Flagstar Financial Inc (NYCB) 2014 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. Today's discussion of the Company's fourth-quarter 2014 performance will be led by President and Chief Executive Officer, Joseph Ficalora, together with Chief Financial Officer, Thomas Cangemi. Also joining in on the call is Chief Operating Officer, Robert Wann.

Certain of the comments made by the Company's statements -- 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 the Company currently anticipates due to a number of factors, many of which are beyond its control.

Among these factors are: general economic conditions and trends both nationally and in the Company's local markets; changes in interest rates, which may affect the Company's net income, pre-payment, 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 7 of this morning's earnings release, and in its SEC filings including its 2013 Annual Report on Form 10-K and its first-, second-, and third-quarter 2014 reports on Form 10-Q. 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 the Company's Investor Relations department at 516-683-4420, or visit ir.mynycb.com.

(Operator Instructions)

To start the discussion, I will 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 fourth-quarter 2014 performance, and also touch on some highlights of our performance for the year. At the risk of sounding repetitive, I have to say that our 2014 highlights are much the same as those I've mentioned on previous conference calls. These include the record of volume of multi-family loans we've produced, the high quality of our assets, and the exceptional level of our efficiency. These, of course, are three of the cornerstones of our business model, and all three contributed to the solid earnings we reported earlier today.

Nonetheless, they were not the only highlights of the year, or, for that matter, the quarter. We also transitioned our funding mix by growing our deposits and maintained our record of consistent capital strength. In addition, we contained the growth of our assets on a linked-quarter basis, while growing our assets significantly year over year. This was clearly consistent with the plans I spoke of in October to proactively manage our assets below the current SIFI threshold of an average of $50 billion over four consecutive quarters.

Before I discuss these accomplishments in greater detail, let me first say that the 12 months ended December 31, 2014, we generated GAAP earnings of $485.4 million, providing a 1.08% return on average tangible assets, and a 14.77% return on average tangible stockholders' equity. In the fourth quarter of the year we generated GAAP earnings of $131.2 million, providing a 1.14% return on average tangible assets, and a 15.79% return on average tangible stockholders' equity. In a year and a quarter when margins declined as the yield curve continued to flatten, our GAAP earnings rose to $1.09 and $0.30 per diluted share, respectively.

Our cash earnings also rose during this time, to $1.19 per diluted share for the full year and $0.32 per diluted share for the fourth quarter of 2014. In view of our earnings and capital strength, and our commitment to returning value, our Board of Directors on Monday declared our 44th consecutive quarterly cash dividend of $0.25 per share. The dividend is payable on February 20 to shareholders of record as of February 9.

Returning to the highlights of our full-year and our fourth-quarter performance, I'd like to start with some comments about our multi-family lending niche. Notwithstanding the competitiveness of this highly desirable market, our share of the market continued to grow over the course of the year. It proved to be a record year, in fact, for multi-family loan production, with $7.6 billion of such loans originated, including fourth-quarter originations of $1.9 billion.

Year over year, our portfolio rose more than 15%, to $23.8 billion, representing 72.2% of total loans held for investment at December 31. While the growth of this portfolio may seem at odds with our current goal of staying below the SIFI threshold, we managed to reduce our assets from $48.7 billion at the end of September to $48.6 billion at December 31. We achieved our goal through nearly $1 billion of asset sales, securities, calls, and loans and security repayments, even as we grew the portfolios of loans we value most.

Among the assets that we sold were loans of $601 million, including $476.9 million of one-to-four family loans. The remainder of the loans we sold included participations in multi-family and commercial real estate loans that were selectively offered to certain financial institutions, and we look forward to partnering with those banks again, when appropriate, in future periods. Further supporting the linked-quarter reduction of our assets were calls and sales of securities, which amounted to $354.8 million combined.

Returning to the growth we achieved, we also grew our portfolio of commercial real estate credits, as well as our portfolio of specialty finance loans. 2014 was the first full year of our specialty finance operation, and we continue to be extremely pleased with its contribution to our asset mix. Originations totaled $848.5 million in 2014, exceeding our expectations. In addition, the portfolio fulfilled our expectations with regard to their pristine asset quality.

Speaking of asset quality, I should say that one of the reasons for our focus on multi-family lending is the contribution of such credits to our record of superior asset quality. In 2014, our balance of non-performing non-covered loans declined more than 20% from the year-earlier level, and represented 0.23% of total non-covered loans at December 31. Another indication of the quality of our assets were the net recoveries we recorded, not only in the fourth quarter, but also in the third and second quarters of the year. With recoveries exceeding charge-offs in all but the year's first quarter, net charge-offs were a mere 0.01% of average loans in 2014.

Returning once more to the topic of growth, it's important that I acknowledge the growth of our deposits, which rose $2.7 billion, or 10.4%, year over year. While CDs declined over the year, including in the fourth quarter, the impact was far exceeded by the growth in NOW and money market accounts, savings accounts, and non-interest bearing accounts. As a result, deposits totaled $28.3 billion at the end of this December, representing 58.3% of total assets, an improvement from 55% at December 31, 2013.

Now moving on from our balance sheet to our income statement, I'd like to say a few words about our net interest income margin. While our earnings rose sequentially and year over year from the fourth quarter, our net interest income and margin continued to be challenged by a flattening of the yield curve and the volatility of market interest rates. To some extent, the impact of these factors was tempered by the growth of our interest-earning assets and by the benefit of the pre-payment penalty income we recorded in the last three months of the year.

Pre-payment penalty income contributed $21.8 million to our fourth-quarter net interest income and 20 basis points to our margin in the fourth quarter of 2014. Reflecting this contribution, as well as other factors, we generated net interest income of $283.7 million and recorded net interest margin of 2.61%. Absent pre-payment penalty income, our margin would have declined 4 basis points linked-quarter, within the range we projected on our last earnings conference call.

Notwithstanding the challenges posed by market interest rates and the uncertainty surrounding their direction, I'm pleased to say that lending activity in our market niche continues to be strong. As we indicated in this morning's release, our current pipeline of loans is approximately $3 billion, with loans held for investment accounting for $1.9 billion of that amount. Of the held-for-investment loans in our pipeline, multi-family and commercial real estate loans accounted for more than 87% of that total, underscoring our emphasis on our traditional lending niche.

Furthermore, with residential mortgage interest rates trending lower, we've been pleased to see an increase in interest rate block commitments as reflected in our $1.1 billion pipeline of one-to-four family loans held for sale. And despite the seasonal slowdown so typical of the fourth quarter, mortgage banking income totaled $16.4 million in the quarter, consistent with the level recorded in the trailing three-month period.

Notwithstanding the aforementioned decline in our net interest income, our efficiency ratio improved to 41.29% in the quarter, from over 43% in the trailing and year-earlier three months. Again, in a quarter when market interest rates continued to challenge performance, our efficiency remained one of the hallmarks of our Company.

On that note, I would now ask the operator to open the line for your questions. If we don't get to all of you within the time remaining, please feel free to call us later today or this week. Thank you. Please?

AUDIO AT 12:05

(Operator Instructions)

Our first question is coming from Ken Zerbe with Morgan Stanley. Your line is now open.

Great. Thank you. Good morning, guys.

Good morning, Ken.

I guess, first question, just in terms of balance sheet growth from here. Obviously, we know that you're pulling -- you're keeping your growth very modest, right, because you don't want to cross over that at the $50 billion mark. But at this point, right, if we -- sort of the real measure is the four-quarter rolling average of when you are over $50 billion, are we late enough in the process, or at late enough in the year, that now you can actually start growing your balance sheet and cross over the $50 billion on four-quarter average such that assuming nothing changes with the CCAR limits, that you actually get lumped into the 2017 CCAR?

Ken, it's Tom. I would say that it's conceivable by the end of this year, you will see more ramped up balance sheet growth. Obviously, as we plan for LCR, we do have a project plan in place to be executed in 2015. Asset purchases for LCR probably won't take place until we cross the four-quarter average to implement the LCR requirements. So it's feasible to say you will have some back-ended growth for the balance sheet.

But I think given the interest rate environment, and looking how we're looking at the growth in the multi-family CRE side, the cash flow that we expect potentially from the securities portfolio could be significant. Given that rates are substantially lower, we are expecting to see some more call activity which would be helpful at much lower yields. So as far as calls and cash also to the portfolio, we should be able to see reasonably good growth for the year on the core asset class, and modest balance sheet growth going into the back end of the year.

Ken, further, there's no question that there is wide speculation that the bar will be raised. We're not counting on that.

And more importantly, we are overly aware of the specific needs we have to actually be a SIFI institution, and we're working very closely with our regulators to be in a position to actually take advantage of a very large deal as soon as all the pieces actually align themselves. So the growth of the Company, by our choice, would be by acquisition. The reality is, that there is no certainties as to when all the pieces come together.

Got it. Okay. And then Tom, can you update us on your NIM expectations for the next quarter, please?

Unfortunately, it feels like it's a repetitive comment on quarter-over-quarter. But rates as you're fully aware have come down substantially here, so we're still guiding slightly lower for Q1 2015. My initial forecast is to be down 3 to 5, consistent with the previous quarter.

Got it. And just --.

Similar to the previous quarter.

Understood. And then last question, some other banks have talked about seeing a resurgence in mortgage banking in first quarter given rates. So are you guys seeing a similar improvement in mortgage banking so far?

Interesting. We saw, we see the increase in the latter half of the fourth quarter going into Q1, let's say January, which we're wrapping up right now, very optimistic as far as lock volume. In addition to that, our margin pricing has improved quite a bit, approximately a 25 basis point increase into the margin. We are probably into an 80 to 95 basis points, that range in the margin which is substantial change, again, on our margin as well as lock volume.

So it's encouraging, it's one month for the quarter, but it looks like it started early. I would say, in the middle of the fourth quarter 2014.

Great. Thank you very much.

You bet.

Our next question comes from Collyn Gilbert with KBW. Your line is now open.

Thanks, good morning, guys.

Good morning, Collyn.

Good, thanks. Tom, can you just give us a little bit of color as to what the new origination yields are, versus what's rolling off? And then, what you are anticipating the drop in rates will do, to sort of the flow through rates as we look out for the remainder of the year?

So as discussed, we had a much lower rate environment. I guess, everyone has really forecasted looking at beginning in 2014 as going into 2015. Where we stand today, our current pipeline that we announced this morning, the CRE books are at a 3.60% and the multi-family is at 3.25%, so average about 3.36% on that pipeline.

So as far as the current market yield is slightly lower. Obviously we had a significant market change in interest rates. But we're still holding on the five-year, approximately 3%, slightly north of that, and the seven-year product around a 3 3/8%, and the 10-year is close to 4% -- about 3.88%, or 3 7/8% on the 10-year multi-families, typical co-op type structure.

On the CRE side, we are looking at around 3.5% for the five-year type product, and seven-year product, 3.75%.

Okay. So not too much of a material move in offering rates yet.

Yes. (Inaudible). The spreads held up very well. We have been holding the line north of 3% on our best offering. So we have been very focused towards that, not crossing below that threshold, but markets have changed and we're going to be lending into the market. But we've been very resistant on breaking that, that line in the sand.

Okay. That's helpful. And then just a question on the reserve. It looks like there was less reserve decline this quarter. Why was that? Because it seemed credit metrics are still really strong, and how does that tie into sort of your outlook for where -- I guess, thinking about the dollar amount of reserves shakes out for 2015?

Yes, I mean looking at where we were in the beginning of the year, I said [2014], I didn't expect to see any provisions. We did very well on asset quality, it continues to improve. Growth is reasonable.

There's been a change in the asset classes. As you can see, we've moved out some assets. So we're, the CRE, multi-family loan continue to build. The NPA book has substantially been reduced. My initial forecast for 2015 is that I don't expect any provision, assuming asset quality remains at these levels.

Okay. Okay. That's helpful. I'll stop there. Thanks, guys.

You bet.

Our next question comes from Dave Rochester with Deutsche Bank. Your line is now open.

Hey, good morning, guys.

Good morning, David.

So did I hear you guys right, that you plan to grow the securities book by year-end to become LCR compliant? So no matter what happens with Congress and the $50 billion in asset threshold, you are going to go over that threshold this year?

Let me rephrase that. What we're saying we have a project plan that we expect to implement in 2015 until we cross the four-quarter average of $50 billion, then we will execute on our LCR requirements. I don't envision that happening in 2015.

However, our project plan would be complete. That means people will be hired, the systems will be purchased. We'll be closing our general ledger as if we were an LCR requirement, However, we will not have the assets until we cross over the $50 billion. So we are still managing ourselves below $50 billion in the current environment

They're readily attainable.

Got you. Great. (Multiple Speakers). What's that?

Unfortunately, on much lower yields on the market --

Right. No, that's everybody's dealing with that unfortunately. Switching to operating expenses, sorry if I missed this part, but can you just talk about where you see those going next quarter? It seemed like maybe they were a little bit higher than expected this quarter, but I know you had some one-time office relocation expenses in there

Yes. Absent that, we were probably off a $1.5 million to $2 million based on our forecast in the fourth quarter because of the significant relocation expenses and some advertising expenses that we had in Q4. But looking at the first quarter of 2015, my gut tells me around $145 million for the quarter, and I will use that as an average for the year per quarter. So around $145 million, but slightly down off of Q4, by about $1 million.

Great. And then just, where are you seeing HQLA type reinvestment rates these days for some of the things you might ultimately end up buying?

Again, we haven't yet been in the market of bidding assets, but fortunately asset yields are extremely low. It is going to low 3%, for the typically Ginnie Mae structure, loan origination assets which we're reluctant to buy given the duration list.

We've been, obviously you know what treasury yields are, so that's significantly lower than that. So we've been clearly out of the market in securities. If anything, you will see our securities portfolio most likely decline in 2015, assuming rates stay where they are.

We have a high probability of some lower yielding securities to be called away on the callable debenture book. But our portfolio of DUS securities have been holding up very nice -- the high yielding securities, so the average yield is about 3.16% in the portfolio. We have a large book of callable debentures, around 2.5% that may get called depending if rates go lower. That will actually (technical difficulty) (multiple speakers)

We may be a little preliminary because I know you're working through the plan, but is there a thought to potentially swap out some of those DUS securities for HQLA, or are you just going to build on top of those?

Again, we wouldn't reveal that yet, it's too soon to tell. But we're always looking at our balance sheet options.

Okay. All right, great. Thanks, guys.

You bet.

Our next question come from Steven Alexopoulos with JPMorgan. Your line is now open.

Good morning.

Good morning, guys.

Hello, Steven, how are you?

I wanted to start, Joe, regarding this line in the release where it says you continue to take appropriate steps to prepare for SIFI status in the event that you should reach it. Are you signaling to us that you're more open now to crossing $50 billion organically?

No, I think that as I've said consistently, our goal would be to cross that, that particular line with a large transaction. So we need to do all the necessary work, whether we're tiptoeing over or we are jumping over. So, that work has been something that we have been diligently preparing for over the course of all of these months.

As I am sure you're aware, there's a great deal of time and money that goes into being ready to be a SIFI. So that effort has been one of the priorities of the Company. So we believe that we're very, very, very close to actually having everybody lined up so that we can make that step a reality, in particular, in discussing a combination of our balance sheet with a large balance sheet.

Okay. Got you. I wanted to ask, looking at the borrowed fund maturity schedule, looking at the Q and the K which is dated, it appears that the scheduled maturities and available calls on borrowed funds drop off a lot on 2015. Tom, I was hoping maybe you could give us an update in terms of repos and borrowings that are scheduled to mature this year?

Again, calls versus maturiting are completely two different concepts. I mean, there's a substantial amount that are callable, but in this environment will not be called given where the rates are.

As far as maturities, there is an insignificant amount in [2015]. I think the number is about $300 million, $350 million in total. So we are not getting a substantial amount of maturity, with exception of our short-term book which is maturing every day or every 30 days. So a true long-term maturities that are coming due, would be approximately $300 million to $350 million in 2015.

And we always discuss in previous calls, in the event market and conditions warrant, we'll evaluate our entire wholesale liability book. And in the event we have opportunities to think about maybe extending out and blending the coupon into a more affordable structure, we will consider that. We look at that on a quarterly basis, and still we are significantly out of the money right now. So in this environment, we haven't seen yet a compelling opportunity to do a blend and extension.

Okay. Just a final one, with the loans you're participating out, do you guys have the right to take those back at a later date if you chose?

Yes. All the deals that we're structuring, we are controlling the asset class of servicing these loans under our terms. So we have a very good structure where we have some great partners, and they're very confident that together, we have the relationship, and we will continue to work on selective opportunities in the marketplace, but understand that we're very protective on our customer base. So we have control of the assets, yes.

Yes, so there's no need for us to take back, as part of our structured asset lending.

Right. Okay. Okay. Thanks for the color.

Our pleasure.

Our next question comes from Mark Fitzgibbon with Sandler O'Neill. Your line is now open.

Good morning.

Good morning, Mark.

Gentleman, I assume you guys have had some conversations with groups lobbying in Washington to lift the $50 billion threshold

Yes.

How likely do you think it is that it would be raised?

I think that, that probably at the moment in time we are closer to actually having that happen than we've been the at any other time. There is active discussions in a broad range. There are many senators that are hearing from their constituents, and we're talking about community banks from all over the country that have made the case that these numbers are not the best way to determine risk, but rather an actual assessment of the balance sheet.

And clearly as a result, there are both Democrats and Republicans that are advocating that we move the bar. So it could happen relatively quickly.

Okay. And then separately, Tom, I wondered if you could share with us your outlook for pre-payment penalty income in the first quarter. Do you think it will look a lot like 4Q?

So, Mark, we never give specific guidance on pre-payment, but I will tell you the environment is very healthy. We had a good year last year. It wasn't a record year. We had three years back to back record.

We still had a very strong year in 2014, and the fourth quarter was a very strong quarter, slightly around the same level of the Q3, which is north of $20 million. But given where rates are, my expectation that pre-pays will remain highly elevated in 2015. So we feel pretty confident that this is a unique environment. Once again, we have rates lower for longer, which will drive a lot of pre-payment within all the portfolio, including the multi-family.

Okay. And then lastly, I wondered if you could just update us what remains to be done from an infrastructure compliance standpoint before going over the $50 billion, what are kind of the key remaining things to put in place?

Sure, sure. Yes, as indicated in the previous questions our LCR, our project plan will be implemented in 2015, and ready to be executed, with the exception of buying assets. That will be when we cross over down the road.

As far as CCAR reporting, we're in a very good position to -- in the next foreseeable few quarters ahead to be in a position do a monthly reporting mechanism back to Washington. That's the next stage with CCAR reporting versus DFAST, that's open.

And the third item will be living will. Living will is probably the least of the concerns, given we have a little bit more time for that. And that will be something that will be done in the future, and there will be an immaterial cost given the nature of our business.

Thank you.

Yes, Mark.

Take care, Mark.

Our next question comes from Matthew Kelley with Sterne, Agee. Your line is now open.

Good morning, Matt. How are you?

Good. With the decline in rates we've seen just over the last month here, do you think that a sequential decrease in the securities book could be greater than what we saw in the fourth quarter, where you were down about 5.5%? I mean --

Well, yes, so --.

Can you [imply] what your thinking is there?

So Matt, we had a -- we took advantage of the marketplace given the fourth quarter. We executed on about $209 million of actual sales of securities. Those yields were slightly higher than the portfolio yields. All-in, between that and call, there was around 3.60% type yield that we had run off. We had about $145 million of repayment, so that was calls that came into place, as well as some repayments of about another $100 million.

So going into 2015, the vast majority of the securities are DUS securities, which typically don't get called out. They get pre-paid, and when they get pre-paid, since we have them either at a discount or close to par, we have a benefit on the pre-payment. In addition to that, we get yield maintenance which is very lucrative. So that will be win-win for the Company. We are not planning on DUS pre-pay, but we are -- we are planning, however, if rates stay low, calls on the debenture portfolio.

And the average yield in the debenture portfolio remaining are in the mid [2%s]. So that will be a positive to the margin, assuming we are putting on loans as a replacement. There is going to be a point in time we have to manage our collateral position, but we believe we have some room there that we can shrink the portfolio further.

Okay. But I guess what I am hearing on the securities book is it's going to be another couple of quarters of sequential declines before the LCR plan goes into effect, kind second half of the year? Or is that --?

Yes, LCR as far as execution, the execution of the process plan. We have a project plan to be implemented. That is more operational.

As far as assets being executed, that will not take place until we are required to be a SIFI reporting entity, which could be years down the road. Or it could be depending if we announce a transaction, it will be subsequently thereafter. But my guess is that given where we are, we should be in place on execution basis, for the Company's on its project plan in 2015. However, LCR asset purchases will not take place until we are a SIFI bank.

Okay. Got you. And then how big is the specialty finance loan portfolio now? What's the dollar (multiple speakers)?

It's just south of $700 million, like $660 million and growing very nicely, and we're very pleased with the overall yield in that book. The overall yield in that book is around 3.80%, so it's a nice yielding asset, and mostly adjustable rate.

It's performing extremely well, as Mr. Ficalora indicated, a pristine asset quality, 100% performance. We are very selective. We turn down approximately 97% of the deals that we see. So we're kind of -- we're more of a credit buy-up shop. We pick our deals, and we're very selective.

Okay.

We anticipate good growth there as well. They're doing extremely well for us, and we are very happy with the results.

That's ABL leasing type credits; is that right?

Yes.

And maybe just walk us through why that particular book doesn't need any provision associated with it as you grow?

I mean, it's, it's very simplistic.

Yes.

These are highly senior secured assets, and when you go through the credit parameters, if you look where our overall credit scores are there, it's de minimis. We have a strong history here with this group. I think they have 30-some-odd year history of no loss. I think the total losses they've had historically is about $1.4 million, and that was during the Great Recession.

So we are very pleased, based on the seniority of the credits, these are highly secured assets, and they're constantly revolving short-term. So we believe that there will be very little (inaudible), if any at all in that portfolio.

Okay. Then just last question, what percent of the fourth quarter commercial real estate multi-family originations were in maturities beyond five years?

I would say probably 30% to 40%, a lot of seven-year paper, some 10, some co-op underlying. Not much.

Very little.

We've seen a lot of good bread and butter deals. Like I said, we're trying very hard to hold the line in the sand. We were getting some nice spreads given where rates are, we are getting a nice spread off the five-year treasury. We are still holding north of 3%.

As indicated, the portfolio yield going into our Q1 is just under 3.40% with the multi-family being 3.25%, and the commercial at 3.60%. So overall, we are feeling pretty good about things. But the rates are lower, but we're still holding that line in the sand of 3%.

But the actual change in rate would suggest that there is going to be activity in repricing. Much of the portfolio, not necessarily the assets that we've just created, but those assets will reprice as well, if in fact, it becomes evident over the quarters ahead that rates are substantially lower than they were when those loans were actually made.

I think, also, given where rates are, this clearly will give the Company substantial cash flow to be more, I would say more manageable on looking at the fourth quarter lookback on a SIFI cap. This is obviously a positive impact. If you go back to when the Company was reporting substantial mortgage banking income, it feels like mortgage banking income could be a very substantial catalyst in 2015 if rates stay lower for longer.

So we'll have that barbell strategy going into 2015. Obviously, we can't predict where rates are going, but given where rates are today, this could have the barbell strategy for the Company, as we did when the rates were at these levels in the past.

We'll take our final question from David Hochstim with Buckingham Research. Your line is now open.

Hey, good morning, guys.

Good morning, David.

How are you Dave?

Good, thanks. How are you? I wonder, could you give us any update on the M&A environment? Anything you would like to --?

I think the M&A environment is definitely looking up. There's no question that there are banks throughout the country that have been actively considering the possibility of combination, and this environment does lend itself to that decision being made by boards of directors. So I would suggest that there is going to be more activity in the period ahead than we have seen over the last couple of years.

And is your preference for a big, a large deal versus --?

We are focused on a large deal. Obviously, if the rules change, we could entertain a small deal, but we're still focused on a large deal. And that is exactly where we're planning and working with our regulators in doing a large deal.

Okay. Tom, could you give us a breakdown on mortgage servicing income? Is that -- (multiple speakers)

Yes. Sure. So for the quarter, we had servicing income -- total for the quarter of $7.688 million, broken down by loan servicing fees of $13.068 million, change in MSR value of a negative $21.124 million, and a positive hedge effectiveness of $15.744 million. When you summarize those three components, you get to $7.688 million. Origination revenue for the quarter was $8.758 million.

So for the total quarter, you had mortgage banking revenue of $16.4 million, versus $16.6 million sequential. So slightly better than we expected going into -- actually that was back-half loaded in the fourth quarter of 2014.

So the first quarter could look a little better?

Absolutely. I mean, right now January was a very strong month. Rate locks are up significantly, and gain on sale margins have improved around 25 basis points for the quarter.

Okay. Thanks a lot.

You're welcome, very welcome.

And we'll take one last question from Matthew Keating with Barclays. Your line is now open.

Yes. Thank you.

Good morning, Matt.

Good morning. On the M&A discussion, I think you mentioned that you're still looking -- obviously for the large deal that you talked about, when sort of all the pieces align themselves. And then, you just mentioned the previous question about you know working with regulators. At this point, is the main stumbling block to completing a large deal, regulatory concerns over such transactions or is it more just finding a willing partner? Maybe you can just talk about how that process evolved?

I think that the environment we're in today has explicit requirements that deals are discussed with regulators before they're definitively moved to a [confi], and a discussion to actually do the deal with the board of directors of the other institution. So although boards may have a willingness to do deals, the reality is that the regulators need to discuss those deals in advance of the deal actually materializing.

So there will be and there are discussions between us and our regulators with regard to the specific nature of doing transactions of size, and certainly we need to demonstrate the capacity to execute on the new requirements, that that would represent. So this is not the same as it had been years ago. And certainly, we have been working with this now four years, and I think we're in a very good place with all the people involved in making these decisions, so that we can literately come to a place in which we're publicly discussing a deal.

Great. Thank you.

You're welcome.

And we'll take one final question from Peter Winter with BMO Capital Markets. Your line is now open.

Thanks.

Good morning, Peter.

Good morning. I know it's a small portfolio, but can you just give us an update on the taxi medallion business?

Well, we still manage it. We still have it, it's a couple hundred million dollars in total balance sheet footing. 100% performing, we haven't had any credit issues with that.

We've marketed a portfolio for sale. We are working with some selective partners to sell those assets, but we haven't yet actually closed on a sale. But we would consider selling. But in the meantime we have 100% performing portfolio, just south of $200 million, and we're looking at a situation that's high yielding and short maturity.

It's relatively -- it's less than two years in remaining life.

It's on a 3.40% yield -- and approximately two-year average life.

Okay. So if you don't get an acceptable offer, you'll just run it off?

Right now, it's performing 100%. We've marketed it, we had a transaction that just doesn't close, and we're still expecting to potentially sell it in 2015. If it doesn't get sold, then we'll move it from held for sale, back to held to maturity, and it's two-year average life remaining.

Got it. Thanks, guys.

Thanks.

Very good, Peter.

And we have no further questions at this time. I'll turn it back to Mr. Ficalora for any closing remarks.

Thank you. 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 discussing our first quarter performance with you in April 2015. Thanks.

Thank you. This does conclude today's fourth quarter 2014 earnings conference call with the management team of New York Community Bancorp. Please disconnect your lines at this time, and have a wonderful day.