Flagstar Financial, Inc. (FLG) Q4 2011 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to New York Community Bancorp’s Fourth Quarter 2011 Earnings Conference Call. Today’s call is being recorded. At this time, all participants have been placed in a listen-only mode. For opening remarks and introductions, I would like to turn the call over to Ilene Angarola, Director of Investor Relations and Corporate Communications. Please go ahead.

Thank you. Good morning and thank you all for joining the management team with New York Community Bancorp for our first quarterly post-earnings conference call for New Year. Today’s discussion of our fourth quarter 2011 earnings will be led by our President and Chief Executive Officer, Joseph Ficalora; together with our Chief Financial Officer, Thomas Cangemi. Also, joining us on the call are Robert Wann, our Chief Operating Officer; and John Pinto, our Chief Accounting Officer. Certain of our comments will contain forward-looking statements, which are intended to be covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those we currently anticipate due to a number of factors, many of which are beyond our control. Among those factors are; general economic conditions and trends, both nationally and in our local markets; changes in interest rates, which may affect our net income, prepayment penalty income, mortgage banking income and other future cash flows or the market value of our assets, including our investment securities; changes in deposit flows and in the demand for deposit loan and investment products and other financial services; and changes in legislation, regulation and policy. You will find more about the risk factors associated with our forward-looking statements beginning on Page 7 of this morning’s earnings release and in our SEC filings, including our 2010 Annual Report on Form 10-K, and our first, second and third quarter 2011 10-Q. The release also includes reconciliations of certain GAAP and non-GAAP earnings and capital measures, which will be discussed during this conference call. If you would like a copy of the earnings release, please call our Investor Relations department at 516-683-4420, or visit us on the web at ir.mynycb.com. To start with the discussion, I’ll now turn this call over to Mr. Ficalora, who will provide a brief overview of our fourth quarter performance before opening the lines for Q&A. Mr. Ficalora?

Thank you, Ilene and thank you all for joining us this morning, as we discuss our fourth quarter performance, which was notable not only for the continued strength of our earnings and margin, but also for our increased efficiency and high volume of loan production and the continuing improvement of our asset quality. Notwithstanding the decline in market interest rates over the course of the quarter, we generated fourth quarter earnings of $117 million or $0.27 per diluted share. Our earnings provided a 1.23% return on average tangible assets and a 15.89% return on average tangible stockholders equity. The continued strength of our earnings is reflected in our solid capital position, with tangible stockholders equity representing 7.95% of total assets excluding accumulated other comprehensive loss. Based on our earnings in capital strength, the Board of Directors last night declared our 71st consecutive quarterly cash dividend and our 32nd consecutive quarterly cash dividend at $0.25 per share. The dividend will be paid on February 17th, 2012 to shareholders of record at the close of business February 7th. The strength of our earnings can be attributed to a combination of factors not at least the least of which was the stability of our net interest income and margin, even as market interest rates continued to decline. On a linked-quarter basis, our net interest income rose $5.3 million to $300.3 million. Our margin meanwhile rose 12 basis points to 3.45%. These increases were largely due to an increase in prepayment penalty income as a decline in market interest rates over the course of the quarter prompted increased activity in our multifamily niche. Specifically, prepayment income added $28.9 million to our net interest income and 33 basis points to our margin in the last three months of the year. This is the highest prepayment…

The floor is now open for questions. [Operator instruction] Our first question is coming from Bob Ramsey with FBR Capital Markets. Your line is open. Bob Ramsey – FBR Capital Markets: Hi, good morning guys.

Good morning, Bob. Thomas Cangemi – SVP and CFO: Good morning, Bob. Bob Ramsey – FBR Capital Markets: I was hoping you could talk a little bit about net interest margin, I think core margin came in a little bit narrower than maybe expected, but you had a big benefit from prepayments. Where are you all underwriting new loans sort of what is the new yield coming on your books, and could you talk a little bit about your margin outlook from here and maybe your prepayment outlook from here, too?

Hi Bob, it’s Tom. Couple of things, I guess in respect to guidance, we give very, we will call it short-dated guidance. So, in respect to the quarter, even in this environment, margins will be coming down slightly. So again, the range, last quarter we budgeted around 5%, that was the estimate, we came down 7 basis points. My guess is between 8 to 10 basis points in Q1. I am not going to give further range in Q1, and with respect to the actual loan closings that we had in the fourth quarter, the average yield that we put on is around 420. So, if you look at that base of the five-year treasury, that is around 330 basis points on average, actually a little bit higher than that. So, right now new business is somewhere around the low 4s. Bob Ramsey – FBR Capital Markets: Okay. And then similarly, I guess security balances were down this quarter, is that a reflection of using those funds to fund mortgage origination business, or is that part of the strategy or what’s happening there?

I think the number of attributes that obviously the warehouse is better than expected or warehouse balance is up about a quarter of a billion dollars, better than our budget. So, we estimated between $750 million to $800 million. We came at around $1 billion for average balances for the warehouse at a very attractive yield as an alternative securities and short dated around 13 to 15 days, backed by Fannie and Freddie and a very good strategy for us. So, that was better than expected, so it obviously kept out of the securities market. Given where rates were, it has been a very challenging time to invest into the securities market. We are trying to avoid the ratio risk, so obviously if rates are higher in the future, we would probably pronounce some more securities just give them where the balance sheet is, currently around 10.8%, probably too low for the franchise. It should be somewhere between 12% to 15%. We are hoping for a little bit of relief here, in the backend of the curve, so that we can put some money to work. Bob Ramsey – FBR Capital Markets: What if rates stay where they are, we should expect securities to continue to be flattish or down a bit?

I think I would probably say flattish, it is very difficult to look further down from here given where our collateral position is. 10.8% is a historic low for the company. Bob Ramsey – FBR Capital Markets: Okay. And then I guess circling back on prepayments, how are you all thinking about the outlook in future quarters, it obviously can be lumpy, but it was a very good quarter.

We had a phenomenal prepay activity in fourth quarter. As expected, as the quarter progressed, Q4 is always a very active time of the year, but given the waiting period we have for activity in general, we expect to see the continuation a very strong prepayment activity. We never give guidance on prepay, but I’ll tell you that the environment is still very strong. The rates are generally low and there is a lot of business to do in the open market. So, we are seeing some good activity and we have a very strong pipeline going into Q1. I think our pipeline is one of the strongest pipelines we have had, which is unusual for Q1. So, this is a very good environment for us to continue managing the margin through prepayment activities. So, again missing 2 basis points of a budget 5 to 7, that was offset dramatically by prepayment activities.

Hi Bob. The important thing is that I guess for the last couple of years, we have been indicating that we would see increased lending and increased prepayment as we go through the period and each year has demonstrated that we think that 2012 will be a very strong year, and as is always the case from one quarter to another there can be variation, but the overall strength on the prepayment side is part of the business model. Bob Ramsey – FBR Capital Markets: Great. Thank you guys. I’ll pack up.

You bet.

We’ll go next to Matthew Clark with KBW. Your line is open.

Hi Matt.

Good morning Matt.

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

I would say it is probably about 60:40 new business.

New business refi?

Yeah, 60:40, 60% being new business, 40% being refi, but again it changes dramatically. It is interesting to have such a very large pipeline coming out with a very, I will call it, significant growth quarter in Q4, which is very favorable for the activity of prepay going back to Mr. Ficalora’s point.

Okay. And then on the 30 to 89-day increase, anything lumpy in there or anything that might have been resolved since quarter-end?

Yes, very lumpy. We feel very confident, most of that will be worked out in the current quarter.

We’ve got some very big things moving in the early weeks of the year.

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

Okay. And then just lastly on the M&A front in light of the change in regulatory change, I think you guys have stated in the past your reluctance or limited appetite to get about 50 billion, but knowing that you will eventually get there, and you are going to deal with stress test anyway for being about 10 billion, Can you just give us a sense for or update us on your thoughts on M&A?

I think the important thing is that we are always made aware of the opportunities that the market presents, and we are very consistent and conservative in our approach. So, the likelihood that we would do a small deal is probably less the likelihood that we would do a big deal will be driven by those opportunities that the market actually presents. Given the environment, we think that there will be down the road of many things for us to seriously consider.

Okay. Thanks guys.

We’ll go next to the side of Rich Weiss with Janney Montgomery Scott. Your line is open. Richard Weiss – Janney Montgomery Scott: Thank you. Good morning.

Good morning, Rick. How are you? Richard Weiss – Janney Montgomery Scott: I am fine, thank you. Is there anything new that is going on with the administration’s proposals or on the regulatory front that will affect either the clear multifamily business or your mortgage banking operations?

Not specifically the multifamily business. Mortgage banking is part of a lot of discussion, but our people are very much on top of that and working towards being sure that we are always going to be compliant. The reality is that there are people in the Congress that recognize that some aspects of the regulatory environment are presenting a conflict with the ability for banking at least to increase its lending. So, there is an effort in Washington to try and re-stabilize the situation somewhat.

Rich, it’s given our positioning as a mortgage bank, given the timeframe when we actually got into the business. If there is of course significant changes on the residential side to stimulate activity in the mortgage financing market, we should be a beneficiary there. Richard Weiss – Janney Montgomery Scott: Right, so it actually could be helpful for your mortgage banks.

Absolutely, but again there is a lot of stuff that’s out there that’s still uncertain and it’s not final. Richard Weiss – Janney Montgomery Scott: Okay. And then just a more mundane question, on the salaries expenses line, will they be dropped significantly from the third to fourth quarter?

Yes. As you remember, if you recall on our last quarter, we actually had an actual charge that we have taken for some efficiencies to the bank in retail operation, and that was driven to some job cuts, so that was no question. The plan that we put in place for the current environment given the retail platform, getting operating efficiencies and as expected. Richard Weiss – Janney Montgomery Scott: Okay. Thank you very much.

Yes.

We’ll move next to the side of David Hochstim with Buckingham Research. Your line is open.

Good morning, David.

Good morning.

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

I mean, obviously given – there is always an adjustment to MSR, but net-net, we felt that pretty well given Q3 versus Q4, net-net we were relatively neutral on the servicing side. I believe the overall net mortgage margin is probably down like a $10 million adjustment offset by hedging gains. So net-net, the hedging activity worked out pretty well. Overall, the quarter was pretty calm with respect to volatility and respect to how we hedge our position. So, as expected, I think we said on the last call, we expect the servicing income to be at least at neutral, so we can maybe up $0.5 million on servicing income. Overall, origination income was very strong at $24.1 million. So for the quarter, it was the strongest quarter of the year, but given the volume capacity Q3 versus Q4, we have really inked out a lot of our inefficiencies in the system. So realization was better, fall out was better, and we were very pleased with the results. And going into 2012, we hope that those changes we made on the systems will benefit us given the volatility with the application that we are seeing.

And gain on sale margins –

It came in – we have seen 120, 130 consistent to Q3.

And where are they in January?

It’s the same.

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

I think, as we said on various occasions, as the operating efficiencies of some of these new markets actually are significantly better than that of our existing New York market. And when you think about the deposit base, they are in and of themselves unique. For example, the average age in Arizona is higher than the average age in Florida, which of course is higher than the average age in New York. So, the unique distinction between the markets, it does present an opportunity for us to selectively choose in-market products that better fit those particular markets and it also gives us the ability to change rates on various deposit choices that makes sense for us to do. So, I think the tools we have with these diverse markets are actually improved, and our ability to bring our overall cost of funding down dramatically. I think the drop-off in our cost of funding year-to-year is significant. We are at 79 basis points. That is a very significant change for us coming from 105. So, by example, when you look at borrowed funds, that’s a very fixed cost and that goes up from 382 to 388, whereas deposits go from 105 down to 79. That number is an important part of what gives us the flexibility to adapt and adjust to the realities of the marketplace.

Right. Sp, we look forward to if you are adding new loans that are around 420 and your average yield is over 5, so how much room is there?

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

Yes.

Yes. I think that that’s going to a great degree depend upon where the marketplace is. So for example, in our now and money market accounts, we are at 45 basis points and 39 for savings. That is low compared to some of the banks that we compete with, let’s say, in the immediate market. That is very high compared to Citi or Chase or some of the other banks that are also in our markets. So, the ability to move on CDs is less likely than the ability to move in other types of deposits. And that will be driven by the marketplace. So, think about the reality here. We have significant greater opportunities on the earnings side than many of the banks that we compete with. If banks are going to operate losing money, because they pay too much for their deposits, they can only do that for so long. So the marketplace will evolve based on where the real rates are on the asset side of the balance sheet. No one is going to get big returns on assets. Everyone is going to have a lesser return on their assets, so people are not going to be able to pay in ordinate amounts for savings. It’s just a reality that, that even though they may be doing it over the course of the last year, they are not going to be doing it over the course of the next year.

David, it’s Tom. If you look at where our current cost of funds are and you take in the non-interest bearing accounts, sort of material for us. We have a fairly large book of business there. We are running around 64 basis points for the quarter. Given where rates are, we still make a very healthy spread by growing deposits. So, if we are fortunate enough to be successful in bringing in deposits, we still make good money on spreads.

Okay. All right, thanks.

You are welcome.

We’ll go next to the side of Collyn Gilbert with Stifel Nicolaus. Your line is open.

Good morning, Collyn.

Great, thanks. Good morning, guys.

Good morning, Collyn.

Good morning. Can you just talk about the opportunities that you are seeing within commercial real estate and multifamily? And then how do you see that mix evolving over the next year or two, because you guys have really been growing the CRE portfolio quite nicely over the last few quarters?

No, I think there is no question that the marketplace that we principally do our business in is very, very strong. And we are seeing a great deal of opportunity. We don’t do, as you well know, we don’t do every loan that we were asked to do. And sometimes, we bid on loans and we bid more conservatively than others in the marketplace and therefore we don’t get every loan. So, the important thing is that this market will be rich and there will be plenty of opportunities both in commercial on a conservative basis and in a multifamily. And that we are likely to grow our book over the course of the year.

Collyn, I would just add looking at the overall credit parameters, our overall LTV for the commercial real estate books are around 50% and multi is at 51%. So, we are seeing some good quality opportunities.

And are these credits coming out of the conduit market and do you see that as an opportunity going forward?

The reality is that the marketplace in ‘05 and ‘06 and even in ‘07 included an awful lot of players. The conduit market was very aggressive in lending. There were lots and lots of defaults from that excess lending. And those loans were not broken up as quickly as, let’s say, they would have been had they been in banks. So, that’s why we had such a slow ‘09 and early ‘10 and that’s why things are picking up now. So, yes, we are seeing some of the things that were entangled coming to the marketplace and we will continue to see that as we go down the road.

Okay. That’s helpful. Thanks.

Great.

We’ll go next to the side of Matthew Kelley with Sterne, Agee. Your line is open.

Good morning, Matt.

Good morning, Matt.

Hi guys. Just staying on that discussion about just the mix, you know, commercial real estate went from 21% of loans in 2008 to 28% this year. Where do you see that going as a percentage of total loans?

Well, the reality is that there are plenty of good opportunities. We are not driving our lending decisions based on the percentage of our overall portfolio. So, we are doing loans on a one-up basis. If it is a good loan and a good property and we are very comfortable with the credit, we are doing the loan. But I would suggest to you that we are going to see more in the way of multifamily as well, and we are likely to be seeing that rebalancing, if you will, continue to be pretty stable. Even though we’ve moved over the course of this year last year, I think it will be pretty stable over the course of the year ahead.

Matt, I would just add, the volume of multifamily opportunities, given the refinancing, new business that’s trading away, very high fee content business, we have a lot of activities. So, despite the fact that we had some good growth here in commercial, the activity in multi was significant. In this environment, you are running in places, you are still doing a lot of good business. So going forward, if rates are to trick up a little bit here, you may see some more multifamily growth because you have less leaving the portfolio. But there is no question, the activity level of multi is significantly higher than commercial right now.

Okay.

And also the LTVs, as Tom mentioned earlier, are very, very low. So, people are putting a lot of money into these properties. There is a lot of money from the world that’s investing in real estate. So, the ability for us to do these commercial loans at low LTVs is very attractive.

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

We typically don’t give elongated guidance, we had a pretty strong expectation in 2011, despite a little difficult we still grew in that loan book pre-covered at around 8% net. So that’s a high single-digit number. It’s early in the year. But I think it’s very fair to say we could be a high single-digit grower in this environment, that’s conservative. But obviously, if rates go the other way, and we see a spike up here, you will see more staying within the portfolio and not leaving the portfolio, go to the conduits and the agencies. So I think it’s fair to say that you know, in this environment must be consistent with 2011 and hope that if rates do rise a little bit here, we will have some more growth.

Okay. And then just last question, can you talk about the stress test in relation to your dividend? I mean, if you strip out some of the prepayment excess this quarter very solid, but the core number, you would be running at pretty close to earnings, a little equal to the dividend. How do you feel about that?

I have a statement, I would tell you – having the ability to have a differential business model that generates high fee content, gives us a lots of flexibility to be less aggressive than most banks to be right now. We have been significantly smaller, our capital levels are elevated more than we have to right now. And more importantly, we are not taking on the duration risks that most banks are taking on. By choice, we don’t need to be at 10.8% on the security side, we could be doing other things, but we are riding conservative loans, we have a significant amount of prepayment activity. Given the waiting period, now we waited three years for activity. And we said, you know, it’s coming in one year, it didn’t come, and the next year, it didn’t come, ultimately it’s here, we are enjoying the benefit of a high fee income content business. You will make much fees on the retail side, we make our fees on the lending side. So, enjoying this very unique environment, as we look going forward, we have a lot of flexibility given our capital base. We have a lot of flexibility given the asset quality, we have significant improvements in asset qualities, we feel pretty good about the current balance sheet positions us well for growth. Now, obviously, we have tapered down our growth, in particular because of the interest rate environment. It’s a very challenging interest rate environment. But given, we have some movements here going other way, we will be able to put some significant growth to work.

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

The dividend is when we follow rules as driven by our regulators and we follow them on a quarterly basis. We have said this message now for multiple years now. We are very confident in following those rules. I mean, obviously, our asset quality has improved. There will be less expenses dealing with bad assets. We had a significant 47% drop year-over-year in MTA. So, I think the quality of the portfolio was better. That will probably be less provisioning in the future depending on any new buckets coming in, which we don’t see that right now. We are seeing very good high quality lending in the New York market and things were working themselves out. With that being said, I think we are smaller, we should be larger, and like as I said previously, we should be between 12% to 15% securities. It’s very difficult making that call, going out with duration risk and earning very little. I think it’s not the best strategy right now, so we have been avoiding that for approximately 24 months. Our mortgage banking operations fed very nicely until well balanced barbell strategy in a tough environment. So, enjoying good return at a 123 return on assets, 60% on equity in a tough environment. So, we feel pretty good about where the balance sheet stands to make money this year.

Matt, we are consistently conservative in our approach. So we by choice earn less than we obviously have the ability to earn. So, the likelihood that we would be in a position where our dividend would be challenged is far less given the overall debt and the strength of our ability to earn.

You are saying you are under earning because you could add more longer-term securities and more leverage to return?

No, we can do it in a variety of ways. In other words, we consistently make choices across the spectrum that are conservative choices that would likely have a better outcome given the uncertainties of the future period. And when we do that, we do that with a lesser return. And then you could look at any number of other portfolios and I think you will see a very different picture.

And we have elevated capital levels right now and we are comfortable with that. And obviously, if markets change, we are able to deploy.

Got it. Alright, thank you.

Yes.

We’ll move next to the side of Mark DeVries with Barclays Capital. Your line is open.

Good morning.

Good morning. Mark DeVries – Barclays Capital: Good morning. I just wanted to clarify some of the moving parts in the mortgage banking business. I think earnings were basically flat in that area displayed up volumes. I think the release says that, that was due to higher servicing but lower income from gain on sale, but I guess you guys commented that given some margins were flat, was there an issue with the pipeline hedge or something that caused --?

I think it is very clear Q3 versus Q4 our realization was better, finally that is what we expected given some changes we made internally we have less fallouts. Obviously it was a significant ramp up on Q3 volumes (inaudible) chart, but lot of deals went to other bank given timing, so it worked out very well for us. We feel comfortable going into Q4 as far as stabilization on hedging activities, so it is kind of where we expected, servicing to be neutral without any losses, given the current rate and environment. We are achieving better than we expected. I believe I guided last quarter, average between Q1 and Q2 probably $6 million lower on incomes. We came out $6 million higher based on budget. So, I think in Q4 versus Q3, I am very pleased, it is very early going into Q1, but volumes are strong which is a good thing and it is all rate dependent. Obviously, we’re doing some different things on the mortgage banking side trying to do so some new businesses with some other accounts that our portfolio did, but for the loan, but I tell you that, if rates trickle up here it will definitely move on the origination volume. The good news for us, with the system changes we made would give us the ability to react. Mark DeVries – Barclays Capital: Okay. Thanks.

You are welcome.

We will go next to the side of David Rochester with Deutsche Bank. Your line is open.

Good morning guys.

Good morning, Dave.

Good morning Dave.

A quick question back on the NIM discussion. One bank had mentioned recently that does multifamily and CRE lending in the city, that they had seen spreads tightened in January versus the fourth quarter by about 25 basis points. Are you seeing any of that dynamics?

I will tell you Dave, in Q3 we were at 476, Q4 it was 420. There is no question where 5/5 STNT put on 330 basis points, that is pretty much the market give or take 10 or 15 basis points. Right now, that’s running around 410 or 415 it is what it is, we are playing in the market place, but the good news for us is that we are a significant originator and portfolio lender and we expect to get our share of the business and we have to play within the marketplace. There are some other banks that are being very aggressive in rates and also dollars, but that is not unusual for this space. We have seen that over the past decade.

Yeah, that is very true. So, I would imagine that additional spread pressure has worked into what you are talking about in terms of NIM expectations for 1Q.

Absolutely.

And just one real quick on the deposit flows, looks like there was some outflow in the GDA kind of quarter end. Any chance any of that comes back, is that also worked into that margin expectation?

Yes, that was all fiduciary money through the mortgage banking operation. Tax cuts and principal paydowns.

Okay. Great.

It will come back then.

Because we are running at $13 billion book now.

Great and one last one on the expense side. Any additional leverage you can pull there if you wanted to or needed to?

I think in general we’ve done a fine job over the past six months, identifying some key areas of efficiencies. We worked on that everyday, we are an efficient bank. I gave guidance around 143, I’ll give it again maybe around 143 in Q1 and it’s a reasonable run rate. I am not looking to grow our expenses in 2012. I think some of the benefit will be on the foreclosure expenses and managing the nonperforming assets. That number could be a significant catalyst to bottom line. We had a sizable MPA book that is being diminished dramatically. We have seen some very good work being done by our people on moving (inaudible), but I think the good news there, that will help the efficiency. It doesn’t feel near like it was in the beginning of 2009 and 2010 as far as the level of MPA. So, I feel very confident by saying charge-offs have peaked, MPAs have peaked. So we’re sitting in a much different position. For the New York market, now other parts of the United States are performing very differently, but the New York market is very resilient right now.

I think it is important to note that with the decrease in our non-performing, we actually have an increase in the ratio of interest earning assets interest bearing liabilities, that ratio gives us the ability to actually put more money into the bottom line because you have more assets that are earnings and then that will continue to be the case as we go forward.

Okay, great. Thanks guys.

We’ll move next to the side of Bradley Ball with Evercore Partners. Your line is open.

Good morning Brad.

Hi Brad.

Good morning guys, how are you? Just a couple of quick follow ups to some of the things that have been discussed. On the mortgage bank, you said your warehouse is about a billion or so now, is that where you would expect to continue to run going forward?

I ran a conservative run rate for Q4 between 750 to 800. I will stick to that number today, but we hoped to be above that. So, we ran about a billion in Q4, so it gave us the ability to not to be as active on putting our cash because we use that for the warehouse. Where we stand today is reasonable, but that could change dramatically. If rates were to stay low here that number could be elevated. If rates are spiked the number can be reduced and if it is reduced we will be putting money in the securities markets at a higher rate.

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

Little bit, I have it down little bit maybe some 750 to 800 million.

Okay, so if rates stay lower and mortgage banking volumes. Okay, so that would help the NIM. And real quickly on OpEx, you had the benefit of the layoffs, the severance impact was in the third quarter, does any more of that bleed into this year or is that all done in terms of the benefit?

Yeah, I think we initiated that at the end of Q3, was fully faced in Q4. Again I gave specific expense guidance for Q1 at 143. That is pre-CDI, that is excluding CDI. The only other adjustment that given where a lot of our tax credits have rolled off we are probably going at 36.25 on his tax rate, that is going to be out as well.

Okay, and then on asset quality you pointed out and that’s correct the improvement in the NPLs, you had a slight uptake in charge offs in the quarter. Are you seeing higher severity or is there anything to speak up there, or it is only a modest update from 18 to 20?

Yeah. Good news is that very consistent as expected. Again, I believe going forward 2011 should be the peak in charge-offs and hopefully we’ll see lower charge-offs in 2012. A lot of one of transactions, we moved a lot of assets. We had a 47% decline this year and we had 72 basis points for total in the cycle. So far compared to 986 basis points to the ethanol industry. As a significant differential between our competition, if you go back to the last cycle, we had 17 basis points on losses from 90 to 93 and inventory about 500. I think we are positioned very well, we’ll see the continuation of the drop of the assets that are sitting on MPA. Again, the New York market is very strong, people are buying these assets and they have cash flow characteristics, you could put a price on cash flow.

The good news is that the worst of the assets are already gone and as we go forward we should be cleaning up a lot of the stuff that is still handing due to process, legal process or otherwise that will resolve and that will resolve fairly close to where we are carrying them.

Okay, that is it. Thanks.

Your welcome.

We’ll go next to the side of Mark Fitzgibbon with Sandler O'Neill & Partners.

Good morning Mark. Mark Fitzgibbon - Sandler O'Neill & Partners: Guys, I noticed that the security heels went up a little bit from last quarter to this quarter. I am just curious why was that?

We were very generous. Mark Fitzgibbon - Sandler O'Neill & Partners: Okay. And then, secondly, the loan to deposit ratio is up around 132 now, it has been creeping up a little bit. I guess I am curious, you have a target in mind for that?

In the long run, it will bring in a lot more funding. Deposits are full right now in the environment. . I think I said in my previous comment given where our current rate environment is worth 64 basis points all in, if you take into account the largest (inaudible), looking at yields around four, it’s still economically feasible for growth. So I think, we have the ability to get funds. It is fairly liquid environment and I think growing the deposits in this environment for us, if you are growth company and we are looking ourselves as a growth company going to 2012, not shrinking. We have some good opportunities ahead of us. Now, what may impact the margin in potentially it’s rate change on the security side. We have been very reluctant to be – we were at 16% 18 months ago, and now we are running at 10%, that’s billions of dollars of earnings assets. Mark Fitzgibbon - Sandler O'Neill & Partners: Okay and then with respect to M&A, what would you say some of the characteristics are, the businesses that you might be looking at it as potential targets?

Let’s say, historically it’s all about bottom line earnings accretion, significant upfront earnings accretion and no tangible capital dilution. Mark Fitzgibbon - Sandler O'Neill & Partners: Any particular geography or line of business or anything of that nature?

No. It’s always the benefit to the shareholder. If the pro forma company is a better bank and it’s going to create accretion to earnings and tangibles that’s what decides whether we do the deal, where it’s located does not. Mark Fitzgibbon - Sandler O'Neill & Partners: Thank you.

Okay.

We’ll go next to the side of Tom Alonso with Macquarie. Your line is open.

Good morning, Tom. Tom Alonso – Macquarie: Hi, good morning guys. Most of my questions have been answered. Just on the expense stuff, 143 ex-CDI, so no bump up in the first quarter for (inaudible) or anything like that?

I think it's sort relating as far as run rate and we are trying to keep it flat for the year. I think at one point I did speak to is the tax penalty going up given the roll off of certain tax credits you have over the past decade to 36.25 but we are expecting. Tom Alonso – Macquarie: Okay. Fair enough. Thank you, guys.

You are welcome.

We’ll go next to the side of Steven Alexopoulos with J.P. Morgan. Your line is open.

Good morning.

Hi, good morning guys. I am just curious, given all the positive comments on credit, can you talk about that why you needed to build a reserve by $11 million this quarter?

I would say it’s the environment. If you look at building reserve, some of that would be covered out the portfolio. We had some (inaudible) annual basis because we clearly go on an annual basis, we do an in depth review of those tools, and the HELOC tool for the AmTrust portfolio has been – since we have acquired it have clearly performed worse than expected. It doesn’t mean we are going to have losses there, I mean, the net effect of that was $2 million pretaxes in material. So the reality is that we had some covered asset adjustments to the HELOC tools from AmTrust.

The idea that we have more in our reserves is not a bad thing for us to do. It has nothing to do with our expectations of losses from the standpoint of seeing things looking like it’s deteriorating. We do not see that at all.

I would see right back to my previous comment over the past four years in charge-off 70 basis points, industry charge-off 950. Last time we charged-off 17, industry charge-off 500. So I think we are seeing a very similar trend and it goes back to our thesis and we believe we peaked on charge-offs in ’11 and peaked on MTAs in the first quarter.

And Tom, just a follow-up. When you said you expect the margin down 8 to 10 dips next quarter, is that coming from lower prepaid fees or do you expect (inaudible)?

That’s excluding any prepay fees. I gave zero guidance on prepay, other than that it’s a healthy prepay environment. So my margin guidance excludes any activities on prepayment.

Got you. Perfect, thanks.

We will go next to the side of Theodore Kovaleff with Horowitz & Associates. Your line is open.

Good morning, Ted. Theodore Kovaleff – Horowitz & Associates: Good morning. With respect to the loan pipeline held for investment, if you have at 1.8, you then say that the multifamily is 969. What is the rest of that loan pipeline, can you give some sort of color on that?

Usually, we for many many many years, not just quarters, we have always closed our pipeline or better. So I don’t think there is any significant risk at all that we would not make up.

Typically, it’s kind of put more money in the drawers, so these are solid commitments.

Right. This is not an assessment of what the market looks like, this is actually a statement of what we have in cash. Theodore Kovaleff – Horowitz & Associates: What I was trying to find out was you gave color of the multifamily portion, what do you have for the rest of that portion? Because it seems as if the multifamily color percentage than –

I think obviously it’s somewhat confusing than we do at mortgage bank it is a large number, but we did call about the multifamily because it’s obviously it’s our core project that people follow. Obviously we feel very confident of that multifamily numbers, an elevated number. So again going back to our previous points that the multifamily activity is still very very strong, although competitive is still very strong, we are seeing very good activity. And the net overall loan growth is – we concentrated in both multi and commercial but we believe that the activity level is elevated for multi. So despite the fact that net loans may be growing a little bit less than on the multi side than the commercial side because of the nature of the activity that we are seeing. Monetary payment activity, stuff does refinance away, stuff does go through the agency market, we get paid for all activity. That goes back to our point that we feel fairly confident that prepayment activities going to be a continuing strong number in the upcoming years. Theodore Kovaleff – Horowitz & Associates: Okay, thank you.

Thank you, Ted.

We’ll go next to the side of Mike Turner with Compass Point. Your line is open.

Good morning.

Hi, good morning. Most of the questions have been answered, two quick ones, what are the gross yields you are getting on your mortgage warehouse? And then also any change to thoughts about potentially refinancing any of your long term retail funding?

As far as the warehouse, markets that you can follow looking at a 30-day mortgage rates, I would say, typically it’s probably 85% 30-day, 30 EMI and the rest 15 is very little adjustable. So you are looking at around 4%, give or take 10 to 15 basis points. We get a loan in Q4, I think it was 390 or 385 for the offering rate to the consumer. Obviously, that’s pretty much a good guide point when you look at what we can earn in the warehouse. So close to 4%. And what was the other question?

Just about potentially refinancing any of your long term repos running, any change to that?

We look at it every day. It’s a painful adjustment to pay that off with absent an acquisition. Again the acquisition fund is back, I think it’s more active down the southern market than the New York market. So I think we are seeing most of (inaudible) our New York based markets, so we are seeing something to do in other states. In any event that we could look at an acquisition as part of a blended transaction with repo, that’s pretty much the best transaction for us. We would not in this environment do a pure restructure in play unless markets change where the pain is not as significant.

Okay. Great, thanks.

We have a follow-up question from Bob Ramsey with FBR Capital Markets. Your line is open.

Hi, thanks. Just one quick question. What is the unpaid principal balance in the servicing portfolio?

Yes, right now we ran up 13.2 as of year end. The capitalization is about 116.4 million, which I believe is about 0.91 capital as in 3.6 multiple, which is pretty conservative.

Thank you very much.

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

Thank you. On behalf of our board and management team I thank you all for joining us and expressing your interest in our company for the fourth quarter 2011 performance. We look forward to chatting with you in April when we will be announcing our first quarter 2012 results. Thank you.