Flagstar Financial Inc (NYCB) 2012 Q4 法說會逐字稿

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

Leading today's discussion of its fourth-quarter 2012 earnings will be the Company's President and Chief Executive Officer, Joseph Ficalora, together with the Chief Financial Officer, Thomas Cangemi.

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

Certain of the comments made by the Company's management today 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 of the Company's currently anticipated, due to a number of factors, many of which are beyond its control.

Among those factors are general economic conditions and trends, both internationally and in the Company's local markets; changes in interest rates, which may affect the Company's net income, prepayment penalty income, mortgage banking income, and other future cash flows or the market value of its assets, including its investment securities; changes 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 the Company's forward-looking statements beginning on page 6 of this morning's earnings release, and in its SEC filings, including its 2011 Annual Report on Form 10-K, and its first, second, and third-quarter 2012 10-Q's.

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'd like a copy of the earnings release, please call the Company's Investor Relations Department at 516-683-4420, or visit ir.mynycb.com.

As a reminder, today's call is being recorded.

At this time, all participants are in a listen-only mode.

Later, you will have a chance to ask questions during the Q&A.

Instructions will be given at that time.

To start the discussion, I'll now turn this call over to Mr. Ficalora, who will provide a brief overview of the Company's fourth-quarter performance before opening the lines for Q&A.

Mr. Ficalora.

Thank you, Kevin.

And thank you all for joining us this morning as we discuss our solid full-year and fourth-quarter earnings, and the strength and quality of our year-end balance sheet.

As we reported earlier today, our fourth-quarter GAAP earnings rose year-over-year to $122.8 million, representing a 1.24% return on average tangible assets and a 16.61% return on average tangible stockholders equity.

For the 12 months ended December 31, 2012, we generated GAAP earnings of $501.1 million, providing a 1.28% return on average tangible assets and a 16.8% return on average tangible stockholders equity.

Our GAAP earnings rose year-over-year to $0.28 per diluted share for the quarter, and to $1.13 per diluted share for the full year.

We also reported fourth-quarter cash earnings of $133 million, which contributed 8.3% more to tangible capital at the end of December than our fourth-quarter GAAP earnings alone.

In the 12 months ended December 31, 2012, our cash earnings rose $542 million, contributing 8.2% more to tangible capital at year-end than our GAAP earnings alone.

In addition, our cash earnings rose to $0.30 per diluted share for the quarter and $1.24 per diluted share for the full year.

We reported our strong performance to three primary factors.

First, our traditional business model, which emphasizes the production of multifamily loans on rent-regulated buildings in New York City.

Second, the expansion of our business model to include the nationwide origination of 1-to-4 family mortgage loans for sale.

And third, the quality of our assets as reflected in the nominal level of net charge-offs recorded and the significant improvement in our balance of nonperforming, non-covered loans.

Before we move on to Q&A, I'd like to speak briefly to each of these factors, starting with our robust multifamily loan portfolio.

Notwithstanding the prepayment of our largest loan relationship at the end of November, multifamily loans rose 6.7% year-over-year to $18.6 million at December 31.

With market rates at record lows and a change in the US tax code expected, production in our multifamily niche increased to a near-record level in the last three months of the year.

To be precise, multifamily loan originations rose $1.8 billion in the fourth quarter, bringing the 12 month total of multifamily loans produced to $5.8 billion.

We also produced commercial real estate loans of $664.2 million in the fourth quarter, boosting our 12 month volume to $2.4 billion.

The features of our multifamily and CRE loans are very much consistent, not only in their quality and conservative underwriting, but also in their structure and their terms.

Furthermore, both loan types have the potential to generate substantial prepayment penalty income, as certainly proved to be the case over the past two years.

In fact, prepayment penalty income rose 39% from the level recorded in 2011 to a record of $120.4 million in 2012.

Of the latter amount, $39.3 million were recorded in the fourth quarter, reflecting a year-over-year increase of 35.8%.

Reflecting prepayment penalty income and the growth of our average interest earning assets, net interest income totaled $290 million in the current fourth quarter, and our margin was a very respectable 3.15%.

Despite the low level of interest rates and the replenishment of our portfolio with lower yielding credits, our fourth quarter margin was just 2 basis points narrower than it was in the trailing quarter, and 10 basis points narrower than it was in the year-earlier three months.

Yet another important benefit of our traditional business model has been the contribution of multifamily loans to our above-average asset quality.

At December 31, 2012, nonperforming, noncovered assets represented 0.66% of total assets, an improvement from 0.98% at December 31, 2011, and from the peak of 1.77% at March 31, 2010.

Also of note was the improvements in our level of net charge-offs, not only in the quarter, but also for the year.

Net charge-offs represented 0.01% of average loans in the fourth quarter and 0.13% of average loans in the 12 months ended December 31, 2012.

This improvement is even more vivid when expressed in terms of dollars.

Net charge-offs totaled $41.3 million at the end of December, a 58.9% decrease from the $100.7 million at the prior year-end.

Loans 30 to 89 days delinquent also declined year-over-year from $111.7 million to $27.6 million, and from a peak of $273 million in 2009.

As always, we attribute our asset quality to our conservative underwriting and to the unique nature of our primary lending niche.

The third of the factors contributing to our strong fourth-quarter and full-year performance was the income we generated through the aggregation, sale, and servicing of 1-to-4 family loans.

In the fourth quarter of 2012, origination of loans held for sale totaled $3 billion, bringing the 12 month volume to $10.9 billion.

Largely reflecting the income produced by originations, mortgage banking income more than doubled from the level recorded in 2011 to $178.6 million in 2012.

Included in the 12 month amount was fourth-quarter mortgage banking income of $32.6 million, reflecting a year-over-year increase and a linked quarter decline.

While the year-over-year increase was driven by refinancing activity and home sales, as mortgage interest rates moved lower, the linked quarter decline was attributed -- attributable to the seasonality of the market, as well as the rise in mortgage rates in the quarter's latter half.

Looking ahead, our pipeline of loans currently totals $4 billion, with loans held for investment and loans held for sale each accounting for $2 billion of that amount.

Before I move on to Q&A, I also would like to mention the steps we started taking in late December to enhance our margin in what continues to be a very low rate environment.

In the past four weeks, $6 billion of borrowed funds were repositioned, representing nearly half of the year-end balance, and primarily consisting of advances from the Federal Home Loan Bank of New York.

In addition to extending the maturity and call date by approximately four years on average, the repositioning reduced the weighted average cost of these funds by 117 basis points.

The repositioning of these funds reflects our focus on enhancing our earnings, and will be reflected in our first-quarter 2013 results and beyond.

As I mentioned at the start of this morning's discussion, our fourth-quarter performance was notable, not only for our earnings, but also for the strength of our balance sheet.

In addition to the growth of our loans and the above-average quality of our assets, that strength is also apparent in the capital measures of the Company and the Bank's.

Reflecting our continued capital strength, as well as our solid earnings, the Board of Directors last night declared our 36th consecutive dividend of $0.25 per share.

The dividend is payable on February 22 to shareholders of record at February 11, 2013.

At this time, I would ask the operator to open the lines for questions.

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

And now, the first question, please.

(Operator Instructions) Bob Ramsey, FBR.

I was hoping we could talk a little bit about the mortgage origination income this quarter.

Obviously, you were up year-over-year, but it dropped pretty significantly, even though originations were up.

What are you guys seeing on the gain on sale front?

And what are some of the moving pieces this quarter?

Bob, it's Tom.

I would say that, overall, we had a phenomenal year, but the fourth quarter definitely had somewhat of a slowdown.

Two factors -- our rate loss volume was down $1.1 billion on a linked quarter basis, and we had 20 basis point decline on all-in margins.

We went from 143 down to 123 in the quarter.

We saw some real seasonality effects in December.

So, October and November was reasonable but we had a fairly large drop-off at the end of the month of December.

That, coupled with where rates are, had a lot of significance, in that we're a national wholesale aggregator, not a retail provider, and we do not participate in HARP.

So those two points do have an impact.

We react quickly to a rising rate environment on refinancing.

Now, the refinancing model was still very much intact throughout most of 2012, more so the second half, and we had somewhat of a slowdown going into the fourth quarter.

We're hoping that the purchase market continues to improve.

And if that does continue to improve into 2013, we'll see more purchase activity in refi.

And, remind me, you all record the income at the time of rate lock -- is that the way the accounting works?

That's correct.

And what -- I know you said rate lock volume was down $1.1 billion.

What was the actual volume this quarter?

We had about $3 billion (multiple speakers) -- $3.1 billion.

Okay.

And then on the servicing side, what is the unpaid principal balance that you all are servicing at this point?

Right now, we're at $17.6 billion UTB.

We have a [0.83] multiples, a 3.3 multiple of [1.83%] cap.

So, again, we believe in a very conservative level of 3.3 multiple.

Okay.

Great.

Thanks, guys.

I'll hop back out.

Mark Fitzgibbon, Sandler O'Neill.

As it relates to the repositioning, I think you said $6 billion, could you give us a sense for what the size of the expected charge might be, and what the impact on the capital ratios will likely be?

Yes, Mark, this is a traditional blend-and-extend on the EITF 96-19 debt modification, but there is no economic hit to capital.

Basically, we blended and extended the overall maturity out and put the call date out.

So we have about a $6 billion repositioning of our Home Loan Bank -- predominantly, Home Loan Bank New York advances, coming from a 440 coupon down to a 324, picking up about 117 basis points.

It's all positive, Mark.

Okay.

And then, you had said in the past that you thought you'd do your liability repositioning in conjunction with an acquisition.

Should we interpret this to mean that there is not acquisitions on the horizon?

No, I think, Mark, what's interesting about it is, like I said, on every call, we look at this stuff every quarter -- actually, pretty much every week.

You know, we have a lot going on in respect of the liability, but we have some liabilities maturing in 2013 -- about $760 million, just under $800 million at [310].

That will be going away in second quarter of 2013, but this liability analysis gets done on a monthly basis.

And when you look at where the valuation was on utilization of balance sheet, both at The Street and at the Home Loan Bank, we felt it attractive when it broke through 100.

We haven't seen 100 basis points benefit in a while, and we started seeing 120 on average, 110, so we ended up getting the trade done at 117.

It just seems very attractive.

Again, we feel that the value of a potentially restructuring, it's still there.

We have another $7 billion that we can tap to.

We have a lot with The Street.

In addition, we believe we didn't lose any value by extending it out.

Because we do want to restructure these liabilities in the future to a transaction, they're still eligible and we're not going to take any pains.

Because the pain is already embedded into the structure.

And what (multiple speakers) --

(multiple speakers) So there's really no economic difference if we restructure these today or restructure them a year from now.

We believe that the pricing was attractive to take advantage of this opportunity.

Again, it was market conditions.

That trade is gone today and the markets have moved dramatically in the past few weeks.

So as the 10-year went through to that 2%, these are probably about the [60] basis point benefit.

So at -- on average, 117, we felt it attractive.

And the last question I had is, could you share with us your outlook for the core NIM in coming quarters?

I thought that was going to come in the first question.

(laughter) No, I will tell you, obviously, this has a significant impact.

It's about $70 million to the bottom line, pretax.

So based on where we were in the third quarter, I kind of gave guidance that we're going to probably see bottoming out or stabilization in mid-year 2013.

I still feel that same way, that we will stabilize in 2013 mid-way, but albeit at a higher level.

So short-term guidance, we're looking at probably 3 to 5 basis points down, depending on market conditions.

But this run-up in rates, that may bring us to stabilization a little bit sooner.

So 3 to 5 for the Q1 is a reasonable estimate.

And stabilization will be, as expected, mid-year, but at a higher level.

Thank you.

And just, Mark, just on another point, you know, this adjustment to the repositioning of the borrowings picked up about 55 basis points, the actual borrowing [fund] line item at about 18 basis points to the margin.

So it did help the margin.

Thank you.

You bet.

Moshe Orenbuch, Credit Suisse.

Could you talk a little bit about the loan growth?

Obviously very strong, much stronger than we were looking for.

Was there stuff -- deals trying to get done in 2012?

Was it pull forward?

Do you think that -- how does it look so far in the month of January for 2013?

You know, I think it was a combination of many different things.

We have been gaining share on a fairly consistent basis here over the course of the last couple of years.

Not dramatic amounts, but genuinely gaining share in the marketplace.

The marketplace has had a lot of activity, generally speaking, because there is product available for sale, as well as the reality that there are people that are making decisions as to execution on their own sales, in order to avoid potential tax consequences in the future period.

So there was a good deal of volume available in the market.

And we, in fact, got a gain in share as we've been getting, and therefore, the numbers are up very nicely.

(multiple speakers) We would expect that to continue.

And, Moshe, it's Tom.

I would also add that, obviously, Q1 is typically, historically, a lower quarter for us, but given our pipeline, this, I believe, is the largest Q1 pipeline for the history of the Bank.

So we're showing a $2 billion pipeline on both commercial and multifamily.

And we're very comfortable that we're seeing some asset growth.

So, bear in mind, in fourth-quarter, Co-op City paid off.

It was a huge payoff and we still grew the [loan both].

Right.

Just switching over to the Mortgage Bank for a second, you mentioned that you thought the decline in volume was largely seasonal.

(multiple speakers)

(multiple speakers) And rate's driven as well.

I'm sorry?

And rate.

(multiple speakers)

And rate, right, right.

Right.

So, I mean, in the past, you've kind of talked about adding some new products and things to kind of build out.

Is that something that we still can see add to volumes in '13 or --?

I would say that, you know, we're always looking for opportunities.

One area that we do not participate -- I want to make it very clear -- we are not a HARP participant.

So if you look at the competition out there, 20% to 25% of their volume is HARP-driven.

That's going to fade out before the industry probably the next couple of quarters.

We may or may not get into that business as being an assistant to other banks that can't get their volume done.

But that is a major benefit for the industry over the past year of the HARP program.

So we look at the opportunities out there on the purchase side and, obviously, we put it on some jumbo hybrid ARMs for portfolio at the de minimis level, but as rates do rise here, that could be an attractive opportunity to do some more jumbo hybrid ARMs to the pipeline.

But we also prepared ourselves to do significantly more retail than we've been doing in the past.

And there are additional relationships that we could establish that would add volume to this particular (multiple speakers).

And we're still in the queue for the FHAV, and that just takes a while to get through the process.

Thank you.

You bet.

Brad Ball, Evercore.

Just a quick follow-up to that question.

You said you're positioned to do more retail, but was retail much of a component of originations (multiple speakers) --?

(multiple speakers) No, no.

Not at all.

(multiple speakers) We're in our infancy stages, but the good news is that, outside of New York, we are -- it's been rolling out very nicely for us.

It's now a focus for the New York/New Jersey marketplace.

We have the systems in place.

We have to now execute.

We're predominantly a national wholesale aggregator.

Yes, wholesale and correspondent.

Correct.

Yes.

Okay.

And then on the prepayment activity in the quarter, actually all year prepayment activity, much higher than sort of historic run rates -- do you expect that to come back in somewhat this year?

Any sense as to the recent rise in rates?

Is that pushing a little more prepay activity as rates have gone up in some folks' faces?

You know, the reality is that our portfolio refinances within, typically, a three to four-year period.

Prepay should be significantly enhanced by the willingness of the marketplace to trade these assets.

And it is becoming pretty clear that there are various owners that are preparing to sell and there's plenty of interest in buying these assets.

That will keep our prepaid robust.

Your question about the effect of the movement in rates -- if there is a perception that, generally, rates are going to go up, there will be more activity in prepay.

So that might keep prepay levels a little higher here (multiple speakers) --

Yes.

-- this quarter, given the recent move in rates?

It could be.

Okay.

And then, finally, deposit funding as a proportion of total funding is gaining.

Part of that is some debt actions, but do you see much opportunity to move that higher -- that is, deposits -- as a proportion of total funding?

I mean, what we're seeing today, we have about $5 billion coming due in the next four quarters on the CD side; rates not north of 100, slightly south of 100 on 95 basis points.

So it's not that much room, depending on rates rising.

I don't think rates are going to rise in the short end.

We are seeing a substantial move in the back end of the curve.

But -- and again, we [are] paying high rates, so I think we're going to continue to work harder bringing in core deposits.

And our goal is to continue to grow the deposit base conservatively without overpaying, unless we need the money.

And, right now, we feel that we have adequate liquidity and capacity to be conservative on the rate side.

And I think that the good news for us, we get pricing in different markets.

We have the Florida market, the Arizona market, Ohio, and New York, which gives us some flexibility.

But I think the [loan lines] was taken a while ago, so even like when you talk about the CD book, below 100.

So if you want to be aggressive, it's guys paying more than 100.

Yes, I think there's no question that, in some of the markets that we're in, we are actually paying significantly higher rates than the market.

So our overall cost of deposits is at about 66 basis points.

And then the averages in this New York market are at about 44 basis points.

So there's obviously room for movement.

Great.

Thanks, guys.

Dave Rochester, Deutsche Bank.

So just so I understand it, are you thinking that, including the benefit from the borrowing restructuring this quarter, you think the core NIM, ex-prepayment penalty income, could be 3 to 5 basis points lower in 1Q versus 4Q?

(multiple speakers) I mean, well, being conservative, yes.

I mean, just to give you some color from the previous quarter, we got it down 12 to 15.

We came in down 10.

So we're very pleased with the performance of the margin in Q4.

It beat expectations on our public expectation.

So we're guiding in the Q1 down 3 to 5. But again, rates have backed up here, so there's a possibility that we can move the other way.

So I think what's positive is that you have a higher rate environment at the back end of the curve.

You know, loan yields are holding very nicely.

And bear in mind, we have a very low loan yield on average for the month-end portfolio.

We're at 458 right out now for the loan book.

It's not 658 or 558.

So, the bleed will be less.

We've done some reshuffling on the funding side.

And like I said before, it's going to be at a higher level, so that the stabilization will be higher, just that it's a small bleed right now that's given market condition, and I'm estimating about 3 to 5 basis points, ex-prepay.

Got you.

And so if we just back out that benefit you were talking about, the 18, 19 basis points, roughly, would that mean the underlying pressure outside of that was maybe in the 20 basis point range, given your --?

Again, you know, Dave, we gave guidance down 12 to 15.

We came in down 10.

It's been around 10 basis points a quarter.

We're not changing our guidance about stabilization; we feel pretty confident that mid-2013, we're stabilized.

Now if rates go up quicker than expected, maybe we'll get there sooner.

Yes.

Hey, just one last one.

If the curve stays where it is over the next year, are there any opportunities, you think, to restructure more borrowings?

Or do we need to see a further steepening for you to be able to do that?

I think, going with what we took advantage of in the given -- actually very late in the end of the year, when there was a sizable move and just happened to -- balance sheets worked to our advantage, both with The Street and more so with the Home Loan Bank, is that we had an opportunity.

It was reasonable levels that made sense economically.

We may have an opportunity if rates were to spike, to maybe move another $800 million, $900 million, and pay stuff off at par.

You know, that's -- so that's another opportunity.

Now we're not going to get, at these ARMs, 4% type money; this is more like 1.5%, 2% type money.

But it's still accretive to the margin.

So if there is a spike in rates from where we are today, you may see close to $800 million being paid off close to par or at par or better, and you have, like I said before, about $800 million coming due in the second quarter, that's at a 310.

You know, obviously, we would pay that off as well.

That's mature.

Okay.

Good.

Sounds good.

Thanks, guys.

You bet.

David Hochstim, Buckingham Research.

I wonder, could you just remind us what the components of the mortgage servicing revenue were in Q3?

And then how that compares to Q4 in terms of servicing fees and the hedge gain and (multiple speakers) --?

(multiple speakers) Right, right.

I mean, net-net, we had -- Q3, we were down $13.9 million in mortgage banking servicing income versus a negative $1.1 million for the fourth quarter.

The actual income from servicing fees in Q3 was $7.4 million, and Q4, $8.8 million.

We had a sizable mark in Q3 of $42 million negative, it went up against a positive hedge gain of $20 million out to Q3.

So that nets you to $13.9 million.

If you look at what happened in Q4, we had about an $8.1 million negative mark on servicing and we had about a $1.8 million loss in the hedge.

So, net, that get you to $1.1 million.

I mean, bear in mind, our portfolio historically has been a very quick payer portfolio.

So we believe that we're being conservative here at a very reasonable multiple at 3.3 times.

But if rates continue to increase here, this mark should be viewed very conservative going into the future quarters.

So, again, I just feel that we looked at this, and our fees have not changed in November and December, and we have a very active refinancing portfolio.

Historically, the [end] trust portfolio has always been a highly financing piece of paper.

So given that there has been a, we'll call it, a precipitous move towards the back half of Q4, we did not experience a change in our fees.

Now those fees could easily slow down in Q1 and Q2, and we should get a benefit on the valuation of the multiple for servicing.

So under accounting rules, you are obligated to write up the value of prepayments being slow, or (multiple speakers) --?

We had independent valuations, so we file our independent third party valuations.

And our fees have not changed in Q4.

So we believe we're conservative.

But given where rates are, if rates would just back down again, we should be at the right place.

But if rates go up substantially, this multiple should go up as well.

But so the mark could go positive?

Right.

That's what I'm asking.

Okay.

Correct.

But again, it was too soon to tell at the end of the quarter because the fees haven't changed in Q4.

Right.

And I'm sorry, could you just clarify again what happened with the gain on sales?

So you had -- it seemed like you originated more loans; the gain on sale margin was down 20 basis points (multiple speakers) --

The gain on sale was down 20 bps.

It went from 143, Q3, down to 123, Q4.

So we tightened up a little bit -- down 20 bps.

And rate lock volume was at $1.1 billion.

And so that reduces the gain on sale by half?

Yes, total growth gain on sale that we reported is 33.7 versus the previous quarter, which was 66.5.

Substantial volume in previous quarter.

Right.

So the rate lock volume must have been higher in Q3 as well?

Substantially higher.

Okay.

So not just the origination is the rate lock --?

Yes.

Okay.

And then, could you just share your thoughts about the prospects of a large accretive acquisition at this point in time?

Well, you know, the reality is that we've been very vocal about our intention of preparing ourselves as best as possible to be in a position to do such a transaction.

I can't say to you that there is a definitive transaction that we're about to announce, but I could say to you that we are much further down the road with regards to the necessary work that needs to be done, so as to be in a position to take advantage of that when that arises.

It is our intention.

It is the focus of many of the things that we're doing today.

We are, basically, not looking at smaller transactions at all.

So the likelihood that we do something is definitely in front of us.

Exactly when that will be, many, many different things will make that decision.

Okay.

And then, finally, could you just share your thoughts about the contribution to the margin and maybe in just the first quarter from prepayment penalties?

You indicated they'd be still elevated, but --.

Well, you know, David, I gave you guidance ex-prepay.

I mean, we rarely ever give guidance.

The only real guidance we gave on prepay was Co-op City, because it's been public as they're refinancing away.

But I'm not looking at fourth quarter.

So we don't typically give guidance on the level of prepayments.

So what we wanted to do was give you some reasonable comfort on where the market is heading in the short-term.

With that being said, as Mr. Ficalora indicated, you know, there's probably transactions that are robust in New York City.

There are deals that are going to get done.

If we don't finance them, they trade away, we still get paid.

Every file we touch, we get paid a fee.

So there is good property transaction in the New York City marketplace.

And if there is a significant spike in interest rates, my guess is that many borrowers will act to lock in before it's too late.

But we're seeing -- you know, I'm not going to give you any guidance at all on the level of prepay, but I think we're still in that prepayment cycle.

The last two years have been record years back-to-back.

We did $120 million last year; the previous year was $86 million, almost $87 million.

Those are significant increases and they were record years.

So I think we're in that wave of a cycle of prepayment activity.

Okay.

Thanks a lot.

You're welcome.

Josh Levin, Citigroup.

So if you were to do a big deal and you were going to be substantially over $50 billion in assets, you would be one of the bigger banks in the country.

On the last call, you spoke about regulatory comfort.

Would the regulators, do you think, based on your discussions, be comfortable with your dividend payout ratio, that much higher than your -- what would be your larger peers?

I think there's no question that our larger peers that took TARP had lost substantial amounts of capital are in a very different place with regard to paying dividends.

The whole concept of limiting dividends has to do with adequate capital.

It has nothing to do with paying shareholders for investing in your company.

So the idea that we would be governed by what other people can afford to pay is not consistent with anything that has historically happened in the marketplace.

We, in fact, have demonstrated very clearly that, during a period of great risk and great loss, that we lose very, very little capital.

In fact, we've not had to go to capital to meet any of the charges, which is very common in those bigger banks that have zero dividends, that had zero capacity to pay out and buy stock or pay dividends.

Those banks lost substantial amounts of capital.

We, in fact, covered any losses during this entire cycle.

We covered those losses with our earnings.

And we have no reason to believe that anything in the period ahead, being a bigger bank or being the same bank we are today, would justify there being concern that we would actually be losing capital.

So I think that it's necessarily moving in the wrong direction when you say, because Bank A or Bank B or Bank C have limitations, Bank D should also have the same limitations.

There is individual review of every bank with regard to capacity to pay.

And the limitation on capacity to pay is driven by the adequacy of your capital to deal with stress.

There is no indication that we aren't way overcapitalized based on the likely charges we would have to capital.

So our ability to pay out current earnings is significantly better than that of other banks.

Okay.

Thank you.

And following up on that, in terms of deal flow, bankers -- investment bankers bringing potential acquisition candidates to you, has that -- has the deal flow changed?

Are you seeing more deals being brought to you?

Or less?

Or is it (multiple speakers) --?

Well, I think we're seeing more large deals.

We're not seeing more small deals.

Obviously, there are plenty of deals in the marketplace.

I'm going to guess that the year ahead is going to have a lot of activity.

We will not be actively looking at smaller deals, but we are seeing plenty of large deals.

Thank you very much.

You're welcome.

Brian Kleinhanzl, KBW.

So last quarter, you guys talked about loan pricing being about 3.5% on the new loans.

Is that still holding this quarter?

If you could give us a little bit of color what's happening this quarter.

I mean, obviously, you know it's always looking back hindsight, back between 60 to 90 days, but the total overall coupon in the pipeline is at 340.

So we're holding pretty well, which is around 250 to 265 over these average CMTs over the past 90 days.

So we are holding coupon.

That yield is between commercial and multi.

Multi is around 333 and commercial is around 383.

The important thing to remember is that the bulk of what we do is principally five-year paper, but it has an average life of three to four years.

That is not what is commonly the case in the market.

And what were the LTVs on the new originations this quarter?

Probably in the 60s, I would say.

I would guess that's probably right.

(multiple speakers)

Probably somewhere in the 60s.

We should really be more accurate with what we're saying.

I don't know offhand and neither does Tom know offhand.

No, okay.

And then, you said last quarter you were looking for expenses right around the 146, the 148.

And it came in a little bit above that.

Are you still looking for expenses to kind of run rate out from here around, though?

I think, look, we spent some money last year on getting ourselves ready to be potentially a larger institution, and we continued to spend some money there.

But at the end of the day, I think it's been going throughout the entire year of 2012, and so probably to a lesser extent in the early part of '13.

And we had the foreclosure expenses over the past two years.

You know, our [NTAs] were down dramatically from the peak at March of 2010.

So I think a $148 million number is reasonable, [ex-CDI].

Okay.

And as the rates have picked up a little bit, you mentioned on the long end, I mean, how aggressive do you want to be in trying to get a little bit more asset-sensitive here?

You know, I think we made a little bit of move on the liability side.

I think at the end of the day, we've been on the sidelines for investing.

Our portfolio is way too small for the institution at a 10%, 11%.

We should be in more of the 15% to 19%, which makes more sense for the Company.

We've been reluctant to be in that marketplace, but if there's a sizable move, you'd expect us to be in the market at higher levels.

So we're watching, and hopefully, if things move higher there, we have plenty of cash to deploy.

And we also have a very strong loan pipeline that we'll probably want to close sooner rather than later because of the rising rate environment.

We feel pretty good about the overall growth outlet.

If you look at the 2013 net loan growth, ex some very large credits paying off, we grew high-single digits, which is a pretty good showing, given the market competition.

So we don't have any large loans like at Co-op City that's expected to pay off in 2013.

So hopefully, we can perform at or better than those levels in 2013.

Okay.

Great.

Thanks for taking my questions.

Matthew Kelly, Sterne Agee.

Just a couple of clarification points on the blend-and-extend trade.

What was the remaining maturity on the $6 billion at 440 that you restructured?

Remaining maturity?

So, you have like three or four years left?

Is that --?

All those liabilities were at, basically, in the position to be called today.

So we went out approximately four years and the average duration -- probably like '17, 2017.

They were like 2017 liabilities that were callable today with the improbability of a call, given where rates are.

Okay.

So we took advantage of an opportunity.

And I will tell you that this is something we've done quarter-after-quarter.

We haven't seen 100 in a long time.

When we saw 120, 125, we had to react.

So 2017 final maturity.

So four years left and then the new borrowings that you have -- so the new $6 billion with a cost of 324 --

We extended out four years.

That's four years beyond that?

So it's eight-year burnt money?

No, no, no, no.

(multiple speakers) Yes, that's right.

Eight years, yes.

Okay.

Well, that makes sense.

(multiple speakers) So really it was like a 15% pretax charge that you baked into the new borrowings?

(multiple speakers) Yes, depending on to be ranged between 12 and 15 points, but I think what's interesting, when you look at this restructuring itself, the way we looked at it, the added money value on the balance sheet utilization, we felt, was a push.

So if we were to restructure these down a year out, we felt we didn't move any real value, given that the utilization of the counterparty's balance sheet was not charting a lot to do this trade.

So it made logical sense -- we have the ability tomorrow or a year from now to do a further restructuring in conjunction with the deal, and further reduce the cost of funds depending where market rates are.

But I think that was the driving factor of why do this now.

I mean, this clearly was not at 100 for a while.

Right.

But, I mean, why not do the rest of it right now without a deal?

What does it have to do with the deal?

I don't understand why you have to be (multiple speakers) with that?

(multiple speakers) Well, because it's a huge consequence of capital.

We're not taking our capital down hundreds of millions of dollars when we can take advantage of opportunities and see our margins holding up fairly well.

And in the event we do a large, as Mr. Ficalora indicated, a large merger transaction, we can look at our consolidated liability reshuffling, and we would like to have less wholesale and more retail.

Okay.

Got you.

(multiple speakers) And Matt, just one other point there.

Any event that we have an earnback that's inside of five years -- three to five years -- then that becomes more attractive.

We haven't seen those economics yet.

As every quarter goes by, we get closer to the maturity.

So the remaining liabilities and the liability that we have just restructured, in the event the economic benefit is inside that five years of [destruction] of book value, okay, we will consider it.

But right now it's not there.

Right.

But the real charge is the same.

I mean, it's $900 million, pretax 15%, that you're spreading out over eight years now.

On the EITF 96-19, there's no charge to capital.

I know.

Understood.

Understood.

It's just baked into the new yield.

Correct.

Right.

Okay.

Look at 324 instead of a 440.

Which means it's still (multiple speakers) --

Question on your mortgage banking operation.

My recollection is most of the economics are contained within fee income line.

There's no leverage in operating expenses as volumes come down, you can't -- is there any ability to take down expenses as --?

Oh, absolutely.

I mean, look, we've been there before.

It's been an interesting ride since 2010.

You know, we react.

We have a phenomenal operating team in Cleveland and do a phenomenal job.

You know, I mean, at the end of the day, if things shut down, we will react to operating expenses.

The good news is that we have seasoned veterans running the business and we look at this every day.

So in the event there's a complete shutdown, we'll address those issues.

But again, I think the entire marketplace is addressing a reasonably strong purchase market.

If you go back to the first quarter of 2012, the purchase market was strong, robust.

We had pretty good numbers at the end of the year.

That was not mostly -- it was a significant push towards purchase.

So if someone's buying a home at [325 or 375], they're going to pay the rate.

So I think if we really truly believe that the housing market is recovering, and we're going to have a real purchase market, we'll participate.

And I saw these numbers out in the past, [MBA] statistics $1.4 trillion at 2013, that's down 20%.

It is what it is.

We don't control those numbers.

And we'll get our 0.67 share and hopefully move that up to a 0.75 share.

Got you.

And so how much, in the $155 million of expenses this quarter is related to your mortgage banking operations?

We understand the leverage as the revenue line item changes over time.

I mean, when we file our K, we'll put it in the segment reporting.

But I don't have that number at my fingertip right now.

Okay.

Then last question, commercial real estate growth was still a pretty big chunk of your total loan growth during the quarter.

Obviously, you're getting better yields on that, which is attractive.

But how do you think about the incremental provisioning on your commercial real estate growth, separate from the multifamily?

Yes, well, just to give you a couple of statistics there, LTVs, substantial loan and multifamily, historical losses on the book, half of multifamily.

And we don't have a whole lot of losses in multifamily.

So we look at it as a very attractive asset with very experienced lenders.

We love the business when it's done correctly and we have a very strong loan book.

And if you look at the historical losses compared to our niche product, which is a low loss business, it's half of that.

So we're very comfortable where we are.

Okay.

All right.

Thank you.

You're welcome.

Collyn Gilbert, Stifel Nicolaus.

Before I get to my question, I'm intrigued by a comment you made, Joe, to the point of saying that you're seeing a lot of large deals and not small deals, which is interesting because it seems like there's been a lot more M&A activity at this lower end of the market versus the larger end of the market.

So can you just (multiple speakers) --?

I think that -- what I tried to say was that there's going to be a great deal of activity, there are plenty of small deals in the market.

We're just not looking at the small deals.

It's not as though there aren't small deals to be had; we're just avoiding them.

In other words, we've made it very clear to the bankers that if they have something really big to talk about, and sometimes we're talking about deals that are not necessarily very commonly expected.

So the reality is that we're just not looking at the small ones.

There are plenty of small deals in the marketplace.

No, no, no.

(multiple speakers) I get that.

But I mean the fact that you're saying you're seeing large deals.

I guess I'm intrigued by that.

Sure.

Sure.

Like, what -- I don't know if you can expand on that at all or --?

Collyn, it's Tom.

What I would say that a lot of the small deals don't make it to the corner office.

They make it to my office, but I know better (technical difficulty) because that's not our focus.

So there is a lot of deals in general.

There's activity -- as Joe indicated, we believe there's going to be robust activity in the next 18 months.

And there are some larger opportunities that have come in the past six months that seem to be attractive.

And is it kind of non-traditional at this point on the larger end?

Very.

Okay.

Okay.

All right.

And then just two points to clarify.

One is, the individual prepayment fee on the Co-op loan, what was that again?

Was that 17 --?

17-plus.

17.

Okay.

And then I think you've kind of talked around this, Tom, and maybe you've talked to it, but I can't process it fast enough.

On the mortgage banking side, I mean, how much of your sort of quote/unquote, loss revenue that you saw in the fourth quarter do you think you can recoup going forward?

Given all that you're saying, if we assume kind of a pickup in subsequent quarters -- I mean, how much do you think you can recoup of what you didn't see in the fourth quarter?

I think a number of things went on in the fourth quarter.

Obviously, seasonality in December.

It is what it is.

Big picture here that the [FMCL] moved around between 12 to 20 basis points in a given month and December was a very slow month for us.

We are a corresponding wholesale aggregator.

We react probably quicker than the retailers as well as the HARP participants, so we definitely had an impact in Q4.

With that being said, as you go back -- and I'll restate the statement -- Q1 of 2012, purchase activity picked up.

So as we go into the selling season, past January, into the next few months, we believe activity will pick up.

Because if the rates are still relatively low.

Now, refi rates have moved dramatically, from a 3% to a 3.50%, a 50 basis points move on a refi, that's when it slows down that weight.

So you're not going to see the 80/20 split or the 95/5 split between refi and purchase, but you may see a 25% uptick in purchase, and then that will start moving the mortgage banking opportunity for us.

Like I said before, we feel very confident we will get our share of the mortgage market.

But the [NBA] statistics is down 20%.

That -- it is what it is.

We can't control that, but we'll get our share.

What have you guys seen in the first three weeks of the year, in terms of application?

Well, a [slight] tick-up off of December.

But, again, it's way too early (multiple speakers) --

Yes.

Okay.

(multiple speakers) Okay.

That was it.

Thanks, guys.

Thank you.

Thank you.

Steven Alexopoulos, JPMorgan.

Maybe to start, the potential large deal, I think you just said being very non-traditional.

Are you saying (multiple speakers) --

(multiple speakers).

No, no, it varies.

It could be traditional, non-traditional.

And we're not going to say any more to it.

Okay.

I was just going to ask could it be something that's completely outside of even a specialty finance lender that you would be looking at?

We're not going to comment.

Okay.

In terms of the mortgage, is $33 million a decent run rate for us to be thinking about?

Or are you seeing more pressure on gain on sale here in 1Q and rate lock volumes continue to fall?

Too soon to tell.

What I will tell you, and I'm going to reiterate the statistics, we'll get our 0.67 share of the national mortgage markets and $1.4 trillion as estimated by the MBA.

At the end of the day, I think we're going to see, hopefully -- we hope for a continuation of purchase activity.

My guess, as rates spike, refinancing will slow down.

And purchasing, if this economy does reasonably well and housing continues to recover, we'll get more purchasing activity.

But, again, I'm not going to give an estimate on mortgage banking.

Never do.

I try to give some reasonable guidance and we'll get our fair share.

But we do do, in the past few years, a lot of refinancing.

And our paper is relatively fast.

So in the event there is a spike and it's significant, and as the refinancing of our current $17 billion [NSR] will slow down dramatically, we should get some value towards the servicing side.

Okay.

And then, Tom, not to beat a dead horse on the margin, but without the benefit of repositioning the borrowings, it looks like the pressure on [ASELs] is picking up quite a bit here.

Is this just because refi's are running so high that you're just seeing incremental pressure on loan yields?

The big drop from Q4 to Q3, the Co-op City was a 575 coupon and almost $600 million.

That does have a negative impact.

But like I stated before, our 458 coupon is probably the lowest coupon we've had in a while.

So our December-end period was 458 on the average loan side, so it's 100 basis points plus lower than it was a year ago.

So, in the event we are putting on three -- on average, 340 and going north as rates are rising, and funding costs in the short end are relatively stable, I think we gave you pretty good guidance.

We feel stabilization coming and not that far away.

It's that it's going to be at a higher level this year, given that we did some repositioning and we are seeing some higher rates.

Now we're modeling in an old curve, which has lower rates.

So we may get there a little bit sooner depending on interest rates, but I don't want to be too aggressive.

So I think we gave some guidance for Q4, down 12 to 15.

We came in down 10.

So I think we try to give conservative guidance on guiding down, Q1 down 3 to 5.

The significant change in rates is already behind us.

The rates that were high in our portfolio, they're already gone.

Okay.

Okay, thanks for all the color.

We moved on close to $16 billion of paper over the past few years throughout the portfolio.

That's a complete turn.

And we're seeing stuff that went -- the guys that went to year six, they still have those big prepay opportunities for us.

And if rates do spike, my guess is that they will move, and they'll pay and they'll get a low coupon, but we'll get paid for the prepayment opportunities.

Kenneth Bruce, Bank of America.

Hi, this is [Carty Bod] on for Ken Bruce.

Just looking at multifamily competition is obviously pretty strong.

I'm just trying to get a sense of as -- if things keep heating up, how are you guys going to maintain market share?

I mean, what are the niche deals that you guys are winning that competitors are not getting?

You know, I think the reality is that we've been consistently in this market and we've grown to be the largest lender in our niche.

So the idea that other people are doing lending in the New York market and they are, quote, doing multifamily lending, has nothing to do with our niche.

So despite the fact that there are some people that actually are, by accident or otherwise, winding up doing a loan that we might do, there's not that much focused activity in competition with us for the quality asset that we like to have.

So, cycle after cycle after cycle, there have been people that have indicated that they're doing multifamily lending in New York.

And many of the cycles that have, unfortunately, evolved, have caused those people to go out of business, because they did bad multifamily lending in New York.

So I think the idea that we're very, very focused as to the kind of people that we lend to, and the kind of metrics that we use in putting a loan on our books, gives us very consistent results.

And the people that we're competing with -- the focused lenders -- have changed very dramatically.

So where there used to be extraordinarily focused lending from independents, and to a lesser degree, from North Fork, that doesn't exist to the same degree today.

And although there are other lenders that actually do niche lending, they're not big volume lenders.

And there are lenders that are doing lending in like-type products for longer terms or for other circumstances, where they may even get more dollars, or otherwise terms that are different, they're not necessarily competing for our share of our very focused niche.

Okay.

That's helpful.

Just shifting gears real quick, it looks like the securities book bumped up (technical difficulty) this quarter.

Just wondering what level you're comfortable with there?

How should we look at that going forward?

I think you broke up on the call.

What was that question again?

Sorry.

Just looking at the securities book, it looks like it bumped up a bit in the quarter.

And I was just wondering if -- what level you were comfortable with there?

How should we look at that (multiple speakers) for 2013?

Right, right.

The average -- yes, for the average balance, we were probably down.

We had some forward transactions that closed towards the back end of the quarter, but we haven't bought anything less than 2.5 and that's pushing it.

We're just dealing with stuff that's rolling off.

The good news here, I don't see a lot of call activity, given the bump-up.

So in the event that rates were to rise further from here, we'd be back in the marketplace.

But we're on the sidelines right now.

I think that if we had a sizable move here in the back end of the curve, we'll be back in.

And as to the stuff in one of the other questions, we're looking at probably anywhere from 15% to 19% of the percentage of assets is probably the right level.

I mean, out there, we have a lot of room to go here, but we're going to be very cautious on duration length.

Okay.

Thank you.

Yes.

You're welcome.

Mike Turner, Compass Point.

Most of my questions have been answered.

Just on the kind of NIM guidance.

What's your sort of assumption for earning asset growth?

I mean, is there a mix in the securities or --?

(multiple speakers)

(technical difficulty) Conservatively, 5%.

Hello?

Yes, conservatively 5%.

Okay.

And then, also, just on gain on sale spreads, I know it's early; we're only one month in, but how are primary, secondary spreads seem to be compressing?

And then the GC increase, has that been having any impact on gain on sale premiums since the start of the year?

Yes.

Yes.

The GC increase, we jammed a lot of production into November to make sure we got the benefit of the economic value of that.

So that definitely had some impact to Q4, but we were able to take advantage of getting as much funded back to the agency.

But again, like I said, we're down 20 basis points linked quarter.

I'm not going to give forward guidance.

It's a little too early for -- where the margins are coming, but it seems like the margin is still relatively healthy.

We haven't had the tight margins from there since then.

So, I mean, for modeling purposes, I would use about $1.20, excluding any NII carries to the Bank on a billion-dollar warehouse.

Okay.

Thank you very much.

You're welcome.

And this will conclude our Q&A session.

I'll turn the program back to Mr. Ficalora for any closing remarks.

On behalf of our Board and management team, I thank you for your interest in the Company, our strategies, and our performance.

We look forward to chatting with you again in April when we report our earnings for the first quarter of 2013.

Thank you.

Thank you.

This does conclude today's fourth-quarter 2012 earnings conference call with the management team of New York Community Bancorp.

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