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YE16. Management was quite clear that the bank was unlikely to cross the $50bn SIFl asset threshold on an organic basis until the SIFI threshold is moved higher, which would take an act of Congress. Chart 35: What is the biggest risk that prevents you from owning/increasing exposure to NYCB? 60% 53% 50% 40% 30% 20% 10% 0% Uncertainty tied with the Overhang from a softening in Liability sensitive balance sheet Astoria acquisition the NYC multifamily space that could see pressure on the margin from rising interest rates Source: BofA Merrill Lynch Global Research = Regulatory relief would be meaningful for NYCB: Given that the prolonged timeline for gaining regulatory approval for the Astoria acquisition can be attributed to the pro-forma entity crossing over the $50bn SIFI asset threshold, management noted the significant relief it would receive from legislative action that would push this threshold higher. This would not only make the regulatory burden following the closing of the Astoria acquisition more manageable, but would also allow NYCB to look at additional M&A opportunities once it integrates Astoria. Moreover, any potential relief on LCR compliance would also be welcomed by management as it would remove a source of significant pressure on its net interest margin. = Higher rates could accelerate refinance activity: While investors tend to view rising rates as a headwind to refinance activity, management noted that it had already seen a pick-up in applications as borrowers look to lock-in rates based on the fear that rates could be significant higher 6-12 months out. As a result, this could provide a near term boost to the margin from higher prepay income. = Steepening yield curve leading to rising lending rates: Management noted that it had recently increased its multifamily coupon by 0.375% to 3.50% on the improved interest rate environment. NYCB was not alone in this rate hike as SBNY commented that it recently moved up lending rates for its 5-year and 7-year fixed multi-family loans. Notably, the increased lending rates are above the current book yield of NYCB's loan book implying the potential to offset some of the potential pressure from higher funding costs following the December rate hike. = NYCB able to withstand downturn in multifamily market: Management was also upbeat on its ability to withstand a downturn in the multifamily market given its history through multiple credit cycles of outperforming on credit metrics. While it is debatable how close we are to the next downturn, we believe that the defensibility of NYCB's balance sheet is a key strength of the bank and should create significant Bankof America iar Merrill Lynch 2016 Future of Financials Conference | 17 November 2016 23 HOUSE_OVERSIGHT_014337