Flagstar Financial Inc (NYCB) 2010 Q4 法說會逐字稿

Good day, everyone.

Welcome to New York Community Bancorp's fourth-quarter and fiscal year-end 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 Angalora, Executive Vice President and Director of Investor Relations and Corporate Communications.

Please go ahead ma'am.

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

Today's discussion of our fourth-quarter 2010 earnings will be led by 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 the Private Securities Litigation Reform Act of 1995.

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

Among those factors are general economic conditions and trends, both nationally and locally; 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; changes in deposit flows and in the demand for deposit loan and investment products and other financial services; and changes in legislation, regulation and policies.

You will find more about the risk factors associated with our forward-looking statements on Page 11 of this morning's earnings release and in our SEC filings, including our 2009 annual report on Form 10-K and our third-quarter 2010 10-Q.

This morning's release also includes reconciliations of certain GAAP and non-GAAP earnings 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'll now turn the call over to Mr.

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

Thank you Ilene, and good morning everyone.

We appreciate your joining us as we discuss our fourth-quarter 2010 performance as well as our performance for the full year.

Both the quarter and the year were highlighted by a significant increase in our net interest income and operating earnings, the meaningful expansion of our net interest margin, a significant increase in loans produced, both for sale and for portfolio, and the continued strengthening of our tangible capital.

In addition, our fourth-quarter performance was highlighted by a linked-quarter reduction in nonperforming assets and net charge-offs which contributed to improvements in our measures of asset quality.

Before I touch on the details of our fourth-quarter and full-year performance, I'd like to look back at a comment I made at this time last year.

I began last year's post-earnings conference call by speaking about our then-recent AmTrust acquisition and the benefits we expected to derive from that event.

Among our expectations were increased loan production fueled by the acquired funds and the expansion of our franchise and the contribution of mortgage banking income to our revenue stream.

With a full year of combined operations now behind us, I would have to say that we surpassed our expectations with the volume of loans produced in 2010 exceeding $15 billion, including $10.8 billion of loans aggregated for sale to government-sponsored enterprises and $4.3 billion of loans produced for our own portfolio.

In addition, gains on sale of one to four family loans added $37 million to total revenues in the fourth quarter and $136 million to total revenues for the full year.

These were just two of the highlights of our 2010 performance.

Now on to the rest.

As we reported in this morning's release, we generated GAAP earnings of $149.8 million in the fourth quarter, equivalent to diluted earnings per share of $0.34.

Cash earnings amounted to $162.3 million in the quarter and were equivalent to $0.37 per diluted share.

Most telling, however, were our operating earnings, which rose 43.4% year-over-year to $140.1 million, and were equivalent to a $0.06, or a 23.1%, increase in diluted earnings per share to $0.32.

The increase in our full-year operating earnings was even greater.

For the 12 months ended December 31 2010, our operating earnings rose 45.4% year-over-year to $530.4 million, representing an $0.18 increase in diluted operating earnings per share to $1.21.

Net interest income accounted for most of the growth in our fourth-quarter operating earnings, rising $50.5 million or 19.9% year-over-year to $305 million.

In addition, the average loan growth, a reduction in our cost of funds, and a decline in our wholesale funding, the increase in net interest income was fueled by prepayment penalty income, which rose from $2 million a year ago fourth quarter to $15.2 million in the fourth quarter of 2010.

For the 12 months ended December 31 2010, our net interest income rose more than 30% to $1.2 billion, including a $15 million increase in prepayment penalty income to $22.6 million.

The same factors contributed to the expansion of our net interest margin, which rose 28 basis points year-over-year to 3.61% in the fourth quarter and 33 basis points to 3.45% for the twelve-month period.

The rise in prepayment penalty income signals a resurgence of refinancing activity which had been severely constrained by economic conditions and declining real estate values for the better part of the last three years.

Reflecting both refinanced loans and an increase in property transactions, the volume of multifamily loans produced in 2010 rose 31.6% year-over-year to $2.5 billion, including a 100% increase in fourth-quarter originations to $989.6 million.

Multifamily loans thus represented 62.3% of the $1.6 billion in loans produced for investments in the fourth quarter and 58.6% of the $4.3 billion of loans produced for investments during the year.

Based on the volume of loans that are currently in our pipeline, it appears that we are again off to a solid start for the new year.

At present, our pipeline is approximately $2.2 billion and includes approximately $1.1 billion in loans originated for portfolio.

Multifamily loans represented 78% of this figure, consistent with our traditional focus on our primary lending niche.

The remainder of the pipeline consists of one to four family loans originated for sale by our Mortgage Banking operation of about $1.1 billion.

While multifamily lending contributed significantly to the growth of our net interest income, the Mortgage Banking platform contributed in a meaningful way to the revenue stream.

Although Mortgage Banking income will rise and fall with loan demand, market interest rates and overall economic conditions, we expect it will continue to be an ongoing source of revenues to the Company.

To further capitalize on our Mortgage Banking platform, we will begin this month to effectively offer jumbo prime to -- prime one to four family loans for sale to other institutions on a best efforts basis.

This practice is in an early stage, yet we believe it has the potential to further enhance our revenues in the quarters and years ahead.

Although the operating expenses also rose year-over-year, largely reflecting our expansion, the increase was exceeded by our more significant rise in our revenues as a result.

Our operating efficiency ratio improved 79 basis points year-over-year to 34.81% in the quarter and 28 basis points to 35.88% for the full year.

Another measure reflecting improvement in 2010's fourth quarter was the ratio of net charge-offs to average loans.

Net charge-offs declined $2.8 million on a linked-quarter basis to $13.9 million, and represented 0.05% of average loans.

For the full year, net charge-offs totaled $59.5 million and represented 0.21% of average loans.

These metrics compare very favorably with those of the SNL Bank and Thrift Index which to date has reported an average ratio of net charge-offs to average loans of 0.67% for the quarter and 2.99% for the full year.

In addition to the linked-quarter reduction in net charge-offs, we were pleased to report a $27 million linked-quarter reduction in nonperforming assets to $652.5 million, which represented 1.58% of total assets at year end 2010.

In addition to reflecting a 5 basis point improvement from the September 30 measure, the ratio was 19 basis points below the high of 1.77% at March 31, 2010.

The last performance highlight I'll speak of -- about before opening up for questions and continuing -- is continuing on the strength of our tangible capital.

Excluding AOCL, adjusted tangible stockholders equity represented 7.90% of adjusted tangible assets at the end of December, representing a 23 basis point improvement from September 30 and a 65 basis point improvement from the measure at the end of last year.

We also reported solid regulatory capital levels with the Community Bank having a leveraged capital ratio of 8.80% and the Commercial Bank having a leveraged capital ratio of 12.45%.

In view of the continued strength of our earnings and our tangible capital position, the Board of Directors last night declared the 28th consecutive quarterly cash dividend of $0.25 per share.

The dividend will be paid on February 16 to shareholders of record at February 7 and based on last night's closing stock price, represented a dividend yield of approximately 5.35%.

In closing, we believe that our 2010 performance is indicative of business models merits, and our pursuing the same strategies again will produce solid results for the new year.

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

As always, we will do our best to get to everybody in the time that remains.

If not, you can always reach us after the call.

Thank you.

Open for questions.

The floor is now open for questions.

(Operator Instructions).

Christopher Nolan, CRT Capital Group.

Good morning.

Joe, or Tom, can you tell me what the yield on new loans are, particularly the multifamily ones?

Right now, the yield is just south of 5%, so I'd say high 4s%.

It's just approximately 300 basis points off the five-year treasury curve.

Great.

So you're seeing increased loan rates but also increased loan demand at the same time.

Yes.

Yes.

You're also seeing improved valuations in the multifamily market in New York?

Yes.

Yes, there's no question the environment is significantly better than, '09 and better than '10.

We expect that that will be continuously the case in the quarters ahead.

Great.

Is it -- are we seeing just refinancings, or is this investors coming in?

No, both.

We are actually seeing a return of trade, so there are in fact properties changing hands as well as the fact that people are finally refinancing what they already have.

We are seeing a very strong surge in applications right now, so business prospects are very strong going into the new year.

As is syndicated in our release, our pipeline is $1.1 billion.

However, we have send out for appraisal an additional on top of that number $1.4 billion.

So, the strength of the market is very clearly the case.

Thank you for taking my call.

Bob Ramsey, FBR Capital Markets.

Good morning guys.

I was hoping you could give a little more color on the servicing income.

I guess I was expecting it to drop, given the loss of the AmTrust servicing, but it looks like it still dropped more than I would've thought, given it was about $20 billion.

Could you tell us maybe is there any other moving parts there, MSR valuation or hedging losses?

What was the unpaid principal balance of loans serviced to period end?

As of year-end -- this is Tom -- it is approximately just south of $10 billion, I think $9.8 billion of value of unpaid principal balances, of which for the quarter we booked approximately service (inaudible) about $3.5 million, which is pretty much what we expected.

The FDIC servicing stream was material last year.

Obviously, it was a big number and it dropped off in the fourth quarter.

Obviously, we won't have that going into 2011.

However, starting with approximately a $10 billion [UPV] (inaudible) additional adds every month, we will build up to that level hopefully in the next 12 months.

With that being said, we will be a profitable servicer based on our cost structure.

Okay, so is the $3.5 million, what is that?

Is it about 15 basis points of the unpaid principal balance?

That's in that of the derivative marked to market.

Net of the derivative?

Okay, thanks guys.

I'll hop back in the queue.

Dave Rochester, Credit Suisse.

Good morning guys.

Nice pickup on the margin.

Could you just talk about how you see that trending from here?

with the prepayment penalty income you posted, it was very strong, it was the strongest level since '07.

I know it's going to be volatile, but I'm just trying to get a sense for where you expect that to go, given the level of multifamily refi activity you're seeing.

It's real early, we are hoping to hold the margin here.

The good news is that the prepay activity seems like it's continuing, and there's no question the resurgence of applications and opportunity in the market make it clear that we are going to have an ongoing benefit on prepayment activities.

All that being said, we had a substantial boost in the margin in the I'll call it the last quarter of the year, much better than our original expectation.

So conservatively for flat to slightly down, that's probably consistent with levels of prepayments we saw in the previous quarter.

That could change dramatically depending on loan activity.

We are seeing a significant resurgence of opportunities which could definitely drive margins higher depending on refi and the amount of prepaid that we actually receive.

Given what we've talked about in the past, there is no question that the year ahead could definitely be much stronger than the year that just ended.

So, the reality is that our prepayments go up as the cycle evolves to the point where there is a genuine perception, one, that rates are going up, and two, that opportunities to buy increase.

As we've mentioned many times, many of our people will in fact refi when they actually have something to buy.

Therefore, we would expect that we will have solid prepayments in the period in front of us and that we are obviously going to have increasing activity in the period in front of us.

Great.

One quick follow-up -- I know you talked about the opportunity with the CD costs lower, and you moved them down about 10 bps this quarter.

It looks like you still have some room to go.

Can you just update us on where you think that's going to go?

Do you think you can hit that 1% level at some point?

We are working real hard on the liability side.

If you look at our rate structure compared to the rest of the world, we are pretty low.

(inaudible) the low-lying fruit over the past two years quite aggressively.

I'd say we're going to get some benefit but I'm not going to look at the levels of benefits over the past two years.

So there might be a slight benefit going ahead in the next four quarters, but we are at levels where the low-lying fruit has been taken.

Great, thanks guys.

Collyn Gilbert, Stifel Nicolaus.

Great, thanks.

Good morning guys.

Joe, you may have touched on this in your opening comments, but could you guys give us a little bit more color as to what you're seeing on the credit front and sort of what drove the justification for the build in the reserves?

No, I think when you look at our long history, the reality is that we will have changes in our nonperforming driven by some large relationships.

That doesn't mean we are going to have material changes in our actual charges.

The lost content is consistently low for our particular business model.

Having said that, when we think about the future period, we know that some of the assets that are in the early stages are resolving.

So we may have between $50 million and $60 million resolved in quick order of the nonperforming that you're looking at.

Having said that, the reality is that there are large enough relationships that a momentary change in the number can be very real and noticeable, but as I've cautioned many, many times, and we have a nonperforming number, it doesn't play the same way.

It might play with Capital One, which is mainly credit cards.

You can anticipate that a large share of those nonperforming may in fact take losses, or some other type asset groups that have historical records of losing large amounts of money.

We are expecting that, as we go through the period in front of us, we're going to have additions to our nonperforming which are just normal course, and we are going to have resolutions.

The good news is that we are already seeing some of the resolutions that offset some of the numbers you're already looking at.

It's Tom.

I would also add we pretty much said in the last conference call that we expected by the fourth quarter their NPAs will be down slightly, and they were.

So they were at expectation.

What we envision in 2011 is a continuation of a credit recovery source in the New York market.

The New York market is resilient.

Most -- 96% of our loans are in the New York market and we're seeing some very good opportunities here to get out of some of the NPAs at levels that are not going to [connect there] with charge-offs.

So we are very confident that we are seeing some very strong indications of additional recovery in 2011 for our overall NPA book.

That's helpful.

Just one quick follow-up.

In terms of potential regulatory pressure, are you guys seeing anything specific coming down the pipe from the regulators, and with the shift obviously in the OTS to the OTC in June, whether it be --

The interesting thing -- I am glad you mentioned that.

We are not OTS.

So (multiple speakers) so that is a very, very big differentiator between our position and that of some of our peers.

So when you think about the future, our situation is aligned with a state regulated bank, New York State, and certainly we don't see -- I mean the change in regulation for the entire industry is material and then somewhat unknown.

So it will affect us, but we are not facing the same kinds of issues that banks that are in the OTS today are facing in the major change that they are going to go through in going to the OTC.

That's right.

Thanks for that.

Brad Ball, Evercore.

Good morning.

Just, Joe, with respect to your Mortgage Banking strategy, I wonder if you could give us a little more color on your plans for originating jumbos.

I think you mentioned originate to sell, but I think last call, you had talked about the possibility of originating and possibly retaining in your own portfolio.

Then just a (multiple speakers)

That's more down the road.

I don't want to overstate that.

Obviously, when you get involved in a business over time, there is opportunity to pick and choose what you want to do.

So we'll clearly be interested in deciding whether there are some asset [standards] that we are very comfortable with that will add to our portfolio.

It's Tom.

I would just add that we worked real hard over -- our team over (inaudible) worked real hard (inaudible) the concept of doing a jumbo product for the marketplace.

It is an underserved market right now.

We feel very confident that [this is a] real opportunity for the Company.

So we just rolled out (inaudible) Monday we went live with the jumbo offering [four our] very large money center bank and their portfolio.

So we are not taking on any credit risk.

It is a best-effort type basis right now.

We are seeing some great opportunities, but again, it's going to be a process, and we just completed the setup process.

Now we are in the market.

So hopefully, we'll start getting indications on volume levels and ultimately bill this as another line of business for the mortgage bank.

We are clearly focused in that area.

We think there's some great long-term benefit there, and we're working very hard in all different types of relationships in the Mortgage Bank.

We are excited that we are alive and we're excited to show some volumes for the quarter [that ended].

But most of your originations this year then will still be GSE product.

It's (multiple speakers) January.

So we'll take it out (inaudible) I will tell you that the ARMs -- as rates rise, potentially the ARM product could be a very viable option for many consumers and having a jumbo product nationwide -- this is not a New York product.

This is a nationwide product [for] a very large money [center] balance sheet could add some volume.

Now we are not going to talk the volume as aggressive, because it's way too soon to tell, but we believe that market is there.

And we are going to be part of that market.

We are talking very clearly about the possibility of securitizing and also doing commercial lending to a platform that makes sense for us.

So, the likelihood that we will be more active in the lending world is very real.

So the follow-up to that is with respect --

(multiple speakers) portfolio, by the way.

Well, I was going to say would you expect to start showing some loan growth this year, would you [go back] to your earning (multiple speakers)?

Oh yes, we definitely expect loan growth.

Yes, I think (multiple speakers)

That's in our primary product.

Going back to Joe's comments, opening comments, we are seeing a nice surge of applications.

We expect to see loan growth in 2011.

We believe over the next three years, the growth aspects are very strong and we are very excited to be in the market and we are portfolio lenders.

So we are seeing some very interesting opportunities and we are seeing a resurgence here in applications which, again, will also be resurgence in prepayment activity as well.

Great, thanks.

Tom Alonso, Macquarie.

Good morning guys.

Just real quick on the provision for the covered loans, is that like an annual true-up type thing, or is that something -- a process you guys run through on a quarterly basis?

I will tell you that given -- remember the AmTrust portfolio, when acquired, 100% was performing, right, so we did our best estimate on severity losses.

I will tell you that this is broken out on a pool basis.

We have 18 pools that get analyzed every quarter, and the HELOC portfolio did not do well.

That's -- it's just an estimate.

The good news is that it's in the 95.5 bucket, so the net effect is immaterial to the Company, so you will see that pickup of income on the FDIC indemnification and you have in the provision for the impairment.

So I don't envision this going on on a quarterly basis, but we do it every quarter.

In this particular case, when we acquire the AmTrust loans from the government, they will all perform.

So now we have a good indication of performance.

I will tell you that peers (inaudible) that performance is getting better for the rest of the pool.

So unfortunately, where accounting [was] is by a pool basis.

So if you (inaudible) by pool, you guys would take the impairment by pool.

However, the vast majority of the loans are performing probably better than we expect.

Fair enough.

I just wanted to clear that up for myself.

Then on the core margin expansion, was there -- what drove that?

Was there any increased accretion from AmTrust this quarter that pushed that up?

No, I would say, across the board, we have -- the average loan volume was much better even though you don't see that in the portfolio.

We had some larger loans roll off, lower coupons, just seeing pay prepayment activity very, very strong.

We even had better yield on (technical difficulty) conservatively accruing for [some more] investments that have a much higher cash payout.

So net net, it was a very strong -- it was better than we expected, no question about it.

As we go back to Q3, we expected Q2 -- actually Q2, we said Q3 and Q4 should be down about 10 basis points.

So we were down a $0.05 in Q3 and up in Q4, so again, better than expected results (inaudible) and conservatively.

I gave somewhat reasonable guidance for Q1 and going forward that we are looking at flat to maybe down $0.05 depending on prepayment.

Prepayment can be a significant contributor going forward here, and also loan growth, obviously.

Okay.

So ex the impact of prepays, you think you can probably keep the margin --?

That's the plan.

No guarantees, I will tell you that.

We are very pleased on looking at the opportunities on the multi-size portfolio.

I think this will be a growth year for the Company.

We shrunk the balance sheet last year.

We had substantial shrinkage, just given on the cash flow and the investment side.

We have not seen the pressure at all on cash flows for investments.

That is has abated dramatically.

The yield environment is much more attractive and hopefully, as rates (inaudible) a little bit, we'll be back in the market.

As we've been talking about for many, many quarters now, we do expect that a more normal contribution to earnings from prepayment is a higher number than the last four to eight quarters as represented.

I'm not talking about the last quarter.

The last quarter at $50 million is more a reasonable number than an unreasonable number with future expectations.

The reality is that we are in an environment where there will be more prepayment income coming to us and where there will be more opportunity to lend.

So we are expecting to be lending more in the quarters ahead, and we are expecting to be paid more from the standpoint of repayment.

Fair enough.

Thank you guys.

Jack Micenko, SIG.

Good morning guys.

When we talked back in early December, I think the tone was that the GSEs had been maybe less aggressive in recent months than they were maybe earlier in the year.

Any observations since that time around the GSEs on the multifamily side?

I think we've experienced -- obviously, we have a substantial amount of origination (inaudible) (multiple speakers) that you can assume all of that net loans went to the GSEs.

They were aggressive; they are always aggressive.

The question is how much aggressive versus the market.

So I would say they are probably still below the market, in addition to some insurance claims that are in there as well.

But we are dealing with them and we had a sizable amount of payoffs in the quarter, but we are not seeing that today.

Jack, I think the important thing to recognize is that there's far more uncertainty as to exactly where the GSEs are going to be positioned in the period ahead.

There's going to be a lot of political discussion around what should the GSEs be doing and how are they going to prioritize their efforts, given that the GSEs are losing huge amounts of money and with regard to multifamily, they are not in the business of providing additional housing for low to moderate income, which is their mission.

So to the extent that they play in our world, they are mis-stepping.

Although they've gotten away with it in the past, under the view of the Congress which is going to be significantly stronger in the period ahead, I would guess that they are not going to be as active in our niche.

They could easily be out there providing funding for new construction of low to moderate income housing, but to provide financing for existing housing seems highly improbable, at least in our niche.

Then with the prepayment penalties flowing in the NIM, I went back to, like, 2001, 2002.

Is there a reliable sort of (multiple speakers)?

No, I know where you're going, but there is no way to know that.

I think it's fair, as we've been saying, that we would expect that, in the period ahead, we will have more contribution to earnings from prepayment income, but we don't have any way of knowing in any given quarter how much that number will be.

I would add going back to past year, we're talking about (inaudible) zero.

(inaudible) zero but we are not near normal.

So the good news is that we have a (technical difficulty) portfolio, prepayments are (inaudible) on all our loans, both on the commercial side and the straight multifamily side.

These are more -- (inaudible) more extended out to maturity.

So a lot of these loans are already rolling into the second [roll] period where they prepaid will be doubled.

(inaudible) one contemplating on going into the second (inaudible) period.

We have a good opportunity in front of us.

It's reasonable to say, based on the maturity of the portfolio, that we will start seeing a resurgence here.

Thanks for taking my call guys.

Matthew Clark, KBW.

Good morning guys.

Can you give us the amount of loans sold on the mortgage front this quarter?

The total production for the fourth quarter on the [rate loss respect] is around just under $3 billion, just south of $3 billion on rate loss, which is pretty much an indication of gain on sale.

Okay.

Then the j--

(inaudible) just on the say $14.3 billion in total loss volume for the year.

Now, as your member on the previous call, we said fourth quarter will be down significantly off the third quarter but averaging in between second and third is pretty much consistent.

I will tell you that if you look back last year this time in the first quarter, our volumes should be better than the first quarter of 2010.

However, that was our start up quarter.

The market has changed dramatically.

Rates are higher.

Refinancing has slowed down dramatically.

However, we just rolled out a new product that may add some volume down the road, but we believe it will be a nice revenue contributor for 2011, but depending on interest rates and maybe (inaudible) that are refinancing.

Okay.

And any way to quantify the mortgage related expenses in the quarter as well, just to get some sense of flexibility here going forward on lower activity?

We plan on -- (inaudible) this is a breakout of expense for the Mortgage Bank.

We plan on having that activity in our filing, so we'll file our year-end results with the 10-K.

Then on the 30 to 89 day uptick, anything lumpy in there, or anything that might've been resolved subsequent to the fourth quarter or is it just (multiple speakers) --

I think the reality is that was the comment that I had made earlier.

There are occasionally large relationships or large loans that go into a negotiation period or a discussion period or otherwise go nonperforming.

Some of those get resolved very quickly, so the likelihood that we would have a change in the number we've consistently said is very real.

The relevance of the change depends on exactly what it is that we are dealing with.

So without being overly specific, we do have a fairly sizable amount of loans that went nonperforming that are already in the process of being resolved.

So, the situation is always fluid with regard to our nonperforming, but what is relatively consistent is the low loss content over the course of a quarter.

So, our nonperforming, as I've said many times, will change based on some large relationships, but not necessarily continue to be resolved over the course of an 18-month period, but rather could be resolved in as little as one or two or three months.

Okay, thank you.

Ken Zerbe, Morgan Stanley.

Thanks.

Can you just comment on the economics of -- in Mortgage Banking between jumbo and agency loans?

Is there any meaningful difference in terms of the value that you get from doing jumbos?

Yes, I really don't want to get specific (inaudible) the balance.

We went live on Monday, but I will tell you that I would say the spread is going to be relatively the same.

The coupons are getting much higher, so we're going to be delivering into other portfolios, so we anticipate that the economics should be consistent with the GSE product.

However, the coupons are significantly different, so it depends on demand.

My guess is that the ARM products will be attractive in this environment if rates continue to [rise] here.

However, I'd rather not get too specific until we've (inaudible).

Then any comments you have sort of in the non-agency side of the multifamily product just in terms of competition?

Are you seeing any signs that other banks are (multiple speakers)?

Not any meaningful additional players.

There are other players in the market.

When we consider -- and the New York market is huge, and the world is in the New York market.

There are more than just banks in the New York market.

But in our niche, there are very, very few discernible players.

Those few are not necessarily getting -- we expect that, as we go down the road, we will gain share of our niche.

That has been pretty consistently what we've seen.

Obviously, our niche has not been trading very actively.

Certainly, the lowest activity was '09 and improved over the course of '10.

We expect it will continue to improve over the course of '11, and we expect to gain share as we go into the period ahead.

Okay, thank you.

Matthew Kelley, Sterne Agee and Leach.

Good morning.

On the gain on sale line, if you take a look at the ratio and the $2.9 billion of production sold, it would be a 127 sale margin.

Is that kind of indicative of what the market is today, down from 190 at Q3?

That's probably a little tighter.

Obviously, you've seen a change in interest rates, and there was a resurgence in June up until November and the shutdown in December given the seasonality.

But I think it's in that range.

My guess is it will probably tighten, so we're budgeting a tighter spread for '11.

But we should do okay.

Obviously, with a big, big second half in refi rates on the ten-year (inaudible) about 235-ish.

So that shows a lot of refi activity.

But we are pretty focused here that we can have reasonable good revenue benefits here in Mortgage Banking operations despite the volatility in interest rates.

Do you think it will hold 100 basis points in 2011?

I think that's a reasonable assessment for the early part, depending on how much competition is out there and the level of production.

Okay.

A question on the margin, looking at your loan yield at call at 5.69% ex-prepayments and then your security deal to 4.32%, I assume if you're putting on product in the high 4s% or 5%, and then cash flows are being reinvested at new yields, and I'm guessing 3s%, that your core earning asset yield will continue to come down, excluding any kind of deal adjustments or accretable yield adjustments.

(inaudible) the margin.

It's going -- we feel long-term that our margins are 3.85%-ish type margins.

That's pretty much in the level that we believe long-term was reasonable prepayment activity, reasonable spread in the curve, and more importantly stability in retail firms.

If you look at our funding costs, we've been very aggressive on writing those costs down by paying a very low rate to our customers.

Like I said previously, we are at the low-lying level of taking this huge fruit is on the tree.

There is some benefit going forward here, so I think retail fund will be relatively stable.

We'll get some additional benefits, not a lot, on the wholesale side, and we estimate (inaudible) wholesale side.

So again, volumes will be relatively flat, give or take prepayment activity, and then the long-term margin, and if you look at this business model long-term, we should be around 3.85%-ish.

Okay.

And what is the --

That doesn't mean we're going to be 3.85% net score.

I'm saying long-term.

Got you.

What about the TDR balance?

You've got to get me off-line on that one.

I don't have it at my fingertips right now, but I know they have been coming down dramatically from last year.

Last question -- any change in your tax rate?

Are you guys impacted by the (multiple speakers) deduction?

Absolutely.

Yes, very good question.

As you know, we're making a lot more money and the tax rates unfortunately are going up in our area of the country, so I would budget, for your modeling purposes, high 36s%, given the profitability of the Company and the loss of the [REIT] deductions.

Okay, high 36s%, got you.

Thank you.

(multiple speakers) 36.50% to 36.75%-ish.

Got it.

Thank you.

Rick Weiss, Janney Capital.

Good morning.

I was wondering if you could talk a little bit about your interest rate sensitivity?

I think, in your last Q, it looked like you were slightly asset sensitive.

Has anything changed?

It's about the same.

Obviously, we have an interesting environment, because we have the ability to bring in a lot of (inaudible) as needed.

We've been very reluctant, given that we were shrinking the Bank last year with the substantial cash flow from securities.

I said previously on another call and another question that the cash flow had abates, so the good news, we are not pressured anymore to be in the market to grow that portfolio.

If you look at our securities portfolio today, we are just around just south of 12%.

The range would be between 11% and 15%, the range, depending on the marketplace.

The market is not there right now, and we hope to see higher yields.

We will be patient.

But that being said, we will probably I'd say probably in the range of 2% to 5% after taxes range dependent upon cash flows.

Remember, the multifamily cash flow could be significant.

I say that in a very meaningful way to (inaudible) a lot of pricing, a lot of refinancing activity and a lot of additional money taken out to take advantage of the market.

So, we are seeing that down the road.

Mr.

Ficalora indicated that additional pipeline of other 1.4 (inaudible) appraisal.

There's a lot of things going on right now in market, so that could move a lot of cash flows.

Then just back to the prepayment [thing], are most of those prepayments (inaudible) they are staying with NYB or are they (multiple speakers)?

(multiple speakers).

It's a combination of a lot of things.

The first thing, you have loans being sold to the [GNC], you have loans staying with us.

It's a very active market, which we haven't seen for a number of years.

This is a good place to be, and we are seeing it continuing through the first quarter.

Our expectations are the next two or three years should be very strong on activity.

I think the important thing is that we get paid whether they stay or they go.

Right.

I think, back in the day, I remember when you used to break it out a little separately, instead of (inaudible) through the margin for that.

I guess, as we (inaudible) new activity, are you seeing new players coming into multifamily?

You may new buyers?

No, no, more lenders.

(multiple speakers)

Not any meaningful new participants, no.

Okay.

The pricing for now is still rational?

By the way, I always caution there's a very big difference between our niche and the New York market, so there could be very active players with very big dollars in New York City that have nothing to do with us.

More money is lent on product that we would not entertain than lent within our niche.

There's always an outlier where you have (inaudible) becoming aggressive in the market.

It happened a few years ago, and you can probably track the results of a company that are no longer here.

The rest of the players that enter the market come in with more dollars, typically in our [rate] and that's how we got there and we deal with that, usually on a small scale.

Got it.

Thank you very much.

Steven Alexopoulos, JPMorgan.

Good morning guys.

Actually, I had a question on M&A.

I just want to understand what you're saying on margin here.

Are you saying that the change in accretable yield is not a factor this quarter?

Because you did have margin expansion outside of the prepay fees.

Yes.

Obviously, depending on the shock in interest rate, we have a what we will call -- take for example two-thirds of the interest portfolio is adjustable rate.

Rates have fallen precipitously.

They will just lower if you add some adjustments.

I think right now we are seeing some stability here, and rates are now viewed as going down right now.

So you may have some benefit there.

But again, I'm not hanging my hat on that as the margin contributor.

(multiple speakers)

These loans were all performing when we acquired them.

We have (inaudible) on that and we have accretable discount that is associated with the market.

Tom, are you modeling that prepay fees stay at about this level in the first quarter?

Is that why you're giving this guidance of flat to (multiple speakers)?

We like to model conservatively, but I think it's fair to say we had some good visibility into Q1.

Then I wanted to ask a question on the M&A outlook.

How are you guys viewing the landscape here for traditional deals?

Are you seeing many sellers?

Maybe you could talk about seller price expectations.

I think broadly in the marketplace there's a great deal of discussion occurring.

People have talked about activity levels going up in '11, and we've already seen indications of that.

Having said all of that, although we are always participating in the marketplace, we look at far, far more than we ever do.

Do I know that there's going to be a deal in this market, meaning a New York-based bank is going to sell?

I do not.

Do I know that there are lots of people talking about doing deals?

Yes, there are.

But that doesn't necessarily mean anything happens.

So with regard to where we are, we are obviously always interested in understanding where the opportunities are.

As we've indicated in the past, we have a preference for FDIC deals, but they may not exist.

So we are entertaining both traditional deals and FDIC deals.

I would just add that, in general, hearing what's out there in the environment and the opportunity, it's very fluid, more so than the previous year.

I would expect to see M&A activity pick up considerably so -- throughout the entire country.

This is a challenging environment.

Expenses are much higher to run your business, and there's less demand for loan production.

So obviously some other companies will want to grow their overall portfolio through acquisition.

So you're seeing a lot of opportunities in dialogue, and I think it is going to continue dramatically in the years ahead.

Steve, I think it's important to recognize that our activity level is always high, even though we may do very, very few deals or we may not do a deal for another year or two years.

We will in fact be in the market considering deals.

Yes, it's just that seller expectations seem to have gone up a lot.

I was wondering if you found (multiple speakers)

That's only just recently.

I think that seller expectations across the country have come down a lot over the prior period, meaning over the course of many years in the past, sellers had significantly higher expectations.

I think we've seen some deals that were take-unders or otherwise deals that resulted in far less than people would've expected.

Having said that, we've also seen some very recent deals where the pricing has turned the corner and has been richer than would have -- one would've expected in '09 or maybe in the beginning of '10.

So it is a mixed marketplace.

Depending on the particular bank and what their financials look like, there could be a very big difference in how certain banks will trade.

Thanks for the color.

David Hochstim, Buckingham Research.

I wonder.

The jumbo loans that you're starting to originate for the Bank, are those loans that you would be retaining servicing on, or (multiple speakers).

No, they are servicing released.

So that should the gains be higher than you're getting on the loans where you're retaining servicing?

You're (inaudible) economic.

I really don't want to go there as far as the economic yet because we really just started effective Monday.

So hopefully we'll have some better color in the quarters ahead for you guys as far as true economics.

But we will price our activity to do business with servicing released.

And then just in terms of the $1.4 billion of loans out for appraisal.

What would comparable a number have been at the end of September?

I think I don't have the exact number, but let me say to you, as we reasonably would expect, there are variations from quarter to quarter.

Based on the activity flows, a lot of closings occurred, for example by year-end for tax reasons and other reasons.

So the early period closings, January closings, are always lighter.

So the idea here is that $1.4 billion out for appraisal is a high number, and we would expect, on a go-forward basis, to have comparable high numbers.

We have not normally reported that number because the fallout in loans for appraisal is higher than the fallout would be for loans that we have typically reported.

So when we say we have $1.1 billion, that represents loans that we actually have checks on, that we are in the process of bringing to close.

When we say that we have $1.4 billion with the appraisers, that means we've gotten a check to pay for the appraisal and that we are considering the loan very actively, but the fallout levels may be higher.

So there are no exact numbers that one can derive from this.

All I will say is that it clearly indicates a very strong market and the likelihood that what we've been saying for quite some time now, that we will be seeing increasing volumes go forward is being verified by our actual activity.

Then could you just give us some color on what you're originating in commercial real estate loans in the last quarter, two quarters, where those loans are located, what they look like?

Primarily everything that we are doing, the bulk of everything that we are doing, is in New York.

North of 95% (inaudible)

Yes.

That activity, in other words the opportunity to gain share in niche, creates a significant greater likelihood that we will more efficiently execute on those loans that are coming to the table.

Those commercial real estate loans, typically are they related?

As well.

In the case of commercial, it's in Manhattan and certainly other relationships that we've had for long-standing.

Can you give us a sense of how much, how many of those would look like multifamily loans?

I think the numbers are about 78% of the loans that we have that we've defined as being in pipeline, or multifamily.

That number is higher than what we've been reporting previously, and our overall portfolio is just shy of 71% in multifamily.

I would say that, in this environment, (inaudible) 1031 exchanges more so the traditional [issue multi] because of the environment.

But we are at a high price environment.

Three, four, years ago, five years ago, it was mostly 1031 exchanges.

But the LCDs are still substantially lower than the industry, and good solid credits (inaudible) relationships, mostly with our relationships.

Maybe I'll ask again because I know people have been asking the same thing.

But in terms of competition and price competition, is it relative to the fourth quarter versus two or three quarters ago, are you seeing any appreciable difference?

I think the range of pricing has been consistent.

It bounces around up to (inaudible) [CMT].

But the aggressiveness of [standing] is somewhat less now.

That does matter in our market.

Thanks a lot.

[Andy Binhaus], RBC.

Good morning guys.

I think you've indirectly answered this question, but I just want to answer ask it directly.

Could you give us some insight into what's driving the demand side of the equation?

Is it loans maturing?

Is it actual sales transactions, refis?

Are people nervous about interest rates?

What's sort of driving this demand?

You've named all of the things that are driving it.

I think you have a sense of what would drive this market.

The reality is that there is a larger expectation on the part of property owners that rates might go up.

A lot of people were not refinancing.

We had transitioned into year six.

From our portfolio, historically it never happened, and over the course of '09 when there was no activity out there, people started going into year six, and in '10 there is some movement into year six.

A lot of those people are now coming back and buying properties and refinancing, or otherwise we are seeing other properties refinance in their normal course.

So our average life went up to as far as 4.2 years and is beginning to fall back.

We would expect our average life to continue to decline in the period ahead.

I would also add the volatility of just the change in the [belly] of the curve has prompted many customers to rethink about locking in a lower rate.

If you lock in at the low of, say, August/September, rates have moved up tremendously from here.

You have to look at your financing and this is a great opportunity to lock in the next five to ten years (technical difficulty) and they'll pay the prepay and they'll get a lower rate.

Eric Beardsley, Barclays Capital.

Thanks.

I'm just wondering, in terms of the $1.1 billion pipeline, the $1.4 billion you have out for appraisal, what percentage of those roughly are refinancing?

Offhand, I can't give you a number that would be exact.

We'd certainly find out and we can talk about that off-line.

I would say probably at a higher percent than the previous quarter of new money, new money.

Then I guess if you know, what were the yields on covert loans during the quarter?

I would say probably all in, you're looking at somewhere the mid 5s%, all-in.

Okay, great.

Thanks.

Bob Ramsey, FBR Capital Markets.

I'm back.

Thanks for taking the follow-up.

I just was wondering if we could touch on expenses and sort of what you guys are expecting going forward?

I know previously you had said to expect kind of $135 million to $136 million plus the intangible amortization.

Yes.

We typically don't give guidance but I'll give you some expanded color here for the quarters ahead.

I would say the range between $137 million and $138 million as a range for the quarter, excluding CDI.

CDI would be separate.

Okay.

Great.

That's all I have.

I gave a tax rate.

I gave an expense number.

You guys have to figure out the topline.

Thanks.

Collyn Gilbert, Stifel Nicolaus.

Actually, Bob just took my question on expenses, so I am off that.

Thanks.

It appears we have another question from the site of Bruce Harting, Barclays Capital.

Now that you've had it for some period of time, I'm just curious.

With your low efficiency ratio, I'm surprised that you can make the Mortgage Banking business work, but you obviously are making at work.

I'm just curious how -- what do you see in the future about originating and selling mortgages that in the past you didn't want to -- maybe you didn't want to do it, or you didn't have the opportunity (multiple speakers)?

I think we're doing it in a very conservative way.

The main reason we didn't want to be in this business was due to risk.

We've taken a lot of time trying to mitigate risk and build on the real strength of a business that has the ability to do multiple things.

So we are using the platform for a variety of ways to make money at low risk.

It's a turnkey operation.

They have a significant track record for the mortgage bank side.

Obviously it's very profitable, because you look at the allocation of capital and the returns they're getting on their capital, it's very high.

Given the first year of operations, the numbers were significantly better than we expected.

Even in the downtrend market here, we believe that we are staffed to a level to deal with lower volumes and this will be very profitable.

So we'll make money in the business.

Again, I think the revenue contribution may be less depending on the percentage of the mortgage share that we get.

But consistent with previous years, we'll be profitable.

We had a very good year in 2010.

We expect to make money in 2011.

If we are not making money, we will address the cost structure.

I guess the two stumbling blocks for other companies we've seen in the past 10, 20 years was the -- had to deal with the MSR and the inflationary effect on the overall efficiency ratio just being a higher-cost business relative to your excellent 30 -- low 30s.

Absolutely.

So you've reconciled how to sort of manage those two risks.

I think [when] we see unique opportunity, we start at 0 MSR.

That's the bottom line.

We started with 0 UPV and we have a cost structure that was up and running that was turnkey.

We believe that the allocation of that capital (technical difficulty) well-managed to a certain level.

We're not going to run the MSR to a level that doesn't make sense for the capital structure, right, so we are looking at a unique opportunity where we had a full staff, as we've been doing this for decades, and we had 0 allocation of capital to an MSR when we started the business, because that entire portfolio was left with the FDIC.

So if you look at the coupons that we've put on over the year of 2010, they are at the lowest levels in 30, 40 years.

The value of that MSR, we believe, has long-term value.

We believe it's not priced effectively in the market today, so we are holding some.

There will be a point in time when the market becomes better for that valuable asset, we will sell it.

We will sell the MSR, a portion of it.

So where we at least have a revenue stream that has efficiency to manage the servicing side.

Then is it implicit in any way your interest in the business that Fannie and Freddie are going to get greatly downsized when we finally see the treasury report, or that doesn't really matter?

I mean you're just (multiple speakers)

You're talking about on the residential side?

Yes.

Well, look, you know, people need mortgages, right, in the United States.

So we are going to be there as a provider.

Hopefully, they'll figure out a way where we are not going to damage the consumer by not having access to credit.

We have originated over $10 billion of business for the consumer, so we are lending where other banks are not lending.

We are lending and we are letting a lot of money to the marketplace and we are proud to be able to be in that space and provide (inaudible) liquidity and mortgages for consumers.

I think that over time we may have to augment the business model, but there probably will be changes and we'll be ready to make those changes.

I think, Bruce, there will always be a place for these loans to wind up.

They're not going to wind up in our portfolio; there'll always be a place.

The market cannot go without there being a source of loans for residential housing.

So there will always be a place.

Whether Fannie and Freddie are totally restructured or even get out of the business entirely, there will always be a place for these loans.

So we will in fact have an outlet for the generation of loans.

The marketplace can't stop lending.

I think what's most important for us, we have a unique business model regarding the mortgage operation.

It is a paperless operation.

It is a very unique efficient operation.

I think it's a well regarded in the industry.

We can put our volumes when the opportunity is there, and like I said, we just rolled out a new opportunity we hope that will be successful, but we believe there will be other opportunities down the road that we should capitalize on.

Thanks Joe and Tom.

We have no further questions at this time.

Mr.

Ficalora, do you have any closing remarks?

Sure.

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

We look forward to discussing our first-quarter 2011 results with you on the morning of Tuesday, April 19.

That is an unusual date for us.

Tuesday, April 19.

Thank you.

This does conclude today's New York Community Bancorp's fourth-quarter and fiscal year-end 2010 earnings conference call.

Please disconnect your lines at this time and have a wonderful day.