New York Community Bancorp, Inc.
Q3 2016 Earnings Call Transcript

Published: 26 Oct 2016

[Operator:]

Good morning and thank you all for joining the management team of New York Community Bancorp for its quarterly conference call. Today’s discussion of the Company’s Third Quarter 2016 performance will be led by President and Chief Executive Officer, Joseph Ficalora together with Chief Financial Officer, Thomas Cangemi and John Pinto, the Company’s Chief Accounting Officer. Certain comments made on this call will contain forward-looking statements that 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 that could actual results to differ materially from those the Company currently anticipates due to a number of factors, many of which are beyond its control. Among those factors are general economic conditions and trends, both nationally and in the Company’s local markets; changes in interest rates, which may affect the Company’s net income, prepayment income, mortgage banking income and other further future cash flows or the market value of its assets, including its investment securities; changes in the demand for deposit, loan and investment products, and other financial services; changes in legislation, regulation and policies; and the Company’s ability to complete the proposed merger with Astoria Financial Corporation, which is pending the receipt of Regulatory approval at this time. You will find more about the risk factors associated with the Company’s forward-looking statements on page nine of this morning’s earnings release and in its SEC filings, including its 2015 Annual Report on Form 10-K. The release also includes reconciliations of certain GAAP and non-GAAP measures that may be discussed during the conference call. If you would like a copy of this morning’s release, please call the Company’s Investor Relations department at 516-683-4420 or visit ir.mynycb.com. As a reminder, today’s call is being recorded. At this time, all participants are in a listen-only mode. You will have a chance to ask question during the Q&A following the management’s prepared remarks. Instructions will be given at that time. To start the discussion, I will now turn the call over to Mr. Ficalora, who will provide a brief overview of the Company’s third quarter 2016 performance before opening the line for Q&A. Mr. Ficalora.

[Joseph Ficalora:]

Thank you, Michelle. And thank you all for joining us this morning as we discuss our third quarter 2016 results. This morning, we reported earnings of $125.3 million or $0.26 per diluted share for the quarter and $381.7 million or $0.78 per diluted share for the first nine months of this year. This translates into a return on average assets of 1.02% for the quarter and 1.03% for the first nine months and a 8.24% return on average stockholder’s equity for the quarter and 8.44% for the first nine months of the year. On a tangible basis our profitability was also solid with a return on average tangible assets of 1.08% for the quarter and 1.09% for the first nine months of the year and 13.79% return on average tangible stockholder’s equity for the quarter and 14.22% for the first nine months of the year. Contribution to our results came from the three core components of our business model, originating loans for investment and retail [ph], maintaining the high quality of our assets and operating at an average above average level of efficiency reflecting third quarter originations of $3.7 billion the volume of loans produced year to date reached $10.7 billion including $7.2 billion of held for investment loans. Multi-family loans represented $1.3 billion towards loan production and $4.5 billion for the unit date amount. At the end of September, multi-family loans represented $27.1 billion of total loans held for investment a $1.1 billion increase from the balance at yearend. In keeping with our short term goal of managing our assets under the SIFI threshold of $50 billion, we continue to sell certain loans during the quarter. In the current third quarter, we sold $206 million in multi-family loans and $108 million of CRE. In total, we have sold through participation $1.4 billion of multi-family and CRE loans during the first nine months of this year. Absent multi-family loan sales of $1.1 billion that portfolio would have grown $2.2 billion to the end of September, representing an annualized growth rate of 11.1% likewise CRE loans would have grown at an annualized rate of 3% absent loan sales of $268.5 million. The value of multi-family loans we produced year-to-date and in the current third quarter of indicative of our ongoing commitment to his market and to the relationships we’ve established over decades with the borrowers that are our main customers with the brokers that focus on these borrowers. As further evidence of our market position, our current pipeline is $2.5 billion with the majority of the loans in that pipeline consisting of loans held for investment. Moving on to asset quality, our asset quality measures continue to be stellar and rank among the best in the industry as well as among the lowest we have reported since 2008. Non-performing, non-covered loans represented just 0.12% of total non-covered loans at the end of September consistent with the measure recorded at the end of June. Similarly, non-performing, non-covered assets present 0.12% of total non-covered assets. And the ratio of net charge offs to average loans was 0% over the past nine months. In fact, we recorded a modest level of recoveries on a year-to-date basis. In addition, to the continued growth of all our loans and the high quality of our assets our third quarter performance was highlighted by an increase in mortgage banking income as originations rose to $1.4 billion the highest volume in more than a year. Besides the resultant increase, we witnessed from origination income, servicing income also rose linked quarter and year-over-year. While net interest income slipped sequentially as did our net interest margin, the year-over-year comparisons tell a tale of growth reflecting the debt repositioning that took place in last year’s fourth quarter, our net interest income rose $39 million year-over-year to $318.4 million and our margin rose 35 basis points to 2.91%. Prepayment income contributed 20 basis points to the current third quarter margin as compared to 24 basis points in the trailing quarter and 22 basis points in the third quarter of 2015. Excluding prepayment income, the net interest margin would have declined 4 basis points to 2.71% during the third quarter but would have increased 37 basis points year-over-year. Another factor contributing to our third quarter of earnings was a linked quarter reduction in G&A expenses which resulted in our recording a level of operating expenses that was consistent with the level reported for the second quarter of this year. The benefit of the linked quarter decline in G&A expense was modestly tempered by a rise in compensation and benefits expense as we expanded our bank office operations to further support our readiness to become a SIFI bank. Reflecting our earnings and capital, the board of directors last night declared a $0.17 per share dividend for the quarter representing a 4.7% dividend yield based on last night’s closing price. The dividend will be paid on the 18 of November to shareholders of record as on November 7, 2016. On that note, I would now ask the operator to open the line for your questions. We will do our best to get all of you within the time remaining but if we don’t, please feel free to call us later today or this week, Michelle.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Ken Zerbe with Morgan Stanley. Please proceed with your questions.

[Ken Zerbe:]

Hi, good morning.

[Ken Zerbe:]

Good morning, Ken.

[Joseph Ficalora:]

Good morning, Ken. How are you doing?

[Ken Zerbe:]

Gentlemen, thank you. Maybe just start off on the net interest margin, I understand the guidance prior to last quarter sort of flat to down from here. It looks like it declined a little bit more than what we were expecting, what you may have been expecting. Can you just talk about you know what drove the change versus your guidance and more specifically, what is the outlook and the net interest margin from here, is this sustainably lower at these levels?

[Thomas Cangemi:]

Yes, good morning, Ken. It’s Tom. So obviously, our previous guidance was flat to down 2 basis points or came in down four, so there was a two basis point obviously a miss to the estimate for Q3, I would say driving it is the current interest rate environment, no question that portfolio yields that came on were reasonable compared to the one that was spread but there really hasn’t been any significant impact on the [indiscernible] yield. So that being said, we are anticipating based on the full curve on interest rates for a fourth quarter potential interest rate rise in the short end of the curve in December that would probably put us at down three basis points in Q4 for guidance purposes but again if you think about the portfolio as well as the loan yields, we are looking at about 180 spread on five year money which is about 3.125 at the current market offering, seven years is more like a 3.65 for multi-family and the portfolio yield where we stand today is around 335 type yield coming in. So overall, it’s consistent with an ongoing consistent coupon quarter-over-quarter. We are not seeing any new bump up in the current yield environment.

[Ken Zerbe:]

And sorry…

[Thomas Cangemi:]

And ken, bear in mind, the securities portfolio has rolled off dramatically, those are in the mid to upper threes so that has an impact as well. We don’t anticipate any future pay offs of the securities portfolio with the exception of our DUS portfolio and that’s subject to sales activity which we have no control of. The callable portfolio was trailing off of the interest rate environment.

[Ken Zerbe:]

Got you, so down 3% assuming RAY [ph] hike, incentive RAY [ph] hikes don’t happen in December?

[Thomas Cangemi:]

Couple of mid basis point to half, one and half to two bps.

[Ken Zerbe:]

Of upward move sorry to NIM?

[Thomas Cangemi:]

Yes, yes.

[Ken Zerbe:]

Got it, okay. Fair enough. And just in terms of theory like the 180 basis point spread that you are talking about, how does that change, just remind us kind of versus last quarter, like are you seeing the impact from you know sort of the OCC cracking down on some of the smaller CRE lenders, it doesn’t seem, I guess just looking at the spread, it doesn’t seem like there is a huge move, but love to hear your thoughts?

[Joseph Ficalora:]

You know, I think there is no question that there has been a change in the players, so whereas some of the smaller players have been restricted with regard to their participation in this market, some of the giants have actually increased their participation in the market. So the market is changing and some of the observations that have been made by others and yourself are correct that there are players that do not have an experienced trend that justifies the exposures that they are taking to a market that regulators are not necessarily comfortable with new players in. So the important thing here is and then this may be from the standpoint of overall philosophy, the reality is that some of the largest players in this market including us may become more active and some of the smaller players or the newer arrivals into this market they become less active.

[Ken Zerbe:]

Alright, perfect. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Dave Rochester with Deutche Bank. Please proceed with your question.

[Dave Rochester:]

Morning, good morning, guys.

[Joseph Ficalora:]

Hi David.

[Dave Rochester:]

On operating expense, you guys came in nicely below your previous guidance. I was just wondering what drove that differential and what the outlook is for 4Q?

[Thomas Cangemi:]

Dave, this is Tom. I would say that consistent by previous guidance, we came in pretty close to the guidance forecast. I think, we guided around $159 million, $160 million, so we came in at around that level of $158.9 million. Again, I will say it for the fourth quarter around $160 million, I don’t see any major uptick with the exception of any merger related expense as they come into play and if you look at this current quarter, we had about $2.2 million in the bottom-line as a result of the Astoria merger, so obviously that’s merger related expenses, it’s around $160 and that should be hopefully a conservative number for the quarter ex-CDI as well.

[Dave Rochester:]

Great, okay. And then you mentioned the deal, I was curious what’s your thoughts are, updated thoughts on that actually closing this quarter? And if there are any sticking points that you guys see on the horizon potentially?

[Thomas Cangemi:]

So obviously the Astoria that we publicly thread throughout the year, were acquisition where we are in the fourth quarter and there is not much we can say other than get through the fourth quarter and await our regulatory approvals and go through that process.

[Joseph Ficalora:]

You know, I think Kevin, where we are, say less about this maybe more prudent than say more about it since we are not in a position to drive and we certainly don’t want people that are in fact in a position to drive, to feel any undue pressures from us about this. So I think that, we will say less about it but hopefully see it happen as soon as possible.

[Dave Rochester:]

That’s good point. Thanks. And then just a follow-up on that, since we are potentially close to the close, I was just wondering if you had any updates on what you thought you needed from an HQLA standpoint just based on the 3Q balance sheet?

[Thomas Cangemi:]

Yes, so Dave, again going back to the concept of putting the two companies together, we spent LCR dealing with the level one asset that’s going to be a mandate as we crossover to SIFI rule. We only set about $2 billion on the Astoria portfolio on the securities side, $2.5 billion from our side of which most of that was on our balance sheet at the beginning of 2016 that was paid off predominantly due to callables that was a level two asset. So we will replace the level two on our portfolio to level one, we will be in the market at a appropriate time to buy assets consistent with the level one categories in particular look at you know the 30 Mae type, 30 at Ginnie potentially from treasuries to fix that and exit, and then we consolidate with the Astoria franchise, you have a $2 billion securities portfolio that will evaluate mark-to-market and replace with level one.

[Dave Rochester:]

Okay, great. Thanks guys.

[Joseph Ficalora:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Bob Ramsey with FBR Capital Markets. Please proceed with your question.

[Bob Ramsey:]

Hi, good morning, guys. Hi, look like the gain on sale of multi-family loans this quarter was lighter than it has been running in recent quarters, just curious if you could kind of talk about the outlook for that line plans to sell certainly as you manage the balance sheet size etcetera?

[Thomas Cangemi:]

Yes, well so Bob as you know, the markets change from time-to-time. It’s all depending on rate environments, the type of transactions you participate, some participations are done as a joint effort at the table, so you may have a larger credit that you have as a partner and we set up a participation, they may not be of substantial economic gain in that but we are partnering on a large multi-family relationships. So that goes to just to loan self as well. But I would say in theory, in general, we look to try to get around one-on-one with approximately one-on-one with cash servicing maybe another 20 basis points. So probably north of one-on-one as a transaction that we service alone over time and keep the relationship, that’s been the strategy since 2004, since this quarter as 2004 has been a three year process and since that process we would execute on approximately $4 billion of activity within the portfolio of both CLA, multi-family predominantly and a handful of resi that – going back to 2014. So the strategy is ongoing, it’s obviously been a workable strategy to manager our short term strategy for managing the SIFI threshold but clearly, you know depending on one conditions if rates were to spike here, it may be a little bit more challenging to get those types of gains but if rates stay consistently where they have been for and they have been relatively consistent, we feel there is a very strong interest in the product mix. These are – a lot of these loans are CLA eligible, they are long term customers and we have a strong desire within the market to share these relationships and we control the service environment

[Joseph Ficalora:]

It’s a very important thing to recognize, our presence in the market is enhanced by our capacity to do this. Our ability to earn money on unbooked assets meaning that these assets are not going to show up as part of our concentration or part of our asset base as a whole to whatever degree they are off balance sheet that does give us greater flexibility. So on a go forward basis, we may have reasons why we increase or decrease the amount of the asset that we share. The very, very good new is there are plenty of very, very skilled players in the market that would love access to the very loans that we are sharing. So I think that we are establishing ourselves as a market player that has the ability in good markets and in bad markets to produce product that in fact there is a very strong market to buy.

[Thomas Cangemi:]

So Bob, just going back to, let’s take Joe’s point at the beginning of this conference call, you know, we are growing at north of double digits to be back after loan sales, that’s been consistent with our philosophy. Now, we can grow the portfolio around 10% to 12% over time and that’s reasonable in a very challenging interest rate environment and in market where you are originating average asset that have the yield in the low threes with an average life of something between 2.8 to 3.1 yield while polling on that process of being a double digit grow over time. When we cross the SIFI threshold, we have that ability to put this well on balance sheet. Right now, we would be very cautious, we have room in our threshold right now. The average portfolio look back $49.3 billion that will take in the fourth quarter drove to $3.5 billion to trip over, so we are not going to put on $3.5 billion of growth in the fourth quarter, so we have some flexibility as we awaiting the closing of the transaction. So clearly, we have some flexibility here but obviously we have been, we have been very nimble to make sure we don’t cross over the SIFI threshold prematurely.

[Bob Ramsey:]

And shifting gears to the mortgage banking business, could you maybe talk a little bit about the outlook for income at that line item and obviously it’s good to see the servicing income was positive this quarter, could you give the breakout of servicing fees versus any hedge impact?

[Thomas Cangemi:]

Sure. For the, I would just give you the reconciliation, total mortgage origination revenue is $10.9 million for the quarter, loan to servicing fees gross is $12.8 million versus $12.6 million in the previous quarter so up slightly. The overall UPB is around $21.1 million, so it’s remaining relatively flat, and the subtotal of that transaction, again the net adjustment to the servicing fees was MSR hedge of negative $10.8 million predominantly due to the market value change which comes to a net servicing of $2 million and the net total mortgage banking income of $12.9 million for the quarter up around 88% quarter-over-quarter which is kind of what we expect, we said you know potentially could have been double of a very low Q2 and we again we are going to fourth quarter, and I think it is so much guidance given that is a seasonality quarter which is the fourth quarter seasonality, we typically see some of them slowing out but market base have been relatively volatile but the purchase market has been so much strong throughout the past six to nine months. So you are seeing a good mix of purchase versus REFI and I would say in the third quarter, we had a decent amount of REFI given the low rates again in the summers, so that helped a little bit on the total volume. We have a pretty good strong quarter I would say and we expect to overall activity in the mortgage bank. So as expected, we expected approximately 80% to 100% rise in income in that division in Q3.

[Bob Ramsey:]

And looking into Q4, what is the expectation based on the pipeline there?

[Thomas Cangemi:]

Yes, I think again, we have to watch the seasonality set, and obviously the valuation of the servicing asset is – stay where they are right now. It’s probably, I would say flat to the previous quarter so and which is around $12 million.

[Bob Ramsey:]

Okay, great. Thank you.

[Thomas Cangemi:]

Sure.

[Operator:]

Thank you. Our next question comes from the line of Collyn Gilbert with KBW. Please proceed with your question.

[Thomas Cangemi:]

Good morning, Collyn.

[Joseph Ficalora:]

Good morning, Collyn.

[Collyn Gilbert:]

Thanks. Good morning. Tom, I just wanted to clarify a couple of things that you had said, so in your comment about the NIM, did you say it would be up one to two basis points without a rate hike?

[Thomas Cangemi:]

No, my comment was, still there is not a rate hike in December which we’re forecasting a potential rate hike just by looking at the forward curve which is I think right now at 70 somewhat percent of an expected rate hike. You would benefit approximately a basis point and half, with that being said we are guiding down three basis points for the quarter and the fourth quarter given our position with interest rates. But if there was no increase in December, we would probably look at half that.

[Collyn Gilbert:]

Okay, okay. And then just back to the securities discussion, so what, what do you see the pro forma securities, what could be in total?

[Thomas Cangemi:]

I would theoretically look at adding approximately $4 billion in total, $4.5 billion if you want to be conservative, $4 to $4.5 billion in addition to where we are.

[Collyn Gilbert:]

Okay so like 7 something?

[Thomas Cangemi:]

Yes, right now we are in a lowest percentage ever been I believe as a public company.

[Collyn Gilbert:]

Right.

[Thomas Cangemi:]

We are below as 7.6% which is the lowest it has ever been since the company went public. So this is a low percentage of our, so we are gearing up to qualify to LCR at the appropriate stage of our public life which will be when we cross over to SIFI.

[Collyn Gilbert:]

Okay. So then you said, you would put on – there would be $2 billion that would replace, that would move into level one?

[Thomas Cangemi:]

That’s right. So obviously, we would look at the securities that are being brought over by the target, those will be mark to market and evaluated for level one. Whatever assets are not level one, we will replace what’s level one and go into market and replace the securities, they will be marked at the closing. Our portfolio has already paid off, so we lost well over $2 billion of our callable debentures in 2016 and that will be replaced with Ginnie Mae type securities that are LCR 1 eligible which is longer dates securities that would qualify for LCR 1 treatment.

[Collyn Gilbert:]

Okay. But the yield of whatever you are going to need to buy the – the level one, I mean, it’s going to be, I would imagine considerably lower than where your current yield is?

[Thomas Cangemi:]

Absolutely, I mean there is no question that, if you look at the products you are looking at, the treasuries are close to 0 to 80 basis points depending on duration and if you go on to choose to maybe if rates go up mid use, these are not high yielding securities, they are LCR 1 eligible securities.

[Joseph Ficalora:]

So Collyn, having said many times, we are not going to do this as an investment decision, we are going to do this as restructuring [ph] decision that support the liquidity necessary.

[Collyn Gilbert:]

Of course, of course, absolutely, okay.

[Joseph Ficalora:]

So obviously doing in front of it makes no sense.

[Thomas Cangemi:]

And bear in mind, this would have an impact on the margin negatively. However, it’s top line accrued that you are putting on, we believe it will have a positive slight carry to that asset class.

[Collyn Gilbert:]

Well that was going to be my question. So, you, if you are thinking that there is going to be an earnings loss here but you are saying no, Tom.

[Thomas Cangemi:]

No we are saying very clearly is that we are not going to fund it with a negative carry. That’s all I am saying.

[Collyn Gilbert:]

Right, okay, but the shift…

[Thomas Cangemi:]

So we will be putting on let’s say 250 when – we are are going to fund it sub 250.

[Collyn Gilbert:]

Right.

[Thomas Cangemi:]

With a positive carry.

[Collyn Gilbert:]

But the spread of the new assets that are coming on is obviously going to less than where the spread is today?

[Thomas Cangemi:]

Absolutely. Oh yes, and that’s part of the easy trend in banking that we can put in the liquidity.

[Collyn Gilbert:]

Okay, so my question is, what – do you, are there offsets that you all see in your business to sort of absorb some of the lower earnings on where the balance sheets going to have to go post deal?

[Joseph Ficalora:]

Oh sure. It’s all part of the consolidated bank, the numbers for the consolidated bank clearly carry that differential.

[Thomas Cangemi:]

And then Collyn, this is nothing new. This has been an ongoing dialog, obviously since we announced the Astoria transaction this has always been out there. I think the only change that interest rates are slightly higher not dramatically higher, so it may be a little bit better of a positive carry and that depends on when we actually execute.

[Collyn Gilbert:]

Okay. And then just on the pipeline yield, you said the pipeline yield was $333 million?

[Thomas Cangemi:]

$334 million, that’s right.

[Collyn Gilbert:]

$334 million, okay and I think you said that…

[Thomas Cangemi:]

And then Collyn, just on that note the current portfolio yields are approximately $353, so we still have a unfortunate, you know negative spread between what we are putting on, what we have but it’s not material throughout, but for example for the quarter, we lost around 45 basis based on originations and what we paid off. So it’s much better than what we saw in the previous two years as far as what we are losing in the portfolio yield versus what we are putting on. That’s an encouraging point.

[Collyn Gilbert:]

Okay, okay. But I think you said in the second quarter, the pipeline yield was $340 million and I guess, I am a little surprised, Tom you might have said on this, but surprised that the origination yields are coming down just given the competitive nature of the market as well as the bump up that we have seen here a little bit in the….

[Thomas Cangemi:]

Yes, absolutely. The good news, we are north of 3%, we can’t interest rate. We have been consistent for multiple years. It’s a low rate environment, spreads have went all over the map, you had spreads as high as 210, as well as 170. But the overall portfolio coupon that we originate in the market for a traditional bread and butter multi-family product is somewhere between 3 to 3.25 [ph] depending on market conditions and that’s been consistent unfortunately for years. We are not seeing any real reaction to a bump up in interest rates and rates happen to have, we call a significant rally the couponed is same to same. So the market has been around 3 to 3.25 [ph].

[Joseph Ficalora:]

Collyn, the comments that I made earlier with regards to the change in some of the players within our niche we very important to recognize that giants can play at lower yield than the rest of the market typically plays at and therefore the guys that are not in the market were getting rates similar to ours or even higher than ours and certainly the giants when they are in the market, they are in the market at lower rates.

[Collyn Gilbert:]

Okay, okay, alright, that’s helpful. Thanks gentlemen.

[Joseph Ficalora:]

Sure.

[Operator:]

Thank you. Our next question comes from the line of Matt Breeze with Piper Jaffray. Please proceed with your question.

[Joseph Ficalora:]

Good morning, Matt.

[Thomas Cangemi:]

Good morning, Matt.

[Matt Breeze:]

As you make the changes on security side, and we puncher through $50 billion, is there going to be any need for additional capital in the form of preferred or sub debt or even common?

[Thomas Cangemi:]

Yes, so theoretically when you think about capital, we lost a substantial amount of sub preferred securities as a matter of reimplementation about what we pay [ph]. So this year on we have a hybrid structure on the balance sheet for our bonus units, and that’s ineligible for our tier one capital. We would envision that being replaced and then given the attractiveness in the market from time-to-time you have to evaluate these extremely low interest rates and being attracted to we will say tighten the capital stack given the attractiveness of the rate. So there is no question that we would like to replace what we’ve lost and that’s been something we talked about for years and envision that as a very attractive interest rate environment both on the preferred amount and the sub amount [ph], so we clearly we evaluate that from time to time, at a minimum we would like to at least replace the Basel III capital that has been rolling off due to the regulatory changes under Dodd-Frank.

[Matt Breeze:]

Can you remind us of the amount you lost and if it was just a….

[Thomas Cangemi:]

Approximately $400 million, just south of $400 million.

[Matt Breeze:]

Okay and the preferred course would be preferred? Preferred equity.

[Thomas Cangemi:]

Yes, an alternative products to replace that would be for the traditional preferred that’s very prevalent in the marketplace as we see today.

[Matt Breeze:]

And over what timeframe would you envision this getting done?

[Thomas Cangemi:]

Market conditions and obviously as we move forward here, market conditions.

[Matt Breeze:]

Okay. In terms of the expense load and being LCR compliant, could you give us an update on where you are in that process what aiming you are and over the long term, what needs to be layered on?

[Thomas Cangemi:]

No, again, I try to give guidance quarter-to-quarter as far as where we are on expense, we have been adding personnel, we have been adding some of the, we call consulting fees are rolling off and that’s being replaced with higher compensation cost for new hires that have the technical expertise that we need to have to manage the SIFI threshold. That continues, I don’t see material numbers going forward with respect to personnel adds and additional systems add. Obviously, the areas that would at this stage of our transition to SIFI would be dealing with said [ph] reporting which is not a material expenses but we are positioned to have that in place in short order and also living well which would be something that is down the road but clearly would in our grasp and that process has taken place in our overall time, it has been well within our expectation to be qualified for living well and it’s not a substantial number but it is some consulting fees and legal fees and significant amount of workload that the management team will be working on but the cost is not material.

[Matt Breeze:]

Got it, okay. And then my last one, you know, as you become over $50 billion, we talked about LCR, are there are any other changes that need to occur for your balance sheet. I mean, the number of ways, historical to you it’s normal but versus other CCAR banks is, your balance sheet is little different, right, in terms of funding profile, the deposit ratio. Does anything else need to change?

[Thomas Cangemi:]

Yes, again, this is something that when you look at a pro forma and you look at the premium companies together, there are some significant benefits as the capital, less liquidity, as securities composition when we look at a pro forma company and we publicly said that our crossover will coincide with the transaction. So, with a given transaction is the impetus to allow the companies to be a SIFI company, there is some significant benefits on the transaction. So absent when you look at that, you know, historically, we looked at the SIFI’s threshold and in there the issue would be capital, liquidity, but you know institutions that comes together within our organization brings that to the table. So that’s you know the rationale behind the Astoria transaction itself is a significant benefit that come across in consolidation.

[Matt Breeze:]

Understood. That’s all I had. Thank you very much.

[Joseph Ficalora:]

Thank you, Matt.

[Operator:]

Thank you. Our next question comes from the line of Ebrahim Poonawala with Bank of America. Please proceed with your question.

[Ebrahim Poonawala:]

Good morning everyone.

[Joseph Ficalora:]

Good morning, Ebrahim.

[Ebrahim Poonawala:]

So most of my questions have been asked and answered. I think, one follow-up on LCR, just so that we get the timing right. If you close the deal on December 31, you need to be LCR compliant in 1Q, 2017?

[Thomas Cangemi:]

That’s right after the closing.

[Joseph Ficalora:]

Right, it would seem highly improbable that we would do that.

[Thomas Cangemi:]

Yes, so I would say that – that assumption by the first quarter of 2017 we would have to be LCR compliant.

[Joseph Ficalora:]

Right, you know there were very good reasons why in 2017 would be more explicitly beneficial.

[Thomas Cangemi:]

Now bear in mind, the proposed rule that haven’t been finalized will give us an extra year, we’re still patiently waiting and it was supposed to be finalized I believe in the second or third quarter but still the NTO [ph] has not been finalized but there is proposed rules out there that gives a transitional company to SIFI one year period to implement that strategy.

[Joseph Ficalora:]

And I think it’s important to note that people of very, very high regulatory levels have made the decision that they would prefer to lose the bar from 50 to some higher number and obviously, we are at the verge of significant changes in the government if the changes go in one direction it is a good likelihood that some change with regard to $50 billion might occur next year, if the government changes in the opposite direction then there is no likelihood it’s going to be a positive change but I think it’s important to note that if in fact to Rulo and the chairman of the FDIC and the chairman of the NCC has their [indiscernible] there would be a whole different scheme by which we would be operating in the year 2017. And that’s right now up in the air. So there are many things on the horizon that are very unclear. The good news is that we have a great deal of flexibility to adapt to whichever direction this takes.

[Ebrahim Poonawala:]

To that point Joe, I mean, so you are right in terms of FED government Rulo has come out talking about easing some of the rules for the smaller SIFI banks, even if you don’t get a legislative action which pushes the SIFI threshold higher, do you expect, are you already seeing in terms of your interaction with the regulators that the bar would regardless be lower as we look into 2017 for banks like you who…

[Joseph Ficalora:]

When you say the bar, you are talking about the size of the institution that’s going to be impacted by the rules, the answer there is without there being a change that is literally passed by the Congress that won’t happen. But with regard to how the rules are implemented.

[Ebrahim Poonawala:]

Right.

[Joseph Ficalora:]

Governors [ph] and other have already made it clear that they are lessening some of the burdens based on their existing authority, so no question as we go into the year 2017, and that was one of the comments that was made earlier. For good reason we would likely go into 2017 with the closing of the deal because of all the consequences of closing the deal regulatorily with regard to the expected need to do explicit things of sight. So I think as we sit today, there is a greater probability that there will be lessening of burden based upon the regulatory perspective that they have made public and then there is the real possibility that there could be change that is congressional that would even lessen the burden further. The reality is that the year ahead if going to be filled with many, many possibilities some of which will be very, very favorable, it does not seem as though there are any that would be more adverse than what we already have today.

[Ebrahim Poonawala:]

Understood and sort of tied to that I think Tom, if you can remind us in terms of – till when do you need to get the approval from the regulators to pay out the dividend, when does that cease to be a requirement?

[Thomas Cangemi:]

Right, Ebrahim, it’s Tom. Theoretically, the SO-094 requirements look back based on what we charged in the fourth quarter of 2015 and you go forward on the earnings going forward, so obviously we believe that the previous quarter the most recent announcement would satisfy that calculation. So going forward, we believe that the SO-094 requirements under that event significant gap expense that – that charge that we took in the fourth quarter has been absorbed.

[Ebrahim Poonawala:]

It has been absorbed.

[Thomas Cangemi:]

When you do the math.

[Joseph Ficalora:]

It’s behind us, Ebrahim

[Thomas Cangemi:]

That’s right.

[Joseph Ficalora:]

Staying forward.

[Thomas Cangemi:]

Then it is a technical. So there is a technical computation.

[Ebrahim Poonawala:]

But no that’s clear. And last question in terms of I guess banks are releasing their de faster results, should we expect that over the next week for you to put it out there and safe to assume that that included in some form the acquisition integration as you sort of submitted that plan?

[Thomas Cangemi:]

Yes, that’s correct.

[Ebrahim Poonawala:]

Perfect. Thanks for taking my questions.

[Thomas Cangemi:]

Sure.

[Joseph Ficalora:]

Thank you.

[Operator:]

Thank you. There are no further questions at this time. I would like to turn the call back over to Mr. Ficalora for any closing remarks.

[Joseph Ficalora:]

Thank you again for taking the time to join us this morning. As this is our last earnings conference call before the start of the New Year, I would like to wish you and your family and especially festive Thanksgiving, along with a holiday season that brings you every joy. We look forward to chatting with you again during the last week of January when we will discuss the performance of three and twelve months ending December 31, 2016. Thank you.

[Operator:]

This concludes today teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.