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Executives

Joseph Ficalora - Chairman, President and CEO

Thomas Cangemi - SEVP and CFO

Robert Wann - SEVP and COO

John Pinto - EVP and CAO

Analysts

Sal DiMartino - Bear Stearns

Tony Davis - Stifel Nicolaus & Company

Mark Fitzgibbon - Sandler O'Neill & Partners

James Abbott – FBR

Thomas McGovern - Lehman Brothers

Bruce Harding

Sandra Osborne

Rick Weiss - Janney Montgomery Scott

Matthew Kelley - Sterne, Agee & Leach

New York Community Bancorp Inc. (NYB) Q4 2007 Earnings Call January 29, 2008 9:30 AM ET

Operator

Hello and welcome to the fourth quarter 2007 Earnings Call. Today's call is being recorded.

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

Ilene 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 2007 and full year performance will be led by our Chairman, President and Chief Executive Officer, Joseph Ficalora, and our Senior Executive Vice President and Chief Financial Officer, Thomas Cangemi.

Also with us on the call are Robert Wann, our Senior Executive Vice President and Chief Operating Officer, and John Pinto, our Executive Vice President and 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: Changes in interest rates, which may affect our net income, prepayment penalties and other future cash flows or the market value of our assets, changes in deposit flows and the demand for deposits, loan and investment products and other financial services in our local markets, and changes in competitive pressures among financial institutions or from non-financial institutions.

You will find a more detailed list of the risk factors associated with our forward-looking statements in our recent SEC filings, and on page 10 of this morning's earnings release.

The release also includes reconciliations of our GAAP and non-GAAP earnings and capital measures, which will also be discussed on this morning's call.

If you would like a copy of the earnings release, please call our Investor Relations Department at 516-683-4420, or visit our website www.mynycb.com.

I would now like to turn the call over to Mr. Ficalora, who will make a brief presentation before opening the line for Q&A. Mr. Ficalora?

Joseph Ficalora

Thank you, Ilene, and good morning, everyone. Thank you for joining us for today's discussion of our fourth quarter and full year performance, and for the opportunity to highlight the unique features, that have enabled us to distinguish ourselves from our peers during a time of intense adversity.

In addition to the benefit of last year's acquisitions, I will be speaking to the increase in our organic long production, the improvement in our net interest income and net interest margin, the growth of our earnings, and the increasing strength of our tangible capital.

But first, I would like to speak about the continuing quality of our assets which, in the current cycle, represents the most discernible and important distinction between us and our peers. In fact, a lot of our industry has been battered by the current credit crisis. This has not been the case with NYB.

As I have stated before, we have no subprime or all-day loans in our loan portfolio. Nor do we any such loans embedded in our portfolio of securities. In addition, it should be said that construction loans represent less than 6% of our loans outstanding and one-to-four family loans represent less than 2% of total loans.

In case you missed this morning's release, we were pleased to report that our non-performing assets represented just 0.07% of total assets, consistent with the ratio at the end of the September, and a one basis point improvement from the ratio at year-end 2006.

Non-performing loans equaled 0.11% of total loans at the end of last year and at the same period in September.

Although we don't expect to remain immune to the credit cycle, it is important to note that last year was our 28th consecutive year without a loss in our niche business of multi-family lending.

And we now are well into our 14th year without any losses in our construction loan portfolio. In fact, the minimum losses we have recorded in the past three years have been limited to loans we've acquired and primarily consisted of consumer and unsecured loans. In 2007, as in the last year, charge-offs represented a meager 0.002% of average loans.

Our record of asset quality speaks loudly to the conservative nature of our credit, the underwriting standards that we pursue, and the nature of the structure of our loans that we produce. For example, our multi-family loans had an average loan-to-value ratio of 64.5% at the end of December, and our commercial real estate loans had an average LTV of just 56.9%. Another distinguishing feature of our fourth quarter performance was a completion of our 8th transaction, the acquisition of Synergy Financial Group.

Like our prior acquisitions, the Synergy transaction expanded our footprint and boosted our share of market, adding 21 branches to our Community Bank franchise in New Jersey, with another 2 branches on tap to open later this year.

Between our PennFed acquisition in April and Synergy in October, we grew our New Jersey franchise from 8 to 53 branches in 2007, and our market rank in the counties we serve from 18 to 5th among thrifts.

The transaction also contributed to the growth of our interest-earning assets and enabled us to contain our funding costs. The infusion of deposits enabled us to sit out the competition for deposits that prevails in the fourth quarter and to engage in a planned reduction of higher cost liabilities.

Our average interest-earning assets increased $1.3 billion year-over-year to $26.4 billion in the fourth quarter of 2007, and our deposits increased $538 million to $13.2 billion at December 31.

Our interest-earning asset growth was also fueled by increased loan production. Originations totaled $1.5 billion in the fourth quarter of 2007, a $274 million increase from the volume in the third quarter and a $479 million increase from the volume in the fourth quarter of 2006.

After several quarters of refraining from lending extensively, and what we felt was a highly irrational market, we chose to increase our lending in the fourth quarter of last year. Not only did we capitalize on the opportunity to lend, as the conduits and other competitors left the market, we also increased our lending at more attractive spreads.

During the quarter, the average spreads on new multi-family and commercial real estate loans exceeded the average 5-year CMT by 228 basis points, a substantially wider spread than the 150 to 160 basis point spread, at which our loans were priced over the past few years.

As a result of our acquisitions, with loans we produced and the higher spreads at which we produce them, we succeeded in tampering the impact of a dramatic decline in prepayment penalties. In the first three quarters of the year, our margin was boosted by record or near record levels of prepayment penalty income.

As several of our borrowers opted to sell their properties or refinance their loans, in the fourth quarter of the year it was a rather different story. With prepayment penalty income falling significantly, refinancing activity roughly tapered off in the midst of economic uncertainty, and in anticipation of rate declines.

Nonetheless, our margin rose nine basis points year-over-year to 2.36% in the quarter, and on a linked-quarter basis our margin declined a modest five basis points. Absent prepayment penalty income: Our margin was 2.29% in the fourth quarter of 2007, representing a 14 basis point increase from the 215 in the trailing quarter, and the 16 basis point increase from the 213 in the fourth quarter of 2006.

Similarly, our net interest income went up $13.6 million, or 9.7% year-over-year to $154.4 million in the fourth quarter, and was comparable to the level recorded in the third quarter of the year.

For the full year, our net interest income rose $55 million or 9.8%, to $616.5 million. This was the first time since 2004 that we realized the year-over-year increase in net interest income. It was also the first time since 2004 that our GAAP earnings rose year-over-year.

The increasing strength of our capital was yet another distinguishing feature of our performance, as conveyed by our tangible capital ratios at December 31st.

Excluding the after-tax mark-to-market on securities, our tangible equity represented 5.88% of tangible assets, up 14 basis points from the trailing quarter end measure and 22 basis points from the metric at year end 2006.

Including this adjustment, our ratio of tangible equities to tangible assets improved to 5.83% at the end of December from 5.69% and 5.47% at the previous period ends.

Our ability to strengthen our capital, while also maintaining our strong dividend payment speaks, in part, to the consistent quality of our assets and the discipline with which we originate our loans.

It also speaks to our ability to generate cash earnings, and I am pleased to say that our fourth quarter cash earnings rose on a linked-quarter basis to $79.8 million, equivalent to diluted cash earnings per share of $0.25.

For the full-year, our cash earnings rose $88 million or 33% to $352.7 million. That's the equivalent to a 22.8% rise in diluted cash earnings per share to $1.13.

In addition, our 2007 GAAP earnings rose to $279.1 million, equivalent to an 11% rise in diluted earnings per share to $0.90. Our fourth quarter GAAP earnings also rose from the year earlier level, resulting in a 16.7% increase in diluted earnings per share to $0.21.

In view of these challenges, our Board, once again, reaffirmed the commitment we have made to our investors over the past 15 quarters to maintain our quarterly dividend at the current rate of $0.25 per share. The next dividend will be paid, February 15th to shareholders of record at the close of business February 6th.

At start off the year, I noted that 2007 would be a year of transition and so it proved to be. We are pleased by the strides we have made in growing our franchise and our value, and in positioning our balance sheet to extend the adversity being faced by our industry today. We look forward to distinguishing ourselves further in 2008, by maintaining the quality of our assets, the strength of our capital, and the integrity of our balance sheet.

Before I take your questions, I do want to mention that this afternoon and for the next two days, Tom and I will be meeting with investors from all over the country, Europe, and Asia, who have expressed an interest in learning more about the company's performance and strategies.

These are the topics of a presentation I will be making tomorrow morning between 8:00 AM and 8:45 Eastern Time at the City Financial Services Conference in New York. The presentation will be simultaneously webcast and archived at our website, together with the accompanying PowerPoint. If you would like to listen in, just click on Investor Relations and follow the prompts.

At this time I would be happy to take your questions. As always, we will do our best to get to everybody in a timely manner. But in the event if we should miss your call, please feel free to contact us directly. Thank you.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions). First we will hear from Sal DiMartino.

Joseph Ficalora

Good morning, Sal.

Sal DiMartino - Bear Stearns

Hi, good morning. Sorry about that. I have two questions. One is on capital. And the other one is on expenses. On capital, I noticed that your tangible equities are probably the highest that it's been and maybe going back to '02 or '03. And I was wondering if you can comment on how low you are comfortable taking the capital down to? And how you would prioritize use of capital, whether it would be M&A, balance sheet growth or buybacks?

And my second question is on operating expenses. I mean even with the charges they came in higher than we expected. Were there any non-recurring items in there? Or anything related to Synergy?

Joseph Ficalora

I will let Tom to deal with the operating expenses. With regards to capital, I think the good news for us is that over the course of the last many, many quarters, we've been building our capital. And I think that the existence of a larger capital position than we probably have had since 2001 is something that we think is the flexibility to do M&A or deal with adversity or deal with other kinds of opportunities as they may arise.

So capital at this juncture for us is a very positive thing and very important of our overall strategy of continuing to pay a strong dividend, while in fact we are continuing to build our capital. Not too many of our peers have been building capital in the last year.

With regard to the expenses, Tom?

Thomas Cangemi

Sal, this is Tom. On the expense side, keep in mind Synergy came on October 1, so we have a full quarter of Synergy that's reflected in the fourth quarter operating expenses. And we also have a full quarter of Doral Financial, the branches that we've acquired, personnel cost and what not for the full quarter.

And also we've had some increases in general for staffing in the Commercial Bank as well. We have highlighted (inaudible) at the end of the quarter when we continue to build that department as we move forward towards expanding that specific entity. I would say on the run rate, to give you some color on the run rate. I will use between $80 million to $82 million per quarter going forward exclusive of CDI.

Sal DiMartino - Bear Stearns

Okay. And just if I can go back to the capital question, I mean credit quality is superb, you've seen wider spreads, less competition. Why wouldn't you grow at this point in the cycle?

Joseph Ficalora

I know we could.

Thomas Cangemi

Sal, what I would tell you on the capital side, obviously we have significant room to grow the balance sheet as we see the business opportunities arise. Clearly on the expense side, we built up on the departmental for employees, putting on some very nice credits in our backyard. We are very excited about the widening of our business model in respect to spreads.

And that being said, the competition continues to wane, competition has significantly declined in the multi-family space.

We are dealing with Fannie Mae, but having said that we are seeing across the board spreads widening. We are well positioned to capitalize on that in this environment. And we have very good capital levels to see good balance sheet growth in 2008.

Joseph Ficalora

I think the important theme here, Sal, is that the capital that we have gives us flexibility of choice and the choices are actually good choices. So there is no question that as we go into this evolving cycle, the existence of our capital will in fact be an important component of what makes us a better buyer or makes us a better grower just organically.

Sal DiMartino - Bear Stearns

Okay. Thank you.

Joseph Ficalora

You are welcome.

Operator

Next, we will hear from Tony Davis.

Tony Davis - Stifel Nicolaus & Company

Good morning, Joe. Good morning, Tom.

Joseph Ficalora

Good morning, Tony.

Thomas Cangemi

Good morning, Tony.

Tony Davis - Stifel Nicolaus & Company

I just want to get on the balance for a second here. What changes, Tom, have you made in Synergy's balance sheet since the end of the year?

Thomas Cangemi

The immediate changes, Tony, are obviously we've restructured the debt portfolio, that was paid off and new structure was put on at lower cost. The securities were sold immediately upon acquisition and put into short-term callables, which we expect to have [call in this] environment, then hopefully placed into loans into '08.

We do have a lot of opportunities on the loan side that we are working through as everyone could be aware of the fourth quarter was a very illiquid market for asset sales. We expect to have a securitization done probably for a second week of February regarding Synergy. We did one-to-four family loans and we continue to fix some loans that we feel uncomfortable on holding long-term.

But we are monitoring the market. Fourth quarter was a very difficult market to sell out. So clearly we see things cleaning up a little bit here in the market place and we hope to be able to continue with that strategy going into '08.

Tony Davis - Stifel Nicolaus & Company

Tom, the $12 billion in wholesale funding, can you give us a little more color on that, the repo advance mix, the duration, kind of the flow through effect we all expect here from the recent fed funds cuts?

Thomas Cangemi

We've got about $4 billion of repos, the rest is with the Federal Home Loan Bank advance market. Clearly going back to what Sal had indicated, utilizing the capital to grow with the company will be very advantageous in light of the current funding.

We are not going to see a significant amount of expense reduction on the wholesale side, but we will see a substantial amount of interest expense reduction on a retail side.

So, obviously as the Fed continues to cut rates, we are within days cutting and again consistent with the Fed. But on the growth side, if we grow the balance sheet, both on retail as well as on wholesale, we are getting tremendous funding opportunities. So that's why I think to get significant benefit to the margin as a company grows. But most of our wholesale liabilities are relatively fixed in this environment. Average life of the portfolio was looking around probably 3.5 half years.

Tony Davis - Stifel Nicolaus & Company

Okay. And one thing just finally on the loan production. I just wondered if there has been any change of note in the level of property sales in that market over the last few months, of the $990 million in repayments last quarter for example. How much was triggered by sales?

Thomas Cangemi

A lot of the sales activity as you might well imagine, lot of the sales activity is slow. I think we've talked about this on the road at various times. But as you go into this point in the cycle, you are going to have a lot of people hesitate and worse. You are going to have people that had expectations that conduits are going to provide huge amounts of dollars that just aren't there. So there is a period during which there is going to be a readjustment in the marketplace.

So people are going to be rethinking the prices at which they will buy or sell assets. So, this is an adjustment period that we are dealing with here. The directional movement of our particular niche is very positive. The immediate consequence of the market changes that have been occurring and are anticipated to be occurring is really slowing activity. So even though we had an increase in our lending in the fourth quarter, it is de minimis in comparison to the opportunities that the future would hold.

So we are going to a bit of an adjustment period. The important thing here is that this particular niche is not at risk of large amounts or increasing amounts of loss as is the rest of lending. You are going to see quarter-by-quarter increased non-performance and losses being taken, in house loans by example. That is already baked into the cycle. So that's going to continue to evolve.

With regard to what we are dealing with, there is an adjustment period. But once the adjustment period is past, there is going to be a lending activity that will increase based on the available, whether they are selling or they are just refinancing their existing portfolio. We are going to have a lot of people that have made the decisions, the time is now right to move or as we've talked many times they can't wait the calendar out.

Joseph Ficarola

Tony, I would add to that, especially that coupon that's embedded in the multi-family portfolio, it's still below the current marketplace. There is also a very favorable benefit. Obviously we can't predict the rates going on for the next 6 to 9 months, but in this environment, we're still getting a pickup (inaudible).

Tony Davis - Stifel Nicolaus & Company

Just as a general sense then finally, this will be last question, I promise. In terms of the impact, should we expect 1031 exchange redeployments or conduit lend to retrenchment to be more important driver?

Joseph Ficarola

I think 1031 is going to be the more important issue as we go down the road, because the important distinction and I can't overemphasize this. In every cycle the people that we lend to typically never lose their properties and they have 1031 needs as they go into the cycle because there is no question that they've carried this over from the earlier transactions. They need to buy and redeploy their funds. So we are going to see more and more of that in the months and quarters ahead.

Tony Davis - Stifel Nicolaus & Company

Thank you.

Joseph Ficarola

You are welcome.

Operator

Next, we will hear from Mark Fitzgibbon.

Mark Fitzgibbon - Sandler O'Neill & Partners

Yes.

Joseph Ficarola

Good morning, Mark.

Thomas Cangemi

Good morning, Mark.

Mark Fitzgibbon - Sandler O'Neill & Partners

Thanks guys. First question is, just want to clarify, Tom, you said $80 to $82 million of expenses going forward including CDI?

Thomas Cangemi

No, excluding CDI.

Mark Fitzgibbon - Sandler O'Neill & Partners

Excluding CDI, okay, great. And then secondly, what is the contract rate today on your 5-year multi-family loans, where are those kind of get in?

Thomas Cangemi

I mean spreads are significantly higher than they were pre-August. I would tell you right now we are probably somewhere in the higher 2s mid-to-high 2s, somewhere between 5 and 5.5 in three quarters depending on the marketplace. We have been closing loans around 6% over the past 3, 4 weeks. It's a very favorable spread. Funding is much cheaper then in respect to what we have seen in previous years.

We incrementally grow the balance sheet here. We are seeing positive impacts of the margin. So the spread environment has changed dramatically, and the competition has changed. No question, there is the agency bid for papers out there with respect of Fannie Mae, [but having said that] I think most of the competition is lined up at that level. So we are very comfortable at those levels and we are not looking to reduce our pricing.

Mark Fitzgibbon - Sandler O'Neill & Partners

Also I wondered if you talk a little bit about your deposit strategy, maybe where you are positioning, what maturity fees you are going after? And is competition easing up maybe with Countrywide (inaudible) some of the other folks start ease off?

Joseph Ficarola

I think the irrational presence of Countrywide in particular was a national phenomenon. So, whether we were competing with Countrywide, we were never showing any deposit flows to Countrywide of any measure. We were showing flows to banks that were competing with Countrywide. So I think the ultimate decline in the rate that Countrywide is offering is going to be beneficial to all banks. And it's inevitable and it's important that it occurred. I think there has been a realization on the part of most of the banks in our particular market that they need to be more rational in their pricing. Some of the irrational pricing that was occurring in the last month or two quarters has been something that we have been consciously deciding that we are not going to be competing with. So we have actually let our deposit flows run out where we have higher costing deposits, in particular in the institutions that we have acquired. We keep the relationship, but we give up that, what I call, hot money, that is ready to move to whatever is the hottest rate in town that day.

Thomas Cangemi

Mark, I would answer that, the liquidity level that the company has experienced is very high right now. We are sitting around some excess cash positions. So to be aggressive in this environment, we are more comfortable letting the 5.5% money that was acquired from other institutions and to have taken on to a broker deposit relationship, run-off. We are looking at around 88% of our entire city book, as we insure it within one year. Those levels are in the high fours, plus the 4.75. So if the Fed continues to cut rates, we are actively cutting our CD rates. But you are looking at about $5 billion of money that's going to be priced hopefully at these lower levels, which should be also beneficial to our margins.

Joseph Ficarola

And the important thing to think about when you look at the quarter, much if the savings on the liability side really did not occur early in the quarter. Much of the new earnings on the asset side occurred at the very end of the quarter. So, the contribution of asset growth is going to be seen in the quarters ahead. The benefit from savings on the liability side will again be seen in the quarters ahead.

So this is a transitional time and the transitional direction is definitely good.

Mark Fitzgibbon - Sandler O'Neill & Partners

How should we be thinking about the margin, as for the first quarter let's say prepayment penalties will presumably be somewhat seasonally higher?

Thomas Cangemi

Yeah, I think that's right, Mark. You think about, we had a very, very that's -- what I would call the light showing in the fourth quarter. But, the three quarters previous were tremendous prepays, and we went through the year. We are getting very nice prepayment activity stimulating our margin. But if you cut that out, every single quarter in '06 on margins since the fourth quarter of '06, our margin has increased with our prepays. So, we are looking at a very small prepay quarter in Q4, with 14 basis points on a linked quarter upbeat on basis points. That going forward, assuming there are no prepays, are seeing good margin growth. We believe that prepays will continue, obviously when the rates are this volatile, people are on the sidelines. But we had a tremendous 2007 as far as compared to '06 in the level of prepayment activity. We don't think it's going to dry out, which is what we just think right now, is temporarily on hold. But with that being said, we are starting with such a low base and we expect the prepays and you can see where our numbers are. We are seeing increase in the core company's margin.

Mark Fitzgibbon - Sandler O'Neill & Partners

Okay. And the last question I had, you guys had said during the fourth quarter that with the credit markets locked up, it would be sort of hard at new deals, given your propensity to restructure the targets balance sheet. Does that still hold true or are the markets eased up enough that you think you can do acquisitions and restructure?

Thomas Cangemi

Mark, I will tell you that. If you look back four to five weeks ago compared to today, the market has [revved] up. Change in LIBOR rates, change in overall funding rates, have really put some reasonable liquidity bids on some loans.

We were very, very focused on making sure when we look at a company, that we can dismantle assets where we are comfortable at. Right now we feel that we are making very good progress on some of the synergy assets that will be executed in the weeks and months ahead. That was a very difficult experience in the fourth quarter as you know there has just been a liquidity lock down. And we're seeing some good changes since then and we are very comfortable that we will be able to achieve the synergy transition and we are looking for more opportunities in front of us.

Mark Fitzgibbon - Sandler O'Neill & Partners

Thank you.

Joseph Ficarola

Thank you, Mark.

Operator

We'll hear from Mr. James Abbott.

James Abbott - FBR

Yeah. Hi, just to piggyback off one of Mark's questions. My questions were related to the CD funding base, as to how quickly you might be able to ratchet that down? I think that overall cost of CDs were down only three basis points linked quarter. But there is probably synergy effect in there. As we look forward into the first quarter and second quarter, can you bring that down quickly or would your propensity would be to keep the rates a little bit higher to fund some of the loan growth you have got coming on? I guess you got two, a yin and a yang you've got to deal with.

Joseph Ficarola

Jim, it’s an interesting point, but we are very liquid right. Now we are looking at significant callables on our debenture book which we're welcoming right now. These are not of high coupons, these are very reasonable coupons. So we are going to make money just by reinvesting that cash flow, that will be a positive position for us. We're sitting on excess cash from the Synergy transaction. But more importantly, the way we operate when the Fed is cutting rates this aggressively, we are cutting literately within the 25-year period. Sometimes parallel, sometimes supposed to being parallel, as far as the move. But we are very focused on not competing at a rational level.

So by way of example, 75 basis points were cut, you probably cut 50 across the board on CDs. The next move will probably cut on a percentage basis depending where offerings are, but we are not looking to hold our rates. We are comfortable in letting hot money leave the company, as we have liquidity and cash flow.

As indicated when I spoke to Mark on the call, we have over 5 billion now and that's 4 and 3.25 money that has to re-price. Some of that re-priced in January, some priced within March, but over the next 12 months, it is substantial amount of CDs that have to be priced to market. In addition, all our money market funds get affected immediately. Money market funds in general throughout the industry are still priced too high. So as everyone brings their rates down, we should see some benefits there. The area that we are not going to get much incremental benefit on the current book is the wholesale borrowings, they are relatively fixed. But as we grow, if we utilize wholesale borrowing, the funding costs in wholesale borrowings are substantially low than they were six months ago.

James Abbott - FBR

Would you be inclined to allow the CD -- it sounded to me, it will be inclined to go quickly to the bottom of the rate sheet, if you will, if you look at everybody's rate sheet, you might be willing to take it to the bottom?

Joseph Ficarola

Jim, we have been at the bottom, I would tell you over the past year because of our acquisition. Having liquidity, having flexibility to price our CDs much lower than the market. We don't have offerings at 5% or 5.5%, that was the fourth quarter offering. We were in the mid to upper fourth, just to compete. We will aggressively drop those rates, because we have very good liquidity right now. Obviously if loan demand picks up dramatically, we will look to other funding sources to fund our business, not high core CDs.

James Abbott - FBR

Do you prefer to take on -- to call some more structured advances?

Joseph Ficarola

Probably more structured advances, well, that's the optionality rate. 20 basis point differential between the 10-year too and 5-year too. It's various strategies of funding right now.

Thomas Cangemi

Extraordinarily better than going into the deposit market.

James Abbott - FBR

Okay. And my other question is from a strategic perspective is, yield curve [waving] here. You guys are still reducing securities or at least you did in the fourth quarter?

Joseph Ficarola

Yes.

James Abbott - FBR

Are you anticipating perhaps taking advantage of that as we go into the wider yield curve environment?

Joseph Ficarola

Obviously, looking at the market price, since we are looking at substantial loan growth, we are going to use total liquidity to put into our product. Obviously it depends on the level of loans that we see coming in and the type of paper that we can put on the books. We have not been in the market to buy securities. What we welcome is substantial amount of cash flow from our debenture portfolio, as expected. The PennFed acquisition gave us the ability to put in a significant amount of cash in debentures that we expected to come between the next year. This is now coming to fruition and helping us continue to fund our loan growth. This was put in place on expectation that it would have been called. In addition to that, some of the legacy debentures that are in the mid to upper 4s are also being called in this environment, which also gives us a nice benefit. So, this is a good change for our balance sheet.

James Abbott - FBR

Okay, thanks again.

Joseph Ficarola

Thank you, Jim.

Operator

Next we'll go to Thomas McGovern.

Joseph Ficarola

Good morning, Tom.

Thomas McGovern - Lehman Brothers

Good morning. Just wondering, you mentioned that construction loans are a small percentage of your book. Some lenders have been having issues with rising delinquencies in those types of portfolios. Are you seeing anything on the rise in your construction portfolio now?

Joseph Ficarola

We have monitored that extremely closely. Every mortgage meeting we discuss the existing portfolio and obviously we've been very diligent as to what we would add to our portfolio. So the growth in our construction lending has definitely slowed and our portfolio, as we currently monitor, it has been 100% performing. So, we are very pleased with how we are positioned in what we know to be a potentially difficult environment. An important component of our construction lending is that we typically lend to people that have great experience in operating through cycles.

We haven't had a loss in our construction lending for 14 years, that's during the best of times. But I think it's also indicative of the fact that we are lending to people that understand where the risks are and they typically position themselves so that they are able to ride through this declining cycle.

Thomas Cangemi

I would add to that in respect to our construction portfolio. Historically, we've always put embedded 4s in our product, so if rates continue to decline, you may see a lot of refi, because while rates significantly higher than the market and we do have embedded 4s in our contracts.

Bruce Harding

Joe, this is [Bruce Harding], can you hear me?

Joseph Ficalora

Hi, Bruce, how are you?

Bruce Harding

We are both on the some line, Tom and I. So if I understand what you are saying on the margin, you are saying margin will gradually move higher in '08 and prepay, any fee related there that is going to be lumpy?

Joseph Ficalora

Right.

Bruce Harding

But lumpy sort of waiting about, your clients tend to game the Fed using a little bit and so until they feel that Fed's done it's work, you won’t see the jump in that?

Joseph Ficalora

I think you understand it well, Bruce.

Bruce Harding

Okay.

Joseph Ficalora

Definitely.

Bruce Harding

Okay. And then I mean on the negative if Fannie and Freddie are given the power by Congress here with this bill that seems to be pending to do the higher loan amounts in your marketplace. How does that play out on multi-family?

Joseph Ficalora

Actually that should help us. The bottom line is that Fannie Mae and Freddie Mac have a mission requirement to provide funding for low and moderate income housing and to the extent that they are in multi-family housing, they are diverting their limited resources to investor housing rather than providing houses for individuals.

As everybody knows, the only reason for changing any of the limits on Fannie Mae and Freddie Mac is to provide support to one-to-four family. Multi-family housing is not in crisis here. One-to-four family housing is in a crisis. So I think in some of the things that I have heard from various congressman, I think there is going to be a need for Fannie Mae to be more focused on providing one-to-four family housing and they are going to enter into the jumbo market or at least take on a larger share of the one-to-four family housing market.

When they do that, they are going to be diverting assets away from what they are currently investing in multi-family. So I think all in it for us, the evolving cycle represents a potential improvement in the absence of competitors and an improvement in the overall performance metrics, the spreads and the risk spreads with regard to our lending have improved greatly.

As mentioned earlier, we are looking at 225 to 275 even 300 basis points over. So as we go down the road, we will continually see an improving environment for our particular niche. The Fed change, Fannnie Mae and Freddie Mac will in fact be necessity, because congress is giving them an opportunity to divert their limited resources to more housing. That's one-to-four family housing, not multi-family housing.

Bruce Harding

Okay. And then any comments on how this unwinding market, problem or whatever, is impacting the relative attractiveness of M&A for you? Sorry if I missed that earlier.

Joseph Ficalora

No, you may have. But I think that there are comments have been made that we are very cautious about the asset side of a transaction. We've had many opportunities to do deals over the course of last 12 months. And ended every deal we consider very diligently what is the disposition of the asset likely to be. That has to be measured from the date of announcement to the date of disposition and [sense it to] sizeable component of what we do in particular.

When we do a deal with a Commercial Bank, we have to be comfortable that we are going to keep a larger percentage of their assets. When we do a deal with a thrift, we have to be comfortable that we are going to be able to dispose of a larger portion of their assets. We do not want to be in house loans. We said that consistently since we became a public company in 1993. So our de minimis position is likely to continue to go down, and therefore our exposure is likely to continue to go down. We are not going to do a deal, where we are going to increase our one-to-four family portfolio, at the very time when non-performance in one-to-four family is going to be continually going up.

So that is going to be a very real consideration. But as pricing and other factors come into a play, we will have an opportunity to consider many opportunities that are already in the market, as well as opportunities that are going to come into the market. So I look at the future as being very bright with regard to the opportunities of making choices.

Thomas Cangemi

Bruce, I want to add to that, in this market condition we are gaining a significant amount of interest of opportunities going forward to look at potential M&A find which is very attractive for us and this is a welcoming opportunity in this market because obviously prices have come down quite a bit.

Bruce Harding

And from a guidance perspective, do you make your dividend, I mean I know that's not a criteria to continue to pay, but are you giving any '08 bottom line?

Thomas Cangemi

We don't typically give guidance except than what we have been saying. We have been saying pretty consistently over the last several quarters that our spreads in margins continue to widen, and therefore when we look at our dividend, we are very comfortable that we are going in the right direction to keep our dividend in place.

Bruce Harding

Okay. Thank you.

Thomas Cangemi

You are welcome.

Operator

Next, we will go to [Sandra Osborne].

Sandra Osborne

Good morning, guys.

Thomas Cangemi

Hi.

Sandra Osborne

Hi. Can you tell me why you were able to dividend up to the holding company at year end? And also what the cash position of the holding company was?

Thomas Cangemi

I don't have those numbers specifically. You can call me back directly on my line.

Sandra Osborne

Okay. Thanks.

Thomas Cangemi

Thank you.

Sandra Osborne

I have some more questions.

Thomas Cangemi

Sure.

Sandra Osborne

What is the dollar amount of multi-family loans that will contractually re-price or mature in 2008?

Thomas Cangemi

We don't give specific guidance as to exactly what's going to re-price. It's been around 30% to 40% in 18 month period, that number is still consistent throughout 30% to 40% every 18 months.

Joseph Ficalora

We don't contractually re-price. We have an average life of between three and four years, which means that various segment of the portfolio re-prices very early. In other words, early in last year we had some properties that were re-pricing at the 13 and 14 months. So that changed the numbers very dramatically. So, as we look at the year ahead, there is going to be activity which is typical to our portfolio that has nothing to do with the contractual re-pricing. It has to do with how the market actually evolves.

Sandra Osborne

Okay. I understand. And if we could go back to construction portfolio for a minute?

Joseph Ficalora

Sure.

Sandra Osborne

Is it possible to get the percentage within residential construction and the average expected selling price of the home?

Joseph Ficalora

We probably could get you a number. What I would say is that most of the construction is in fact communities.

Sandra Osborne

Okay.

Joseph Ficalora

And the pricing varies from particular project-to-project. Even though there is vertical project as well, I think it would be best if we had some of those numbers put together and we had a conversation after the call.

Thomas Cangemi

And just to give you more color on that, we typically underwrite that on a rental basis than on a gross sell out basis.

Sandra Osborne

Okay. And how much of that is in market? And do you have the geographical distribution?

Thomas Cangemi

All in market.

Sandra Osborne

All in market. Okay. And for the CRE and multi-family portfolios, what percentages of that are in market?

Thomas Cangemi

The vast majority I think is about 5% of the total portfolio of that in market, so the 95% is in the market.

Sandra Osborne

Okay. Great.

Thomas Cangemi

You are welcome.

Operator

Next, we will go to Rick Weiss.

Rick Weiss - Janney Montgomery Scott

Hi, good morning.

Joseph Ficalora

Good morning, Rick.

Rick Weiss - Janney Montgomery Scott

Hi. Most of my questions have been answered. Just one on the origination of multi-family, did most of that come toward the back half of the quarter?

Thomas Cangemi

Yes. I would focus on the average balance to see the loan growth towards the back half of the fourth quarter. October was actually a very slow closing month. November was building up and December was a very significant closing month for us. So clearly on average, we had most of our loans closed in December.

Joseph Ficalora

So I think it's important to recognize that the earning assets really weren't earning for the quarter, right. So the change in the numbers reflect additions to earning assets that occurred very late in the quarter.

Thomas Cangemi

And those yields are around 6%, little bit north of 6%.

Rick Weiss - Janney Montgomery Scott

Okay. And most of these originations and we are not refis at all, I take it.

Thomas Cangemi

A lot of new business.

Rick Weiss - Janney Montgomery Scott

A lot of new business.

Thomas Cangemi

Right. Refis obviously is flowing. You can see the level of prepays. Again this is an interesting rate environment. You may see a substantial change where people are very comfortable on refi. What's interesting is, I go back to my previous statement the coupon is still in low-to-mid 5. So we are looking still at a situation where there is rapid refi. We are not going to get hurt on the asset yield side.

So actually prepays are coming in. So we feel pretty comfortable that we will see that continuation of the build on the asset yield.

Rick Weiss - Janney Montgomery Scott

Okay. And the other question is, what kind of tax rate will be a good run rate for '08?

Thomas Cangemi

I would guesstimate 31% to 32% somewhere in that range, little early but obviously next year we had some when you look at the projection on earnings and what not, we came in around let's say 30.02, 31% to 32% is the reasonable estimate going to '08.

Rick Weiss - Janney Montgomery Scott

Okay. Thank you very much.

Thomas Cangemi

Thanks.

Operator

Next we will hear from Matthew Kelley.

Matthew Kelley - Sterne, Agee & Leach

Hi guys. Good. On the balance put on during the quarter, what was the structure and rate of those?

Thomas Cangemi

We've been moving towards [west optionality] risk five years, five 3s and five 2s at very attractive level. We are paying about 20 to 25 basis point. Were in the cost of funds versus the typical 10-year structure, but we're cutting our optionality risk in half.

Matthew Kelley - Sterne, Agee & Leach

Okay. So kind of five year final maturities with two and three year non-call.

Thomas Cangemi

5.3, 5.2.

Matthew Kelley - Sterne, Agee & Leach

Okay. And then of the $8 billion of current FHLB advances and most of that has 10-year final maturities with some type of callable feature, is that --?

Thomas Cangemi

Yeah, we have a lot of legacy (inaudible) pay we have in the books that was material for the company. That's correct. But as I said previously, you are not going to have much movement on the existing book, any new growth that we take on the advance side, you will have significant movement down in cost of funds. But the current book is at this level. But you can keep the historic interest expense on advances in repo. It has been relatively stable over the past year.

Matthew Kelley - Sterne, Agee & Leach

Right, so most of the funding improvement going forward is coming in, that $5 billion in CDs rolls over and then adding new borrowings?

Thomas Cangemi

You have new borrowings, you have 5 billion in CDs and you have your entire money market account that is also going to be structured out.

Matthew Kelley - Sterne, Agee & Leach

Okay. And then just on the construction loans, is most of that kind of going back to Rosalyn Oyster Bay type projects, has that business grown since then?

Thomas Cangemi

It's possible there. We have a lot of communities in now that is planning to sell out their projects. We are very comfortable with the customers that we deal with. The customers are the same. You have some increases in multifamily projects that again underwritten as a rental, not as a growth sell-out, and at any event and there is a situation we are not sold out what was the rental income drive to pay our principal and interest, that’s how we look at our properties.

So as Joe indicated, no credit change there with respect to delinquencies to MPA. And we are pretty comfortable with that. The book is continuing to run. My guess, considering significant 4s in the product, rates are much lower, they can refinance themselves whereas the products are infinite. The people are willing to give the dollars. We are very comfortable that, keeping 4s in our book of business in a declining rate environment will help out margin. But we may see some run off on that portfolio; because obviously there is less construction going on in the New York area right now.

Matthew Kelley - Sterne, Agee & Leach

What are those 4s?

Thomas Cangemi

Typically it's five plus one and it's pretty much set at four at that point of time. As prime goes down 300 or 400 basis points, they are paying a much higher rate of interest versus current market rate.

Matthew Kelley - Sterne, Agee & Leach

Okay.

Thomas Cangemi

That's something we do on an annual basis.

Matthew Kelley - Sterne, Agee & Leach

How many developers do you folks deal with?

Thomas Cangemi

I would say in [morale], it's probably maybe 10 to 12.

Joseph Ficarola

I think that on the top 10 we probably have 9.

Thomas Cangemi

And then New York City, some of the multifamily, they have their own buildings, also they have got projects.

Joseph Ficarola

And then there were others in --

Matthew Kelley - Sterne, Agee & Leach

Okay. I mean is there any way --

Thomas Cangemi

Well, that's from the legacy Rosalyn transaction, as well as the Richmond transaction. We do so much of that now, we have got $130 million on Staten Island and rest being mostly Rhode Island paper.

Matthew Kelley - Sterne, Agee & Leach

Okay. Thanks a lot, guys.

Thomas Cangemi

All right.

Operator

And we will hear again from Sal DiMartino.

Thomas Cangemi

Yes, Sal.

Sal DiMartino - Bear Stearns

I know you mentioned the LTVs for the commercial real estate and the multifamily. Can you give us the LTV on the construction book?

Thomas Cangemi

I don't have a specific number in front of me, Sal, but they are well within our commercial, and I'd say it's well within our commercial and multi. The way we undermine our credits are different than the typical market indications for construction. Going back to the -- selling as a rental. We look at our (inaudible) rental properties and that's our fallback. So I would say, if you look at in a gross sell-out basis, you are probably looking at a substantially lower LTV.

Joseph Ficarola

Sal, we are typically not an end loan lender. So virtually we lend, for example, when a guy is building a new community, we lend on contract for the new unit so that it can be built. And therefore somebody else is actually doing the lending on let's say, the house and we are just lending on that short construction period from contract flows.

Sal DiMartino - Bear Stearns

Okay. And then just another question, is a portion of the Co-Op City line in the construction book?

Joseph Ficarola

Yes.

Sal DiMartino - Bear Stearns

How much that is?

Thomas Cangemi

No, I don't think is in the construction...

Joseph Ficarola

We do it manually.

Thomas Cangemi

Yes, it's not a reconstruction book, it's part of our loan portfolio. Even though we are reimbursed, we are renovating the property, it's not really part of our construction portfolio.

Sal DiMartino - Bear Stearns

Okay.

Thomas Cangemi

Yeah.

Sal DiMartino - Bear Stearns

That's all I had. Thanks.

Thomas Cangemi

All right. Thank you.

Operator

And now for closing remarks, I will turn it over back to Mr. Ficalora.

Joseph Ficalora

Thank you again for you participation in this morning's discussion. We appreciate the opportunity to discuss our performance, and those features that have distinguished us from our peers in this time of uncertainty. Our record of asset quality, which has stood firm in the midst of upheaval. Our strategy of growing our franchise and our value to accretive transactions in market banks. The enhancement of our balance sheet, which has positioned us to withstand the adversity that may still lie before us, and the strength of our tangible capital which has enabled us to pay our shareholders a meaningful dividend for the past 15 consecutive quarters, and to capitalize on opportunities as they arise, for further value enhancing growth. Thank you all.

Operator

That concludes today's conference. We appreciate your participation, you may now disconnect.

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Source: New York Community Bancorp Q4 2007 Earnings Call Transcript

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