that a correct consensus view?

Yes, that is the moment in time.

You know the future is filled with all kinds of national challenges and some of those challenges are going to clearly be in banking.

I mean, it is a pretty outrageous situation when the Congress of the United States passes law, and says you know, we'll figure out what's in the law later.

And you look at new regulation coming down the pike with a genuine expectation that it will decrease the earnings that are added to the bottom line of banking at a time when banking is dealing with many other challenges.

So, this is not a period of great stability.

I think it is a period of great instability.

The good news about our business model, there is a lot of consistency in it.

And, When we think about how we perform into the future period we think we perform better than most of our peers.

That is going to be an opportunity.

Bruce?

Yes.

Okay.

Oh, sorry.

I guess in the cash usage, the $2 billion, any comment on that?

Bruce, it's Tom.

I will tell you that the mortgage warehouse portfolio we have here, that line has been very helpful throughout the past six months.

I said on a previous call that we had approximately $1 billion on average out there.

That number should increase as we continue to be in that business.

It's been very helpful.

A lot of the cash has been used to reduce the mortgage loan for the origination platform out at Cleveland and we have the portfolio book that we expect and we feel pretty confident we can grow the loan book.

Even though you hear a lot of stories about the loan demands being very challenging, we're a unique player in this marketplace and we have a strong desire to build our portfolio and we get our share of the business.

That will be loan growth.

So, between loan growth and the mortgage banking operation we should put that cash to work.

I think that some of the release, Bruce, is that clearly the company has a better balance sheet today, a demonstrated capacity to earn more money.

And I'm talking about earn more money against our prior metrics.

And we have a high level of confidence that prospectively, we are likely to have continued growth in our principle asset and in our income streams that will make us very, very competitive in the market ahead.

Next question?

We'll take our next question from Ken Zerbe with Morgan Stanley.

Please go ahead.

Great, thanks.

I was hoping you could talk a little more theoretically about the correlation between early stage delinquencies and either reserve build or NPA growth.

Because I think the early stage were down the last two or three quarters in a row pretty substantially, but we are still seeing higher NPAs to some extent.

Again, I said March was the high.

I stand by that.

I feel pretty confident that March was the high for the year and hopefully that will be the high for our history here.

Looking at the significant drop off in June, and a very small uptick in NPAs in September, the total delinquencies, and we look at total delinquencies, not just NPAs, total delinquencies was down $205 million from the high.

We're seeing some very strong trends of resolution.

So, we expect to see our NPA book decline here.

So, hopefully coming out at the end of the year we'll have lower NPAs.

My guess is that come 2011, we'll see asset quality improvements within the New York space, including ourselves, and that is going to be a very strong catalyst for the company.

You'll have less foreclosure expenses, you'll have less distractions with management dealing with workout.

At the end of the day, we are seeing a significant improvement in the New York region.

A lot of the uptick that we had was a lot of out of market credit.

Most of the charges we had were out of market credit.

The in-market portfolio has been stellar.

The CRE book, we had $200,000 in charge-offs in the given quarter.

The CRE book, In the past four or five years the charges have been de minimus.

So, we are very confident that the cash flowing assets, that non-performance will come out with very minimal loss.

So, I think with respect to the reserve bill and charge offs, we are probably, you know, going forward here we'll have charge-offs on over time, because we'll see a meaningful reduction in overall NPAs

When you look at the size of our NPAs and we have been saying this for years now, the non-performing loans goes up dramatically during cycle turns, certainly a lot less than our peers, but goes up dramatically during cycle turns.

But the loss content is so low, and that's been consistent, even as we sit today, the loss content in our non-performing loans compares extremely well to the industry as a whole.

So, there is nothing inconsistent about our expectations into the future.

We think that our non-performing will not result in significant charges to our reserves and as I mentioned, we have two and a half years coverage in our existing reserve with regard to the way we are charging against that reserve.

There are very few banks that were in that position in the years that have just passed.

And certainly, as you look at the numbers for September 30, I'm going to guess there are going to be very few banks the size that have that kind of coverage capacity.

No, I mean I would certainly imagine your charge-offs to stay low and NPAs to come down over time.

I guess maybe the question was more just to verify that it was probably incorrect to look at early stage delinquencies and expect an improvement in say, reserve build or something going forward.

Oh yes, I think you are right in that regard.

They just don't correlate.

That was it.

Perfect, thank you.

And we'll take our next question from David Hoxton with Buckingham Research.

Please go ahead.

Morning, David.

Good morning.

Hi, David.

Hi.

Just wondering, could you maybe provide a little more color on the improvement in delinquencies and kind of where those are coming from?

You know, I think across the board, David, we are seeing asset quality improvements.

Back in 2008 and 2009, we had a significant amount of inflow.

A lot of that stuff was out of market, we dealt with it and we are still dealing with it right now.

And it's moving out of the portfolio.

But we are seeing less problem relationship, less problem assets coming on.

The numbers have been consistently on a sequential basis, substantial improvement on a 30- to 89-day bucket.

And that is pretty much your future problems.

So, I think you know, given what we are seeing with our loan workout guys are working on right now, we feel that you are going to see a meaningful drop off of NPAs going forward and without much on the uptick side.

So, the lumpiness that came on, should be the lumpiness that comes off in 2011.

Could we just go back to your comment about reducing your cost of borrowing.

How much flexibility is there to reduce the cost of borrowings?

We have some flexibility, we have opted to do some toward the back half of the Q3, in respect to wholesale financing in the home loan bank.

Home loan bank has allowed their member bank to do some work recently.

It has been late to the party but we are back in looking at that opportunity both on the lend-and-extend side, looking fixed rate going to floating rate.

But, there has been opportunities on the wholesale side, and we're working with all our counter-parties.

It all depends on what their desire and their balance sheet is.

A year ago, you couldn't have the conversation with the money center banks because the government wouldn't allow them to extend on terms.

That has changed.

It is a good business model for them and then to do business with their customers.

So, having the opportunity to talk to our counter-parties and do some, we'll call it restructuring of our liabilities, it's definitely fluid conversations,.

We have a sizable wholesale book, significantly lower than what it was in prior years, we're around 30% of total assets, but we have some flexibility there.

I'm not going to quantify a dollar amount, but I will tell you that we have been working diligently in trying to get benefit there.

And the slight increase in average costs from Q2 to Q3?

That was probably just some maturities, maturities of some of the bars that came off the balance sheet at lower costs.

Okay.

And then, on mortgage banking, have you decided definitively to keep that business?

Are you still considering -- ?

Well, obviously it is very valuable.

Right.

Keeps getting more valuable.

Yes.

It is a wonderful operation.

They have a very strong culture there.

They have a lot of experience.

We are very comfortable with the people managing it, we deal with them on a daily basis, and we have some great opportunities ahead of us.

It's a well managed organization and we are very fortunate to have them join the team of NYCB family.

That means you are going to keep 100% of it?

Sounds that way.

Okay.

Great.

Thanks a lot.

And we'll take our next question from Christopher Nolan with CRT Capital.

Please go ahead.

Good morning, Chris.

Hey, guys.

Quick question, any plans on redeeming the trust or extending the maturity for the 3% unsecured notes?

Well you know, right now, we are looking at, obviously, the Collins Amendment and we spend a lot of time there.

Some opportunities.

It's not a significant rush, given that some of those trusts are at very low cost to fund in this environment, some are at 165, 160.

But no, we are evaluating it and we have nothing public to say about that, but it is something that we are looking at.

Great.

And, Tom, did you say earlier the expectations for operating expenses in the fourth quarter was $134 million?

About $135.

We had an uptick in Q3.

I would not expect the same level of expenses in Q4.

I'm giving you specific guidance about $135 million for the given quarter.

Great, And finally Joe, in your comments, you sort of alluded toward an accelerating pace of prepayments starting in the fourth quarter or so, is that what you are seeing right now?

Yes, we are already beginning to see that we expect to see more of that quarter by quarter by quarter.

As the cycle evolves, typically that does occur.

There is no question that people are very much aware that rates are at about the lowest levels they are likely to be.

So, people are going to be more inclined to refi, and also the opportunity to buy has been going up and that is another driver of refi.

So, we would expect to see increase in our prepayments as we go into the period ahead.

Chris, it's starts in the beginning of the year.

Every quarter sequentially our prepays have been up on a meaningful percentage basis but the dollar amount is very small.

Indicative to -- we have a very large portfolio both on the CRE side and on the multi side.

So, if you think about the potential it is very real.

When we had a much smaller portfolio of $7, $8 billion, we booked $50 million in the given year.

Our numbers are dramatically higher now as far as the total portfolio balances, but the prepay is still very low, based on historical trends.

Great.

Thank you for taking my call.

Thank you.

And we'll take our next question from Theodore Kovaleff with Horowitz and Associates.

Please go ahead.

Hi, Ted.

Hi there, Two quick questions for you.

With regard to the loans that you have sold, are there any put backs on them?

I think we originated approximately 25,000 loans.

Of that 25,000 loans we probably had 33 or 34 that were in delinquent status.

Haven't had any put back.

Okay, thank you.

Again, given the culture, the economic climate with the overall underlying standards that are out there right now, it is a substantially different environment than it was in 2005 through 2008 and we are operating under that new environment.

Okay and then, what is your model for where rates will be one year out?

Our model is your model, Ted.

I guess we run off of working consensus and obviously, forecasting not a meaningful rise in interest rates.

Thank you.

Going by consensus.

Good enough.

Thank you.

And we'll close with a question from Bob Ramsey with FBR Capital Markets.

Your line is open.

Thanks for taking the follow-up.

Just as a point of clarification on the expense guidance that you all have given of $135 to $136 million, is that before the intangible amortization?

Yes.

Okay, And in terms of, I guess one of your competitors talked about a recent change in New York State and city savings bank tax rate.

Does that have any impact on NYB?

It is in our tax rate, so we have adjusted for that throughout Q3.

So, next year our tax rate will be higher, given that we will lose that benefit.

But we have taken into account in the current quarter the loss of that deduction.

So, is the rate in the third quarter a good rate to use in the fourth and next year?

I would say fourth quarter may be slightly higher.

I'd use 35.8%, 35.75%, around that range, fourth quarter.

Then probably next year you'll see an uptick.

If you want to model 2011, use like 36.7%.

That is a conservative number, obviously definitely impacting the industry and we're making more money and I'm assuming in my tax rate higher income.

Great.

Thank you very much.

You're very welcome.

Sure.

This concludes our Q&A session.

I would turn the call back over to Mr.

Ficalora for our closing remarks.

On behalf of our Board and management team, I thank you for your interest in our company and in our third quarter 2010 performance.

We wish you all a joyful and healthy holiday season and look forward to discussing our fourth quarter results with you in January of next year.

Thank you all.