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Executives

Ilene A. Angarola - Executive Vice President and Director, Investor Relations

Joseph R. Ficalora - Chairman of the Board, President, Chief Executive Officer

Thomas R. Cangemi - Chief Financial Officer, Senior Executive Vice President of the Company and the Bank

John J. Pinto - Executive Vice President, Chief Executive Officer, EVP of the bank

Analysts

Bob Ramsey - FBR Capital Markets

Richard D. Weiss - Janney Montgomery Scott LLC

Collyn Gilbert - Stifel, Nicolaus and Company, Inc.

Ken A. Zerbe - Morgan Stanley and Co, Inc.

Tom Alonso - Macquarie

Christopher Nolan - Maxim Group LLC

David Hochstim - The Buckingham Research Group

Mathew Clark - KBW

Theodore Kovaleff - Horowitz & Associates [ph]

Mathew Kelly - Sterne Agee & Leach

Daniel King - JP Morgan

Andy Den [ph] - RBC Capital

New York Community Bancorp, Inc. (NYB) Q4 2009 Earnings Call January 27, 2010 9:30 AM ET

Operator

Good day, everyone, and welcome to the New York Community Bancorp’s fourth quarter 2009 earning’s conference call. Today’s call is being recorded. At this time, all participants have been placed in a listen-only mode.

For opening remarks and introductions, I would like to turn the call over to Ilene Angarola, Director of Investor Relations. Please go ahead, ma’am.

Ilene A. Angarola

Thank you. Good morning, everyone, and thank you for joining the management team of New York Community Bancorp for our quarterly post-earnings conference call. Today’s discussion of our fourth quarter 2009 performance will be led by our Chairman, President and Chief Executive Officer, Joseph Ficalora, together with our Chief Financial Officer, Thomas Cangemi. Also joining us today are Robert Wann, our Chief Operating Officer, and John Pinto, our Chief Accounting Officer.

Our comments today will feature certain forward-looking statements, which are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those we currently anticipate due to a number of factors, many of which are beyond our control.

Among those factors are general economic conditions and trends, both nationally and in our local markets; changes in the financial or operating performance of our customer’s businesses, or changes in real estate values, which could impact the quality assets securing our loans; changes in interest rates which may affect our net income, prepayment penalty income, and other future cash flows; or the market value of our assets including our investment securities; changes in legislation, regulation and policies, including those pertaining to banking, securities, and taxation; and our abilities to successfully integrate any assets, liabilities, customer, systems and management personnel we may acquire into our operations, including those from our recent AmTrust Bank transaction; and our ability to realize related revenue synergies and cost savings within expected time frames.

You will find a more detailed list of the risk factors associated with our forward-looking statements in our recent SEC filings and beginning on page 11 of this morning’s earnings release.

The release also includes reconciliations of certain GAAP and non-GAAP earnings and capital measure, which will be discussed during this conference call. If you would like a copy of the earnings release, please call our investor relations department at 516-683-4420 or visit the investor relations portion of our website mynycb.com.

I will now turn the call over to Mr. Ficalora who will speak to you briefly before opening the line for Q&A. Mr. Ficalora?

Joseph R. Ficalora

Thank you, Ilene, and good morning, everyone. We appreciate your joining us for this morning’s discussion of our fourth quarter 2009 financials, which reflect the initial benefits of our recent AmTrust transaction, together with the benefits of our recent common stock offering. Before we speak to the growth of our fourth quarter earnings, I would like to discuss the benefits of our strategic actions as they are reflected on our year-end balance sheet. At December 31, we recorded total assets of $42 billion, which were primarily increased by the assets acquired in our FDIC-assisted transaction involving AmTrust Bank. At year-end, we had approximately added $4.7 billion of loss share covered one- to four- family and other loans, $760 million of securities, $2.6 billion of cash, and other assets of about $1.6 billion, which together offset $8.5 billion of liabilities and $1.2 billion in capital.

As a result of the transaction, the ratio of loans to deposits improved to 127% at the end of December, and our ratio of wholesale borrowings to total assets improved to 31%. Importantly, the loans we acquired in the AmTrust transaction are covered by a loss sharing agreement, which significantly mitigates the risk of such loans. The loss sharing agreement calls for the FDIC to cover 80% of losses on the first $907 million and 95% on any loses covered after that amount.

We also enhanced our retail funding platform with the addition of AmTrust 66 branches in Southern Florida, Northeastern Ohio, and Central Arizona. I am pleased to say that 97% of the deposits we acquired on the fourth of December were still with us on December 31. This is an indication of the high level of service and confidence in the AmTrust branches and the degree to which our history of strength, stability, and service was effectively communicated to our newest customers. We expect that our newest franchise will prove a meaningful funding source for lending in our traditional markets, as well as a meaningful source of revenues.

In connection with the transaction, we also assumed AmTrust mortgage banking operation, although we very specifically did not purchase the associated servicing right, which is now with FDIC. Since joining us, the mortgage unit has been originating conforming agency eligible one- to four- family loans, strictly for sale to Fannie and Freddie, therefore representing low risk source to revenue.

Of course, the AmTrust transaction is about so much more than dollars and cents and statistics. It is also about integrating the people, systems, policies and processes of two banks into one. I am very pleased to report that the integration process has been going very smoothly, a tribute to those of our officers who have been spending time working side by side with their new colleagues in Cleveland, and the professionalism, skills, and responsiveness of our newest employees. We have also been extremely pleased by the sophistication of AmTrust systems and operations, and expect both to facilitate the growth of our company in the period ahead.

Among the steps we are taking in the integration process is restoring AmTrust’s Ohio franchise to its original name, Ohio Savings Bank, which is the name by which the franchise was known for 118 of its 120 years. While the name change in Ohio will take full effect by early April, the AmTrust name will live on in Florida and Arizona where we respectively have 25 and 12 branches, the largest of which is over $460 million in deposits.

Leaving AmTrust for a moment, I would like to speak to our recent common stock offering, which generated net proceeds of nearly $865 million in December and that's contributed to a $1 billion linked-quarter increase in tangible stock holders’ equity. At the end of the year, tangible stock holders’ equity totaled $2.8 billion, representing a better than 55% linked-quarter increase, and a better than 27% increase in tangible book value per share to $6.56. Furthermore, our ratio of adjusted tangible stock holders’ equity to adjusted tangible assets rose 103 basis points over the course of a quarter to a very healthy 7.28%, the highest measure we have reported in 10 years.

Our regulatory capital ratios were similarly strengthened as a result of our actions, with the community bank having a leverage ratio of 9.52% at the end of December and the Commercial Bank having a leverage ratio of 11.39%.

Now on to our earnings. As the headline to this morning’s press release states, we generated GAAP earnings of $414 million for the year, including $170 million in the fourth quarter, and diluted GAAP earnings per share of $1.77 including fourth quarter diluted GAAP earnings per share of $0.45. Our GAAP earnings was supported by an after-tax bargain purchase gain of $84.2 million stemming from the AmTrust acquisition, as well as certain smaller gains stemming from the implementation of certain funding cost reduction strategies. The combined gains more than offset the impact of after-tax OTTI charges and certain acquisition-related costs.

Our fourth quarter cash earnings were even more substantial, amounting to $191.3 million or $0.51 per diluted share. For the 12 months ended December 31, we generated cash earnings of $494.5 million, equivalent to $1.41 per diluted share.

Our operating earnings meanwhile rose to $97.7 million, or $0.26 a diluted share in the fourth quarter, primarily reflecting the expansion of our net interest margin, higher net interest income, and an increase in other non-interest income. The benefit of these increases were somewhat offset by a $30 million loan loss provision, which was double the provision we recorded in the trailing quarter and exceeded our fourth quarter net charge offs by $20.8 million. Net charge offs amounted to $9.2 million in the quarter, and were equivalent to a mere 0.04% of average loans.

Consistent with our experience over the course of decades, our fourth quarter asset quality measures compared favorably with those of our industry peers. In the fourth quarter of 2009, the ratio of net charge offs to average loans was 0.81% for SNL Bank & Thrift Index. In addition, the ratio of non-performing loans to total loans for the index was 4.33%. Those are the numbers to compare to our 0.4%, and the numbers that we have previously discussed.

Notwithstanding a $117.7 million increase in non-performing loans to $578.1 million at the end of December, our ratio of non-performing loans to total loans was a comparatively modest 2.04%. Included in the year-end amount were multi-family loans of $393 million representing 2.3% of total multi-family loans. Non-performing CRE loans totaled $71 million, which represented 1.4% of the CRE loan portfolio.

Historically, our non-performing niche multi-family and CRE loans have rarely resulted in charge offs, due in large part to the nature of the properties underlying these credits, our underwriting standards, and the loan to value ratios of such loans.

At the end of the last year, the average multi-family loan had an LTV of 61%, and the average commercial real estate loan had an LTV of 54%. These ratios were consistent with the trailing quarter end measures and somewhat lower than the ratios at year-end 2008. Reflecting the provisions we made, our loan loss allowance totaled $127.5 million at the end of December, more than four times our year-to-date net charge offs, and 35% greater than the year earlier amount.

Again, it is important to note that the loans we acquired in the AmTrust transaction are covered by a ten year loss sharing agreement, which serves to mitigate much of the risk associated with the acquired loans.

Aside from the increase in our provision for loan losses, our fourth quarter operating earnings were also reduced by higher FDIC premiums, acquisition related expenses, and the impact of adding the AmTrust franchise on our operating expenses overall. Notwithstanding the impact of these factors, our operating efficiency ratio improved to 35.6 % in the quarter, primarily reflecting the growth of our net interest income on both a linked-quarter basis and a year-over-year.

Net interest income rose 26.2% year-over-year and 12.4% linked-quarter, as we continue to capitalize on the steepest of the yield curve to originate loans at favorable spreads while also reducing our retail and wholesale funding costs. The average yield on multi-family and CRE loans we produced over the course of the quarter was 352 basis points above the average five year constant maturity treasury rate. Partly reflecting the addition of the AmTrust loans in early December, as well as our fourth quarter originations, the average balance of interest earning assets rose 8.8% to $30.7 billion over the course of the quarter, more than offsetting the impact of 23 basis point drop in the average yield to 5.60%.

Meanwhile, our average cost of funds declined 79 basis points to 2.36% over the course of the quarter, more than offsetting the impact of an 11.5% increase in the average balance of interest-bearing liabilities to $29.5 billion. The same factors contributed to the expansion of our margin, which rose 46 basis points year-over-year and 16 basis points linked-quarter to 3.33%. Prepayment penalty income had little impact on our margin given the degree to which refinancing activity has been weakened by real estate market conditions and continued economic uncertainty.

In view of the strength of our earnings and our tangible capital position, the Board of Directors last night declared a 24 consecutive quarterly cash dividend of $0.25 per share. The dividend will be paid on February 17 to shareholders of record at February 5.

In closing, the actions we took in December of this year were consistent with our business model and indicative of our focus on strengthening our balance sheet, our earnings, and the value of our investor shares. Although the economy continues to reflect significant signs of weakness, the steps we took in the quarter have clearly made us stronger and even better equipped to capitalize on the opportunities for growth that may still lie ahead.

At this time I'd like to take your questions. As always we will do our best to get to everybody in the time allotted, but if we should miss you, please feel free to call our investor relations department, or leave a message for us and one of us will get back to you. Now the questions please.

Question-and-Answer Session

Operator

The floor is now open for questions. (Operator's Instructions) Our first question is coming from the line of Bob Ramsey from FBR Capital Markets. Your line is open, please go ahead.

Bob Ramsey - FBR Capital Markets

Good morning. The bargain purchase gain was bigger than, I think I was looking for anyway. Could you talk about – is there any offset in that to accretable yield adjustments, will that have any impact on earnings going forward? What caused the shift?

Thomas R. Cangemi

The biggest change was that the month to month and the liability at that point in time was a guesstimate and we were pretty close but that moves around a little bit. Then when we finalized it, the final loan mark, which is a very detailed analysis, that also had some play there as well. As far as the accretable yield, the receivable that we booked, we booked at a net present value rate of approximately 6% so we have some benefit there going forward. But as indicated on our previous calls, the overall level of coupon expected from that portfolio is still approximately the same.

Bob Ramsey - FBR Capital Markets

Great. And then could you talk about how much margin impact you expect in the first quarter, just from the full quarter impact of AmTrust?

Thomas R. Cangemi

We're not going to give any specific margin guidance right now. It's a little early, we're still going through integrating AmTrust. I will tell you that it had a positive impact for the quarter and we expect to see significant positive's going for 2010. Bear in mind, we are sitting on a lot of liquidity right now. We have approximately $2.8 billion of cash in our balance sheet and approximately $600 million to $700 million of U.S. Treasury bills, yielding very little that we expect to deploy over time into the model. So that will also give us significant margin benefits as we deploy that cash. Absent that, we still see margin expansion going forward into 2010.

Bob Ramsey - FBR Capital Markets

Okay. Are there any plans to pay down borrowings with that liquidity, or are you going to wait and deploy…

Thomas R. Cangemi

We evaluate that every month. We did pay down some of the short-term borrowings from AmTrust, approximately $100 million when we had all those in a liquid position, but we did not pay off any long-term borrowings currently.

Bob Ramsey - FBR Capital Markets

Okay great, thank you guys.

Operator

We'll move next to the side of Rick Weiss with Janney Montgomery Scott. Your line is open, please go ahead.

Richard D. Weiss - Janney Montgomery Scott LLC

Good morning. I was wondering if you could talk about the management of the AmTrust branches. Are you still keeping the people in place there that are running the retail operations, Joe, or are you doing it out of New York?

Joseph R. Ficalora

No, the management of the operations through Florida, Cleveland and Arizona is intact. The people that were running it before the deal are still running it today. There's no reason for us to try and run that franchise from New York. Quite frankly, they're doing a great job. That bank had been $18 billion and downsized under mandates from their primary regulator, so the reality is that the franchise can carry a much larger deposit base, and the people that are there today are the people that in fact have the ability to make that happen.

Richard D. Weiss - Janney Montgomery Scott LLC

Okay, thank you very much.

Operator

Moving next in line to Collyn Gilbert with Stifel, Nicolaus. Your line is open, please go ahead.

Collyn Gilbert - Stifel, Nicolaus and Company Inc.

Good morning. On the boost in the provision this quarter, maybe can you just help us sort of reconcile that? Obviously the loss content within the portfolio remains low. Is that a function taking advantage of some of the gain coming through with AmTrust, in building it? Or give us a little more color as to what –

Joseph R. Ficalora

I think the reality is that there's an awful lot of sensitivity with regard to the building of reserves. We always have to be mindful of that. There is no additional assessment of specific risk other than the fact that we assessed the portfolio and deemed it appropriate to have more reserves, given the conditions in the marketplace.

Collyn Gilbert - Stifel, Nicolaus and Company Inc.

Did something change from the third quarter that would cause that?

Joseph R. Ficalora

No, other than the obvious. We did decide that where we could, we would add to our reserves. And certainly in the assessment of the portfolio, we judged it appropriate to make additions to the reserve.

Collyn Gilbert - Stifel, Nicolaus and Company Inc.

One other question on the credit side. Are you seeing much of a differentiation among the appraisal values and then some of the potential sale prices of some of these properties. I'm just trying to gauge what the appraisal markets look like right now.

Joseph R. Ficalora

The market broadly is showing significant deterioration in valuation, depending on where you are. With regard to our specific properties, and this is pretty consistent with the kinds of loans that we do, many of our properties are today well above the value of our loan, mainly because we wrote them right in the first place.

And even though the market has changed, we're a cash flow lender on a deeply discounted cash flow, and that cash flow carried the loan when it was made and carries the loan today. Whereas the marketplace is definitely revaluing down, maybe even some of our properties are revaluing down, they are not revaluing down below our carrying levels.

Collyn Gilbert - Stifel, Nicolaus and Company Inc.

So you're not having to see it change in either your non-performing loans or your write-down because of lower appraisal values.

Joseph R. Ficalora

Right. I mean, they occasionally are, I mean obviously…

Collyn Gilbert - Stifel, Nicolaus and Company Inc.

Right, but it's not a cyclical [ph] trend.

Joseph R. Ficalora

We're not seeing anything at all like what you're seeing broadly in the industry. That is very typical of every cycle turn. In every cycle turn, there's massive amounts of loss taken by most lenders. In our case, we typically wind up taking significantly less loss, because we virtually have value that is realizable.

Collyn Gilbert - Stifel, Nicolaus and Company Inc.

One quick last question. Tom, can you give us a sense of what we should look for in terms of a run-rate on expenses going forward?

Thomas R. Cangemi

I think it's fair to say we can point you to a reasonable estimate, obviously we are still working on integration of savings and also additional costs for the acquisition. It's fair to say for a run-rate for the combined company to be around $500 million, excluding CDI, so figure about $360 million for NYB stand-alone, which is consistent to the previous quarter. Pre-CDI, and approximately $140 million to$144 million for AmTrust. We still have a lot of integration work to do there, that number could come down quite a bit during the year. Add CDI approximately for the year around $31.8 million which consists of approximately $10 million for 2010 for AmTrust stand-alone.

Collyn Gilbert - Stifel, Nicolaus and Company Inc.

Okay, that's helpful. Thanks very much.

Operator

We'll move next to the line of Ken Zerbe with Morgan Stanley. Your line is open, please go ahead.

Ken A. Zerbe – Morgan Stanley and Co, Inc.

Good morning. Just a follow on to the last question of expenses, the integration costs you recorded was $7.5 million related to AmTrust. Is that included in the expense guidance you just gave?

Thomas R. Cangemi

No, those were obviously under the new accounting guidance. That's going to have to be incurred as expended. For the fourth quarter we had approximately $7.5 million of actual expenses for AmTrust. When we put out our press release for AmTrust we estimated approximately $100 million for the year, but that number is probably a little heavy. It's probably going to come in a little better than that in 2010.

Ken A. Zerbe – Morgan Stanley and Co, Inc.

So in addition to those expenses we should expect a little less than $93 million of additional acquisitions –

Thomas R. Cangemi

My guess is that that $100 million number was probably very conservative.

Ken A. Zerbe – Morgan Stanley and Co, Inc.

Just in terms of the deposits from AmTrust, knowing that you're basically using those deposits to front multi-family loan growth up in the Northeast, over time – not the next quarter or two but over the next year or two – how do you expect those deposits to trend in terms of overall balances, or level of deposits? Is that something you think you can actually grow from here –?

Joseph R. Ficalora

I think that uniquely in this circumstance – most deals are done with banks that are aggressively bringing in hot money, just prior to doing a deal. As a result of the regulatory oversight – I'll talk specifically about in this case – there's no question that the deposits were in fact encouraged to flow out. So the ability to regain deposits from the markets where these branches are situated is very real. We would expect that more so than in other circumstances, in this case we will in fact be able to build the deposit franchise substantially, given that the very branches that we're currently occupying had significantly higher deposit bases previously.

Thomas R. Cangemi

I would also add that retention rate right now is better than expected. So we expected approximately 15% run off just given the size of the transaction and what we've seen in past deals. But it's been relatively flat and we're very pleased with the overall stickiness of the deposit base.

Joseph R. Ficalora

The highest run off occurs in the early weeks right after the FDIC announces that they're closing the bank, so even with all of that we have a retention rate of about 97%. That's pretty good.

Ken A. Zerbe – Morgan Stanley and Co, Inc.

That's very good. And finally your thoughts on additional acquisitions down in Florida?

Joseph R. Ficalora

I'd say that this transaction makes the likelihood of us doing additional add on transactions significantly higher. The ability to add to this franchise – because there are going to be opportunities in Florida, Ohio and Arizona for sure, makes the way in which we will look at transactions significantly more favorable.

Thomas R. Cangemi

I would just add to that that in the those particular markets in previous years, we would not do a small transaction in a market that we don't have a presence in. Right now bolt on transactions would be very favorable in this environment. We're seeing a lot of opportunities as we speak today.

Ken A. Zerbe – Morgan Stanley and Co, Inc.

Thank you.

Operator

We'll move next to the line of Tom Alonso with Macquarie. Your line is open, please go ahead.

Tom Alonso - Macquarie

Good morning. Most of my questions have been answered. Just on your ability to grow the deposits in these new markets – is there anything that you need to do to change? Have you thought of putting someone in charge of the out of New York part of it or are you just going to let the people there do what they had done in the past?

Joseph R. Ficalora

I think the good news is that the business model – the retail business model is very effective and very competitive. Interestingly enough, we are actually going to be adding to staff in that retail business model given that they have actually cut back over the last 18 months about 1,200 people. I'm not saying we're adding 1,200 people, but we are actually going to be actually increasing staff. That is an unusual thing in an acquisition.

Tom Alonso - Macquarie

That's pretty much all I had. Thanks.

Operator

We'll move next to Christopher Nolan with Maxim Group. Your line is open, please go ahead.

Christopher Nolan - Maxim Group LLC

Was the increase in the non-performing assets relative to the third quarter mostly related to the multi-family portfolio?

Joseph R. Ficalora

I'd say yes. That actually is a good thing rather than a bad thing, but yes that's correct. That by the way is consistent with the fact that most of our non-performing assets are multi-family.

Christopher Nolan - Maxim Group LLC

Joe, just a quick follow up. You indicated that – does the higher NPA's reflect a higher level of term defaults by property owners?

Joseph R. Ficalora

It hasn't been term defaults. It's a variety of things that are going on. In some cases, it's obviously the situation with the owner is affected by other loans that they have. The market definitely is a challenging market for everyone. With regard to our particular loans, we happen to have some very good owners and they typically deal with their problems well and we never even know that they had a problem. However some of them are in fact delaying their payments and certainly it shows up in our non-performing. It does not necessarily, as the numbers demonstrate quarter by quarter by quarter in the face of massive losses being taken by any of our peers anything close to the size of the portfolio that we carry. We are in fact showing materially less in the way of lawsuits.

Thomas R. Cangemi

Just to clarify the magnitude of the move. Of the $117.6 million increase on a linked quarter basis, $116 million was multi. So the other portfolios are performing well. Actually for the first time in about four or five quarters, the construction NPA book has actually declined which is also a favorable signal.

Christopher Nolan - Maxim Group LLC

That's great color. Going forward, looking at the NPA, should we basically see that the increases sort of tracked the unemployment rate in New York City?

Joseph R. Ficalora

No, not at all. Because of the unique nature of our portfolio, the changes will be reflective of specific owners or specific properties. But not necessarily any of the metrics which are globally the case for the marketplace.

Christopher Nolan - Maxim Group LLC

Great. Thanks for taking my call.

Operator

And next for the call of David Hochstim of Buckingham Research. Your line is open, please go ahead.

David Hochstim – Buckingham Research

Question about J-51 exposure. I wonder if you might provide some kind of quantification of the portion of the portfolio that has rents over $2,000 or if you think that’s not the right kind of –

Joseph R. Ficalora

No, I think that you’ve touched upon one of the components of the discussions around J-51. As we’ve indicated in the past and I believe the ongoing discussions that our lenders have been having reflect that we have significantly less exposure than one might guess to the kinds of issues that are being presented to the marketplace with regards to J-51.

Our portfolio is very, very different than what might be present, let’s say, in Stuyvesant Town or some other place. And therefore J-51 has not had any noticeable effect at all on our portfolio. We’re not aware of any circumstance where there’s been a J-51 issue with regard to enrolments [ph] in our portfolio. That’s pretty extreme.

David Hochstim – Buckingham Research

Okay. Great. And then, Tom, could you just verify what to think about in terms of the tax rate? It seems that it was up even on an operating basis?

Thomas R. Cangemi

Well, yup, that’s right. The tax’s rate is going to increase. Obviously the pretax income is rising dramatically and we’re forecasting that. Actually we’re not really forecasting, we expect next year given the AmTrust acquisition to have higher earnings. So with that being said, my guesstimate right now, it’s early in the year probably between 35.5 to 36.

David Hochstim – Buckingham Research

Okay.

Thomas R. Cangemi

And that’s solely driven on the level of increased pretax income.

David Hochstim – Buckingham Research

Okay. Then just again on the provision, not to beat a dead horse, but is this a new run rate or this is kind of catch up because –

Joseph R. Ficalora

No. I’d say that it was a reflection of our assessment of the portfolio which is done on a monthly basis and reflected on a quarterly basis.

David Hochstim – Buckingham Research

Okay. All right, thanks.

Operator

And the next question comes from Mathew Clark with KBW. Your line is open, please go ahead.

Mathew Clark – KBW

Can you talk to the CD front and what you might be offering these days? I know you guys are honoring the existing rates at AmTrust on the CD front. Just curious what you guys might be offering there and here in New York. Looks like your CD cost came down about 1.91. Just curious where –

Joseph R. Ficalora

Yeah. Our CDs are likely to continue to come down in cost, both there and here. The rates are basically end market rates. We are very cautious about that. And even in the markets where it’s new to us, meaning Arizona, the rates are the rates that have traditionally been the case, which are very conservative rates

Thomas R. Cangemi

I would also add, Matt, the rates are in this environment not as much under pressure they were a year ago. Rates are relatively low. Bear in mind, we did have the mark to market adjustment for the franchise. We’re running approximately 1.20 for the cost of funds for the AmTrust transaction on the CD side. All in cost of funds are going to be around 1% for AmTrust given the environment a lot of money market type accounts. But the overall CD book is approximately 1.25.

Mathew Clark - KBW

And have you start to extend the duration of those yet?

Thomas R. Cangemi

I think the market is still keeping things relatively short. It’s more market driven. No one is really going out more than two years. So you’re probably looking at between six months to – six to 18 more of the promotional opportunities for customers. No one’s really locking in 2% over three, four years. That’s just not the environment that we’re in.

Joseph R. Ficalora

And anyone that’s offering higher rates for longer term is getting very little play.

Mathew Clark - KBW

Okay. And then in terms of the net new problems here, still looks like about $128 million or so, down slightly from last quarter but still a decent addition here. Saw the early stage delinquencies, the growth there slowed a little bit, but still a decent increase. Just trying to get a sense if there’s any lumpiness in those increases and if so what type situations they might be?

Joseph R. Ficalora

Can you just repeat early part of the question. We kind of –

Mathew Clark - KBW

Yeah. The net new problems kind of flowing in, if you add back net charge offs

Thomas R. Cangemi

I think what Mr. Ficalora stated on the multi side, that’s where most of the inflows came in. On the other parts of the portfolio, construction went down on a linked quarter basis. I think the overall commercial real estate book is up approximately $1.5 million linked quarter. Overall, C&I was only up $2 million. So we got $18 million of C&I business. That’s considered non performing, non accrual. So overall it would be exclusive with a multi family product. The portfolio is not seeing any significant increases in delinquencies. And as Joe indicated, we’re very comfortable when we have a cash flow asset that has the ability to pay us back on cash flow to work this out over time.

Joseph R. Ficalora

I think one of the good indicators that are not necessarily available to you is that some of the assets that are actually in the problem asset pool over the last several months are actually resolving favorably. So the reality is that we are already seeing positive signs of resolution and that will change the numbers on a go forward basis as well. You get big loans going in so the numbers go up by a lot. You get big loans coming out, so numbers could easily go down by a lot as well.

Thomas R. Cangemi

I would say more big relations, not specific loans. But families that had some problems on global cash flows with their entire portfolio, not just with NYB, you have to work through. And what Joe was indicating that, some of those problems are working themselves out. So 2010, we hope to be the year that we start seeing the decline over time.

Mathew Clark - KBW

Okay. Thanks guys.

Operator

Thank you. And we’ll move next to Theodore Kovaleff with Horowitz & Associates [ph]. Your line is open, please go ahead.

Theodore Kovaleff - Horowitz & Associates

I wonder if you could give a little bit more granularity to the multi families that have gone sour? Where did you get them? Are they legacy or are they some that were acquired, et cetera?

Joseph R. Ficalora

I think you basically got it right. They’re a mix. With the primary numbers here are all either legacy or not typical. There are no in niche multi families that we have any expectation of taking a loss on. Which is very, very consistent with what our experience has been over the course of decade. It doesn’t mean that we won’t ever. But it does mean that with a great deal of consistency we are seeing some very obviously consistent activities with regards to our loan book that suggest that we will go non-performing to a very large degree. And then we will resolve to a much better degree than most other reported non-performing portfolios will. And that’s a trademark that has existed for a very long time. And everything about our portfolio suggests that we very well may have that continue.

The difference, of course, is that when we have loans that are, for example, in other markets, we are writing off very substantial components of that particular asset. In some cases the property is stabilized at their new values. Or we may actually exceed the values that we put them into our books at. But we are making some very substantial charges when in fact the circumstances justify.

Theodore Kovaleff - Horowitz & Associates

Okay.

Operator

And then the next is from Mathew Kelly with Sterne Agee & Leach. Your line is open, please go ahead.

Mathew Kelly - Sterne Agee & Leach

Just getting back to the issues of expenses from AmTrust, I’m wondering if I can get a little bit more detail on the $140 million, $145 million or so that’s coming with them? I just go back and looked at what they were running at the last several quarters before you guys acquired them. It was running $75 million to $100 million or so a quarter or so. Where have you guys been able to extract the cost saves so far and what kind of synergies are you anticipating in that $140 million number?

Thomas R. Cangemi

Just bear in mind, AmTrust had a problem loan book that cost the company hundreds of millions of dollars on an actual basis. So that’s really where the offset was. When you look at AmTrust standalone, and AmTrust merged with the NYB franchise, all those problem assets are now resolved with the FDIC. We’re not dealing with those issues. We’re not spending dollars for those issues. We are still managing the service and portfolio for the FDIC. There are expenses in that 144 runway that we currently are forecasting for 2010.

Now again, a 144 is probably going to be a little bit heavy initially. We expect to see some more saving going forward. But we’re not at the point right now to give any further guidance other than the 144 is a good run rate assuming that the operations stay the way they are. We expect we’ll drive some additional cost savings to synergy to systems integration, some economies of scale. But as Joe indicated, we’re going to put some more people in the branches. They were pretty lean during the tough days, dealing with their regulatory issues. And we’re very, very pleased on the platform on the deposit side. And they have a great deposit generation capability for us. So we’re going to embrace that opportunity.

Joseph R. Ficalora

Plus, Matt, the reality is that all of their high cost people were at the holding company, and none of them came over with us. So we saved an awful lot of money just in that line alone.

Mathew Kelly - Sterne Agee & Leach

And how much do you think you saved by avoiding the servicing company?

Thomas R. Cangemi

The reality is that, a $30 billion portfolio does generate a lot of income. So it’s definitely paying for itself. We’re still conservatively managing it for the FDIC. We are very focused towards giving them a nice warm handoff and going through this process. This process could probably take through the end of the year. They have to sell it. Then we have to transfer it to the ultimate buyer of that portfolio. With that being said, we will be getting cost reimburses from the FDIC and we’re still working through that.

Mathew Kelly - Sterne Agee & Leach

Okay. And then, what should we be expecting for operating fee income contributions on a full quarter basis?

Thomas R. Cangemi

I’m giving zero guidance there right now because they’re still working through the benefits of the servicing portfolio and the AmTrust mortgage institution that we’ve also assumed, temporarily right now looking at the opportunity to generate great opportunities in the future, we’re still evaluating that business. It’s a great, great franchise. They’ve done a fabulous job on an agency alone basis. And the opportunity is very real for us. We like the people there. They’re doing a fine job and they had some great opportunities which will drive fee income. So we haven’t yet put a fee income target for 2010. But my guesstimate is that we’re going to see some higher benefits going forward here.

Mathew Kelly - Sterne Agee & Leach

And then just last question. On the $8 billion of acquired earning assets from AmTrust, you guys are going to reset your deposit or funding costs down to 1%, 5% percent earning asset yield, so it's a 4% spread on $8 billion worth of acquired assets. Is that still what your targeting to kind of – a 10% accretion on the deal?

Thomas R. Cangemi

Obviously, it’s approximately -- I mean, obviously we’re sitting on a lot of liquidity. My guess is that if rates stay low forever we’re going to be strained on the liquidity side because we’re not earning a lot on that. But ultimately if rates do move up here and the business starts to see a much stronger pipeline on our multi family side, we can see significant benefits from deploying the cash flow. We’re sitting on a lot of liquidity, more than we’ve seen probably in the history of this company. But we have approximately $2.8 billion in – little bit north of $3 billion of liquid funds that’s going to be deployed over time that’s yielding us very little. That is a tremendous margin benefit for 2010 and beyond. That’s not forecasted in our run rate.

Joseph R. Ficalora

But, Matt, the point you made is very valid. The spread on the assets and liabilities, the bulk, of the $8 billion is definitely very favorable.

Mathew Kelly - Sterne Agee & Leach

Right. And do you guys have a number on the accretion of the deal? And has that been updated at all? I mean, I think you guys have said 10%?

Thomas R. Cangemi

Again, it’s early. It’s the first quarter, the first full quarter we’re going to be running the franchise. We’re going to continue to evaluate that over time. But right now we’re sticking to that double digit accretion, which you can assume is around 10%.

Mathew Kelly - Sterne Agee & Leach

Okay.

Thomas R. Cangemi

Obviously we raised a lot of capital which has impacted on that run rate as well.

Mathew Kelly - Sterne Agee & Leach

Yeah. I noticed that the DRIP was still going. You guys plan to keep doing that?

Thomas R. Cangemi

Depending on market conditions and opportunities and the environment. There’s a lot of deal opportunities that we’re seeing. So we’re very pleased knowing we have new beachheads to have bolt on transactions and all being that said, we have a lot of capital right now. So it’s not that we have to go out and raise capital to do a deal depending on the magnitude of the deal.

Mathew Kelly - Sterne Agee & Leach

Okay. Thank you.

Operator

And then the next is Andrew Wessel with JP Morgan. Your line is open, please go ahead.

Daniel King - JP Morgan

This is actually Daniel King sitting in for Andrew Wessel. Just looking at the NPL to total uncovered loans. And I can see that that’s been increasing quite a bit. But your allowance loan losses on the same basis, is an increasing expense. Could you just kind of talk about that a little bit?

Joseph R. Ficalora

Yeah. I think the discussions that we’ve had, I guess, for many quarters now is that our actual reserves for losses performs better than anybody’s reserve for losses that I’m aware of, anything close to our size. So our reserves reflect the actual chance of charge to the reserve rather than a change in the non performing. So our ratio is very different than that of the industry as a whole on two fronts. One, the coverage of our reserve to loans seems low, but the coverage to our reserve to actual charges to the reserve is extremely high. So the reserve numbers do reflect the actual expected charges to the reserve. And this is supported by decades of performance.

Daniel King - JP Morgan

Sure. But if I’m just kind of looking at the total reserve to the NPL ratio, that’s also being, kind of, going down. So you’re reserving less for NPL. And looking at the charge off, I mean, it’s been coming down but in the fourth quarter – can you kind of talk about that? Is that trend still valid?

Joseph R. Ficalora

Yeah. I’d say that everything about the performance of the portfolio over the course of the last four quarters, eight quarters is very consistent with what we’ve been saying and what our history has been. So there is no surprise in the way our reserves cover our actual charges.

Daniel King - JP Morgan

Makes sense. Thank you.

Operator

And it looks like our final question will come from phone of Andy Den [ph] with RBC Capital. Your line is open, please go ahead.

Andy Den - RBC Capital

One question for Tom and one for Joe. First question is, just in terms of a timeline, typically from an operational standpoint, how long does it take you to get the full integration done till you’d be comfortable doing another deal? And then the second question is more related to the interest rate environment, Tom, what kind of things are you doing to protect yourself against, a rising rate that at some point will come down the road?

Joseph R. Ficalora

The first question, certainly it depends on the deal. We could do a deal tomorrow if in fact that deal was a bolt on deal, such as Tom mentioned. We could do a very, very large deal down the road a piece. If in fact the specifics of that deal also were in line with what it is that we’re already doing. So the opportunity for us is driven by a multitude of things including a very proficient team of people, that in fact has had a lot of experience in integrating banks and systems that are well established and set up to accommodate the integration of banks.

So I’d say that we could do a small deal that’s right in our market next week. We could do a large deal, certainly depending on the complexities of the deal in the quarters ahead. Certainly we may not do any deal for another year or so. Depending on what is presented and at what prices, we’ve been very prudent and patient with regard to how we do deals. And we believe the deal that we have done here is, amongst those things we had a choice of, this is the best deal.

Thomas R. Cangemi

And with that being said, going into the other question, regarding interest rates, I think (inaudible) AmTrust, is a major contributor to dealing with rising rates. We’re looking at approximately $3 billion of liquid cash in the balance sheet that’s, right now we’re not earning a whole lot but we’re going to have the ability to reprise that and put it back into the market place hopefully at much higher yields and market conditions.

And on the concentration of the liability, going from a wholesale model to a retail model, we are at 31% wholesale, of total wholesale to the assets. We haven’t seen those numbers since I’ve been here. So those are very compelling funding statistics for us; being at a 30% leverage ratio is ideal for us. That was the target for probably a decade now. And we’re there. So AmTrust is going contribute the transaction itself to dealing with the rising rate environment. I'd probably right now, I would say, definitely asset sensitive. And we’re going to look to deploy our cash into products as well as utilizing the mortgage banking platform that they bring to us.

And also earn quite a bit of return from that business in this environment. So we have a good opportunity here to deal with that rising interest rates just for the mere fact of the timing of the AmTrust transaction. At the same time, we’re very, very, we’ll call it, liquid. And as far as the overall liability book, we’re not that short on the wholesale side. We have approximately $1 billion of short money in the wholesale, which is on a percentage basis very low compared to our total liability book.

Andy Den - RBC Capital

Thanks guys. Good job.

Operator

And we have no further questions. I’d like to hand the call back to our speakers for closing remarks.

Joseph R. Ficalora

On behalf of our board and management team, I thank you for the opportunity to discuss our fourth quarter 2009 performance today. I look forward to chatting with you again in April to discuss the first full quarter of the consolidation of our banks. Thank you so much.

Operator

Thank you. This does conclude today’s New York Community Bancorp's fourth quarter 2009 earnings conference call. Please disconnect your lines at this time and have a wonderful day.

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Source: New York Community Bancorp Q4 2009 Earnings Call Transcript
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