Flagstar Financial Inc (NYCB) 2011 Q4 法說會逐字稿

Good day, everyone, and welcome to New York Community Bancorp's fourth-quarter 2011 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'd like to turn the call over to Ilene Angarola, Director of Investor Relations and Corporate Communications.

Please go ahead.

Thank you.

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

Today's discussion of our fourth-quarter 2011 earnings will be led by our President and Chief Executive Officer, Joseph Ficalora, together with our Chief Financial Officer, Thomas Cangemi.

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 in our local markets, changes in interest rates which may affect our net income, prepayment penalty income, mortgage banking income, and other future cash flows or the marketed 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 registration, regulation, and policies.

You'll find more about the risk factors associated with our forward-looking statements beginning on page 7 of this morning's earnings release, and in our SEC filings, including our 2010 Annual Report on Form 10-K and our first, second, and third quarter 2011 10-Qs.

The 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.

To start the discussion.

I will now turn this call over to Mr.

Ficalora who will provide a brief overview of our fourth-quarter performance before opening the lines for Q&A.

Mr.

Ficalora.

Thank you, Ilene, and thank you all for joining us this morning as we discuss our fourth-quarter performance which was notable not only for the continued strength of our earnings and margins but also for our increased efficiency, a high volume of loan production, and the continuing improvement of our asset quality.

Notwithstanding the decline in market interest rates over the course of the quarter we generated fourth-quarter earnings of $117 million or $0.27 per diluted share.

Our earnings provided a 1.23% return on average tangible assets and a 15.89% return on average tangible stockholders' equity.

The continued strength of our earnings is reflected in our solid capital position with tangible stockholders' equity representing 7.95% of total assets.

excluding accumulated other comprehensive loss.

Based on our earnings and capital strength, the Board of Directors last night declared our 71st consecutive quarterly cash dividend and our 32nd consecutive quarterly cash dividend at $0.25 per share.

The dividend will be paid on February 17, 2012, to shareholders of record at the close of business February 7.

The strength of our earnings can be attributed to a combination of factors, not at least the least of which was the stability of our net interest income and margin, even as market interest rates continue to decline.

On a linked quarter basis our net interest income rose $5.3 million to $300.3 million.

Our margin, meanwhile, rose 12 basis points to 3.45%.

These increases were largely due to an increase in prepayment penalty income as a decline in market interest rates over the course of the quarter prompted increased activity in our multifamily niche.

Specifically, prepayment income added $28.9 million to our net interest income and 33 basis points to our margin in the last three months of the year.

This is the highest prepayment income we have ever booked.

While the stability of our net interest income and margin contributed to our fourth-quarter earnings they were not the only factors leading to our strong results.

We also reduced our operating expenses by $5.6 million linked quarter and generated strong mortgage banking income of $24.7 million.

Reflecting an increase in total revenues and a decline in operating expenses our efficiency ratio improved to 39.15% in the fourth quarter, reflecting a linked quarter improvement of 235 basis points.

I would now like to turn to our balance sheet which was notable for a number of reasons, starting with the significant volume of loans we produced.

Loans originated for investment totaled $2.4 billion in the fourth quarter boosting the full year volume to $9 billion, the highest volume of loans we have produced for a portfolio in our public life.

Reflecting this increase, held for investment loans grew to $25.5 billion at the end of December, representing a $1.8 billion or 7.7% increase from the balance at year end 2010.

Multifamily loans accounted for $5.8 billion of the full years volume and for $1.6 billion of held for investment loans produced in the fourth quarter of the year.

As a result, multifamily loan portfolio grew to $17.4 billion at the end of December, reflecting a $630.8 million increase from the year-earlier amount.

At the same time, as we were making loans we were also making real progress in our efforts to improve our asset quality.

At December 31, 2011, I am pleased to report our ratio of nonperforming, non-covered loans to total loans was 112 basis points lower than the ratio we recorded at December 31, 2010.

Specifically, nonperforming non-covered loans represented 1.11% of total loans at December 31, 2011.

That is a 50% improvement from the year earlier measure of 2.23%.

This also is substantially better than the year end average for SNL US Bank and Thrift Index.

With 119 banks and thrifts having reported as of Tuesday, the average industry measure was 217 basis points higher than ours and their measure was at 3.28%.

In addition our nonperforming, non-covered assets represented less than 1% of total assets reflecting a year-over-year improvement of 60 basis points.

This too compares quite favorably to the industry average which was 2.34%, according to SNL.

We believe that these improvements are indicative of our resilience much as our earnings capacity and our continued capital strength reflects our quarter too.

These are traits that should serve us well in 2012 and we look forward to reporting on our performance in the quarters ahead.

At this time I would like to open the call through the operator to your questions.

We'll do our best to get to all of your questions in the time that remains.

Now the first question, please.

(Operator Instructions).

Bob Ramsey with FBR Capital Markets.

Good morning.

I was hoping you could talk a little bit about net interest margin.

I think core margin came in a little bit narrower than maybe expected but you add a big benefit from prepayments.

Where are you all underwriting new loans?

Sort of what is the new yield coming on your books and can you talk a little bit about your margin outlook from here and maybe your prepayment outlook from here, too?

Hey Bob, it's Tom.

A couple of things.

I guess in respect to guidance we give very -- we will call it short-dated guidance, so in respect to the quarter even in this environment margins will be coming down slightly.

So again the range last quarter we budgeted around 5%; that was the estimate, we came down 7 basis points.

My guess is between 8 to 10 basis points in Q1.

I am not going to give a further range in Q1.

In respect to the actual loan closings we had in the fourth quarter, the average yield that we put arms around [420] so if you look at that based on the five-year treasury that is around 330 basis points on average.

I show a little bit higher than that so right now new business is somewhere around the low 4s.

Okay and then similarly, I guess security balances were down this quarter.

Is that a reflection of using those funds to fund mortgage origination business?

Or is that part of the strategy (multiple speakers) what is happening there?

I think there is a number of attributes.

Obviously the warehouse was better than expected.

Our warehouse balance was up about $0.25 million better than our budget so we estimated between $750 million to $800 million.

We came in around $1 billion for average balances for the warehouse.

That is a very attractive yield; as an alternative security, it is short dated around 13 to 15 days backed by Fannie and Freddie and a very good strategy for us.

So that was better than expected so we obviously kept this out of the securities market.

Given where rates were, it has been a very challenging time to invest into the securities market.

We are trying to avoid the ratio risk so, obviously, if rates are higher in the future we would probably put on some more securities just given where the balance sheet is currently around 10.8%.

Probably too low for the franchise.

It should be somewhere between 12% to 15%.

We are hoping for a little bit of relief here on the back end of the curve so we can put some money to work.

But if rates stay where they are, we should expect securities to continue to be flattish or down a bit.

I think I would probably say flattish.

It is very difficult to look further down from here given where our collateral position is.

10.8% is a historical low for the Company.

Okay.

And then, I guess circling back on prepayments sort of how are you all thinking about the outlook in future quarters?

Obviously it can be lumpy but it was a very good quarter.

Yes.

We had a phenomenal pre-pay activity in fourth quarter as expected as the quarter progressed.

Q4 is always a very active time of year but given the waiting period we had for activity in general, we expect to see the continuation of a very strong prepayment activity.

We never give guidance on prepay, but I will tell you that the environment is still very strong.

Rates are generally low and there's a lot of business to do in the New York market.

So we are seeing some good activity and we have a very strong pipeline going into Q1.

I think our pipeline is one of the strongest pipelines we have had, which is unusual for Q1.

So, this is a very good environment for us to continue managing the margins through prepayment activity.

So again missing 2 basis points off of budget 5 to 7, that was also dramatically by prepayment activity.

Bob, the important thing is that I guess the last couple of years we have been indicating that we would see increased lending and increased prepayment as we go through the period, and each year has demonstrated that.

We think that 2012 will be a very strong year and as is always the case from one quarter to another there can be variation.

But the overall strength on the prepayment side is part of the business model.

Great.

Thank you.

Matthew Clark with KBW.

Good morning.

Just on that last question, can you just give us the mix of refi versus purchase in the multifamily pipeline of, I think, at $969 million?

I would say probably about 60/40 new business.

New business refi?

Yes.

60/40 with 60% of the new business, 40% being refi.

But again it changes dramatically.

It is interesting to have such a very large pipeline coming out with a very -- we will call it significant growth quarter in Q4 which is very favorable for the activity of prepay going back to Mr.

Ficalora's point.

And then on the 30 to 89 day increase, anything lumpy in there?

Anything that might have been resolved since quarter-end?

Yes, very long -- I mean, we feel very confident that most of that will be worked out in the current quarter.

We have had some very big things moving in the early weeks of the year.

Couple missed payments.

The good news there is that it is not a trend and we believe that will be not -- in our opinion most of that stuff will be worked out or has already worked itself out already as of today.

Okay and then just lastly on the M&A front in light of changing regulatory environment, I think you guys have stated in the past your reluctance or limited appetite to get above $50 billion but knowing that you will eventually get there and you are going to deal with stress test anyway for being above $10 billion.

Could you just give us a sense for or update us on your thoughts on M&A?

I think the important thing is that we are always made aware of the opportunities that the market presents and we are very consistent and conservative in our approach.

So the likelihood that we would do a small deal is probably less.

The likelihood that we would do a big deal would be driven by those opportunities that the market actually presents.

Given the environment, we think that there will be down the road many things for us to seriously consider.

Okay.

Thanks, guys.

Rick Weiss with Janney Montgomery Scott.

Thank you, good morning.

Is there anything new that is going on with the administration's proposals or on the regulatory front that will affect either the core multifamily business or your mortgage banking operations?

Not specifically the multifamily business.

Mortgage banking is part of a lot of discussion but our people are very much on top of that and working toward being sure that we are always going to be compliant.

The reality is that there are people in the Congress that recognize that some aspects of the regulatory environment are presenting a conflict with the ability for banking at least to increase its lending.

So there is an effort in Washington to try and re-stabilize the situation somewhat.

Rick, just given our positioning as a mortgage bank given the timeframe when we actually got into the business, if there is let's call it significant changes on the residential side to stimulate activity in the mortgage financing market, we should be a beneficiary there.

Right so it actually could be helpful for your mortgage bank?

Absolutely but, again, there is a lot of stuff that is out there that is still uncertain and it is not final.

Okay and then just a more mundane question if you could -- on the salaries expenses line it looks like they dropped significantly from the third to fourth quarter?

Yes.

We as you remember if you recall on the last quarter we actually had an actual charge we'd taken for some efficiencies through the bank and retail operations that was driven to some job cuts so that was no question a plan that we put in place for the current environment, given the retail platform getting operating efficiencies and as expected.

Okay, thank you very much.

David Hochstim with Buckingham Research.

Good morning.

I wonder could you tell us in the mortgage banking business was there any MSR impairment this quarter?

I mean, obviously, given there's always an adjustment to MSR; but net net, we filled up pretty well given Q3 versus Q4.

Net net we were relatively neutral on the servicing side.

I believe the overall net mark was probably down like a $10 million adjustment offset by hedging gains.

So net net, the hedging activity worked out pretty well.

Overall, the quarter was pretty calm in respect to follow to the and respect to how we hedge to our position.

So as expected I think we said on last call we expected servicing income to be at least a neutral.

So we came maybe up $0.5 million on servicing income.

Overall origination income was very strong at $24.1 million.

So for the quarter, it was the strongest quarter of the year but given the volume compared to Q3 versus Q4 we have really inked out a lot of our inefficiencies in the system.

So our realization was better, fallout was better and we are very pleased with the results.

Going into 2012, we hope that those changes we made on the systems will benefit us given the volatility with the application that we are seeing.

And gain on sale margins (multiple speakers)?

It came in -- we have seen [120, 130], consistent to Q3.

And where are they in January?

The same.

And then could you just talk about the opportunity to grow now in money market deposits and savings accounts in Ohio and Florida and kind of reduce your reliance on CDs and lower your funding costs that way?

I think as we have said on various occasions, the operating efficiencies of some of these new markets actually is significantly better than that of our existing New York market.

And when you think about the deposit base they are in and of themselves unique.

For example, the average age in Arizona is higher than the average age in Florida which of course is higher than the average age in New York.

So the unique distinction between the markets does present an opportunity for us to selectively choose in market products that better fit those particular markets, and it also gives us the ability to change rates on various deposit choices that make sense for us to do.

So I think the tools we have with these diverse markets are actually improved and our ability to bring our overall cost of funding down dramatically.

I think the drop-off in our cost of funding year-to-year is significant.

We are at 79 basis points.

That is at a very significant change for us coming from 105.

So by example when you look at borrowed funds that's at a very fixed cost and that goes up from 382 to 388, whereas deposits go from 105 down to 79.

That number is an important part of what gives us the flexibility to adapt and adjust to realities of the market place.

Right but so we look forward if you are adding new loans that are around 420 and your average yield of over 5 still how much room is there -- ?

How much room do we have to lower our cost to deposits?

Yes.

Yes.

I think that that is going to a great degree depend upon where the marketplace is.

So for example in our NOW and money market accounts, we are at 45 basis points and 39 for savings.

That is low compared to some of the banks that we compete with, let's say in the immediate market.

That is very high compared to Citi or Chase or some of the other banks that are also in our markets.

So the ability to move on CDs is less likely than the ability to move in other types of deposits.

And that will be driven by the marketplace.

So think about the reality here.

We have significant greater opportunities on the earnings side than many of the banks that we compete with.

If banks are going to operate losing money because they pay too much for their deposits, they can only do that for so long.

So the marketplace will evolve, based on where the real rates are on the asset side of the balance sheet.

No one is going to get big returns on assets.

Everyone is going to have a lesser return on their assets.

So people are not going to be able to pay inordinate amounts for savings.

It is just a reality that even though they may be doing it over the course of the last year, they are not going to be doing it over the course of the next year.

David.

it is Tom.

If you look at where our current cost of funds are and you take in the non-interest-bearing accounts which is material for us, we have a fairly large book of business there, you are running around 64 basis points for the quarter.

Given where rates are we still make a very healthy spread by growing deposits.

We are fortunate enough to be successful in bringing in deposits.

We still make good money on spread.

Okay.

All right, thanks.

Collyn Gilbert with Stifel Nicolaus.

Good morning.

Can you just talk about the opportunities that you are seeing within commercial real estate and multifamily?

And then how do you see that mix evolving over the next year or two?

Because you guys have really been growing the CRE portfolio quite nicely over the last few quarters.

You know, I think there is no question that the marketplace that we principally do our business in is very, very strong and we are seeing a great deal of opportunity.

We don't do -- as you well know, we don't do every loan that we are asked to do.

And sometimes we bid on loans and we bid more conservatively than others in the marketplace therefore we don't get every loan.

So the important thing is that this market will be rich and there will be plenty of opportunities, both in commercial on a conservative basis and in multifamily.

And we are likely to grow our book over the course of the year.

I would just add looking at the overall credit parameters, our overall LTV for the commercial real estate books are around 50% and multis are 51%.

So we are seeing some good quality opportunities.

And are these credits coming out of the conduit market?

Do you see that as an opportunity going forward?

The reality is that the marketplace in 2005 and 2006 and even in 2007 included an awful lot of players.

The conduit market was very aggressive in lending.

There were lots and lots of defaults from that excess lending and those loans were not broken up as quickly as let's say they would have been had they been in banks.

So that is why we had such a slow 2009 and early 2010 and that is why things are picking up now.

So yes, we are seeing some of the things that were entangled coming to the marketplace.

And we will continue to see that as we go down the road.

Okay.

That is helpful.

Thanks.

Matthew Kelley with Sterne, Agee.

Just staying on that discussion about just the mix.

Commercial real estate went from 21% of loans in 2008 to 28% this year.

Where do you see that going that as a percentage of total loans?

Well, the reality is that there are plenty of good opportunities.

We are not driving our lending decisions based on the percentage of our overall portfolio.

So we are doing loans on a one up basis.

If it is a good loan and a good property and we are very comfortable with her credit, we are doing the loan.

But I would suggest to you that we are going to see more in the way of multifamily as well.

And we are likely to be seeing that rebalancing, if you will, continue to be pretty stable.

Even though we moved over the course of this last year I think it will be pretty stable over the course of the year ahead.

I would just add that the volume of multifamily opportunities given the refinancing, new business, stuff trading away, very high fee content business, we had a lot of activity.

So despite the fact that we had some good growth here in commercial the activity multi was significant.

This environment that you had -- you are running in place you are still doing a lot of good business.

So going forward if rates start to trick up a little bit here you may see some more multi-family growth because you will have less stuff leaving the portfolio.

But there is no question the activity level of multi is significantly higher than commercial right now.

Okay.

And, also, the LTVs as Tom mentioned earlier are very, very low.

So people are putting a lot of money into these properties.

There is a lot of money from the world that is investing in real estate.

So the ability for us to do these commercial loans at low LTVs is very attractive.

What do you see for non-covered loan growth in the year ahead?

We typically don't give elongated guidance.

We had a pretty strong expectation in 2011 despite all the difficulty we still grew in that loan book we covered at around 8% net so that is a high single-digit number.

It is early in the year.

I think it's very fair to say there could be a high single-digit grower in this environment.

That is conservative.

Obviously if rates go the other way and we see a spike up here you will see more stuff staying within the portfolio, not leaving the portfolio, going to the conduits and the [AD] agencies.

So I think it is fair to say that in this environment must be consistent with 2011 and hope that if rates do rise a little bit here we will have some more growth.

Okay and then just last question.

Can you talk about the stress test in relation to your dividend?

I mean if you strip out some of the prepayment excess this quarter very solid but the core number you would be running at pretty close to earnings level, equal to the dividend.

How do you feel about that, just in light of the fact that (multiple speakers)?

What I would say, I tell you, having the ability to have a differential business model generates high fee content, gives us lots of flexibility to be less aggressive than most banks have to be right now.

We have been significantly smaller.

We have a capital elevated more than we have to right now.

And more importantly, we are not taking on the duration risks that most banks are taking on by choice.

You know, we don't need to be at 10.8% on the security side.

We could be doing other things but we are writing conservative loans.

We have a significant amount of prepayment activity.

Given the waiting period -- now we waited three years for activity and we said it's coming.

One year, it didn't come.

It came the next year.

It didn't come.

[Ultimately] it's here, we will join the benefit of a high fee income content business.

We don't make much fees on the retail side, we make our fees on the lending site.

So enjoying this very unique environment.

As we look going forward, we have a lot of flexibility given our capital base.

We have a lot of flexibility given the ability -- as well as asset quality.

We have significant improvements in asset quality.

So we feel pretty good about the current balance sheet positions well for growth.

Now obviously we have tapered down on growth, in particular because of the interest rate environment.

It is a very challenging interest rate environment.

But given we have limits here going the other way, we'll be able to put some significant growth to work.

So on the dividend specifically do you feel like it's as stable today as it was last quarter when we talked in October?

Look.

The dividend is we [follow] rules as driven by our regulators.

And we follow them on a quarterly basis and we have said this message for multiple years now.

We're very confident in following those rules.

Honestly our asset quality has improved.

We are building less expenses dealing with bad assets.

You know, you had a significant 47% drop year over year in NPA.

So I think the quality of the portfolio is better.

That will probably -- to less provisioning in the future depending on any new buckets coming in which we don't see that right now.

We are seeing very good high-quality lending in the New York market and things are working themselves out.

So that being said I think we're smaller, we should be larger and I think I said previously we should be between 12% to 15% in securities.

It is very difficult making that call going out with duration risks and earning very little.

It is not the best strategy right now.

So we have been avoiding that approximately 24 months.

Our mortgage banking operations fed very nicely into a well-balanced barbell strategy in a tough environment.

So enjoying good return at a 123 return on asset.

You know, 16% on equity in a tough environment.

So we feel pretty good about where the balance sheet stands to make money this year.

We are consistently conservative in our approach.

So we, by choice, earn less than we obviously have the ability to earn.

So the likelihood that we would be in a position where our dividend would be challenged is far less, given the overall depth and strength of our ability to earn.

You are saying you are underearning because you could add more longer-term securities and more leverage to (multiple speakers).

No, we could do it in a variety of ways.

In other words, we consistently make choices across the spectrum that are conservative choices that would likely have a better outcome, given the uncertainties of the future period and when we do that we do that with a lesser return.

And then you could look at any number of other portfolios and I think you'll see a very different picture.

We have elevated capital levels right now and we are comfortable with that.

And obviously if markets change we will be able to deploy it.

Got it.

All right.

Thank you.

Mark DeVries with Barclays Capital.

I just wanted to clarify some of the moving parts in the mortgage banking business.

I think earnings were basically flat in that area despite up volumes and I think the release says that that was due to higher servicing but lower income from gain on sale.

But I guess you guys commented that some margins were flat Q over Q.

Was there an issue with pipeline hedge or something that --?

I think -- and very clear Q3 versus Q4 our realization was better, slightly better which we expected given some changes we made internally.

We had less fallout.

Obviously you know it was a significant ramp up in Q3.

Volumes was -- [rate ops] were off the chart.

A lot of deals went to other banks, given timing.

So it worked out very well for us.

Feel comfortable going into Q4 as far as stabilization on hedging activity.

So it is kind of where we expected the servicing would be a neutral without any losses, given the current rate environment.

So we are very pleased.

Actually we came in better than we expected.

I believe I guided last quarter average between Q1, Q2 probably $6 million lower on income.

So we came out $6 million higher based on budget.

So I think in Q4 versus Q3, very pleased.

You know, it is very early going into Q1 but volumes are strong, which is a good thing.

And it is all rate dependent.

Obviously we are doing some different things on the mortgage banking side trying to do some new business with some other accounts that our portfolio bid for the loan.

But I'll take that.

If rates trickle up here it'll definitely move on the origination volume.

The good news for us, I think with the system changes we have made, it will give us the ability to react.

Okay.

Thanks.

Dave Rochester with Deutsche Bank.

Good morning.

Quick question, back on the NIM discussion.

One bank had mentioned recently -- that does multifamily and CRE lending in the city -- that they had seen spreads tighten in January versus the fourth quarter by about 25 basis points.

Are you seeing any of that dynamic?

I will tell you in Q3 we were about -- 476 was our average coupon we closed.

Q4 was for 20.

There is no question [where follow the five STMT], you know, put on 300 to 330 basis points there.

That is pretty much the market give or take 10, 15 basis points.

You know if we have you know right now that is running around 400, 410, 415 -- it is what it is.

We are playing in the marketplace.

But the good news for us is that we are a significant originator and portfolio lender and we expect to get our share of the business and we have to play within the marketplace.

There are some other banks that are being very aggressive in rates and also dollars.

But that is not unusual for this space.

We have seen that over the past decade.

Yep, that is very true.

So I would imagine that additional spread pressure is worked into what you are talking about in terms of NIM expectations for 1Q?

Absolutely.

And just one real quick on the deposit flows.

It looked like there was some outflow in the DDA account at quarter end.

Any chance any of that comes back and is that also worked into that margin expectation?

Yes, that was all fiduciary money through the mortgage banking operation.

Tax (multiple speakers) paydowns.

Great.

It will come back then.

Because we are running a $13 billion book now.

Great.

And one last one on the expense side.

Any additional leverage you can pull there if you wanted to or needed to?

I think in general we have done a fine job over at the past six months identifying some key areas of efficiencies.

We work on that everyday.

We are an efficient bank.

I gave guidance around $143 million; I will give it again, we will be around $143 million Q1 and I think it's a reasonable run rate so I am not looking to grow our expenses in 2012.

I think some of the benefit will be on the foreclosure expenses and managing the nonperforming assets.

That number could be a significant catalyst to bottom-line.

We had a sizable MPA book that is being diminished dramatically.

We have seen some very good work being done by our people moving out OREO quickly, moving out the MPAs.

I think the good news there is that will help the efficiency.

It doesn't feel near like it was in the beginning of 2009 and 2010 as far as the level of MPAs so I feel very confident by saying charge-offs have peaked.

MPAs have peaked.

So we are sitting in a much different position.

For the New York market.

Now, other parts of the United States are performing very differently but the New York market is very resilient right now.

I think it is important to note that with the decrease in our nonperforming we actually have an increase in the ratio of interest-earning assets, interest-bearing liabilities.

That ratio gives us the ability to actually put more money into the bottom line because we have more assets that are earning.

And that will continue to be the case as we go forward.

Okay, great.

Thanks, guys.

Brad Ball with Evercore.

Good morning.

Just a couple of quick follow-ups to some of the things that have been discussed.

On the mortgage bank, you said your warehouse is at about $1 billion or so now.

Is that where you would expect it to continue to run going forward?

I ran a conservative run rate for Q4 between $750 million to $800 million.

I will stick to that number today but we hope to be above that.

So we ran about $1 billion in Q4.

So it gave us the ability to not to be as active on putting our cash because we had used that for the warehouse.

Where we stand today I think it is reasonable but that could change dramatically.

If rates were to stay low here that number could be elevated.

If rates were to spike the number could be reduced.

If it is reduced we will be putting money in the securities market at higher rates.

In terms of your NIM guidance are you assuming it stays about stable?

A little bit -- I have it down a little bit maybe between $750 million to $800 million.

Okay so if rates stay lower and mortgage banking volumes (multiple speakers).

It will be elevated after the NIM.

Okay so that would help the NIM.

Good.

Quickly on OpEx you had the benefit of the layoffs, the severance impact was in the third quarter.

Does any more of that bleed into this year or is that all done in terms of the benefit?

Yes I think we initiated that at the end of Q3.

It was fully phased in Q4.

Again I gave specific expense guidance for Q1 of $143 million.

That is pre CDI.

So that is excluding CDI.

The only other adjustment is that given where a lot of our tax credits have rolled off we are probably going to run a 36.25 on the tax rate, so that is going to be up as well.

Okay, and then on asset quality, you point out and it is correct that the improvement in the NPLs you had a slight uptick in charge-offs in the quarter.

Are you seeing higher severity?

Is there anything to speak of there?

It is only a modest update from 20 -- from 18 to 20.

Yes but the good news there, very consistent as expected.

Again I believe on a run rate going forward 2011 should be the peak in charge-offs and hopefully we will see lower charge-offs in 2012.

Lot of one-off transactions.

We moved a lot of assets.

We had a 47% decline this year.

We had 72 basis points of total loss due to the cycle so far compared to 986 basis points of the SNL industry.

That is a significant differential between our competition.

To go back to the last cycle we had 17 basis points from losses from 1990 to 1993 and the industry had about 500.

So, I think we will position very well.

We will see the continuation of the drop of the asset that is sitting on MPA.

Again, the New York market is very strong.

People are buying these assets and if they have cash flow characteristics you can put a price on cash flow.

The good news is that the worst of the assets are already gone, and as we go forward we should be cleaning up a lot of the stuff that is still hanging due to process, legal process or otherwise.

That will resolve and it will resolve early close to where we are carrying them.

Okay, that is it.

Thanks.

Mark Fitzgibbon with Sandler O'Neill & Partners.

Good morning.

I noticed that the securities yields went up a little bit from last quarter this quarter.

I was just curious why was that?

Home Loan Bank.

They were very generous.

Okay.

And then secondly the loan to deposit ratio is up around 132 now.

It has been creeping up a little bit.

I guess I am curious.

Do you have a target in mind for that?

I think in the long run bringing a lot more funding.

Deposits are fluid right now in the environment.

I think as I said in my previous comment, given where our current rate environment is we are at 64 basis points all in if we take into account the non-interest-bearing.

You know if spreads are looking at yields around for it is still economically feasible for growth.

But I think we have the ability to get funds.

It is a fairly liquid environment and I think growing deposits in this environment for us, if you are a growth company and we are looking at ourselves as a growth company going to 2012, not shrinking.

We have some good opportunity ahead of us.

Now what may impact a margin and potentially if we-- if rates change on the security side.

We have been very reluctant to be back, we were as high as 15% 18 months ago and now we are running at 10%.

That is billions of dollars of earnings assets that are not earning for us.

So we will be keeping our powder dry.

And then with respect to M&A what would you say some of the characteristics are, the businesses that you might be looking at as potential targets?

I would say historically it is all about bottom line earnings accretions, significant upfront earnings accretion and no tangible capital dilution.

Any particular geography or aligned of business or anything of that nature?

No, it is always the benefit to the shareholder.

If the pro forma company is a better bank and it is going to create accretion to earnings and tangibles, that is what decides whether we do the deal.

Where it is located does not.

Thank you.

Tom Alonso with Macquarie.

Good morning.

Most of my questions have been answered.

Just on the expense stuff.

143 ex CDI so no bump up in the first quarter for (multiple speakers) anything like that?

That's pretty -- I think it is conservative.

I think that is probably the run rate and we are trying to keep it flat for the year.

I think one point I did speak to is the tax rate will be going up given the rolloff of certain tax credits you have over the past decade.

(multiple speakers) 6.25 is what we are expecting.

Okay.

Thank you.

Steven Alexopoulos with JPMorgan.

Good morning.

I am just curious given all of the positive comments on credit can you talk about why you needed to build the reserve by $11 million this quarter?

I have never --.

I would say the environment.

We have we also if you look at the building in reserve some of that was the covered asset portfolio.

You know, we had some of the (multiple speakers) annual basis we go to a quarterly with an annual basis we do an in-depth review of those pools and the HELOC pool for the AmTrust portfolio has been since we have acquired it has clearly performed worse than expected.

Doesn't mean we are going to have losses there.

I mean, the net effect of that was $2 million pretaxes and material.

So the reality is that we had some covered asset adjustments to the HELOC pools from AmTrust.

The idea that we have more in our reserves is not a bad thing for us to do.

It has nothing to do with our expectations of losses from the standpoint of seeing things looking like they are deteriorating.

We do not see that at all.

I would refer back to my previous comment, over the past four years, the charge of 72 basis points the initial charge of 900 and 950.

The last five we charge of 17 the industry charge of 500.

So I think we are seeing a very similar trend and it goes back to our thesis that we believe we peaked our charge-offs in 2011 and peaked on MPAs in this first quarter of 2010.

And Tom just to follow up when you said you expect the margin down 8 to 10 bips next quarter is that coming from lower prepaid fees or do due you expect similar pressure (multiple speakers)?

That is excluding any prepaid fees.

I gave zero guidance on prepay other than that it is a healthy prepay environment.

My margin guidance excludes any activity from prepayments.

Perfect.

Thanks.

[Theodore Coppola] with [Horowitz and Associates].

Question for you with regard to the loan pipeline held for investment.

Do you have it at one --

Ted, we are not hearing you.

Sorry, they let -- I mean -- hello.

Can you hear me now?

Yes, I hear you now.

With respect to the loan pipeline held for investment which you have at 1.8 you then say that the multifamily is 969.

What is the risk of that loan pipeline?

Can you give some sort of color on that?

No usually we (multiple speakers) yes.

We -- for many, many, many years, not just quarters, we have always closed our pipeline or better.

So I don't think there is any significant risk at all that we would not make up over (multiple speakers).

Tentatively executed command [would put] more money in the drawers.

So these are solid commitments.

Right.

This is not an assessment of what the market looks like.

This is actually a statement of what we have in cash.

Right but what I was trying to find out was you gave color of the multifamily portion.

What do you have for the rest of that portion?

Because it seems as if the multifamily (multiple speakers)?

Yes.

I think obviously it is somewhat confusing that we do have one on Mortgage Bank, it is a large number.

But we did carve out the multi-family because a lot of these are core projects people follow.

Obviously we feel very confident that that multi-family number is an elevated number.

So again going back to our previous point is that the multifamily activity is still very, very strong.

Although competitive, it's still very strong we are seeing very good activity and net overall loan growth is being concentrated in both multi- and commercial but we believe the activity level is elevated for multi-.

So despite the fact that net loans may be growing a little bit less than on the multi-side and the commercial side because of the nature of the activity that we are seeing.

Lot of prepayment activity, stuff does refinance away.

Stuff just does go to the agency market.

We get paid for all activity.

And that goes back to our point that we feel fairly confident that prepayment activity is going to be a continuing strong number in the upcoming years.

All right.

Thank you.

Mike Turner with Compass Point.

Good morning.

Just -- most of the questions have been answered.

Can you -- two quick ones.

What are the gross yield you are getting on your mortgage warehouse and then also any change to your thoughts about potentially refinancing any of your long-term repo funding?

As far as the warehouse it's the market so you can follow that looking at where the 30 day mortgage rates is.

I would say typically it is probably 85% 30 day, 30 year money and the rest is 15 and [very little bit] adjustable.

So you are looking at around 4% give or take 10, 15 basis points.

We hit a low in Q4 I think it was 390 or 385 for the offering rate to the consumer.

Obviously that is pretty much a good guide point for when you look at what we can earn in the warehouse.

So post to 4%.

What was the other question?

Just about potentially refinancing any of your long-term repo funding.

Any change to that thought?

No, we look at it every day.

It is a painful adjustment to pay that off with absence an acquisition.

Again, the acquisition fund is active.

I think it is more active down in the southern market than the New York market.

So I think we are seeing more stuff out of our we will call it our New York-based market.

We are seeing some things to do in other states.

And in the event that we could look at and acquisition as part of a blended transaction with repo that is pretty much the reason -- the best transaction for us.

We would not in this environment do a pure restructuring play, unless markets change where the pain is not as crucial -- as significant.

Great.

Thanks.

Bob Ramsey with FBR Capital Markets.

Just one quick question.

What is the unpaid principal balance in the servicing portfolio?

Right now we ran at 13.2 as of year-end.

Capitalization is about $116.4 million which I believe is about a .91 capital as in 3.6 multiple which is pretty conservative.

Thank you very much.

At this time I will turn the program back to Joe Ficalora for closing remarks.

Thank you.

On behalf of our Board and management team, I thank you all for joining us in expressing your interest in our Company for the fourth-quarter 2011 performance.

We look forward to chatting with you in April when we will be announcing our first-quarter 2012 results.

Thank you.

Thank you.

This does conclude today's New York Community Bancorp fourth-quarter 2011 earnings conference call.

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