Edgar Filing: NEW YORK COMMUNITY BANCORP INC

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Form 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934


For the fiscal year ended: December 31, 2009		Commission File Number 1-31565

NEW YORK COMMUNITY BANCORP, INC.

(Exact name of registrant as specified in its charter)


Delaware		06-1377322
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

615 Merrick Avenue, Westbury, New York		11590
(Address of principal executive offices)		(Zip code)

(Registrant’s telephone number, including area code) (516) 683-4100

Securities registered pursuant to Section 12(b) of the Act:


Common Stock, $0.01 par value and Bifurcated Option Note Unit SecuritiES^SM		New York Stock Exchange
(Title of Class)		(Name of exchange on which registered)

Haven Capital Trust II 10.25% Capital Securities		The NASDAQ Stock Market, LLC
(Title of Class)		(Name of exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “accelerated filer,” “large accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

As of June 30, 2009, the aggregate market value of the shares of common stock outstanding of the registrant was $3.52 billion, excluding 15,846,674 shares held by all directors and executive officers of the registrant. This figure is based on the closing price of the registrant’s common stock on June 30, 2009, $10.69, as reported by the New York Stock Exchange.

The number of shares of the registrant’s common stock outstanding as of February 23, 2010 was 433,222,466 shares.

Documents Incorporated by Reference

Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 3, 2010 are incorporated by reference into Part III.

CROSS REFERENCE INDEX


		Page

Forward-looking Statements and Associated Risk Factors		1
Glossary		3

PART I

Item 1.	Business	6
Item 1A.	Risk Factors	26
Item 1B.	Unresolved Staff Comments	36
Item 2.	Properties	36
Item 3.	Legal Proceedings	36
Item 4	[Reserved]	36

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	37
Item 6.	Selected Financial Data	40
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	86
Item 8.	Financial Statements and Supplementary Data	90
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	160
Item 9A.	Controls and Procedures	160
Item 9B.	Other Information	161

PART III		162

Item 10.	Directors, Executive Officers, and Corporate Governance	162
Item 11.	Executive Compensation	162
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	162
Item 13.	Certain Relationships and Related Transactions, and Director Independence	162
Item 14.	Principal Accountant Fees and Services	163

PART IV

Item 15.	Exhibits and Financial Statement Schedules	163

Signatures		166

Certifications

For the purpose of this Annual Report on Form 10-K, the words “we,” “us,” “our,” and the “Company” are used to refer to New York Community Bancorp, Inc. and our consolidated subsidiaries, including New York Community Bank and New York Commercial Bank (the “Community Bank” and the “Commercial Bank,” respectively, and collectively, the “Banks.”)

FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK FACTORS

This report, like many written and oral communications presented by New York Community Bancorp, Inc. and our authorized officers, may contain certain forward-looking statements regarding our prospective performance and strategies within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of said safe harbor provisions.

Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identified by use of the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “seek,” “strive,” “try,” or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions. Our ability to predict results or the actual effects of our plans or strategies is inherently uncertain. Accordingly, actual results may differ materially from anticipated results.

There are a number of factors, many of which are beyond our control, that could cause actual conditions, events, or results to differ significantly from those described in our forward-looking statements. These factors include, but are not limited to:

•

general economic conditions, either nationally or in some or all of the areas in which we and our customers conduct our respective businesses;

•

conditions in the securities markets and real estate markets or the banking industry;

•

changes in interest rates, which may affect our net income, prepayment penalty income, and other future cash flows, or the market value of our assets, including our investment securities;

•

changes in deposit flows and wholesale borrowing facilities;

•

changes in the demand for deposit, loan, and investment products and other financial services in the markets we serve;

•

changes in our credit ratings or in our ability to access the capital markets;

•

changes in our customer base or in the financial or operating performances of our customers’ businesses;

•

changes in real estate values, which could impact the quality of the assets securing the loans in our portfolio;

•

changes in the quality or composition of our loan or securities portfolios;

•

changes in competitive pressures among financial institutions or from non-financial institutions;

•

the ability to successfully integrate any assets, liabilities, customers, systems, and management personnel, including those of AmTrust Bank and any other banks we may acquire, into our operations, and our ability to realize related revenue synergies and cost savings within expected time frames;

•

our use of derivatives to mitigate our interest rate exposure;

•

our ability to retain key members of management;

•

our timely development of new lines of business and competitive products or services in a changing environment, and the acceptance of such products or services by our customers;

•

any interruption or breach of security resulting in failures or disruptions in customer account management, general ledger, deposit, loan or other systems;

•

any breach in performance by the Community Bank under our loss sharing agreements with the FDIC;

•

any interruption in customer service due to circumstances beyond our control;

•

potential exposure to unknown or contingent liabilities of companies we have acquired or target for acquisition;

•

the outcome of pending or threatened litigation, or of other matters before regulatory agencies, whether currently existing or commencing in the future;

•

environmental conditions that exist or may exist on properties owned by, leased by or mortgaged to the Company;

•

operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to industry changes in information technology systems, on which we are highly dependent;

•

changes in our estimates of future reserves based upon the periodic review thereof under relevant regulatory and accounting requirements;

•

changes in our capital management policies, including those regarding business combinations, dividends, and share repurchases, among others;

•

changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative action, including, but not limited to, those pertaining to banking, securities, taxation, rent regulation and housing, environmental protection, and insurance; and the ability to comply with such changes in a timely manner;

•

additional FDIC special assessments or required assessment prepayments;

•

changes in accounting principles, policies, practices or guidelines;

•

the ability to keep pace with, and implement on a timely basis, technological changes;

•

changes in the monetary and fiscal policies of the U.S. Government, including policies of the U.S. Department of the Treasury and the Board of Governors of the Federal Reserve System;

•

war or terrorist activities; and

•

other economic, competitive, governmental, regulatory and geopolitical factors affecting our operations, pricing and services.

It should be noted that we routinely evaluate opportunities to expand through acquisitions and frequently conduct due diligence activities in connection with such opportunities. As a result, acquisition discussions and, in some cases, negotiations, may take place at any time, and acquisitions involving cash or our debt or equity securities may occur.

Additionally, the timing and occurrence or non-occurrence of events may be subject to circumstances beyond our control.

Please see Item 1A, “Risk Factors,” for a further discussion of factors that could affect the actual outcome of future events.

Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date of this report. Except as required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

GLOSSARY

BARGAIN PURCHASE GAIN

A bargain purchase gain exists when the fair value of the assets acquired in a business combination exceeds the fair value of the assumed liabilities. Assets acquired in an FDIC-assisted transaction may include cash payments received from the FDIC.

BASIS POINT

Throughout this filing, the year-over-year or linked-quarter changes that occur in certain financial measures are reported in terms of basis points. Each basis point is equal to one hundredth of a percentage point, or 0.01%.

BOOK VALUE PER SHARE

As we define it, book value per share refers to the amount of stockholders’ equity attributable to each outstanding share of common stock, after the unallocated shares held by our Employee Stock Ownership Plan (“ESOP”) have been subtracted from the total number of shares outstanding. Book value per share is determined by dividing total stockholders’ equity at the end of a period by the adjusted number of shares at the same date. The following table indicates the number of shares outstanding both before and after the total number of unallocated ESOP shares have been subtracted at December 31,


	2009		2008		2007		2006		2005
Shares outstanding	433,197,332		344,985,111		323,812,639		295,350,936		269,776,791
Less: Unallocated ESOP shares	(299,248	)	(631,303	)	(977,800	)	(1,460,564	)	(2,182,398	)

Shares used for book value per share computation	432,898,084		344,353,808		322,834,839		293,890,372		267,594,393

BROKERED DEPOSITS

Refers to funds obtained, directly or indirectly, by or through deposit brokers that are then deposited into one or more deposit accounts at a bank.

CHARGE-OFF

Refers to the amount of a loan balance that has been written off against the allowance for loan losses.

CORE DEPOSIT INTANGIBLE (“CDI”)

Refers to the intangible asset related to the value of core deposit accounts acquired in a business combination.

CORE DEPOSITS

All deposits other than certificates of deposit (i.e., NOW and money market accounts, savings accounts, and non-interest-bearing deposits) are collectively referred to as core deposits.

COST OF FUNDS

The interest expense associated with interest-bearing liabilities, typically expressed as a ratio of interest expense to the average balance of interest-bearing liabilities for a given period.

COVERED LOANS

On December 4, 2009, we acquired certain assets and assumed certain liabilities of AmTrust Bank (“AmTrust”) in an FDIC-assisted transaction (the “AmTrust acquisition”). The loans we acquired in the AmTrust acquisition are referred to as covered loans because they are “covered” by loss sharing agreements with the FDIC. Please see the definition of “Loss Sharing Agreements” that appears on the following page.

DIVIDEND PAYOUT RATIO

The percentage of our earnings that is paid out to shareholders in the form of dividends. It is determined by dividing the dividend paid per share during a period by our diluted earnings per share during the same period of time.

DIVIDEND YIELD

Refers to the yield generated on a shareholder’s investment in the form of dividends. The current dividend yield is calculated by annualizing the current quarterly cash dividend and dividing that amount by the current stock price.

EFFICIENCY RATIO

Measures total operating expenses as a percentage of the sum of net interest income and non-interest income.

GAAP

This abbreviation is used to refer to U.S. generally accepted accounting principles, on the basis of which financial statements are prepared and presented.

GOODWILL

Refers to the difference between the purchase price and the fair value of an acquired company’s assets, net of the liabilities assumed. Goodwill is reflected as an asset on the balance sheet and is tested at least annually for impairment.

GOVERNMENT-SPONSORED ENTERPRISES (“GSEs”)

Refers to a group of financial services corporations that were created by the United States Congress to enhance the availability, and reduce the cost, of credit to certain targeted borrowing sectors, including home finance. The GSEs include, but are not limited to, the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”), and the Federal Home Loan Bank.

GSE OBLIGATIONS

Refers to GSE mortgage-related securities (both certificates and collateralized mortgage obligations) and GSE debentures.

INTEREST RATE SENSITIVITY

Refers to the likelihood that the interest earned on assets and the interest paid on liabilities will change as a result of fluctuations in market interest rates.

INTEREST RATE SPREAD

The difference between the yield earned on average interest-earning assets and the cost of average interest-bearing liabilities.

LOAN-TO-VALUE RATIO

Measures the current balance of a loan as a percentage of the original appraised value of the underlying property.

LOSS SHARING AGREEMENTS

Refers to agreements we entered into with the FDIC in connection with our acquisition of certain loans of AmTrust on December 4, 2009. The agreements call for the FDIC to reimburse us for 80% of losses (and share in 80% of any recoveries) up to $907.0 million and to reimburse us for 95% of any losses (and share in 95% of any recoveries) beyond that amount with respect to the acquired loans. All of the loans acquired in the AmTrust acquisition are subject to these agreements and are referred to in this document as “covered loans.”

MULTI-FAMILY LOAN

A mortgage loan secured by a rental or cooperative apartment building with more than four units.

NET INTEREST INCOME

The difference between the interest and dividends earned on interest-earning assets and the interest paid or payable on interest-bearing liabilities.

NET INTEREST MARGIN

Measures net interest income as a percentage of average interest-earning assets.

NON-ACCRUAL LOAN

A loan generally is classified as a “non-accrual” loan when it is over 90 days past due. When a loan is placed on non-accrual status, we cease the accrual of interest owed, and previously accrued interest is reversed and charged against interest income. A loan generally is returned to accrual status when the loan is less than 90 days past due and we have reasonable assurance that the loan will be fully collectible.

NON-COVERED LOANS

Refers to all of the loans in our loan portfolio that are not covered by our loss sharing agreements with the FDIC.

NON-PERFORMING ASSETS

Consists of non-accrual loans, loans over 90 days past due and still accruing interest, and other real estate owned.

RENT-CONTROL/RENT-STABILIZATION

In New York City, where the vast majority of the properties securing our multi-family loans are located, the amount of rent that tenants may be charged on the apartments in certain buildings is restricted under certain “rent-control” or “rent-stabilization” laws. Rent-control laws apply to apartments in buildings that were constructed prior to February 1947. An apartment is said to be “rent-controlled” if the tenant has been living continuously in the apartment for a period of time beginning prior to July 1971. When a rent-controlled apartment is vacated, it typically becomes “rent-stabilized.” Rent-stabilized apartments are generally located in buildings with six or more units that were built between February 1947 and January 1974. Rent-controlled and -stabilized apartments tend to be more affordable to live in because of the applicable regulations, and buildings with a preponderance of such rent-regulated apartments are therefore less likely to experience vacancies in times of economic adversity.

REPURCHASE AGREEMENTS

Repurchase agreements are contracts for the sale of securities owned or borrowed by the Banks with an agreement to repurchase those securities at an agreed-upon price and date. The Banks’ repurchase agreements are primarily collateralized by GSE obligations and other mortgage-related securities, and are entered into with either the Federal Home Loan Bank (the “FHLB”) or various brokerage firms.

RETURN ON AVERAGE ASSETS

A measure of profitability determined by dividing net income by average assets.

RETURN ON AVERAGE STOCKHOLDERS’ EQUITY

A measure of profitability determined by dividing net income by average stockholders’ equity.

WHOLESALE BORROWINGS

Refers to advances drawn by the Banks against their respective lines of credit with the FHLB, their repurchase agreements with the FHLB and various brokerage firms, and federal funds purchased.

YIELD

The interest income associated with interest-earning assets, typically expressed as a ratio of interest income to the average balance of interest-earning assets for a given period.

YIELD CURVE

Considered a key economic indicator, the yield curve is a graph that illustrates the difference between long-term and short-term interest rates over a period of time. The greater the difference, the steeper the yield curve; the lesser the difference, the flatter the yield curve. When short-term interest rates exceed long-term interest rates, the result is an “inverted” yield curve.

PART I

ITEM

1. BUSINESS

General

With total assets of $42.2 billion at December 31, 2009, we are the 22nd largest publicly traded bank holding company in the nation, and operate the nation’s second largest public thrift. Reflecting our growth through nine business combinations in the last decade, we currently have 276 branch offices, including 210 in Metro New York and New Jersey, and 66 in Florida, Ohio, and Arizona that were acquired in connection with our FDIC-assisted acquisition of certain assets and assumption of certain liabilities of AmTrust Bank (the “AmTrust acquisition”) on December 4, 2009.

We are organized under Delaware Law as a multi-bank holding company and have two primary subsidiaries: New York Community Bank and New York Commercial Bank (hereinafter referred to as the “Community Bank” and the “Commercial Bank,” respectively, and collectively as the “Banks”).

Established in 1859, the Community Bank is a New York State-chartered savings bank with 241 locations that currently operate through seven divisional banks.

In New York, we serve our customers through Roslyn Savings Bank, with 56 locations on Long Island, a suburban market east of New York City comprised of Nassau and Suffolk counties; Queens County Savings Bank, with 33 locations in the New York City borough of Queens; Richmond County Savings Bank, with 22 locations in the borough of Staten Island; and Roosevelt Savings Bank, with eight branches in the borough of Brooklyn. In the Bronx and neighboring Westchester County, we currently have four branches that operate directly under the name “New York Community Bank.”

In New Jersey, we serve our Community Bank customers through 52 locations that operate under the name Garden State Community Bank.

In Florida and Arizona, where we have 25 and 12 branches, respectively, we serve our customers through the new AmTrust Bank division of the Community Bank. In Ohio, we serve our customers through 29 branches of our new Ohio Savings Bank division, which was the name of AmTrust in Ohio for the first 118 of its 120 years.

We compete for depositors in these diverse markets by emphasizing service and convenience, and by offering a comprehensive menu of traditional and non-traditional products and services. Of our 241 Community Bank branches, 223 feature weekend hours, including 61 that are open seven days a week. Of these, 44 are in-store branches that are located in supermarkets or drugstores in New York and New Jersey. The Community Bank also offers 24-hour banking online and by phone.

In addition, we are a leading producer of multi-family loans in New York City with an emphasis on non-luxury apartment buildings that feature below-market rents. In addition to multi-family loans, we originate commercial real estate loans, primarily in Metro New York and New Jersey, and, to a lesser extent, acquisition, development, and construction loans, and commercial and industrial loans. We also originate one- to four-family loans for sale. Such loans are either originated on a pass-through basis and sold to a third-party conduit shortly after closing, or are originated for sale by AmTrust’s mortgage banking unit to the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”). Although the majority of the loans we produce for portfolio are secured by properties or businesses in Metro New York and New Jersey, the one- to four-family loans we originate on a pass-through basis are made to borrowers throughout our extended market and the one- to four-family loans we originate for sale to Fannie Mae or Freddie Mac are originated nationwide.

The Commercial Bank is a New York State-chartered commercial bank and was established in connection with our acquisition of Long Island Financial Corp. (“Long Island Financial”) on December 30, 2005. Reflecting that acquisition, and our subsequent acquisitions of Atlantic Bank of New York (“Atlantic Bank”) and the New York City-based branch network of Doral Bank, FSB (“Doral”), we currently serve our Commercial Bank customers through 35 branches in Manhattan, Queens, Brooklyn, Westchester County, and Long Island, including 18 that operate under the name “Atlantic Bank.”

The Commercial Bank competes for customers by emphasizing personal service and by addressing the needs of small and mid-size businesses, professional associations, and government agencies with a comprehensive menu of business solutions, including installment loans, revolving lines of credit, and cash management services. In addition to featuring up to 52.5 hours per week of in-branch service, the Commercial Bank offers 24-hour banking online and by phone.

Customers of the Community Bank and the Commercial Bank also have 24-hour access to their accounts through 260 of our 289 ATM locations.

We also serve our customers through three connected websites: www.myNYCB.com, www.NewYorkCommercialBank.com, and www.NYCBfamily.com. In addition to providing our customers with 24-hour access to their accounts, and information regarding our products and services, hours of service, and locations, these websites provide extensive information about the Company for the investment community. Earnings releases, dividend announcements, and other press releases are posted upon issuance to the Investor Relations portion of our websites. In addition, our filings with the U.S. Securities and Exchange Commission (the “SEC”) (including our annual report on Form 10-K; our quarterly reports on Form 10-Q; and our current reports on Form 8-K), and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, are available without charge, typically within minutes of being filed. The websites also provide information regarding our Board of Directors and management team and the number of Company shares held by these insiders, as well as certain Board Committee charters and our corporate governance policies. The content of our websites shall not be deemed to be incorporated by reference into this Annual Report.

Overview

Loan Production: Loans are our principal asset and represented $28.4 billion, or 67.4%, of total assets at December 31, 2009. Our portfolio largely consists of loans secured by non-luxury multi-family buildings in New York City in which the majority of the apartments are rent-controlled or –stabilized. As reported by the Rent Guidelines Board, such rent-regulated apartments represented 43.2% of New York City’s housing market as recently as 2008.

For several years, we have complemented our multi-family lending with the production of commercial real estate loans and, to a much lesser extent, acquisition, development, and construction loans, and commercial and industrial loans. While these loans, and our multi-family loans, are originated for portfolio, we have also originated one- to four-family loans on a pass-through basis for sale to a third-party conduit shortly after they close. As a result, our portfolio of one- to four-family loans traditionally consisted of seasoned loans we originated before adopting this conduit practice, as well as loans we acquired in our merger transactions prior to 2009. With the acquisition of AmTrust’s mortgage banking unit, our portfolio of one- to four-family loans will now include agency-conforming loans that were originated throughout the nation for sale to Fannie Mae and Freddie Mac.

Covered Loans: In connection with the AmTrust acquisition, we acquired $5.0 billion of one- to four-family and other loans, all of which are covered by loss sharing agreements with the FDIC. To distinguish these “covered loans” from the loans in our portfolio that are not subject to these agreements (and that, for the most part, we ourselves originated), all other loans in our portfolio are referred to as “non-covered loans.”

Non-covered Loans: At December 31, 2009, non-covered loans totaled $23.4 billion and represented 82.3% of the total loan portfolio. A discussion of our non-covered loans follows.

Multi-family Loans: Multi-family loans represented $16.7 billion, or 71.6%, of non-covered loans at the end of this December, and represented $1.9 billion, or 45.0%, of the total loans we produced over the course of 2009.

The loans we produce are typically based on the cash flows generated by the buildings, and are generally made to long-term property owners with a history of growing cash flows over time. The property owners typically use the funds we provide to make improvements to the buildings and the apartments within them, thus increasing the value of the buildings and the amount of rent they may charge. As improvements are made, the building’s rent roll increases, typically prompting the borrower to seek additional funds by refinancing the loan.

Our typical loan has a term of ten years, with a fixed rate of interest in years one through five and a rate that either adjusts annually or is fixed for the five years that follow. Loans that prepay in the first five years generate prepayment penalties ranging from five percentage points to one percentage point of the then-current loan balance,

depending on the remaining term of the loan. If a loan is still outstanding in the sixth year and the borrower selects the fixed rate option, the prepayment penalties typically reset to a range of five points to one point over years six through ten. Reflecting the structure of our multi-family credits, the average multi-family loan had an expected weighted average life of 4.2 years at December 31, 2009.

Commercial Real Estate (“CRE”) Loans: At December 31, 2009, CRE loans totaled $5.0 billion and represented 21.3% of our non-covered loan portfolio. Twelve-month originations totaled $673.8 million, representing 15.7% of the total loans we produced over the course of the year.

Our CRE loans are similar in structure to our multi-family credits, and had a weighted average life of 3.9 years at December 31, 2009. In addition, our CRE loans are largely secured by properties in New York City, with Manhattan accounting for the largest share.

Acquisition, Development, and Construction (“ADC”) Loans: ADC loans represented $666.4 million, or 2.9%, of total non-covered loans at the end of December, reflecting our decision to largely limit such lending to previously committed advances in the face of declining real estate values and economic uncertainty.

Our ADC loan portfolio largely consists of loans that were originated for land acquisition, development, and construction of multi-family and residential tract projects in New York City and Long Island, and, to a lesser extent, for the construction of owner-occupied one- to four-family homes and commercial properties.

Commercial and Industrial (“C&I”) Loans: Included in “other loans” in our Consolidated Statements of Condition, C&I loans represented $653.2 million, or 2.8%, of non-covered loans at December 31, 2009. We offer a broad range of loans to small and mid-size businesses for working capital (including inventory and receivables), business expansion, and the purchase of equipment and machinery.

One- to Four-Family Loans: Non-covered one- to four-family loans totaled $216.1 million at the end of this December, and consisted primarily of loans acquired in our earlier business combinations and seasoned loans we produced prior to adopting our practice of originating one- to four-family loans on a pass-through basis and selling them to the conduit after they close.

Funding Sources: We have four primary funding sources: the deposits we’ve added through our acquisitions or gathered organically through our branch network, and brokered deposits; wholesale borrowings, primarily in the form of Federal Home Loan Bank (“FHLB”) advances and repurchase agreements with the FHLB and various brokerage firms; cash flows produced by the repayment and sale of loans; and cash flows produced by securities repayments and sales.

Primarily reflecting the deposits acquired in the AmTrust acquisition, total deposits rose to $22.3 billion at December 31, 2009. Certificates of deposit (“CDs”) represented $9.1 billion, or 40.6%, of the current year-end total, while NOW and money market accounts, savings accounts, and non-interest-bearing accounts totaled $7.7 billion, $3.8 billion, and $1.8 billion, respectively.

Although the AmTrust acquisition added wholesale borrowings of $2.6 billion on December 4th, we utilized a portion of the cash we received in the transaction to reduce the balance of such funding in December 2009. Including wholesale borrowings of $13.1 billion, borrowed funds totaled $14.2 billion and represented 33.6% of total assets at December 31, 2009.

Loan repayments generated $3.3 billion, while securities sales and repayments generated cash flows of $2.7 billion in 2009.

Asset Quality: The recession that began in late 2007 continued to impact borrowers in our region throughout 2009. While home prices started to rise, albeit modestly, in the last quarter, they remained well below 2008 levels for the better part of the year. In addition, unemployment in New York City, Long Island, and New Jersey rose to 10.4%, 7.0%, and 9.8% in 2009 from the respective year-earlier levels of 7.2%, 5.8%, and 6.8%. In addition, office vacancies in Manhattan were 13.1% in December 2009 as compared to 10.2% in December 2008.

Although our net charge-offs rose to $29.9 million in 2009 from $6.2 million in 2008, these amounts represented 0.13% and 0.03% of average loans in the respective years. Similarly, non-performing loans rose $464.4 million year-over-year to $578.1 million, representing 2.04% of total loans at December 31, 2009 as compared to 0.51% at December 31, 2008.

In view of the declining economy and the related rise in non-performing loans and net charge-offs, we increased our loan loss provision to $63.0 million in 2009 from $7.7 million in 2008. Reflecting this provision and the aforementioned net charge-offs, our allowance for loan losses rose $33.1 million year-over-year to $127.5 million, representing 22.05% of non-performing loans and 0.45% of loans, net, at December 31, 2009.

Continued economic weakness, resulting from a further contraction of real estate values and/or an increase in office vacancies, bankruptcies, and unemployment, could result in our experiencing a further increase in charge-offs and/or an increase in our loan loss provisions, either of which could have an adverse impact on our earnings in the period ahead.

Growth through Acquisitions: In 2009, the opportunities for healthier banks to expand by engaging in FDIC-assisted acquisitions were abundant, and we were among the many banks that capitalized on such opportunities.

On December 4, 2009, we acquired certain assets and assumed certain liabilities of AmTrust in an FDIC-assisted acquisition. The AmTrust acquisition provided us with assets of $11.0 billion, including loans of $5.0 billion, all of which are subject to loss sharing agreements; securities of $760.0 million, and cash and cash equivalents of $4.0 billion (including $3.2 billion received from the FDIC); and liabilities of $10.9 billion, including deposits of $8.2 billion and wholesale borrowings of $2.6 billion.

Revenues: Our primary source of income is net interest income, which is the difference between the interest income generated by the loans we produce and the securities we invest in, and the interest expense produced by our interest-bearing deposits and borrowed funds. The level of net interest income we generate is influenced by a variety of factors, some of which are within our control (e.g., our mix of interest-earning assets and interest-bearing liabilities); and some of which are not (e.g., the level of short-term interest rates and market rates of interest, the degree of competition we face for deposits and loans, and the level of prepayment penalty income we receive).

While net interest income is our primary source of income, it is supplemented by the non-interest income we produce. The fee income we generate on deposits and loans and the revenues from our investment in bank-owned life insurance (“BOLI”) are complemented by income from a variety of other sources, including revenues from the sale of third-party investment products, the sale of one- to four-family loans to a third-party conduit, and the revenues from our investment advisory firm, Peter B. Cannell & Co., Inc., which had $1.4 billion of assets under management at December 31, 2009.

In December 2009, our non-interest income was supplemented by revenues generated through AmTrust’s mortgage banking unit, which engages in the origination of agency-conforming one- to four-family loans for sale to Fannie Mae and Freddie Mac.

Efficiency: The efficiency of our operation has long been a distinguishing characteristic, stemming from our focus on multi-family lending, which is broker-driven, and from the expansion of our franchise through acquisitions rather than de novo growth. Notwithstanding an increase in operating expenses stemming from higher FDIC insurance premiums and the addition of AmTrust’s employees and operations, we continued to rank among the most efficient bank holding companies in the nation, with an efficiency ratio of 36.13% in 2009.

Our Market

With the AmTrust acquisition, we expanded the reach of our franchise beyond Metro New York and New Jersey to encompass south Florida, northeast Ohio, and central Arizona. As a result, the combined population of our marketplace grew from 16.4 million residents of New York City, Long Island, and Westchester County in New York, and the seven counties we serve in New Jersey, to 29.6 million, including residents of the 11 counties we added on December 4, 2009.

In addition, our assets grew from $32.5 billion to $42.2 billion from the end of 2008 to the end of 2009. As a result, we now are the 22nd largest bank holding company in the nation and operate the nation’s second largest public thrift.

With deposits of $22.3 billion at year-end 2009, we ranked tenth among all bank and thrift depositories in the 26 counties that now comprise our market, and ranked first or second among all thrift depositories in Queens, Staten Island, and Nassau Counties in New York; Essex County in New Jersey; Broward and Palm Beach Counties in Florida; Cuyahoga County in Ohio; and Maricopa County in Arizona. (Market share information was provided by SNL Financial.)

With more than 400 banks and thrifts currently serving our expanded market, we face a significant level of competition for deposits and, to a lesser extent, for loans. We not only vie for business with the many banks and thrifts within our local markets, but also with credit unions, Internet banks, and brokerage firms. Many of the institutions we compete with have greater financial resources than we do, and serve a far broader market, which enables them to promote their products more extensively than we can.

Furthermore, our success is substantially tied to the economic health of the cities and suburban areas where our branches are located, and in the areas where we lend. Local economic conditions have a significant impact on loan demand, the value of the collateral securing our credits, and the ability of our borrowers to repay their loans. In addition, our ability to attract and retain deposits is not only a function of short-term interest rates and industry consolidation, but also the competitiveness of the rates being offered by other financial institutions within our marketplace.

Competition for Deposits

Competition for deposits is influenced by several factors, including the opportunity to acquire deposits through business combinations; the cash flows produced through loan and securities repayments and sales; and the availability of attractively priced wholesale funds. In addition, the degree to which we compete for deposits is influenced by the liquidity needed to fund our loan production and other outstanding commitments, and by the interest rates on the products offered by the banks and thrifts with which we compete.

In 2009, our ability to compete for deposits was significantly enhanced by the AmTrust acquisition, which added 66 branches to our Community Bank franchise in south Florida, northeast Ohio, and central Arizona, bringing our total number of Community Bank branches to 241. We also enhanced our liquidity with the addition of AmTrust’s deposits and the infusion of $4.0 billion in cash and cash equivalents. Among our goals in 2010 is bringing back the customers who had transferred their funds from AmTrust to other institutions in the year preceding the acquisition, and thus restoring our deposits in Florida, Ohio, and Arizona to previous levels.

We vie for deposits and customers by placing an emphasis on convenience and service. In addition to our 241 Community Bank branches and 35 Commercial Bank branches, we have 289 ATM locations, including 260 that operate 24 hours a day. Our customers also have 24-hour access to their accounts through our bank-by-phone service and online through our three websites, www.myNYCB.com, www.NewYorkCommercialBank.com, and www.NYCBfamily.com.

In addition to 190 traditional “brick & mortar” branches in New York, New Jersey, Florida, Ohio, and Arizona, our Community Bank currently has 44 branches in Metro New York and New Jersey that are located in-store. Our in-store branch network ranks among the largest in-store franchises in this region, and is also one of the largest in the Northeast. Because of the proximity of these branches to our traditional locations, our customers in New York and New Jersey have the option of doing their banking seven days a week in many of the communities we serve. This service model is a key component of our efforts to attract and maintain deposits in a highly competitive marketplace.

We also compete by complementing our broad selection of traditional banking products with an extensive menu of alternative financial services, including insurance, annuities, and mutual funds of various third-party service providers. Furthermore, our practice of originating loans in our branches through a third-party conduit enables us to offer our customers a variety of one- to four-family mortgage loans. This service is already available in the 66 branches we acquired in the AmTrust acquisition, as it has been in our New York and New Jersey branches for nearly ten years.

In addition to checking and savings accounts, Individual Retirement Accounts, and CDs for both businesses and consumers, the Commercial Bank offers a variety of cash management products to address the needs of small and mid-size businesses, municipal and county governments, school districts, and professional associations.

Another competitive advantage is our strong community presence, with April 14, 2009 having marked the 150th anniversary of our forebear, Queens County Savings Bank. We capitalized on this occasion to promote awareness of our institution, and to attract deposits from customers seeking a strong, stable, and service-oriented bank.

Competition for Loans

We are a leading producer of multi-family loans in New York City, and compete for such loans both on the basis of timely service and the expertise that stems from being a specialist in our field. The majority of our multi-family loans are secured by non-luxury buildings with a preponderance of rent-regulated apartments, a niche that we have focused on for more than 30 years.

Although multi-family lending remains our primary focus, we also originate CRE, ADC, and C&I loans for our portfolio, and one- to four-family loans for sale.

While our ability to compete for multi-family loans was enhanced in 2008 by the conservatorship of Fannie Mae and Freddie Mac and the demise or acquisition of certain investment banks and savings institutions, a number of new competitors entered this market, and the government-sponsored enterprises (“GSEs”) recommenced such lending, in 2009. In general, the GSEs have been offering rates that are lower than those we offer, and we have been willing to pass on making a loan rather than lend imprudently. Nonetheless, certain other competitors have shifted their focus away from multi-family and CRE lending, countering some of the impact of new competitors and the return of Fannie Mae and Freddie Mac.

While we anticipate that competition for multi-family loans will continue in the future, the volume of loans produced in 2009 is indicative of our continued ability to compete for such loans. That said, no assurances can be made that we will be able to sustain or increase our level of multi-family loan production, given the extent to which it is influenced not only by competition, but also by such factors as the level of market interest rates, the availability and cost of funding, real estate values, market conditions, and the state of the economy.

Our ability to originate CRE loans was also enhanced in 2008 by the exit of the conduit lenders and other institutions, a factor that contributed to the growth of our portfolio in 2009. In view of the economic weakness in our local markets, fewer banks chose to compete for CRE credits, and we also reduced our production levels over the course of the year. Our ability to compete for CRE loans on a go-forward basis depends on the same factors that impact our ability to compete for multi-family credits, and on the degree to which other CRE lenders choose to step up their loan production once the local market improves.

Since the second half of 2007, we have been largely limiting our ADC lending to previously committed advances; in addition, we have generally been limiting our production of C&I loans.

With our acquisition of AmTrust in December, we assumed the operation of its mortgage banking unit, which competed for one- to four-family loans with other mortgage banks throughout the United States. We have continued the origination of agency-conforming one- to four-family loans for sale to the GSEs, and expect that this service will continue to be competitive with that of other mortgage banks.

Environmental Issues

We encounter certain environmental risks in our lending activities. The existence of hazardous materials may make it unattractive for a lender to foreclose on the properties securing its loans. In addition, under certain conditions, lenders may become liable for the costs of cleaning up hazardous materials found on such properties. We attempt to mitigate such environmental risks by requiring either that a borrower purchase environmental insurance or that an appropriate environmental site assessment be completed as part of our underwriting review on the initial granting of CRE and ADC loans, regardless of location, and of all out-of-state multi-family loans. In addition, we order an updated environmental analysis prior to foreclosing on a property, and typically maintain ownership of real estate we acquire through foreclosure in separately incorporated subsidiaries.

Our attention to environmental risks also applies to the properties and facilities that house our bank operations. Prior to acquiring a large-scale property, a Phase 1 Environmental Property Assessment is typically performed by a licensed professional engineer to determine the integrity of, and/or the potential risk associated with, the facility and the property on which it is built. Properties and facilities of a smaller scale are evaluated by qualified in-house assessors, as well as by industry experts in environmental testing and remediation. This two-pronged approach identifies potential risks associated with asbestos-containing material, above and underground storage tanks, radon, electrical transformers (which may contain PCBs), ground water flow, storm and sanitary discharge, and mold, among other environmental risks. These processes assist us in mitigating environmental risk by enabling us to identify potential issues prior to, and following, our acquisition of bank properties.

Subsidiary Activities

The Community Bank has formed, or acquired through merger transactions, 39 active subsidiary corporations. Of these, 19 are direct subsidiaries of the Community Bank and 20 are subsidiaries of Community Bank-owned entities.

The 19 direct subsidiaries of the Community Bank are:


Name	Jurisdiction of Organization	Purpose
Mt. Sinai Ventures, LLC	Delaware	A joint venture partner in the development, construction, and sale of a 177-unit golf course community in Mt. Sinai, New York, all the units of which were sold by December 31, 2006

NYCB Community Development Corp.	Delaware	Formed to invest in community development activities

Eagle Rock Investment Corp.	New Jersey	Formed to hold and manage investment portfolios for the Company

Pacific Urban Renewal, Inc.	New Jersey	Owns a branch building

Somerset Manor Holding Corp.	New Jersey	Holding company for four subsidiaries that owned and operated two assisted-living facilities in New Jersey in 2005

Synergy Capital Investments, Inc.	New Jersey	Formed to hold and manage investment portfolios for the Company

1400 Corp.	New York	Manages properties acquired by foreclosure while they are being marketed for sale

BSR 1400 Corp.	New York	Organized to own interests in real estate

Bellingham Corp.	New York	Organized to own interests in real estate

Blizzard Realty Corp.	New York	Organized to own interests in real estate

CFS Investments, Inc.	New York	Sells non-deposit investment products

Main Omni Realty Corp.	New York	Organized to own interests in real estate

NYB Realty Holding Company, LLC	New York	Holding company for subsidiaries owning interests in real estate

O.B. Ventures, LLC	New York	A joint venture partner in a 370-unit residential community in Plainview, New York, all the units of which were sold by December 31, 2004

RCBK Mortgage Corp.	New York	Organized to own interests in certain multi-family loans

RCSB Corporation	New York	Owns a branch building, Ferry Development Holding Company, and Woodhaven Investments, Inc.

RSB Agency, Inc.	New York	Sells non-deposit investment products

Richmond Enterprises, Inc.	New York	Holding company for Peter B. Cannell & Co., Inc.

Roslyn National Mortgage Corporation	New York	Formerly operated as a mortgage loan originator and servicer and currently holds an interest in its former office space

The 20 subsidiaries of Community Bank-owned entities are:


Name	Jurisdiction of Organization	Purpose
Grove Street Realty Holding Company, LLC	Connecticut	Organized to own interests in real estate

HS Realty Holding Company, LLC	Connecticut	Organized to own interests in real estate

Columbia Preferred Capital Corporation	Delaware	A real estate investment trust (“REIT”) organized for the purpose of investing in mortgage-related assets

Ferry Development Holding Company	Delaware	Formed to hold and manage investment portfolios for the Company

Peter B. Cannell & Co., Inc.	Delaware	Advises high net worth individuals and institutions on the management of their assets

Roslyn Real Estate Asset Corp.	Delaware	A REIT organized for the purpose of investing in mortgage-related assets

Woodhaven Investments, Inc.	Delaware	Holding company for Roslyn Real Estate Asset Corp. and Ironbound Investment Company, Inc.

Ironbound Investment Company, Inc.	New Jersey	A REIT organized for the purpose of investing in mortgage-related assets that also is the principal shareholder of Richmond County Capital Corp.

Somerset Manor North Operating Company, LLC	New Jersey	Established to own or operate assisted-living facilities in New Jersey that were sold in 2005

Somerset Manor North Realty Holding Company, LLC	New Jersey	Established to own or operate assisted-living facilities in New Jersey that were sold in 2005

Somerset Manor South Operating Company, LLC	New Jersey	Established to own or operate assisted-living facilities in New Jersey that were sold in 2005

Somerset Manor South Realty Holding Company, LLC	New Jersey	Established to own or operate assisted-living facilities in New Jersey that were sold in 2005

Trent Court Realty Holding Company, LLC	New Jersey	Organized to own interests in real estate

The Hamlet at Olde Oyster Bay, LLC	New York	Organized as a joint venture, part-owned by O.B. Ventures, LLC

The Hamlet at Willow Creek, LLC	New York	Organized as a joint venture, part-owned by Mt. Sinai Ventures, LLC

Moriches Sunrise Real Estate Holding Company, LLC	New York	Organized to own interests in real estate

Rational Real Estate I, LLC	New York	Organized to own interests in real estate

Rational Real Estate II, LLC	New York	Organized to own interests in real estate

Rational Real Estate III, LLC	New York	Organized to own interests in real estate

Richmond County Capital Corporation	New York	A REIT organized for the purpose of investing in mortgage-related assets that also is the principal shareholder of Columbia Preferred Capital Corp.

In addition, the Community Bank maintains one inactive corporation organized in New York.

The Commercial Bank has six active subsidiary corporations, three of which are subsidiaries of Commercial Bank-owned entities.

The three direct subsidiaries of the Commercial Bank are:


Name	Jurisdiction of Organization	Purpose
Beta Investments, Inc.	Delaware	Holding company for Omega Commercial Mortgage Corp. and Long Island Commercial Capital Corp.

Gramercy Leasing Services, Inc.	New York	Provides equipment lease financing

Standard Funding Corp.	New York	Provides insurance premium financing

The three subsidiaries of Commercial Bank-owned entities are:


Name	Jurisdiction of Organization	Purpose
Standard Funding of California, Inc.	California	Provides insurance premium financing

Omega Commercial Mortgage Corp.	Delaware	A REIT organized for the purpose of investing in mortgage-related assets

Long Island Commercial Capital Corp.	New York	A REIT organized for the purpose of investing in mortgage-related assets

The Company owns nine active special business trusts that were formed for the purpose of issuing capital and common securities and investing the proceeds thereof in the junior subordinated debentures issued by the Company. Please see Note 8 to the Consolidated Financial Statements, “Borrowed Funds,” within Item 8, “Financial Statements and Supplementary Data,” for a further discussion of the Company’s special business trusts.

The Company also has one non-banking subsidiary that was established in connection with the acquisition of Atlantic Bank.

Personnel

At December 31, 2009, the number of full-time equivalent employees was 3,970. Our employees are not represented by a collective bargaining unit, and we consider our relationship with our employees to be good.

Federal, State, and Local Taxation

In estimating income taxes, management assesses the relative merits and risks of the tax treatment of transactions, taking into account statutory, judicial, and regulatory guidance in the context of our tax position. In this process, management also relies on tax opinions, recent audits, and historical experience. Although we use the best available information to record income taxes, underlying estimates and assumptions can change over time as a result of unanticipated events or circumstances such as changes in tax laws and judicial guidance influencing our overall or transaction-specific tax position.

We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and the carryforward of certain tax attributes such as net operating losses. A valuation allowance is maintained for deferred tax assets that we estimate are more likely than not to be unrealizable, based on available evidence at the time the estimate is made. In assessing the need for a valuation allowance, we estimate future taxable income, considering the feasibility of tax planning strategies and the realizability of tax loss carryforwards. Valuation allowances related to deferred tax assets can be affected by changes to tax laws, statutory tax rates, and future taxable income levels. In the event that we were to determine that we would not be able to realize all or a portion of our net deferred tax assets in the future, we would reduce such amounts through a charge to income tax expense in the period in which that determination was made. Conversely, if we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net carrying amounts, we would decrease the recorded valuation allowance through a decrease in income tax expense in the period in which that determination was made. Subsequently recognized tax benefits associated with valuation allowances recorded in a business combination would be recorded as an adjustment to goodwill.

In July 2009, new tax laws were enacted that were effective for the determination of our New York City income tax liability for calendar year 2009. In general, these laws conformed the New York City tax rules to those of New York State. The new tax laws include a provision that requires the inclusion of income earned by a subsidiary taxed as a Real Estate Investment Trust (“REIT”) for federal tax purposes, regardless of the location in which the REIT subsidiary conducts its business or the timing of its distribution of earnings. The inclusion of such income is phased in with full inclusion of income starting in 2011. As a result of certain of our earlier business combinations, the Company currently has six REIT subsidiaries.

This new tax law increased our effective tax rate and income tax expense in 2009. Absent any change in the manner in which we conduct our business, current income tax expense is estimated to increase by approximately $1.3 million in 2010, with a larger increase starting in 2011.

Regulation and Supervision

General

The Community Bank is a New York State-chartered savings bank and its deposit accounts are insured under the Deposit Insurance Fund (the “DIF”) up to applicable legal limits. The Commercial Bank is a New York State-chartered commercial bank and its deposit accounts also are insured by the DIF up to applicable legal limits. Both the Community Bank and the Commercial Bank are subject to extensive regulation and supervision by the New York State Banking Department (the “Banking Department”), as their chartering agency, and by the Federal Deposit Insurance Corporation (the “FDIC”), as their insurer of deposits. Both institutions must file reports with the Banking Department and the FDIC concerning their activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other depository institutions. Furthermore, the Banks are periodically examined by the Banking Department and the FDIC to assess compliance with various regulatory requirements, including safety and soundness considerations. This regulation and supervision establishes a comprehensive framework of activities in which a savings bank and a commercial bank can engage, and is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss allowances for regulatory purposes. Any change in such regulation, whether by the Banking Department, the FDIC, or through legislation, could have a material adverse impact on the Company, the Community Bank, the Commercial Bank, and their operations, and the Company’s shareholders.

The Company is required to file certain reports under, and otherwise comply with, the rules and regulations of the Federal Reserve Board of Governors (the “FRB”), the FDIC, the Banking Department, and the SEC under federal securities laws. In addition, the FRB periodically examines the Company. Certain of the regulatory requirements applicable to the Community Bank, the Commercial Bank, and the Company are referred to below or elsewhere herein. However, such discussion is not meant to be a complete explanation of all laws and regulations and is qualified in its entirety by reference to the actual laws and regulations.

New York Law

The Community Bank and the Commercial Bank derive their lending, investment, and other authority primarily from the applicable provisions of New York State Banking Law and the regulations of the Banking Department, as limited by FDIC regulations. Under these laws and regulations, banks, including the Community Bank and the Commercial Bank, may invest in real estate mortgages, consumer and commercial loans, certain types of debt securities (including certain corporate debt securities, and obligations of federal, state, and local governments and agencies), certain types of corporate equity securities, and certain other assets. The lending powers of New York savings banks and commercial banks are not subject to percentage of assets or capital limitations, although there are limits applicable to loans to individual borrowers.

Under the statutory authority for investing in equity securities, a savings bank may directly invest up to 7.5% of its assets in certain corporate stock, and may also invest up to 7.5% of its assets in certain mutual fund securities. Investment in the stock of a single corporation is limited to the lesser of 2% of the issued and outstanding stock of such corporation or 1% of the savings bank’s assets, except as set forth below. Such equity securities must meet certain earnings ratios and other tests of financial performance. Commercial banks may invest in certain equity securities up to 2% of the stock of a single issuer and are subject to a general overall limit of the lesser of 2% of the bank’s assets or 20% of capital and surplus.

Pursuant to the “leeway” power, a savings bank may also make investments not otherwise permitted under New York State Banking Law. This power permits a bank to make investments that would otherwise be impermissible. Up to 1% of a bank’s assets may be invested in any single such investment, subject to certain restrictions; the aggregate limit for all such investments is 5% of a bank’s assets. Additionally, savings banks are authorized to elect to invest under a “prudent person” standard in a wide range of debt and equity securities in lieu of investing in such securities in accordance with, and reliance upon, the specific investment authority set forth in New York State Banking Law. Although the “prudent person” standard may expand a savings bank’s authority, in the event that a savings bank elects to utilize the “prudent person” standard, it may be unable to avail itself of the other provisions of New York State Banking Law and regulations which set forth specific investment authority.

New York State savings banks may also invest in subsidiaries under a service corporation power. A savings bank may use this power to invest in corporations that engage in various activities authorized for savings banks, plus any additional activities which may be authorized by the Banking Department. Investment by a savings bank in the stock, capital notes, and debentures of its service corporation is limited to 3% of the savings bank’s assets, and such investments, together with the savings bank’s loans to its service corporations, may not exceed 10% of the savings bank’s assets. Savings banks and commercial banks may invest in operating subsidiaries that engage in activities permissible for the institution directly. Under New York law, the New York State Banking Board has the authority to authorize savings banks to engage in any activity permitted under federal law for federal savings associations and the insurance powers of national banks. Commercial banks may be authorized to engage in any activity permitted under federal law for national banks.

The exercise by an FDIC-insured savings bank or commercial bank of the lending and investment powers under New York State Banking Law is limited by FDIC regulations and other federal laws and regulations. In particular, the applicable provision of New York State Banking Law and regulations governing the investment authority and activities of an FDIC-insured state-chartered savings bank and commercial bank have been effectively limited by the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) and the FDIC regulations issued pursuant thereto.

With certain limited exceptions, a New York State-chartered savings bank may not make loans or extend credit for commercial, corporate, or business purposes (including lease financing) to a single borrower, the aggregate amount of which would be in excess of 15% of the bank’s net worth or up to 25% for loans secured by collateral having an ascertainable market value at least equal to the excess of such loans over the bank’s net worth. A commercial bank is subject to similar limits on all of its loans. The Community Bank and the Commercial Bank currently comply with all applicable loans-to-one-borrower limitations.

Under New York State Banking Law, New York State-chartered stock-form savings banks and commercial banks may declare and pay dividends out of their net profits, unless there is an impairment of capital, but approval of the Superintendent of Banks (the “Superintendent”) is required if the total of all dividends declared by the bank in a calendar year would exceed the total of its net profits for that year combined with its retained net profits for the preceding two years less prior dividends paid.

New York State Banking Law gives the Superintendent authority to issue an order to a New York State-chartered banking institution to appear and explain an apparent violation of law, to discontinue unauthorized or unsafe practices, and to keep prescribed books and accounts. Upon a finding by the Banking Department that any director, trustee, or officer of any banking organization has violated any law, or has continued unauthorized or unsafe practices in conducting the business of the banking organization after having been notified by the Superintendent to discontinue such practices, such director, trustee, or officer may be removed from office after notice and an opportunity to be heard. The Superintendent also has authority to appoint a conservator or a receiver for a savings or commercial bank under certain circumstances.

FDIC Regulations

Capital Requirements. The FDIC has adopted risk-based capital guidelines to which the Community Bank and the Commercial Bank are subject. The guidelines establish a systematic analytical framework that makes regulatory capital requirements sensitive to differences in risk profiles among banking organizations. The Community Bank and the Commercial Bank are required to maintain certain levels of regulatory capital in relation to regulatory risk-weighted assets. The ratio of such regulatory capital to regulatory risk-weighted assets is referred to as a “risk-based capital ratio.” Risk-based capital ratios are determined by allocating assets and specified off-balance-sheet items to four risk-weighted categories ranging from 0% to 100%, with higher levels of capital being required for the categories perceived as representing greater risk.

These guidelines divide an institution’s capital into two tiers. The first tier (“Tier I”) includes common equity, retained earnings, certain non-cumulative perpetual preferred stock (excluding auction rate issues) and minority interests in equity accounts of consolidated subsidiaries, less goodwill and other intangible assets (except mortgage servicing rights and purchased credit card relationships subject to certain limitations). Supplementary (“Tier II”) capital includes, among other items, cumulative perpetual and long-term limited-life preferred stock, mandatorily convertible securities, certain hybrid capital instruments, term subordinated debt, and the allowance for loan losses, subject to certain limitations, and up to 45% of pre-tax net unrealized gains on equity securities with readily determinable fair market values, less required deductions. Savings banks and commercial banks are required to maintain a total risk-based capital ratio of at least 8%, of which at least 4% must be Tier I capital.

In addition, the FDIC has established regulations prescribing a minimum Tier I leverage capital ratio (the ratio of Tier I capital to adjusted average assets as specified in the regulations). These regulations provide for a minimum Tier I leverage capital ratio of 3% for institutions that meet certain specified criteria, including that they have the highest examination rating and are not experiencing or anticipating significant growth. All other institutions are required to maintain a Tier I leverage capital ratio of at least 4%. The FDIC may, however, set higher leverage and risk-based capital requirements on individual institutions when particular circumstances warrant. Institutions experiencing or anticipating significant growth are expected to maintain capital ratios, including tangible capital positions, well above the minimum levels.

As of December 31, 2009, the Community Bank and the Commercial Bank were deemed to be well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, a bank must maintain a minimum Tier I leverage capital ratio of 5%, a minimum Tier I risk-based capital ratio of 6%, and a minimum total risk-based capital ratio of 10%. A summary of the regulatory capital ratios of the Banks at December 31, 2009 appears in Note 18 to the Consolidated Financial Statements, “Regulatory Matters” in Item 8, “Financial Statements and Supplementary Data.”

The regulatory capital regulations of the FDIC and other federal banking agencies provide that the agencies will take into account the exposure of an institution’s capital and economic value to changes in interest rate risk in assessing capital adequacy. According to the agencies, applicable considerations include the quality of the institution’s interest rate risk management process, overall financial condition, and the level of other risks at the institution for which capital is needed. Institutions with significant interest rate risk may be required to hold additional capital. The agencies have issued a joint policy statement providing guidance on interest rate risk management, including a discussion of the critical factors affecting the agencies’ evaluation of interest rate risk in connection with capital adequacy. Institutions that engage in specified amounts of trading activity may be subject to adjustments in the calculation of the risk-based capital requirement to assure sufficient additional capital to support market risk.

Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe, for the depository institutions under its jurisdiction, standards that relate to, among other things, internal controls; information and audit systems; loan documentation; credit underwriting; the monitoring of interest rate risk; asset growth; compensation; fees and benefits; and such other operational and managerial standards as the agency deems appropriate. The federal banking agencies adopted final regulations and Interagency Guidelines Establishing Standards for Safety and Soundness (the “Guidelines”) to implement these safety and soundness standards. The Guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the Guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard, as required by the Federal Deposit Insurance Act, as amended, (the “FDI Act”). The final regulations establish deadlines for the submission and review of such safety and soundness compliance plans.

Real Estate Lending Standards. The FDIC and the other federal banking agencies have adopted regulations that prescribe standards for extensions of credit that (i) are secured by real estate, or (ii) are made for the purpose of financing construction or improvements on real estate. The FDIC regulations require each institution to establish and maintain written internal real estate lending standards that are consistent with safe and sound banking practices and appropriate to the size of the institution and the nature and scope of its real estate lending activities. The standards also must be consistent with accompanying FDIC Guidelines, which include loan-to-value limitations for the different types of real estate loans. Institutions are also permitted to make a limited amount of loans that do not conform to the proposed loan-to-value limitations so long as such exceptions are reviewed and justified appropriately. The Guidelines also list a number of lending situations in which exceptions to the loan-to-value standard are justified.

In 2006, the FDIC, the Office of the Comptroller of the Currency, and the Board of Governors of the Federal Reserve System (collectively, the “Agencies”) issued joint guidance entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”). The CRE Guidance, which addresses land development, construction, and certain multi-family loans, as well as commercial real estate loans, does not establish specific lending limits but, rather, reinforces and enhances the Agencies’ existing regulations and guidelines for such lending and portfolio management.

Dividend Limitations. The FDIC has authority to use its enforcement powers to prohibit a savings bank or commercial bank from paying dividends if, in its opinion, the payment of dividends would constitute an unsafe or unsound practice. Federal law prohibits the payment of dividends that will result in the institution failing to meet applicable capital requirements on a pro forma basis. The Community Bank and the Commercial Bank are also subject to dividend declaration restrictions imposed by New York law as previously discussed under “New York Law.”

Investment Activities

Since the enactment of FDICIA, all state-chartered financial institutions, including savings banks, commercial banks, and their subsidiaries, have generally been limited to such activities as principal and equity investments of the type and in the amount authorized for national banks. State law, FDICIA, and FDIC regulations permit certain exceptions to these limitations. For example, certain state-chartered savings banks, such as the Community Bank, may, with FDIC approval, continue to exercise state authority to invest in common or preferred stocks listed on a national securities exchange and in the shares of an investment company registered under the Investment Company Act of 1940, as amended. Such banks may also continue to sell Savings Bank Life Insurance. In addition, the FDIC is authorized to permit institutions to engage in state authorized activities or investments not permitted for national banks (other than non-subsidiary equity investments) for institutions that meet all applicable capital requirements if it is determined that such activities or investments do not pose a significant risk to the insurance fund. The Gramm-Leach-Bliley Act of 1999 and FDIC regulations impose certain quantitative and qualitative restrictions on such activities and on a bank’s dealings with a subsidiary that engages in specified activities.

The Community Bank received grandfathering authority from the FDIC in 1993 to invest in listed stock and/or registered shares subject to the maximum permissible investments of 100% of Tier I Capital, as specified by the FDIC’s regulations, or the maximum amount permitted by New York State Banking Law, whichever is less. Such grandfathering authority is subject to termination upon the FDIC’s determination that such investments pose a safety and soundness risk to the Community Bank or in the event that the Community Bank converts its charter or undergoes a change in control.

Prompt Corrective Regulatory Action

Federal law requires, among other things, that federal bank regulatory authorities take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For these purposes, the law establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized.

The FDIC has adopted regulations to implement prompt corrective action. Among other things, the regulations define the relevant capital measure for the five capital categories. An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10% or greater, a Tier I risk-based capital ratio of 6% or greater, and a leverage capital ratio of 5% or greater, and is not subject to a regulatory order, agreement, or directive to meet and maintain a specific capital level for any capital measure. An institution is deemed to be “adequately capitalized” if it has a total risk-based capital ratio of 8% or greater, a Tier I risk-based capital ratio of 4% or greater, and generally a leverage capital ratio of 4% or greater. An institution is deemed to be “undercapitalized” if it has a total risk-based capital ratio of less than 8%, a Tier I risk-based capital ratio of less than 4%, or generally a leverage capital ratio of less than 4%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6%, a Tier I risk-based capital ratio of less than 3%, or a leverage capital ratio of less than 3%. An institution is deemed to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2%.

“Undercapitalized” institutions are subject to growth, capital distribution (including dividend), and other limitations and are required to submit a capital restoration plan. An institution’s compliance with such plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the bank’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an undercapitalized institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” Significantly undercapitalized institutions are subject to one or more additional

restrictions including, but not limited to, an order by the FDIC to sell sufficient voting stock to become adequately capitalized; requirements to reduce total assets, cease receipt of deposits from correspondent banks, or dismiss directors or officers; and restrictions on interest rates paid on deposits, compensation of executive officers, and capital distributions by the parent holding company.

“Critically undercapitalized” institutions also may not, beginning 60 days after becoming critically undercapitalized, make any payment of principal or interest on certain subordinated debt, or extend credit for a highly leveraged transaction, or enter into any material transaction outside the ordinary course of business. In addition, subject to a narrow exception, the appointment of a receiver is required for a critically undercapitalized institution.

Transactions with Affiliates

Under current federal law, transactions between depository institutions and their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act and the FRB’s Regulation W promulgated thereunder. An affiliate of a savings bank or commercial bank is any company or entity that controls, is controlled by, or is under common control with the institution, other than a subsidiary. Generally, an institution’s subsidiaries are not treated as affiliates unless they are engaged in activities as principal that are not permissible for national banks. In a holding company context, at a minimum, the parent holding company of an institution, and any companies that are controlled by such parent holding company, are affiliates of the institution. Generally, Section 23A limits the extent to which the institution or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of the institution’s capital stock and surplus, and contains an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus. The term “covered transaction” includes the making of loans or other extensions of credit to an affiliate; the purchase of assets from an affiliate; the purchase of, or an investment in, the securities of an affiliate; the acceptance of securities of an affiliate as collateral for a loan or extension of credit to any person; or issuance of a guarantee, acceptance, or letter of credit on behalf of an affiliate. Section 23A also establishes specific collateral requirements for loans or extensions of credit to, or guarantees, or acceptances on letters of credit issued on behalf of, an affiliate. Section 23B requires that covered transactions and a broad list of other specified transactions be on terms substantially the same as, or no less favorable to, the institution or its subsidiary as similar transactions with non-affiliates.

The Sarbanes-Oxley Act of 2002 generally prohibits loans by the Company to its executive officers and directors. However, the Sarbanes-Oxley Act contains a specific exemption for loans by an institution to its executive officers and directors in compliance with federal banking laws. Section 22(h) of the Federal Reserve Act, and FRB Regulation O adopted thereunder, governs loans by a savings bank or commercial bank to directors, executive officers, and principal shareholders. Under Section 22(h), loans to directors, executive officers, and shareholders who control, directly or indirectly, 10% or more of voting securities of an institution, and certain related interests of any of the foregoing, may not exceed, together with all other outstanding loans to such persons and affiliated entities, the institution’s total capital and surplus. Section 22(h) also prohibits loans above amounts prescribed by the appropriate federal banking agency to directors, executive officers, and shareholders who control 10% or more of the voting securities of an institution, and their respective related interests, unless such loan is approved in advance by a majority of the board of the institution’s directors. Any “interested” director may not participate in the voting. The loan amount (which includes all other outstanding loans to such person) as to which such prior board of director approval is required, is the greater of $25,000 or 5% of capital and surplus or any loans aggregating over $500,000. Further, pursuant to Section 22(h), loans to directors, executive officers, and principal shareholders must be made on terms substantially the same as those offered in comparable transactions to other persons. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to executive officers over other employees. Section 22(g) of the Federal Reserve Act places additional limitations on loans to executive officers.

Enforcement

The FDIC has extensive enforcement authority over insured banks, including the Community Bank and the Commercial Bank. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease and desist orders, and to remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations and unsafe or unsound practices.

The FDIC has authority under federal law to appoint a conservator or receiver for an insured institution under certain circumstances. The FDIC is required, with certain exceptions, to appoint a receiver or conservator for an insured institution if that institution was critically undercapitalized on average during the calendar quarter beginning 270 days after the date on which the institution became critically undercapitalized. For this purpose, “critically undercapitalized” means having a ratio of tangible equity to total assets of less than 2%. See “Prompt Corrective Regulatory Action” earlier in this report.

The FDIC may also appoint a conservator or receiver for an insured institution on the basis of the institution’s financial condition or upon the occurrence of certain events, including (i) insolvency (whereby the assets of the bank are less than its liabilities to depositors and others); (ii) substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices; (iii) existence of an unsafe or unsound condition to transact business; (iv) likelihood that the bank will be unable to meet the demands of its depositors or to pay its obligations in the normal course of business; and (v) insufficient capital, or the incurrence or likely incurrence of losses that will deplete substantially all of the institution’s capital with no reasonable prospect of replenishment of capital without federal assistance.

Insurance of Deposit Accounts

The deposits of the Community Bank and the Commercial Bank are insured up to applicable limits by the DIF. The DIF is the successor to the Bank Insurance Fund and the Savings Association Insurance Fund, which were merged in 2006. Under the FDIC’s risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital level, and certain other factors, with less risky institutions paying lower assessments. An institution’s assessment rate depends upon the category to which it is assigned. No institution may pay a dividend if in default of the federal deposit insurance assessment.

For calendar year 2008, assessments ranged from five to 43 basis points of each institution’s deposit assessment base. Due to losses incurred by the DIF in 2008 from failed institutions, and anticipated future losses, the FDIC adopted an across the board seven-basis point increase in the assessment range for the first quarter of 2009. The FDIC made further refinements to its risk-based assessment system, as of April 1, 2009, that effectively made the range seven to 77.5 basis points. The FDIC may adjust the scale uniformly from one quarter to the next, except that no adjustment can deviate more than three basis points from the base scale without notice and comment rulemaking.

The FDIC also imposed on all insured institutions a special emergency assessment of five basis points of total assets minus Tier 1 capital (capped at ten basis points of an institution’s deposit assessment base, as of June 30, 2009), in order to cover losses to the DIF. That special assessment was collected on September 30, 2009. The FDIC considered the need for similar special assessments during the final two quarters of 2009. However, in lieu of further special assessments, the FDIC required insured institutions to prepay estimated quarterly risk-based assessments for the fourth quarter of 2009 through the fourth quarter of 2012. The estimated assessments, which include an assumed annual assessment base increase of 5%, were recorded as a prepaid expense asset as of December 31, 2009. As of December 31, 2009, and each quarter thereafter, a charge to earnings will be recorded for each regular assessment with an offsetting credit to the prepaid asset.

Due to the decline in economic conditions, the deposit insurance provided by the FDIC per account owner was raised to $250,000 for all types of accounts for the period beginning January 1, 2009 and ending December 31, 2013. In addition, the FDIC adopted an optional Temporary Liquidity Guarantee Program (“TLGP”) under which, for a fee, non-interest-bearing transaction accounts would receive unlimited insurance coverage until December 31, 2009, later extended to June 30, 2010, and certain senior unsecured debt issued between October 13, 2008 and June 30, 2009, later extended to October 31, 2009, by institutions and their holding companies would be guaranteed by the FDIC through June 30, 2012 or in certain cases, until December 31, 2012. The Banks are both participating in the unlimited non-interest-bearing transaction account coverage and, together with the Company, participated in the unsecured debt guarantee program. In December 2008, the Company issued $90.0 million of fixed rate senior notes with a maturity date of June 22, 2012, and the Community Bank issued $512.0 million of fixed rate senior notes with a maturity date of December 16, 2011.

Federal law also provides for the possibility that the FDIC may pay dividends to insured institutions once the DIF reserve ratio equals or exceeds 1.35% of estimated insured deposits.

In addition to the assessment for deposit insurance, institutions are required to make payments on bonds issued in the late 1980s by the Financing Corporation to recapitalize a predecessor deposit insurance fund. That payment is established quarterly, and during the calendar year ending December 31, 2009, averaged 1.06 basis points of assessable deposits.

The Federal Deposit Insurance Reform Act of 2005 provided the FDIC with authority to adjust the DIF ratio to insured deposits within a range of 1.15% and 1.50%, in contrast to the prior statutorily fixed ratio of 1.25%. The Restoration Plan adopted by the FDIC seeks to restore the DIF to a 1.15% ratio within a period of eight years.

Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC. Management does not know of any practice, condition, or violation that might lead to termination of deposit insurance of either of the Banks.

Community Reinvestment Act

Federal Regulation. Under the Community Reinvestment Act (the “CRA”), as implemented by FDIC regulations, an institution has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the FDIC, in connection with its examinations, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution. The CRA requires public disclosure of an institution’s CRA rating and further requires the FDIC to provide a written evaluation of an institution’s CRA performance utilizing a four-tiered descriptive rating system. The Community Bank’s latest CRA rating from the FDIC was “outstanding” and the Commercial Bank’s latest CRA rating was “satisfactory.”

New York Regulation. The Community Bank and the Commercial Bank are also subject to provisions of the New York State Banking Law which impose continuing and affirmative obligations upon a banking institution organized in New York to serve the credit needs of its local community (the “NYCRA”). Such obligations are substantially similar to those imposed by the CRA. The NYCRA requires the Banking Department to make a periodic written assessment of an institution’s compliance with the NYCRA, utilizing a four-tiered rating system, and to make such assessment available to the public. The NYCRA also requires the Superintendent to consider the NYCRA rating when reviewing an application to engage in certain transactions, including mergers, asset purchases, and the establishment of branch offices or ATMs, and provides that such assessment may serve as a basis for the denial of any such application. The latest NYCRA rating received by the Community Bank was “outstanding” and the latest rating received by the Commercial Bank was “satisfactory.”

Federal Reserve System

Under FRB regulations, the Community Bank and the Commercial Bank are required to maintain reserves against their transaction accounts (primarily NOW and regular checking accounts). The FRB regulations generally require that reserves be maintained against aggregate transaction accounts as follows: for that portion of transaction accounts aggregating $55.2 million or less (subject to adjustment by the FRB), the reserve requirement is 3%; for amounts greater than $55.2 million, the reserve requirement is 10% (subject to adjustment by the FRB between 8% and 14%). The first $10.7 million of otherwise reservable balances (subject to adjustments by the FRB) are exempted from the reserve requirements. The Community Bank and the Commercial Bank are in compliance with the foregoing requirements.

Federal Home Loan Bank System

The Community Bank and the Commercial Bank are members of the Federal Home Loan Bank of New York (the “FHLB-NY”), one of 12 regional FHLBs comprising the FHLB system. Each regional FHLB manages its customer relationships, while the 12 FHLBs use their combined size and strength to obtain their necessary funding at the lowest possible cost. As members of the FHLB-NY, the Community Bank and the Commercial Bank are required to acquire and hold shares of FHLB-NY capital stock. In addition, the Community Bank acquired $110.6 million of FHLB-Cincinnati stock in the AmTrust acquisition. As a result, the Community Bank held total FHLB stock of $488.3 million at December 31, 2009 and the Commercial Bank held FHLB-NY stock of $8.4 million at that date. FHLB stock continued to be valued at par, with no impairment loss required, at that date.

For the fiscal years ended December 31, 2009 and 2008, dividends from the FHLB to the Community Bank amounted to $22.6 million and $18.0 million, respectively. Dividends from the FHLB-NY to the Commercial Bank amounted to $473,000 and $487,000, respectively, in the corresponding years. A reduction in FHLB dividends received or an increase in the interest paid on future FHLB advances would adversely impact the Company’s net interest income. The FHLB has stated that it expects to continue to pay dividends, but has acknowledged that future economic events, regulatory actions, and other actions could impact its ability to pay dividends. In addition, a reduction in the capital levels of the FHLB could adversely impact our ability to redeem our shares and the value thereof.

Interstate Branching

Federal law allows the FDIC, and New York State Banking Law allows the Superintendent, to approve an application by a state banking institution to acquire interstate branches by merger, unless, in the case of the FDIC, the state of the target institution has opted out of interstate branching. New York State Banking Law authorizes savings banks and commercial banks to open and occupy de novo branches outside the state of New York, and the FDIC is authorized to approve a state bank’s establishment of a de novo interstate branch, if the intended host state has opted into interstate de novo branching. The Community Bank currently maintains 52 branches in New Jersey, 25 branches in Florida, 29 branches in Ohio, and 12 branches in Arizona, in addition to its 123 branches in New York State.

In April 2008, the Banking Regulators in the States of New Jersey, New York, and Pennsylvania entered into a Memorandum of Understanding (the “Interstate MOU”) to clarify their respective roles, as home and host state regulators, regarding interstate branching activity on a regional basis pursuant to the Riegle-Neal Amendments Act of 1997. The Interstate MOU establishes the regulatory responsibilities of the respective state banking regulators regarding bank regulatory examinations and is intended to reduce the regulatory burden on state chartered banks branching within the region by eliminating duplicative host state compliance exams.

Under the Interstate MOU, the activities of branches established by the Community Bank or the Commercial Bank in New Jersey or Pennsylvania would be governed by New York State law to the same extent that federal law governs the activities of the branch of an out-of-state national bank in such host states. For the Community Bank and the Commercial Bank, issues regarding whether a particular host state law is preempted are to be determined in the first instance by the Banking Department. In the event that the Banking Department and the applicable host state regulator disagree regarding whether a particular host state law is pre-empted, the Banking Department and the applicable host state regulator would use their reasonable best efforts to consider all points of view and to resolve the disagreement.

Holding Company Regulation

Federal Regulation. The Company is currently subject to examination, regulation, and periodic reporting under the Bank Holding Company Act of 1956, as amended (the “BHCA”), as administered by the FRB.

The Company is required to obtain the prior approval of the FRB to acquire all, or substantially all, of the assets of any bank or bank holding company. Prior FRB approval would be required for the Company to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if, after giving effect to such acquisition, it would, directly or indirectly, own or control more than 5% of any class of voting shares of such bank or bank holding company. In addition to the approval of the FRB, before any bank acquisition can be completed, prior approval thereof may also be required to be obtained from other agencies having supervisory jurisdiction over the bank to be acquired, including the Banking Department.

FRB regulations generally prohibit a bank holding company from engaging in, or acquiring, direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the FRB to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the FRB has determined by regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment, or financial advisor; (v) leasing personal or real property; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings and loan association.

The Gramm-Leach-Bliley Act of 1999 authorizes a bank holding company that meets specified conditions, including being “well capitalized” and “well managed,” to opt to become a “financial holding company” and thereby engage in a broader array of financial activities than previously permitted. Such activities can include insurance underwriting and investment banking.

The FRB has adopted capital adequacy guidelines for bank holding companies (on a consolidated basis) substantially similar to those of the FDIC for the Community Bank and the Commercial Bank. (Please see “Capital Requirements” earlier in this report.) At December 31, 2009, the Company’s consolidated Total and Tier I capital exceeded these requirements.

Bank holding companies are generally required to give the FRB prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding twelve months, is equal to 10% or more of the Company’s consolidated net worth. The FRB may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice, or would violate any law, regulation, FRB order or directive, or any condition imposed by, or written agreement with, the FRB. The FRB has adopted an exception to this approval requirement for well-capitalized bank holding companies that meet certain other conditions.

The FRB has issued a policy statement regarding the payment of dividends by bank holding companies. In general, the FRB’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality, and overall financial condition. The FRB’s policies also require that a bank holding company serve as a source of financial strength to its subsidiary banks by standing ready to use available resources to provide adequate capital funds to those banks during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. Under the prompt corrective action laws, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory policies could affect the ability of the Company to pay dividends or otherwise engage in capital distributions.

Under the FDI Act, a depository institution may be responsible for providing financial support if a commonly controlled depository institution were to fail. The Community Bank and the Commercial Bank are commonly controlled within the meaning of that law.

The status of the Company as a registered bank holding company under the BHCA does not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws.

The Company, the Community Bank, the Commercial Bank, and their respective affiliates will be affected by the monetary and fiscal policies of various agencies of the United States Government, including the Federal Reserve System. In view of changing conditions in the national economy and in the money markets, it is difficult for management to accurately predict future changes in monetary policy or the effect of such changes on the business or financial condition of the Company, the Community Bank, or the Commercial Bank.

New York Holding Company Regulation. With the addition of the Commercial Bank, the Company became subject to regulation as a “multi-bank holding company” under New York law since it controls two banking institutions. Among other requirements, this means that the Company must receive the prior approval of the New York State Banking Board prior to the acquisition of 10% or more of the voting stock of another banking institution or to otherwise acquire a banking institution by merger or purchase.

Acquisition of the Holding Company

Federal Restrictions. Under the Federal Change in Bank Control Act (the “CIBCA”), a notice must be submitted to the FRB if any person (including a company), or group acting in concert, seeks to acquire 10% or more of the Company’s shares of outstanding common stock, unless the FRB has found that the acquisition will not result

in a change in control of the Company. Under the CIBCA, the FRB generally has 60 days within which to act on such notices, taking into consideration certain factors, including the financial and managerial resources of the acquirer, the convenience and needs of the communities served by the Company, the Community Bank, and the Commercial Bank, and the anti-trust effects of the acquisition. Under the BHCA, any company would be required to obtain prior approval from the FRB before it may obtain “control” of the Company within the meaning of the BHCA. Control generally is defined to mean the ownership or power to vote 25% or more of any class of voting securities of the Company or the ability to control in any manner the election of a majority of the Company’s directors. An existing bank holding company would be required to obtain the FRB’s prior approval under the BHCA before acquiring more than 5% of the Company’s voting stock. See “Holding Company Regulation” earlier in this report.

New York Change in Control Restrictions. In addition to the CIBCA and the BHCA, New York State Banking Law generally requires prior approval of the New York State Banking Board before any action is taken that causes any company to acquire direct or indirect control of a banking institution which is organized in New York.

Federal Securities Law

The Company’s common stock is registered with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company is subject to the information and proxy solicitation requirements, insider trading restrictions, and other requirements under the Exchange Act.

Registration of the shares of the common stock that were issued in the Community Bank’s conversion from mutual to stock form under the Securities Act of 1933, as amended (the “Securities Act”), does not cover the resale of such shares. Shares of the common stock purchased by persons who are not affiliates of the Company may be resold without registration. Shares purchased by an affiliate of the Company will be subject to the resale restrictions of Rule 144 under the Securities Act. If the Company meets the current public information requirements of Rule 144 under the Securities Act, each affiliate of the Company who complies with the other conditions of Rule 144 (including those that require the affiliate’s sale to be aggregated with those of certain other persons) would be able to sell in the public market, without registration, a number of shares not to exceed in any three-month period the greater of (i) 1% of the outstanding shares of the Company, or (ii) the average weekly volume of trading in such shares during the preceding four calendar weeks. Provision may be made by the Company in the future to permit affiliates to have their shares registered for sale under the Securities Act under certain circumstances.

Regulatory Restructuring Legislation

The Obama Administration has proposed, and Congress is currently considering, legislation that would restructure the regulation of depository institutions and other financial companies. Proposed legislation includes creation of an oversight counsel to monitor and address systemic risk, and strengthened regulation of systemically significant financial companies. Other proposals range from the merger of the Office of Thrift Supervision, which regulates federal thrifts, with the Office of the Comptroller of the Currency, which regulates national banks, to the creation of an independent federal agency that would assume the regulatory responsibilities of the Office of Thrift Supervision, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and the FRB. The federal savings association charter would be eliminated and federal associations required to become banks under some proposals, although others would grandfather existing charters. Also proposed is the creation of a new federal agency to administer and enforce consumer and fair lending laws, a function that is now performed by the federal depository institution regulators.

Enactment of certain of these proposals could revise the regulatory structure imposed on the Bank, and result in more stringent regulation. At this time, the contents of any final legislation, or whether any legislation will be enacted at all, is uncertain.

Enterprise Risk Management

The Company identifies, measures, and attempts to mitigate risks that affect, or have the potential to affect, our business. Proper risk management does not achieve the elimination of all risk but, rather, keeps risks within acceptable levels, and ensures that efforts are made to prioritize identified risks. The Company uses the COSO Enterprise Risk Management - Integrated Framework to manage risk. The framework applies at all levels, from the development of the Enterprise Risk Management (“ERM”) Program to the tactical operations of the front-line business team. The framework has eight key elements:

Internal Environment – The internal environment sets the basis for how risk and control are viewed and addressed by our Company. Our employees, their individual attributes, including integrity, ethical values, and competence, along with the environment in which they operate, are all critical to setting a proper internal environment.

Objective Setting – Management sets the Company’s key objectives before proceeding to the challenge of identifying the potential events, risks, and other factors that could affect the achievement of those objectives. The ERM Program ensures that management has in place a process to set objectives and that such objectives support and align with the Company’s mission.

Risk Identification – The ERM Program focuses on recognizing and identifying existing risks to the core objectives of the Company, as well as risks that may arise from time to time from new business initiatives or from changes to the Company’s size, businesses, structure, personnel, or strategic interests.

Risk Measurement – Accurate and timely measurement of risks is a critical component of effective risk management. The sophistication of the risk measurement tools the Company uses reflects the complexity and levels of risk it has assumed. The Company periodically verifies the integrity of the measurement tools it uses. Risk measurement takes into account inherent risks (risks before controls are applied), residual risks (the level of risks remaining after controls are applied), and mitigating factors (e.g., insurance).

Risk Control – The Company establishes and communicates limits through policies, standards, and/or procedures that define responsibility and authority. These control limits are meaningful management tools that can be adjusted if conditions or risk tolerances change. The Company has a process to authorize exceptions or changes to risk limits when they are warranted.

Risk Monitoring – The Company monitors risk levels to ensure timely review of risk positions and exceptions. Monitoring reports compare actual performance metrics against benchmarks, and where applicable, against Board-established limits. Reports are produced with such frequency as management deems to be appropriate and a major effort is made to ensure that these reports are timely, accurate, and informative. These reports are distributed to appropriate individuals to ensure action, when needed.

7.	Risk Response – Management addresses cases where actual risk levels are approaching or exceeding established limits, and considers alternative risk response options (taking into account appropriate cost/benefit analyses) in order to reduce residual risk to desired risk tolerances.

Information and Communication – Relevant information is communicated in a form and timeframe that enable our employees to carry out their responsibilities. Effective communication occurs in a broader sense, flowing down, across, and up the Company, including Executive Management and, if appropriate, the applicable Board of Directors, and other relevant parties across the Company.

Risk Management Roles and Responsibilities

The proper management of risk must start at, and be driven by, the highest level within a company. The following groups play an integral role in the successful achievement of the Company’s ERM Program.

Board of Directors

The Company’s Board of Directors is responsible for oversight of the Company’s overall ERM function, including, but not limited to, the approval and oversight of the execution of the ERM Program; reviewing the Company’s risk profile; and reviewing risk indicators against established risk limits, including those identified in the Chief Risk Officer’s reports.

Senior Management

Senior Management is responsible for ensuring that a risk management process with adequate resources is effectively implemented; ensuring that the corporate structure supports risk management goals; and ensuring that a risk management process is integrated into the corporate culture.

Chief Risk Officer

The Chief Risk Officer is responsible for establishing and implementing the Company’s overall ERM Policy; overseeing and implementing the ERM Program; reviewing each Business Process Owner’s self-risk assessment, and making recommendations regarding their risk scores; aggregating and categorizing risks; and reporting the Company’s risk profile and risk indicators to Senior Management and the Board of Directors.

Business Process Owners

Each Business Process Owner is responsible for ensuring that proper controls are in place to prudently mitigate risk; performing periodic self-assessments of risks and controls which are reviewed by the Chief Risk Officer; identifying changes in rules, laws, and regulations that could impact the business unit; and maintaining communication with the applicable Risk Committee and Chief Risk Officer on emerging risk.

Internal Audit

Internal Audit is responsible for validating controls identified by Business Process Owners when performing internal audits and communicating its audit findings to the Chief Risk Officer, who revisits the self-assessment performed by the Business Process Owner.

Risk Categories

The Company’s risk management program is organized around eight categories: credit risk, interest rate risk, liquidity risk, market risk, operational risk, legal/compliance risk, strategic risk, and reputational risk.

ITEM 1A.

RISK FACTORS

There are various risks and uncertainties that are inherent in our business. Following is a discussion of the material risks and uncertainties that could have a material adverse impact on our financial condition and results of operations, and that could cause the value of our common stock to decline significantly. Additional risks that are not currently known to us, or that we currently believe to be immaterial, may also have a material effect on our financial condition and results of operations. This report is qualified in its entirety by these risk factors.

The current economic environment poses significant challenges for us and could adversely affect our financial condition and results of operations.

Since the second half of 2007, we have been operating in a challenging and uncertain economic environment, both nationally and in the various local markets that we serve. Financial institutions continue to be affected by declines in the value of financial instruments and real estate values, and while we have taken, and continue to take, steps to reduce our market and credit risk exposure, we nonetheless are affected by these issues in view of our retaining a securities portfolio; retaining portfolios of multi-family, commercial real estate (“CRE”), acquisition, development and construction (“ADC”), and commercial and industrial (“C&I”) loans, and, to a lesser extent, our having acquired a portfolio of one- to four-family and other loans in the AmTrust acquisition and our now originating one- to four-family loans for sale to Fannie Mae and Freddie Mac.

Continued declines in the value of our investment securities could result in our recording additional losses on the other-than-temporary impairment (“OTTI”) of securities, which would reduce our earnings and, therefore, our capital. Continued declines in real estate values and home sales, and an increase in the financial stress on borrowers stemming from an uncertain economic environment, including high unemployment, could have an adverse effect on our borrowers or their customers, which could adversely impact the repayment of the loans we have made. The overall deterioration in economic conditions also could subject us, and the financial services industry, to increased regulatory scrutiny. In addition, further deterioration in economic conditions in the markets we serve could result in an increase in loan delinquencies, an increase in problem assets and foreclosures, and a decline in the value of the

collateral for our loans, which could reduce our customers’ borrowing power. Further deterioration in local economic conditions could drive the level of loan losses beyond the level we have provided for in our loan loss allowance, which could necessitate an increase in our provision for loan losses, which, in turn, would reduce our earnings and capital. Additionally, the demand for our products and services could be reduced, which would adversely impact our liquidity and the level of revenues we generate.

We are subject to interest rate risk.

Our primary source of income is net interest income, which is the difference between the interest income generated by our interest-earning assets (consisting primarily of loans and, to a lesser extent, securities) and the interest expense produced by our interest-bearing liabilities (consisting primarily of deposits and wholesale borrowings).

The level of net interest income we produce is primarily a function of the average balance of our interest-earning assets, the average balance of our interest-bearing liabilities, and the spread between the yield on such assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of our interest-earning assets and our interest-bearing liabilities which, in turn, are impacted by such external factors as the local economy, competition for loans and deposits, the monetary policy of the Federal Open Market Committee of the Federal Reserve Board of Governors (the “FOMC”) and market interest rates.

The cost of our deposits and short-term wholesale borrowings is largely based on short-term interest rates, the level of which is driven by the FOMC. However, the yields generated by our loans and securities are typically driven by intermediate-term (i.e., five-year) interest rates, which are set by the market and generally vary from day to day. The level of net interest income is therefore influenced by movements in such interest rates, and the pace at which such movements occur. If the interest rates on our interest-bearing liabilities increase at a faster pace than the interest rates on our interest-earning assets, the result could be a reduction in net interest income and with it, a reduction in our earnings. Our net interest income and earnings would be similarly impacted were the interest rates on our interest-earning assets to decline more quickly than the interest rates on our interest-bearing liabilities.

In addition, such changes in interest rates could affect our ability to originate loans and attract and retain deposits, the fair values of our securities and other financial assets, the fair values of our liabilities, and the average lives of our loan and securities portfolios.

Changes in interest rates could also have an effect on the level of loan refinancing activity which, in turn, would impact the amount of prepayment penalty income we receive on our multi-family and CRE loans. As prepayment penalties are recorded as interest income, the extent to which they increase or decrease during any given period could have a significant impact on the level of net interest income and net income we generate during that time.

In addition, changes in interest rates could have an effect on the slope of the yield curve. A flat to inverted yield curve could cause our net interest income and net interest margin to contract, which could have a material adverse effect on our net income and cash flows, and the value of our assets.

Furthermore, with the acquisition of AmTrust’s mortgage banking unit, we are originating one- to four-family loans for sale to Fannie Mae and Freddie Mac. Although we enter into forward commitments and other derivative financial instruments to hedge the interest rate risk stemming from this business, there is no guarantee that these forward commitments and other derivative instruments will be sufficient to hedge the interest rate risk we undertake.

Our use of derivative financial instruments to mitigate our interest rate exposure may not be effective and may expose us to counterparty risks.

In accordance with our operating policies, we may use various types of derivative financial instruments, including forward rate agreements, options, and other derivative transactions, to mitigate or reduce our exposure to losses from adverse changes in interest rates. These activities will vary in scope based on the types of assets held, the level and volatility of interest rates, and other changing market conditions. No strategy, however, can completely insulate us from the interest rate risks to which we are exposed and there is no guarantee that the implementation of any strategy would have the desired impact on our results of operations or financial condition. These derivatives, which are intended to limit losses, may actually adversely affect our earnings, which could reduce our capital and the cash available to us for distribution to our shareholders.

We are subject to credit risk.

Risks stemming from our lending activities:

The loans we originate for portfolio are primarily multi-family loans and, to a lesser extent, CRE loans, as well as ADC and C&I loans. Such loans are generally larger, and have higher risk-adjusted returns and shorter maturities, than one- to four-family mortgage loans. Our credit risk would ordinarily be expected to increase with the growth of these loan portfolios.

Multi-family and CRE properties are generally believed to involve a greater degree of credit risk than one- to four-family mortgage loans. In addition, payments on multi-family and CRE loans generally depend on the income produced by the underlying properties which, in turn, depends on their successful operation and management. Accordingly, the ability of our borrowers to repay these loans may be impacted by adverse conditions in the local real estate market and the local economy. While we seek to minimize these risks through our underwriting policies, which generally require that such loans be qualified on the basis of the collateral property’s cash flows, appraised value, and debt service coverage ratio, among other factors, there can be no assurance that our underwriting policies will protect us from credit-related losses or delinquencies.

ADC financing typically involves a greater degree of credit risk than longer-term financing on improved, owner-occupied real estate. Risk of loss on an ADC loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction or development, compared to the estimated costs (including interest) of construction. If the estimate of value proves to be inaccurate, the loan may be under-secured. While we seek to minimize these risks by maintaining consistent lending policies and rigorous underwriting standards, an error in such estimates or a downturn in the local economy or real estate market could have a material adverse effect on the quality of our ADC loan portfolio, thereby resulting in material losses or delinquencies.

We seek to minimize the risks involved in C&I lending by underwriting such loans on the basis of the cash flows produced by the business; by requiring that such loans be collateralized by various business assets, including inventory, equipment, and accounts receivable, among others; and by requiring personal guarantees. However, the capacity of a borrower to repay a C&I loan is substantially dependent on the degree to which his or her business is successful. In addition, the collateral underlying such loans may depreciate over time, may not be conducive to appraisal, or may fluctuate in value, based upon the results of operation of the business.

We cannot guarantee that our record of asset quality will be maintained in future periods. The ramifications of the subprime lending crisis and the turmoil in the financial and capital markets that followed have been far-reaching, with real estate values declining and unemployment and bankruptcies rising throughout the nation, including the regions we serve. The ability of our borrowers to repay their loans could be adversely impacted by the significant change in market conditions, which not only could result in our experiencing a further increase in charge-offs, but also could necessitate our further increasing our provision for loan losses. Either of these events would have an adverse impact on our results of operations.

Although the credit risk associated with the $5.0 billion of loans we acquired in the AmTrust acquisition was largely mitigated by the loss sharing agreements with the FDIC, these loans are not without risk. Under the terms of these agreements, we will assume 20% of any losses incurred on the first $907.0 million of losses and 5% of any losses incurred above that amount. However, if the loss sharing process is not properly managed, the losses may not be fully recoverable from the FDIC, which could result in an increase in charge-offs and necessitate our increasing our provision for loan losses. Either of these events would have an adverse impact on our results of operations.

Furthermore, if the loans we originate for sale to Fannie Mae and Freddie Mac are not agency-conforming or properly documented, we could be required to repurchase the loans for our own portfolio.

Risks stemming from the loans we originate in the New York metropolitan region:

Our business depends significantly on general economic conditions in the New York metropolitan region, where the majority of the buildings and properties securing the loans we originate for portfolio, and the businesses

of the customers to whom we make C&I loans, are located. Unlike larger national or superregional banks that serve a broader and more diverse geographic region, our lending historically has been concentrated in New York City and the surrounding markets of Nassau, Suffolk, and Westchester counties in New York, and Essex, Hudson, Mercer, Middlesex, Monmouth, Ocean, and Union counties in New Jersey.

Accordingly, the ability of our borrowers to repay their loans, and the value of the collateral securing such loans, may be significantly affected by economic conditions in this region or by changes in the local real estate market. A significant decline in general economic conditions caused by inflation, recession, unemployment, acts of terrorism, or other factors beyond our control, could therefore have an adverse effect on our financial condition and results of operations. In addition, because multi-family and CRE loans represent the majority of the loans in our portfolio, a decline in tenant occupancy or rents due to such factors, or for other reasons, could adversely impact the ability of our borrowers to repay their loans on a timely basis, which could have a negative impact on our results of operations.

We are subject to certain risks in connection with the level of our allowance for loan losses.

A variety of factors could cause our borrowers to default on their loan payments and the collateral securing such loans to be insufficient to repay any remaining indebtedness. In such an event, we could experience significant loan losses, which could have a material adverse effect on our financial condition and results of operations.

In the process of originating a loan, we make various assumptions and judgments about the ability of the borrower to repay it, based on the cash flows produced by the building, property, or business; the value of the real estate or other assets serving as collateral; and the creditworthiness of the borrower, among other factors.

We also establish an allowance for loan losses through an assessment of probable losses in each of our loan portfolios. Several factors are considered in this process, including the level of defaulted loans at the close of each quarter; recent trends in loan performance; historical levels of loan losses; the factors underlying such loan losses and loan defaults; projected default rates and loss severities; internal risk ratings; loan size; economic, industry, and environmental factors; and impairment losses on individual loans. If our assumptions and judgments regarding such matters prove to be incorrect, our allowance for loan losses might not be sufficient, and additional loan loss provisions might need to be made. Depending on the amount of such loan loss provisions, the adverse impact on our earnings could be material.

In addition, as we continue to grow our loan portfolio, it may be necessary to increase the allowance for loan losses by making additional provisions, which would adversely impact our operating results. Furthermore, bank regulators may require us to make a provision for loan losses or otherwise recognize further loan charge-offs following their periodic review of our loan portfolio, our underwriting procedures, and our loan loss allowance. Any increase in our allowance for loan losses or loan charge-offs as required by such regulatory authorities could have a material adverse effect on our financial condition and results of operations.

Reflecting the weakness of the economy and the increase in our non-performing loans and net charge-offs, we increased our allowance for loan losses substantially in 2009. For more information regarding our allowance for loan losses in recent periods, please see “Allowance for Loan Losses” in the discussion of “Critical Accounting Policies” that begins on page 43 and the discussion of “Asset Quality” that begins on page 57 of this report.

We face significant competition for loans and deposits.

We face significant competition for loans and deposits from other banks and financial institutions, both within and beyond our local markets. We compete with commercial banks, savings banks, credit unions, and investment banks for deposits, and with the same financial institutions and others (including mortgage brokers, finance companies, mutual funds, insurance companies, and brokerage houses) for loans. We also compete with companies that solicit loans and deposits over the Internet.

Many of our competitors (including money center, national, and superregional banks) have substantially greater resources and higher lending limits than we do, and may offer certain products and services that we cannot. Because our profitability stems from our ability to attract deposits and originate loans, our continued ability to compete for depositors and borrowers is critical to our success.

Our success as a competitor depends on a number of factors, including our ability to develop, maintain, and build upon long-term relationships with our customers by providing them with convenience, in the form of multiple branch locations and extended hours of service; access, in the form of alternative delivery channels, such as online banking, banking by phone, and ATMs; a broad and diverse selection of products and services; interest rates and service fees that compare favorably with those of our competitors; and skilled and knowledgeable personnel to assist our customers with their financial needs. External factors that may impact our ability to compete include changes in local economic conditions and real estate values, changes in interest rates, and the consolidation of banks and thrifts within our marketplace.

In addition, the mortgage banking unit we acquired in the AmTrust acquisition originates one- to four-family loans for sale to Fannie Mae and Freddie Mac, and competes nationally with other mortgage brokers for this business.

We are subject to certain risks with respect to liquidity.

“Liquidity” refers to our ability to generate sufficient cash flows to support our operations and to fulfill our obligations, including commitments to originate loans, to repay our wholesale borrowings and other liabilities, and to satisfy the withdrawal of deposits by our customers.

Our primary sources of liquidity are the deposits we acquire in connection with our acquisitions and those we gather organically through our branch network, and brokered deposits; borrowed funds, primarily in the form of wholesale borrowings from the FHLB and various Wall Street brokerage firms; the cash flows generated through the repayment of loans and securities; and the cash flows from the sale of loans and securities. In addition, and depending on current market conditions, we have the ability to access the capital markets from time to time.

Deposit flows, calls of investment securities and wholesale borrowings, and prepayments of loans and mortgage-related securities are strongly influenced by such external factors as the direction of interest rates, whether actual or perceived; local and national economic conditions; and competition for deposits and loans in the markets we serve. Furthermore, changes to the FHLB’s underwriting guidelines for wholesale borrowings or lending policies may limit or restrict our ability to borrow, and could therefore have a significant adverse impact on our liquidity. Additionally, replacing funds in the event of large-scale withdrawals of brokered deposits could require us to pay significantly higher interest rates on retail deposits or other wholesale funding sources, which would have an adverse impact on our net interest income and our earnings. A decline in available funding could adversely impact our ability to originate loans, invest in securities, and meet our expenses, or to fulfill such obligations as repaying our borrowings or meeting deposit withdrawal demands.

Our goodwill may be determined to be impaired.

We test goodwill for impairment on an annual basis, or more frequently, if necessary. Quoted market prices in active markets are the best evidence of fair value and are to be used as the basis for measuring impairment, when available. Other acceptable valuation methods include present-value measurements based on multiples of earnings or revenues, or similar performance measures. If we were to determine that the carrying amount of our goodwill exceeded its implied fair value, we would be required to write down the value of the goodwill on our balance sheet. This, in turn, would result in a charge against earnings and, thus, a reduction in our stockholders’ equity.

We may not be able to attract and retain key personnel.

To a large degree, our success depends on our ability to attract and retain key personnel whose expertise, knowledge of our markets, and years of industry experience would make them difficult to replace. Competition for skilled leaders in our industry can be intense, and we may not be able to hire or retain the people we would like to have working for us. The unexpected loss of services of one or more of our key personnel could have a material adverse impact on our business, given the specialized knowledge of such personnel and the difficulty of finding qualified replacements on a timely basis. To attract and retain personnel with the skills and knowledge to support our business, we offer a variety of benefits that may reduce our earnings.

We are subject to environmental liability risk associated with our lending activities.

A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on, and take title to, properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. In addition, we own and operate certain properties that may be subject to similar environmental liability risks.

Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Although we have policies and procedures requiring the performance of an environmental site assessment before initiating any foreclosure action on real property, these assessments may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations.

Our business may be adversely impacted by acts of war or terrorism.

Acts of war or terrorism could have a significant adverse impact on our ability to conduct our business. Such events could affect the ability of our borrowers to repay their loans, could impair the value of the collateral securing our loans, and could cause significant property damage, thus increasing our expenses and/or reducing our revenues. In addition, such events could affect the ability of our depositors to maintain their deposits with the Banks. Although we have established disaster recovery policies and procedures, the occurrence of any such event could have a material adverse effect on our business which, in turn, could have a material adverse effect on our financial condition and results of operations.

We are subject to extensive laws, regulations, and regulatory enforcement.

We are subject to regulation, supervision, and examination by the New York State Banking Department, which is the chartering authority for both the Community Bank and the Commercial Bank; by the FDIC, as the insurer of the Banks’ deposits; and by the Federal Reserve Bank.

Such regulation and supervision governs the activities in which a bank holding company and its banking subsidiaries may engage, and is intended primarily for the protection of the Deposit Insurance Fund, the banking system in general, and customers, and not for the benefit of a company’s stockholders. These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including with respect to the imposition of restrictions on the operation of a bank or a bank holding company, the imposition of significant fines, the ability to delay or deny merger applications, the classification of assets by a bank, and the adequacy of a bank’s allowance for loan losses, among other matters. Any failure to comply with, or any change in, such regulation and supervision, or change in regulation or enforcement by such authorities, whether in the form of policy, regulations, legislation, rules, orders, enforcement actions, or decisions, could have a material impact on the Company, our subsidiary banks, and our operations.

Our operations are also subject to extensive legislation enacted, and regulation implemented, by other federal, state, and local governmental authorities, and to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of our operations. While we believe that we are in compliance in all material respects with applicable federal, state, and local laws, rules, and regulations, including those pertaining to banking, lending, and taxation, among other matters, we may be subject to future changes in such laws, rules, and regulations that could have a material impact on our results of operations.

We may be required to pay significantly higher FDIC premiums, special assessments, or taxes that could adversely affect our earnings.

Market developments have significantly depleted the insurance fund of the FDIC and reduced the ratio of reserves to insured deposits. As a result, we may be required to pay significantly higher premiums or additional special assessments or taxes that could adversely affect our earnings. We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are additional bank or financial institution failures, we may be required to pay even higher FDIC premiums than the higher levels imposed in 2009. These increases and any future increases or required prepayments in FDIC insurance premiums or taxes may materially adversely affect our results of operations.

We are subject to risks associated with taxation.

The amount of income taxes we are required to pay on our earnings is based on federal and state legislation and regulations. We provide for current and deferred taxes in our financial statements, based on our results of operations, business activity, legal structure, interpretation of tax statutes, assessment of risk of adjustment upon audit, and application of financial accounting standards. We may take tax return filing positions for which the final determination of tax is uncertain. Our net income and earnings per share may be reduced if a federal, state, or local authority assesses additional taxes that have not been provided for in our consolidated financial statements. There can be no assurance that we will achieve our anticipated effective tax rate either due to a change to tax law, a change in regulatory or judicial guidance, or an audit assessment which denies previously recognized tax benefits.

Recent legislative and regulatory proposals in response to developments in the financial markets may adversely affect our business and results of operations.

Legislation proposing significant structural reforms to the financial services industry is being considered in the U.S. Congress, including, among other things, the creation of a Consumer Financial Protection Agency, which would have broad authority to regulate financial service providers and financial products. In addition, the Federal Reserve Bank has proposed guidance on incentive compensation at the banking organizations it regulates and the United States Department of the Treasury and the federal banking regulators have issued statements calling for higher capital and liquidity requirements for banking organizations. Complying with any new legislative or regulatory requirements, and any programs established thereunder by federal and state governments to address the current economic crisis, could have an adverse impact on our results of operations, our ability to fill positions with the most qualified candidates available, and our ability to maintain our dividend.

We are subject to certain risks in connection with our use of technology.

Risks associated with systems failures, interruptions, or breaches of security:

Communications and information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger, our deposits, and our loans. While we have established policies and procedures to prevent or limit the impact of systems failures, interruptions, and security breaches, there can be no assurance that such events will not occur or that they will be adequately addressed if they do. In addition, any compromise of our security systems could deter customers from using our web site and our online banking service, both of which involve the transmission of confidential information. Although we rely on commonly used security and processing systems to provide the security and authentication necessary to effect the secure transmission of data, these precautions may not protect our systems from compromises or breaches of security.

In addition, we outsource certain of our data processing to certain third-party providers. If our third-party providers encounter difficulties, or if we have difficulty in communicating with them, our ability to adequately process and account for customer transactions could be affected, and our business operations could be adversely impacted. Threats to information security also exist in the processing of customer information through various other vendors and their personnel.

The occurrence of any systems failure, interruption, or breach of security could damage our reputation and result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to civil litigation and possible financial liability. Any of these occurrences could have a material adverse effect on our financial condition and results of operations.

Risks associated with changes in technology:

Financial products and services have become increasingly technology-driven. Our ability to meet the needs of our customers competitively, and in a cost-efficient manner, is dependent on our ability to keep pace with technological advances and to invest in new technology as it becomes available. Many of our competitors have greater resources to invest in technology than we do and may be better equipped to market new technology-driven products and services. The ability to keep pace with technological change is important, and the failure to do so on our part could have a material adverse impact on our business and therefore on our financial condition and results of operations.

We rely on the dividends we receive from our subsidiaries.

The Parent Company (i.e., the company on an unconsolidated basis) is a separate and distinct legal entity from the Banks, and a substantial portion of the revenues the Parent Company receives consists of dividends from the Banks. These dividends are the primary funding source for the dividends we pay on our common stock and the interest and principal payments on our debt. Various federal and state laws and regulations limit the amount of dividends that a bank may pay to its parent company. In addition, our right to participate in a distribution of assets upon the liquidation or reorganization of a subsidiary may be subject to the prior claims of the subsidiary’s creditors. If the Banks are unable to pay dividends to the Company, we may not be able to service our debt, pay our obligations, or pay dividends on our common stock. The inability to receive dividends from the Banks could therefore have a material adverse effect on our business, our financial condition, and our results of operations, as well as our ability to maintain or increase the current level of cash dividends paid to our shareholders.

We are subject to certain risks in connection with our strategy of growing through mergers and acquisitions.

Mergers and acquisitions have contributed significantly to our growth in the past, and continue to be a key component of our business model. Accordingly, it is possible that we could acquire other financial institutions, financial service providers, or branches of banks in the future, including as part of one or more additional acquisitions from the FDIC acting in its capacity as receiver for such financial institutions. However, our ability to engage in future mergers and acquisitions depends on our ability to identify suitable merger partners and acquisition opportunities, our ability to finance and complete such transactions on acceptable terms and at acceptable prices, our ability to bid competitively for FDIC-assisted transactions, and our ability to receive the necessary regulatory and, where required, shareholder approvals.

Furthermore, mergers and acquisitions involve a number of risks and challenges, including:

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Our ability to integrate the branches and operations we acquire, and the internal controls and regulatory functions into our current operations;

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The diversion of management’s attention from existing operations;

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Our ability to limit the outflow of deposits held by our new customers in the acquired branches and to successfully retain and manage the loans we acquire;

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Our ability to attract new deposits, and to generate new interest-earning assets, in geographic areas we have not previously served;

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Our success in deploying any cash received in a transaction into assets bearing sufficiently high yields without incurring unacceptable credit or interest rate risk;

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Our ability to control the incremental non-interest expense from the acquired branches in a manner that enables us to maintain a favorable overall efficiency ratio;

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Our ability to retain and attract the appropriate personnel to staff the acquired branches and conduct any acquired operations;

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Our ability to earn acceptable levels of interest and non-interest income, including fee income, from the acquired branches;

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Our ability to address an increase in working capital requirements; and

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Limitations on our ability to successfully reposition the post-merger balance sheet, when deemed appropriate.

As with any acquisition involving a financial institution, particularly one involving the transfer of a large number of bank branches as in our AmTrust acquisition, there may be business and service changes and disruptions that result in the loss of customers or cause customers to close their accounts and move their business to competing financial institutions. Integrating acquired branches is an operation of substantial size and expense, and may be affected by general market and economic conditions or government actions affecting the financial industry

in general. Integration efforts will also likely divert our management’s attention and resources. No assurance can be given that we will be able to integrate acquired branches successfully, and the integration process could result in the loss of key employees, the disruption of ongoing business, or inconsistencies in standards, controls, procedures, and policies that could adversely affect our ability to maintain relationships with clients, customers, depositors, and employees, or to achieve the anticipated benefits of an acquisition. We may also encounter unexpected difficulties or costs during the integration process that could adversely affect our earnings and financial condition, perhaps materially.

Additionally, no assurance can be given that the operation of acquired branches would not adversely affect our existing profitability; that we would be able to achieve results in the future similar to those achieved by our existing banking business; that we would be able to compete effectively in the market areas served by acquired branches; or that we would be able to manage any growth resulting from a transaction effectively. In particular, our ability to compete effectively in new markets is dependent on our ability to understand those markets and their competitive dynamics, and our ability to retain certain key employees from the acquired institution who know those markets better than we do.

Any of these factors, among others, could adversely affect our ability to achieve the anticipated benefits of any acquisitions we undertake.

The acquisition of assets and liabilities of financial institutions in FDIC-sponsored or assisted transactions involves risks similar to those faced when acquiring existing financial institutions, even though the FDIC might provide assistance to mitigate certain risks, e.g., entering into loss sharing arrangements. However, because such acquisitions are structured in a manner that does not allow the time normally associated with evaluating and preparing for the integration of an acquired institution, we face the additional risk that the anticipated benefits of such an acquisition may not be realized fully or at all, or within the time period expected.

Risks Specific to the AmTrust Acquisition

Changes in national, regional, and local economic conditions could lead to higher delinquencies or defaults in connection with the AmTrust acquisition, all of which may not be supported by the loss sharing agreements with the FDIC.

We acquired a significant nationwide portfolio of one- to four-family loans in the AmTrust acquisition. Although this loan portfolio was initially accounted for at fair value, there is no assurance that the loans we acquired will not become impaired, which may result in charge-offs to this portfolio. Fluctuations in national, regional, and local economic conditions may increase the level of charge-offs on the loans we acquired in the transaction and correspondingly reduce our net income. These fluctuations are not predictable, cannot be controlled, and may have a material adverse impact on our operations and financial condition even if other favorable events occur.

Although we have entered into loss sharing agreements which provide that the FDIC will bear a significant portion of any losses related to the loan portfolios we acquired in the AmTrust acquisition, we are not protected from all losses resulting from charge-offs with respect to the acquired loan portfolios. Additionally, the loss sharing agreements have limited terms; therefore, any charge-offs that we experience after the terms of the loss sharing agreements have ended may not be fully recoverable from the FDIC, which would negatively impact our net income.

Loans acquired in the AmTrust acquisition may not be covered by the loss sharing agreements if the FDIC determines that we have not adequately managed these agreements.

Although the FDIC has agreed to reimburse us for 80% of losses on covered loans up to $907.0 million and 95% of losses on covered loans beyond that amount, the FDIC has the right to refuse or delay payment for loan losses if the loss sharing agreements are not managed in accordance with their terms.

Loans originated by AmTrust’s mortgage banking unit for sale may not be agency-conforming or provide required documentation.

The mortgage banking unit we acquired in the AmTrust acquisition originates one- to four-family loans throughout the country for sale to Fannie Mae and Freddie Mac. If a loan we originate is not in conformance with the pertinent guidelines, and/or Fannie Mae or Freddie Mac find that the documentation provided upon the sale of a loan was defective, we could be required to repurchase the loan for our own portfolio.

Risks Related to our Common Stock

The price of our common stock may fluctuate.

The market price of our common stock could be subject to significant fluctuations due to changes in sentiment in the market regarding our operations or business prospects. Among other factors, these risks may be affected by:

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operating results that vary from the expectations of our management or of securities analysts and investors;

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developments in our business or in the financial services sector generally;

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regulatory or legislative changes affecting our industry generally or our business and operations;

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operating and securities price performance of companies that investors consider to be comparable to us;

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changes in estimates or recommendations by securities analysts or rating agencies;

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announcements of strategic developments, acquisitions, dispositions, financings, and other material events by us or our competitors; and

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changes or volatility in global financial markets and economies, general market conditions, interest or foreign exchange rates, stock, commodity, credit, or asset valuations.

Furthermore, given recent and ongoing market and economic conditions, the market price of our common stock may be subject to further significant market fluctuations. The recession that began in the second half of 2007 has continued to have an adverse impact on real estate values; in addition, foreclosure filings are increasing and unemployment remains atypically high. These factors have negatively affected the credit performance of mortgage and other loans, and resulted in significant write-downs of asset values by financial institutions. The resulting economic pressure on property owners and other borrowers, and the lack of confidence in the financial markets in general, has adversely affected, and may continue to adversely affect, our business and results of operations.

In addition, stock markets around the world have experienced significant price and trading volume volatility, with shares of financial services firms being adversely impacted, in particular. While the U.S. and other governments continue to take action to restore confidence in the financial markets and to promote job creation and economic growth, continued or further market and economic turmoil could occur in the near or long term, which could negatively affect our business, financial condition and results of operations, and volatility in the price and trading volume of our common stock.

We may not pay dividends on our common stock.

Holders of our common stock are only entitled to receive such dividends as our Board of Directors may declare out of funds available for such payments under applicable law and regulatory guidance. Furthermore, regulatory agencies may impose further restrictions on the payment of dividends in the future. In addition, although we have historically declared cash dividends on our common stock, we are not required to do so. Any reduction of, or the elimination of, our common stock dividend in the future could adversely affect the market price of our common stock.

Our common stock is equity and is subordinate to our existing and future indebtedness and preferred stock.

Shares of our common stock are equity interests and do not constitute indebtedness. Accordingly, shares of our common stock rank junior to all indebtedness of, and other non-equity claims on, the Company with respect to assets available to satisfy claims. Additionally, holders of our common stock are subject to the prior dividend and liquidation rights of the holders of any series of preferred stock we may issue.

Various factors could make a takeover attempt of the Company more difficult to achieve.

Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws, in addition to certain federal banking laws and regulations, could make it more difficult for a third party to acquire the Company without the consent of our Board of Directors, even if doing so were perceived to be beneficial to our stockholders. These provisions also make it more difficult to remove our current Board of Directors or management or to appoint new directors, and also regulate the timing and content of stockholder proposals and nominations, and qualification for service on our Board of Directors. In addition, we have entered into employment agreements with certain executive officers and directors that would require payments to be made to them in the event that their employment was terminated following a change in control of the Company or the Banks. These payments may have the effect of increasing the costs of acquiring the Company. The combination of these provisions could effectively inhibit a non-negotiated merger or other business combination, which could adversely impact the market price of our common stock.

If we defer payments on our trust preferred capital debt securities or are in default under the related indentures, we will be prohibited from making distributions on our common stock.

The terms of our outstanding trust preferred capital debt securities prohibit us from declaring or paying any dividends or distributions on our capital stock, including our common stock, or purchasing, acquiring or making a liquidation payment on such stock, if an event of default has occurred and is continuing under the applicable indenture, we are in default with respect to a guarantee payment under the guarantee of the related trust preferred securities, or we have given notice of our election to defer interest payments but the related deferral period has not yet commenced or a deferral period is continuing. In addition, without notice to, or consent from, the holders of our common stock, we may issue additional series of trust preferred capital debt securities with similar terms or enter into other financing agreements that limit our ability to purchase or pay dividends or distributions on our common stock.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

In addition to owning certain branches and other bank business facilities, we also lease a majority of our branch offices and facilities under various lease and license agreements that expire at various times. (Please see Note 10 to the Consolidated Financial Statements, “Commitments and Contingencies: Lease and License Commitments” in Item 8, “Financial Statements and Supplementary Data.”) We believe that our facilities are adequate to meet our present and immediately foreseeable needs.

The Community Bank did not immediately acquire or lease the real estate, banking facilities, furniture, fixtures, or equipment of AmTrust as part of the Purchase and Assumption Agreement with the FDIC. However, the Community Bank has the option to purchase or lease these items from the FDIC. The terms of these options expire 170 days after December 4, 2009, unless extended by the FDIC. Acquisition costs of the real estate, banking facilities, furniture, fixtures, and equipment will be based on current appraisals and determined at a later date.

ITEM 3.

LEGAL PROCEEDINGS

In the ordinary course of our business, we are defendants in or parties to a number of legal proceedings. We believe we have meritorious defenses with respect to these cases and intend to defend them vigorously.

ITEM 4.

[RESERVED]

PART II.

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

The common stock of the Company is traded on the New York Stock Exchange (the “NYSE”) under the symbol “NYB.”

At December 31, 2009, the number of outstanding shares was 433,197,332 and the number of registered owners was approximately 14,000. The latter figure does not include those investors whose shares were held for them by a bank or broker at that date.

Dividends Declared per Common Share and Market Price of Common Stock

The following table sets forth the dividends declared per common share, and the intra-day high/low price range and closing prices for the Company’s common stock, as reported by the NYSE, in each of the four quarters of 2009 and 2008:


	Dividends Declared per Common Share		Market Price
	Dividends Declared per Common Share		High		Low		Close
2009
1st Quarter	$	0.25	$	14.10	$	7.69	$	11.17
2nd Quarter		0.25		12.55		9.90		10.69
3rd Quarter		0.25		11.89		9.98		11.42
4th Quarter		0.25		14.81		10.35		14.51


2008
1st Quarter	$	0.25	$	19.20	$	14.48	$	18.22
2nd Quarter		0.25		20.70		17.21		17.84
3rd Quarter		0.25		21.00		15.07		16.79
4th Quarter		0.25		18.05		10.31		11.96

Please see the discussion of “Liquidity” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for information regarding restrictions on the Company’s ability to pay dividends.

On July 6, 2009, our Chairman, President, and Chief Executive Officer, Joseph R. Ficalora, submitted to the NYSE his Annual CEO certification confirming our compliance with the NYSE’s corporate governance listing standards, as required by

Section 303A.12(a) of the NYSE Listed Company Manual.

Stock Performance Graph

Notwithstanding anything to the contrary set forth in any of the Company’s previous filings under the Securities Act of 1933 or the Securities Exchange Act of 1934 that might incorporate future filings, including this Form 10-K, in whole or in part, the following stock performance graph shall not be incorporated by reference into any such filings.

The following graph provides a comparison of total shareholder returns on the Company’s common stock since December 31, 2004 with the cumulative total returns of a broad market index and a peer group index. The S&P Mid-Cap 400 Index was chosen as the broad market index in connection with the Company’s trading activity on the NYSE. The peer group index chosen was the SNL Bank and Thrift Index, which currently is comprised of 529 bank and thrift institutions, including the Company. The data for the indices included in the graph were provided by SNL Financial.

Comparison of 5-Year Cumulative Total Return

Among New York Community Bancorp, Inc.,

S&P Mid-Cap 400 Index, and SNL Bank and Thrift Index

ASSUMES $100 INVESTED ON DEC. 31, 2004

ASSUMES DIVIDEND REINVESTED

FISCAL YEAR ENDING DEC. 31, 2009


	12/31/2004		12/31/2005		12/31/2006		12/31/2007		12/31/2008		12/31/2009

New York Community Bancorp, Inc.	$	100.00	$	85.01	$	88.01	$	101.89	$	73.64	$	97.58

S&P Mid-Cap 400 Index	$	100.00	$	112.55	$	124.17	$	134.07	$	85.50	$	117.46

SNL Bank and Thrift Index	$	100.00	$	101.57	$	118.68	$	90.50	$	52.05	$	51.35

Share Repurchase Program

From time to time, we repurchase shares of our common stock on the open market or through privately negotiated transactions, and hold such shares in our Treasury account. Repurchased shares may be utilized for various corporate purposes, including, but not limited to, merger transactions and the exercise of stock options.

During the three months ended December 31, 2009, we allocated $22,000 toward share repurchases, as outlined in the following table:


Period	(a) Total Number of Shares (or Units) Purchased⁽¹⁾	(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs⁽²⁾
Month #1: October 1, 2009 through October 31, 2009	1,943	$	11.36	1,943	1,235,990
Month #2: November 1, 2009 through November 30, 2009	—		—	—	1,235,990
Month #3: December 1, 2009 through December 31, 2009	—		—	—	1,235,990

Total	1,943	$	11.36	1,943

(1)

All shares were purchased in privately negotiated transactions.

(2)

On April 20, 2004, the Board authorized the repurchase of up to five million shares. Of this amount, 1,235,990 shares were still available for repurchase at December 31, 2009. Under said authorization, shares may be repurchased on the open market or in privately negotiated transactions until completion or the Board’s earlier termination of the repurchase authorization.

Use of Proceeds

In December 2009, we issued 69,000,000 shares in a common stock offering that generated net proceeds of $864.9 million. We contributed $827.0 million of these proceeds to the capital of the Community Bank, which will use this amount for its general corporate purposes. The filing date of the Automatic Shelf Registration Statement on Form S-3 (File No. 333-152147) relating to the stock offering was July 3, 2008. Credit Suisse Securities (USA) LLC acted as managing underwriter for the offering. The class of securities registered was common stock, par value $0.01 per share. The expenses incurred in connection with the stock offering were $32.1 million, including expenses paid to and for underwriters of $31.4 million and attorney and accounting fees of $707,000.

ITEM 6.

SELECTED FINANCIAL DATA


	At or For the Years Ended December 31,
*(dollars in thousands, except share data)*	2009⁽¹⁾			2008			2007⁽²⁾			2006⁽³⁾			2005⁽⁴⁾
EARNINGS SUMMARY:
Net interest income ⁽⁵⁾	$	905,325		$	675,495		$	616,530		$	561,566		$	595,367
Provision for loan losses		63,000			7,700			—			—			—
Non-interest income		157,639			15,529			111,092			88,990			97,701
Non-interest expense:
Operating expenses		384,003			320,818			299,575			256,362			236,621
Debt repositioning charges		—			285,369			3,190			26,477			—
Termination of interest rate swaps		—			—			—			1,132			—
Amortization of core deposit intangibles		22,812			23,343			22,758			17,871			11,733
Income tax expense (benefit)		194,503			(24,090	)		123,017			116,129			152,629
Net income ^(6)(7)(8)		398,646			77,884			279,082			232,585			292,085
Basic earnings per share ^(6)(7)(8)		$1.13			$0.23			$0.90			$0.82			$1.12
Diluted earnings per share ^(6)(7)(8)		1.13			0.23			0.90			0.81			1.11
Dividends paid per common share		1.00			1.00			1.00			1.00			1.00
SELECTED RATIOS:
Return on average assets		1.20	%		0.25	%		0.94	%		0.83	%		1.17	%
Return on average stockholders’ equity		9.29			1.86			7.13			6.57			9.15
Operating expenses to average assets		1.15			1.03			1.01			0.91			0.95
Average stockholders’ equity to average assets		12.89			13.41			13.21			12.60			12.83
Efficiency ratio		36.13			46.43			41.17			39.41			34.14
Interest rate spread ⁽⁵⁾		2.98			2.25			2.11			2.02			2.59
Net interest margin ⁽⁵⁾		3.12			2.48			2.38			2.27			2.74
Dividend payout ratio		88.50			434.78			111.11			123.46			90.09
BALANCE SHEET SUMMARY:
Total assets	$	42,153,869		$	32,466,906		$	30,579,822		$	28,482,370		$	26,283,705
Loans, net of allowance for loan losses		28,265,208			22,097,844			20,270,454			19,567,502			16,948,697
Allowance for loan losses		127,491			94,368			92,794			85,389			79,705
Securities held to maturity		4,223,597			4,890,991			4,362,645			2,985,197			3,258,038
Securities available for sale		1,518,646			1,010,502			1,381,256			1,940,787			2,379,214
Deposits		22,316,411			14,375,648			13,235,801			12,693,740			12,167,950
Borrowed funds		14,164,686			13,496,710			12,915,672			11,880,008			10,528,658
Stockholders’ equity		5,366,902			4,219,246			4,182,313			3,689,837			3,324,877
Common shares outstanding		433,197,332			344,985,111			323,812,639			295,350,936			269,776,791
Book value per share ⁽⁹⁾		$12.40			$12.25			$12.95			$12.56			$12.43
Stockholders’ equity to total assets		12.73	%		13.00	%		13.68	%		12.95	%		12.65	%
ASSET QUALITY RATIOS:
Non-performing loans to total loans		2.04	%		0.51	%		0.11	%		0.11	%		0.16	%
Non-performing assets to total assets		1.41			0.35			0.07			0.08			0.11
Allowance for loan losses to non-performing loans		22.05			83.00			418.14			402.72			289.17
Allowance for loan losses to total loans		0.45			0.43			0.46			0.43			0.47
Net charge-offs to average loans		0.13			0.03			0.00			0.00			0.00

(1)

The Company acquired certain assets and liabilities of AmTrust Bank (“AmTrust”) on December 4, 2009. Accordingly, the Company’s 2009 earnings reflect 27 days of combined operations with AmTrust.

(2)

The Company completed three business combinations in 2007: the acquisition of PennFed Financial Services, Inc. on April 2, 2007; the acquisition of Doral Bank, FSB’s branch network in New York City and certain assets and liabilities on July 26, 2007; and the acquisition of Synergy Financial Group, Inc. on October 1, 2007. Accordingly, the Company’s 2007 earnings reflect nine months, five months, and three months of combined operations with the respective institutions.

(3)

The Company acquired Atlantic Bank of New York (“Atlantic Bank”) on April 28, 2006. Accordingly, the Company’s 2006 earnings reflect eight months of combined operations with Atlantic Bank.

(4)

The Company acquired Long Island Financial Corp. on December 30, 2005, the last business day of the year.

(5)

The 2008 amount/measure reflects the impact of a $39.6 million debt repositioning charge that was recorded in interest expense.

(6)

Please see the comparison of our 2009 and 2008 earnings on pages 71 through 78 of this report for a discussion of certain gains and charges that increased/reduced our earnings in the respective periods.

(7)

Please see the comparison of our 2008 and 2007 earnings on pages 78 through 83 of this report for a discussion of certain gains and charges that increased/reduced our earnings in the respective periods.

(8)

The 2005 amount includes a pre-tax merger-related charge of $36.6 million, recorded in operating expenses, which resulted in an after-tax charge of $34.0 million, or $0.13 per diluted share.

(9)

Excludes unallocated Employee Stock Ownership Plan (“ESOP”) shares from the number of shares outstanding. Please see “book value per share” in the Glossary earlier in this report.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the purpose of this discussion and analysis, the words “we,” “us,” “our,” and the “Company” are used to refer to New York Community Bancorp, Inc. and our consolidated subsidiaries, including New York Community Bank (the “Community Bank”) and New York Commercial Bank (the “Commercial Bank”) (collectively, the “Banks”).

Executive Summary

As more fully discussed in the following pages, 2009 was a year of challenges—as the economy continued to falter—and achievements - as we expanded our franchise, increased our earnings, and enhanced our capital strength.

Challenges

The economic crisis that began in the second half of 2007 continued to adversely impact our nation, as unemployment rose, real estate values declined, and bankruptcies increased in 2009. For the first time in 26 years, unemployment grew to 10.1% in October, before retracting to 10.0% the following month. In December, home prices were down 2.5% year-over-year throughout the nation, and the number of businesses filing for bankruptcy rose 38% to 89,402 as the recession continued to impact small and large businesses alike.

In the Metro New York region, where most of the properties securing our loans are located, the statistics tell a similar tale of economic decline. In December 2009, unemployment rose to 10.4% in New York City, 7.0% on Long Island, and 9.8% in New Jersey, and home prices declined 6.3%, year-over-year, throughout Metro New York. In addition, 13.1% of Manhattan’s office space was vacant in December, as compared to 10.2% in December 2008.

Not surprisingly, these increases had an effect on the quality of our assets, despite the strength of our underwriting standards and the unique character of our primary lending niche. As non-performing assets rose, together with our net charge-offs, we increased our provision for loan losses from $7.7 million in 2008 to $63.0 million, and our loan loss allowance from $94.4 million to $127.5 million at year-end 2009.

The recession also took a toll on certain of our investment securities, as the other-than-temporary impairment (“OTTI”) losses we recorded reduced our 2009 earnings by $58.5 million, or $0.17 per diluted share. Our earnings growth was also subdued by the higher cost of FDIC deposit insurance, as the premiums paid by healthy banks were increased by the FDIC. As more and more borrowers fell victim to the prolonged recession, the number of bank failures rose from 25 in 2008 to 140 in 2009. To further replenish the Deposit Insurance Fund, the FDIC imposed a special assessment in the second quarter. As a result of these actions, our total FDIC-related expenses rose to $45.8 million in 2009 from $4.7 million in the year-earlier twelve months.

While these challenges were counterproductive to earnings, their impact was more than exceeded by the achievements noted below.

Achievements

In 2009, our consistent pursuit of the strategies that comprise our business model resulted in our best financial performance since 2004. While asset quality declined due to the aforementioned economic factors, we expanded our net interest margin, increased our net interest income, and grew our earnings and capital meaningfully over the course of the year.

Growth through Acquisitions

Capitalizing on the opportunity to grow through FDIC-assisted transactions, we acquired certain assets and assumed certain liabilities of AmTrust Bank (“AmTrust”) on December 4, 2009. In addition to expanding our Community Bank franchise with the addition of 66 branches in Florida, Ohio, and Arizona, the AmTrust acquisition increased our interest-earning assets with loans of $5.0 billion and securities of $760.0 million, and enhanced our liquidity with an infusion of $4.0 billion in cash and cash equivalents. Furthermore, the acquisition enhanced our funding mix by providing deposits of $8.2 billion, in addition to $2.6 billion of wholesale borrowings.

The loans we acquired are covered by certain loss sharing agreements which reduce the risk of having acquired loans outside our traditional market and lending niche. Of the $5.0 billion in loans we acquired, $4.7 billion were one- to four-family credits; the remainder consisted primarily of home equity lines of credit (“HELOCs”) and consumer loans. Under the terms of the loss sharing agreements, the FDIC will reimburse the Community Bank for 80% of losses up to $907.0 million and 95% of losses beyond that initial amount with respect to these “covered loans.”

Another positive feature of the transaction was the potential for revenue enhancement, primarily through the addition of AmTrust’s mortgage banking unit, which originates loans for sale to the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”).

Although our 2009 earnings reflect less than a month of combined operations with AmTrust, we recorded a one-time bargain purchase gain in connection with the transaction that added $84.2 million to our 2009 earnings and $0.24 to our diluted earnings per share. Other immediate contributions to earnings from the AmTrust acquisition are discussed under “non-interest income” beginning on page 76 of this report.

Multi-family Lending

Multi-family loans continued to be our principal asset, notwithstanding the AmTrust-related growth of our one- to four-family mortgage loan portfolio. Although loan production was somewhat constrained by the general reluctance of property owners to refinance their loans or increase their real estate holdings, in view of current market conditions, we originated $1.9 billion of multi-family loans in 2009, and grew the multi-family loan portfolio by $1.0 billion, or 6.4%, to $16.7 billion at December 31st.

Asset Quality

While the quality of our assets declined as certain of our borrowers fell victim to the recession, our measures of asset quality continued to compare favorably with those of our industry peers. Non-performing loans rose $464.4 million year-over-year, to $578.1 million, equivalent to 2.04% of total loans at December 31st. Net charge-offs rose $23.8 million during this time, to $29.9 million, which represented 0.13% of average loans in 2009.

To mitigate, and manage, our credit risk, we limited our production of acquisition, development, and construction loans and commercial and industrial loans, and increased our loan loss provisions over the course of the year. We also stepped up our loan workout and collection efforts with the expansion of our Loan Recovery Unit. In addition, we focused our growth-through-acquisition strategy on FDIC-assisted acquisitions, to reduce the risk entailed in acquiring loans that we did not underwrite.

Net Interest Income

Net interest income continued to be our primary source of income and rose $229.8 million, or 34.0%, over the course of the year. Capitalizing on the level of short-term interest rates and the related steepness of the yield curve, we continued to lower our funding costs throughout 2009. In addition to allowing higher cost certificates of deposit (“CDs”) to run off, and replacing them with lower-cost deposits, we repurchased certain REIT-preferred and trust preferred securities and exchanged 1.4 million of our Bifurcated Option Note Unit SecuritiES^SM (“BONUSES units”) for 4.8 million shares of our common stock. Together, the repurchase of debt and the debt exchange added $6.5 million after-tax, or $0.02 per diluted share, to our 2009 earnings, while at the same time contributing to the reduction in our cost of funds.

We also enhanced our funding mix through the AmTrust acquisition, with deposits representing 52.9% of total assets at December 31, 2009, an improvement from 44.3% at December 31, 2008.

While the average yields on our loans and assets declined, the impact was far exceeded by the benefit of substantial loan and asset growth. Reflecting both the loans we acquired and organic loan production, the average balance of loans rose $2.2 billion, or 10.3%, to $23.0 billion, and the average balance of interest-earning assets rose $1.8 billion to $29.0 billion, an increase of 6.8%.

The same factors that contributed to the growth of our net interest income contributed to the expansion of our net interest margin in 2009. At 3.12%, our margin was 64 basis points wider than the measure recorded in the prior year.

Efficiency

We measure our efficiency by monitoring the ratio of our operating expenses to the combination of our net interest income and non-interest income (together, our “revenues”). Although our operating expenses were increased by the addition of AmTrust’s staff and operations and higher FDIC insurance-related expenses, the impact was exceeded by the increased revenues we produced. As a result, our efficiency ratio in 2009 was 36.13%.

Our efficiency was, in some part, enhanced by the integration of the data processing systems used by our Community Bank branches in New York and New Jersey. As a result, our customers in these branches now have the option of conducting their business in any of our 175 branches in these two states.

Capital Strength

While the actions we took in 2009 resulted in the growth of our assets, deposits, and franchise, they also resulted in a significant level of capital strength. Tangible stockholders’ equity rose $1.1 billion, or 66.6%, to $2.8 billion, and our ratio of tangible equity to tangible assets rose 147 basis points to 7.13% at year-end. (Please see the reconciliation of our stockholders’ equity and tangible stockholders’ equity on page 85 of this report.)

These increases were, in large part, attributable to the positive response to our AmTrust acquisition, which was followed by a successful common stock offering. The offering generated net proceeds of $864.9 million and resulted in our issuing 69.0 million shares.

As a result of our actions in 2009, we ended the year with assets of $42.2 billion, deposits of $22.3 billion, and a book value of $12.40 per share. We also produced earnings of $398.6 million, equivalent to $1.13 per diluted share. Reflecting the strength of our capital, as well as that of our earnings, we distributed dividends of $347.6 million, collectively, to our investors, and maintained our quarterly cash dividend at $0.25 per share throughout the year.

Recent Events

Dividend Declaration

On January 26, 2010, the Board of Directors declared a quarterly cash dividend of $0.25 per share, payable on February 17, 2010 to shareholders of record at the close of business on February 5, 2010.

Critical Accounting Policies

We consider certain accounting policies to be critically important to the portrayal of our financial condition and results of operations, since they require management to make complex or subjective judgments, some of which may relate to matters that are inherently uncertain. The sensitivity of our consolidated financial statements to these critical accounting policies, and the judgments, estimates, and assumptions used therein, could have a material impact on our financial condition or results of operations.

We have identified the following to be critical accounting policies: the determination of the allowance for loan losses; the determination of whether an impairment of securities is other than temporary; the determination of the amount, if any, of goodwill impairment; and the valuation allowance for deferred tax assets.

The judgments used by management in applying these critical accounting policies may be influenced by a further and prolonged deterioration in the economic environment, which may result in changes to future financial results. In addition, the current economic environment has increased the degree of uncertainty inherent in our judgments, estimates, and assumptions.

Allowance for Loan Losses

The allowance for loan losses is increased by provisions for loan losses that are charged against earnings, and is reduced by net charge-offs and/or reversals, if any, that are credited to earnings. Loans are held by either the Community Bank or the Commercial Bank, and a separate loan loss allowance is established for each. In addition, except as otherwise noted below, the process for establishing the allowance for loan losses is the same for each of the Community Bank and the Commercial Bank. In determining the respective allowances for loan losses, management considers the Community Bank’s and the Commercial Bank’s current business strategies and credit processes, including compliance with conservative guidelines established by the respective Boards of Directors with regard to credit limitations, loan approvals, underwriting criteria, and loan workout procedures.

The allowances for loan losses are established based on our evaluation of the probable inherent losses in our portfolio in accordance with United States generally accepted accounting principles (“GAAP”). The allowances for loan losses are comprised of both specific valuation allowances and general valuation allowances which are determined in accordance with Financial Accounting Standards Board (“FASB”) accounting standards.

Specific valuation allowances are established based on our analyses of individual loans that are considered impaired. If a loan is deemed to be impaired, management measures the extent of the impairment and establishes a specific valuation allowance for that amount. A loan is classified as “impaired” when, based on current information and events, it is probable that we will be unable to collect both the principal and interest due under the contractual terms of the loan agreement. We apply this classification as necessary to loans individually evaluated for impairment in our portfolios of multi-family; commercial real estate; acquisition, development, and construction; and commercial and industrial loans. Smaller balance homogenous loans and loans carried at the lower of cost or fair value are evaluated for impairment on a collective rather than an individual basis. We generally measure impairment on an individual loan and the extent to which a specific valuation allowance is necessary by comparing the loan’s outstanding balance to either the fair value of the collateral, less the estimated cost to sell, or the present value of expected cash flows, discounted at the loan’s effective interest rate. A specific valuation allowance is established when the fair value of the collateral, net of estimated costs, or the present value of the expected cash flows, is less than the recorded investment in the loan.

We also follow a process to assign general valuation allowances to loan catergories. General valuation allowances are established by applying our loan loss provisioning methodology, and reflect the inherent risk in loans outstanding. Our loan loss provisioning methodology considers various factors in determining the appropriate quantified risk factors to use to determine the general valuation allowances. The factors assessed begin with the historical loan loss experience for each of the major loan categories we maintain. Our historical loan loss experience is then adjusted by considering qualitative or environmental factors that are likely to cause estimated credit losses associated with the existing portfolio to differ from historical loss experience, including, but not limited to, the following:

•

Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices;

•

Changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments;

•

Changes in the nature and volume of the portfolio and in the terms of loans;

•

Changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans;

•

Changes in the quality of our loan review system;

•

Changes in the value of the underlying collateral for collateral-dependent loans;

•

The existence and effect of any concentrations of credit, and changes in the level of such concentrations;

•

Changes in the experience, ability, and depth of lending management and other relevant staff; and

•

The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio.

By considering the factors discussed above, we determine quantified risk factors that are applied to each non-impaired loan or loan type in the loan portfolio to determine the general valuation allowances.

In recognition of recent macroeconomic and real estate market conditions, the time periods considered for historical loss experience are the last three years and the current period. We also evaluate the sufficiency of the overall allocations used for the loan loss allowance by considering the loss experience in the current calendar year.

The process of establishing the loan loss allowances also involves:

•

Periodic inspections of the loan collateral by qualified in-house property appraisers/inspectors, as applicable;

•

Regular meetings of executive management with the pertinent Board committee, during which observable trends in the local economy and/or the real estate market are discussed;

•

Assessment by the pertinent Board of Directors of the aforementioned factors when making a business judgment regarding the impact of anticipated changes on the future level of loan losses; and

•

Analysis of the portfolio in the aggregate, as well as on an individual loan basis, taking into consideration payment history, underwriting analyses, and internal risk ratings.

In order to determine their overall adequacy, each of the respective loan loss allowances is reviewed quarterly by management and by the Mortgage and Real Estate Committee of the Community Bank’s Board of Directors or the Credit Committee of the Board of Directors of the Commercial Bank, as applicable.

We charge off loans, or portions of loans, in the period that such loans, or portions thereof, are deemed uncollectible. The collectability of individual loans is determined through an estimate of the fair value of the underlying collateral and/or an assessment of the financial condition and repayment capacity of the borrower.

The level of future additions to the respective loan loss allowances is based on many factors, including certain factors that are beyond management’s control such as changes in economic and local market conditions, including declines in real estate values, and increases in vacancy rates and unemployment. Management uses the best available information to recognize losses on loans or to make additions to the loan loss allowances; however, the Community Bank and/or the Commercial Bank may be required to take certain charge-offs and/or recognize further additions to their loan loss allowances, based on the judgment of regulatory agencies with regard to information provided to them during their examinations of the Banks.

Investment Securities

The securities portfolio primarily consists of mortgage-related securities and, to a lesser extent, debt and equity (“other”) securities. Securities that are classified as “available for sale” are carried at their estimated fair value, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders’ equity. Securities that we have the intent and ability to hold to maturity are classified as “held to maturity” and carried at amortized cost, less the non-credit portion of OTTI recorded in accumulated other comprehensive loss, net of tax (“AOCL”).

The fair values of our securities—and particularly our fixed-rate securities—are affected by changes in market interest rates and credit spreads. In general, as interest rates rise and/or credit spreads widen, the fair value of fixed-rate securities will decline; as interest rates fall and/or credit spreads tighten, the fair value of fixed-rate securities will increase. We regularly conduct a review and evaluation of the securities portfolio to determine if the decline in the fair value of any security below its carrying amount is other than temporary. If we deem any decline in value to be other than temporary, the security is written down to its current fair value, creating a new cost basis, and the resultant loss (other than OTTI on debt securities attributable to non-credit factors) is charged against earnings and recorded in non-interest income. Our assessment of a decline in fair value includes judgment as to the financial positions and future prospects of the entity that issued the investment security, as well as a review of the security’s underlying collateral. Broad changes in the overall market or interest rate environment generally will not lead to a conclusion that an OTTI loss should be recognized on a particular security.

Prior to April 1, 2009, when the decline in fair value below an investment’s carrying amount was deemed to be other than temporary, the investment was written down to fair value and the full amount of the write-down was charged to the income statement. A decline in fair value of an investment was deemed to be other than temporary if we did not expect to recover the carrying amount of the investment or we did not have the intent and ability to hold the investment to the anticipated recovery of its amortized cost. Effective April 1, 2009, with the adoption of revised OTTI accounting requirements issued by the FASB, unless we have the intent to sell, or it is more likely than not that we will be required to sell a security, an OTTI is recognized as a realized loss on the income statement to the extent that the decline in fair value is credit-related. The decline in value attributable to factors other than credit is charged to AOCL. If there is a decline in fair value of a security below its carrying amount and we have the intent to sell it, or it is more likely than not that we will be required to sell the security, the entire amount of the decline in fair value will be charged to the income statement.

At December 31, 2009, we had net unrealized losses of $1.2 million on available-for-sale securities. The securities impairments were deemed to be temporary and were principally based on the direct relationship of the declines in fair value to the movements in interest rates, including, in some cases, wider credit spreads; the effect of illiquidity on the market; the estimated remaining life and the credit quality of the investments; and our ability to hold, and our intent not to sell, before anticipated full recovery of amortized cost, which may not be until maturity. In contrast, we had net unrealized gains on held-to-maturity securities of $26.1 million.

Goodwill Impairment

Goodwill is presumed to have an indefinite useful life and is tested for impairment, rather than amortized, at the reporting unit level, at least once a year. The goodwill impairment analysis is a two-step test. The first step (“Step 1”) is used to identify potential impairment, and involves comparing each reporting unit’s estimated fair value to its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill is considered not to be impaired. If the carrying amount exceeds the estimated fair value, there is an indication of potential impairment and the second step (“Step 2”) is performed to measure the amount.

Step 2 involves calculating an implied fair value of goodwill for each reporting unit for which impairment was indicated in Step 1. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination, i.e., by measuring the excess of the estimated fair value of the reporting unit, as determined in Step 1, over the aggregate estimated fair values of the individual assets, liabilities, and identifiable intangibles, as if the reporting unit was being acquired in a business combination at the impairment test date. If the implied fair value of goodwill exceeds the carrying amount of goodwill assigned to the reporting unit, there is no impairment. If the carrying amount of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss cannot exceed the carrying amount of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted.

Quoted market prices in active markets are the best evidence of fair value and are used as the basis for measurement, when available. Other acceptable valuation methods include present-value measurements based on multiples of earnings or revenues, or similar performance measures. Differences in the identification of reporting units and in valuation techniques could result in materially different evaluations of impairment.

For the purpose of goodwill impairment testing, management has determined that the Company has one reporting unit. We performed our annual goodwill impairment test as of January 1, 2009, and determined that the fair value of the reporting unit was in excess of its carrying amount. Accordingly, as of the annual impairment test date, there was no indication of goodwill impairment.

Historically, we have used the quoted market price of our common stock on the impairment testing date as the basis for determining fair value. As of January 1, 2009, the quoted market price of our common stock was $11.96 per share, resulting in a market capitalization of $4.1 billion, as compared to a net book value (common stockholders’ equity) of $4.2 billion at December 31, 2008. Given the negative variance of 2.4% in the Company’s market capitalization, management enhanced the valuation methodology by using a discounted cash flow analysis (“DCFA”). The DCFA utilized observable market data to the extent available. The discount rates utilized in the DCFA reflected market-based estimates of capital costs and discount rates adjusted for management’s assessment of a market participant’s view with respect to execution, concentration, and other risks associated with the projected cash flows. The results of the DCFA yielded a net book value in excess of fair value. In addition to the DCFA, we reviewed the Company’s average market price for the one-month period subsequent to December 31, 2008 and found that the average market price resulted in a market capitalization greater than the Company’s book value per share.

Furthermore, management utilized a market premium approach to determine if there was any indication of goodwill impairment at January 1, 2009. This approach looks at the market value of the Company’s common stock, and estimates the fair value of the Company based on the market value of the stock plus a control premium, and compares that value to the carrying amount of the Company’s stockholders’ equity. Under this method, management determined that there was no indication of goodwill impairment as of January 1, 2009. In determining the appropriate control premium, management took into consideration, among other factors, certain facts and circumstances unique to our company, as well as recent trends in market capitalization and control premiums used in comparable transactions.

We also performed our annual goodwill impairment test as of January 1, 2010 and found no indication of goodwill impairment.

Income Taxes

In July 2009, new tax laws were enacted that were effective for the determination of our New York City income tax liability for calendar year 2009. In general, these laws conformed the New York City tax rules to those of New York State. Included in these new tax laws is a provision which requires the inclusion of income earned by a subsidiary taxed as a real estate investment trust (“REIT”) for federal tax purposes, regardless of the location in which the REIT subsidiary conducts its business or the timing of its distribution of earnings. As a result of certain earlier business combinations, we currently have six REIT subsidiaries. The inclusion of such income is phased in with full inclusion of income starting in 2011. This new tax law increased our income tax expense in 2009 by $1.6 million. Absent any change in the manner in which we conduct our business, current income tax expense is estimated to increase by approximately $1.3 million in 2010, with a larger increase starting in 2011.

Balance Sheet Summary

At December 31, 2009, our assets totaled $42.2 billion and were up $9.7 billion, or 29.8%, from the year-earlier amount. Asset growth was primarily due to the AmTrust acquisition, which provided one- to four-family mortgage and other loans of $5.0 billion; available-for-sale securities of $760.0 million; and cash and cash equivalents of $4.0 billion, including $3.2 billion in cash received from the FDIC. In addition to the assets acquired in the AmTrust acquisition, our asset growth stemmed from loan originations of $4.3 billion over the course of the year.

Similarly, total liabilities rose $8.5 billion, or 30.2%, year-over-year, to $36.8 billion, as deposits grew $7.9 billion, or 55.2%, to $22.3 billion, and borrowed funds rose $668.0 million to $14.2 billion. The increase in deposits was largely attributable to the AmTrust acquisition, which provided deposits of $8.2 billion at December 4, 2009. While the balance of borrowed funds was increased by the AmTrust acquisition, the extent of the increase was limited by our deployment of cash acquired in the transaction to pay down certain wholesale borrowings and repurchase certain debt.

Stockholders’ equity rose $1.1 billion year-over-year to $5.4 billion, representing 12.73% of total assets and a book value of $12.40 per share. Tangible stockholders’ equity rose $1.1 billion during this time to $2.8 billion, and represented 7.13% of tangible assets and a tangible book value of $6.53 per share. (Please see the reconciliations of stockholders’ equity and tangible stockholders’ equity and the related measures that appear on page 85 of this report.) The year-over-year increases in the respective balances were primarily attributable to the net proceeds of our common stock offering in December and the sale of shares through the direct purchase feature of our Dividend Reinvestment and Stock Purchase Plan (“DRP”) during the year.

Loans

At December 31, 2009, loans represented $28.4 billion, or 67.4%, of total assets, as compared to $22.2 billion, or 68.4% of total assets, at December 31, 2008. Included in the year-end 2009 balance were the $5.0 billion of loans acquired in the AmTrust acquisition, all of which are subject to (i.e., covered by) our loss sharing agreements with the FDIC. These loans are referred to as “covered loans” on our Consolidated Statement of Condition at December 31, 2009. The remainder of the loan portfolio consisted of non-covered loans which were originated by the Company or, in some cases, acquired in our merger transactions prior to 2009.

Originations totaled $4.3 billion in 2009, a $1.6 billion reduction from the year-earlier total, as the decline in real estate values and economic weakness in our market discouraged multi-family and commercial real estate property owners from buying or refinancing properties. Included in the 2007 amount were loan originations for portfolio of $3.4 billion and originations of one- to four-family loans held for sale of $888.5 million. In 2008, originations of held-for-sale one- to four-family loans totaled $47.4 million; the significant increase in 2009 was attributable to originations by AmTrust’s mortgage banking unit in December for sale to Fannie Mae and Freddie Mac.

Although originations declined year-over-year, so too did loan sales and repayments, from $4.1 billion in 2008 to $3.3 billion in 2009. Included in the 2009 amount were sales of one- to four-family loans totaling $835.7 million; of this amount, loans of $735.0 million were originated for sale by AmTrust; the remainder were originated through our third-party conduit.

Loan Origination Analysis

The following table summarizes our loan production for the years ended December 31, 2009 and 2008:


	For the Years Ended December 31,
	2009				2008
*(dollars in thousands)*	Amount		Percent of Total		Amount		Percent of Total
Mortgage Loan Originations:
Multi-family	$	1,927,240	45.02	%	$	3,200,364	54.42	%
Commercial real estate		673,814	15.74			1,135,833	19.31
Acquisition, development, and construction		117,926	2.76			372,987	6.34
One- to four-family held for sale		888,527	20.76			47,385	0.81
One- to four-family held for portfolio		340	0.01			5,155	0.09

Total mortgage loan originations		3,607,847	84.29			4,761,724	80.97

Other Loan Originations:
Commercial and industrial		656,008	15.32			1,099,123	18.69
Other		16,563	0.39			20,087	0.34

Total other loan originations		672,571	15.71			1,119,210	19.03

Total loan originations	$	4,280,418	100.00	%	$	5,880,934	100.00	%

Covered Loans

At December 31, 2009, covered loans consisted of $4.4 billion of one- to four-family loans (including both fixed and adjustable rate loans that were made to subprime, Alt-A, and prime borrowers); $309.9 million of other loans (HELOCs and consumer loans); and $351.2 million of loans held-for-sale that were originated by AmTrust’s mortgage banking unit prior to the December 4th acquisition date. The latter loans are recorded in the Consolidated Statement of Condition as “covered loans held for sale.”

Covered loans are referred to as such because they are subject to our loss sharing agreements with the FDIC. The loss sharing agreements require the FDIC to reimburse us for 80% of losses up to $907.0 million, and 95% of losses beyond that initial amount with respect to the covered loans. Please see page 60 of this report for a more detailed discussion of the FDIC loss sharing agreements to which all the covered loans are subject.

Non-covered Loans

Multi-family Loans

Multi-family loans are our principal asset, and non-luxury residential apartment buildings with below-market rents in the New York Metropolitan region constitute our primary lending niche. Consistent with our emphasis on multi-family lending, multi-family loan originations represented 45.0% of the loans we produced in 2009 and 71.6% of non-covered loans outstanding at December 31, 2009. Multi-family loans rose $1.0 billion year-over-year to $16.7 billion, reflecting originations of $1.9 billion over the twelve-month period. At December 31, 2009, the average multi-family loan had a principal balance of $4.0 million and the portfolio had an average loan-to-value (“LTV”) ratio at origination of 61.0%, based on appraisals that primarily were received at the time of origination.

In 2009, loan production was primarily constrained by the decline in real estate values and by continued economic uncertainty. In addition, while competition for product was weak in the first half of the year, it began to pick up in the summer with the entry of new competitors and the return of Fannie Mae and Freddie Mac to our multi-family lending niche. We would expect to see a return to more normal loan production levels when the market becomes more stable and when an increase in market interest rates appears likely to occur.

Our multi-family loans are typically made to long-term owners of buildings with apartments that are subject to certain rent-control and rent-stabilization laws. Borrowers typically use the funds we provide to make improvements to the buildings and to certain apartments therein. Upon completion of these improvements, the property owners have the right to increase the rents paid by their tenants and, in doing so, can create more cash flows to borrow against in future years. To a lesser extent, we make loans to building owners seeking to expand their real estate holdings with the purchase of additional properties.

In addition to underwriting our multi-family loans on the basis of the buildings’ income and condition, we consider the borrowers’ credit history, profitability, and building management expertise. Borrowers are required to present evidence of their ability to repay the loan from the building’s current rent rolls, their financial statements, and related documents.

Our multi-family loans typically feature a term of ten years, with a fixed rate of interest for the first five years of the loan, and an alternative rate of interest in years six through ten. The rate charged in the first five years is generally based on intermediate-term interest rates plus a spread. During years six through ten, the loan resets to an annually adjustable rate that is tied to the prime rate of interest, as reported in The New York Times, plus a spread. Alternately, the borrower may opt for a fixed rate that, until January 2009, was tied to the five-year Constant Maturity Treasury rate (the “five year CMT”). For loans originated since that date, the fixed rate in years six through ten has been tied to the fixed advance rate of the Federal Home Loan Bank (“FHLB”) of New York (the “FHLB-NY”), plus a spread. The fixed-rate option also requires the payment of an amount equal to one percentage point of the then-outstanding loan balance. In either case, the minimum rate at repricing is equivalent to the rate in the initial five-year term.

As the rent roll increases, the typical property owner seeks to refinance the mortgage, and generally does so before the loan reprices in year six. While this cycle has repeated itself over the course of many decades, regardless of market interest rates and conditions, refinancing activity has been increasingly constrained by the uncertainty in the real estate market over the past two years, and is likely to be restrained while such uncertainty remains. Thus, in 2009, contrary to our historical experience, certain borrowers took the fixed rate option for years six through ten. Accordingly, the expected weighted average life of the multi-family loan portfolio was 4.2 years at the end of this December, as compared to 3.8 years at December 31, 2008.

Multi-family loans that refinance within the first five years are typically subject to an established prepayment penalty schedule. Depending on the remaining term of the loan at the time of prepayment, the penalties normally range from five percentage points to one percentage point of the then-current loan balance. If a loan extends past the fifth year and the borrower selects the fixed rate option, the prepayment penalties typically reset to a range of five points to one point over years six through ten.

Prepayment penalties are recorded as interest income and are therefore reflected in the average yields on our loans and assets, our interest rate spread and net interest margin, and the level of net interest income we record.

Our success in our primary lending niche partly reflects the solid relationships we have developed with the market’s leading mortgage brokers, who are familiar with our lending practices, our underwriting standards, and our long-standing practice of basing our loans on the cash flows produced by the properties. Because the multi-family market is largely broker-driven, the process of producing such loans is significantly expedited, with loans taking four to six weeks to process, and the related expenses being substantially reduced.

At December 31, 2009, $16.4 billion, or 98.3%, of our multi-family loans were secured by rental apartment buildings, with the remainder of the portfolio being secured by underlying mortgages on cooperative apartment buildings. In addition, 75.4% of our multi-family loans were secured by buildings in New York City, with Manhattan accounting for the largest share. Of the loans secured by buildings that are outside New York City, the State of New York was home to 5.8% of our multi-family credits, with New Jersey and Pennsylvania accounting for 8.8% and 4.0%, respectively. The remaining 6.0% of multi-family loans were secured by buildings outside our primary market.

Our emphasis on multi-family loans is driven by several factors, including their structure, which reduces our exposure to interest rate volatility to some degree. Another factor driving our focus on multi-family lending has been the comparative quality of the loans in our specific niche. Notwithstanding an increase in non-performing multi-family loans in the current credit cycle, the amount of charged-off multi-family loans has, to date, been limited and has largely consisted of out-of-market non-niche loans. We attribute the difference between the amount of non-performing loans we record and the actual losses we take to our underwriting standards and the generally conservative LTV ratios on the multi-family loans we produce.

We primarily underwrite our multi-family loans based on the current cash flows produced by the building, with a reliance on the “income” approach to appraising the properties, rather than the “sales” approach. The sales approach is subject to fluctuations in the real estate market, as well as general economic conditions, and is therefore liable to be more risky in the event of a downward credit cycle. We also consider a variety of other factors, including the physical condition of the underlying property; the net operating income of the mortgaged premises prior to debt service and depreciation; the debt service coverage ratio, which is the ratio of the property’s net operating income to its debt service; and the ratio of the loan amount to the appraised value of the property. The multi-family loans we are originating today generally represent no more than 75% of the lower of the appraised value or the sales price of the underlying property, and typically feature an amortization period of up to 30 years. In addition to requiring a minimum debt service coverage ratio of 120% on multi-family buildings, we obtain a security interest in the personal property located on the premises, and an assignment of rents and leases.

Accordingly, while our multi-family lending niche has not been immune to the downturn of the credit cycle, we continue to believe that the multi-family loans we produce involve less credit risk than certain other types of loans. In general, buildings that are subject to rent regulation have tended to be stable, with occupancy levels remaining more or less constant over time. Because the rents are typically below market and the buildings securing our loans are generally maintained in good condition, we believe that they are reasonably likely to retain their tenants in adverse economic times.

In a ruling that was contrary to a 1996 advisory opinion from the New York State Division of Housing and Community Renewal that owners of housing units who benefited from the receipt of “J-51” tax incentives under the

Rent Stabilization Law are eligible to decontrol luxury apartments, the New York State Court of Appeals ruled, on October 22, 2009, that residential housing units located in two major housing complexes in New York City had been illegally decontrolled by the current and previous property owners.

Although we are a major producer of multi-family loans in New York City, the loans on these two properties are not in our portfolio. In addition, because we underwrite our multi-family loans on the basis of the current cash flows generated by the underlying properties—excluding any J-51 real estate tax benefits received by the property owners—our business model is not dependent upon lending to property owners who place an emphasis on luxury decontrol. Accordingly, this ruling has not had a material impact on our multi-family loan portfolio.

Commercial Real Estate (“CRE”) Loans

CRE loans represented $673.8 million, or 15.7%, of the year’s originations, as compared to $1.1 billion, or 19.3%, of the loans produced in 2008. While the growth of the portfolio was tempered by the level of repayments, CRE loans totaled $5.0 billion at the end of this December, a $435.1 million increase from the balance recorded at December 31, 2008. At December 31, 2009, CRE loans represented 21.3% of non-covered loans outstanding, as compared to 20.5% at the prior year-end. The average CRE loan had a principal balance of $2.8 million at the end of this December, and the portfolio had an average LTV ratio at origination of 54.2%.

At December 31, 2009, 60.2% of our CRE loans were secured by properties in New York City, with properties on Long Island and in New Jersey accounting for 17.2% and 11.7%, respectively. The CRE loans we produce are secured by income-producing properties such as office buildings, retail centers, mixed-use buildings, and multi-tenanted light industrial properties.

The pricing of our CRE loans is structured along the same lines as our multi-family credits, i.e., with a fixed rate of interest for the first five years of the loan that is generally based on intermediate-term interest rates plus a spread. During years six through ten, the loan resets to an annually adjustable rate that is tied to the prime rate of interest, as reported in The New York Times, plus a spread. Alternately, the borrower may opt for a fixed rate that, until January 2009, was tied to the five-year CMT. For loans originated since that date, the fixed rate in years six through ten has been tied to the fixed advance rate of the FHLB-NY plus a spread. The fixed-rate option also requires the payment of an amount equal to one percentage point of the then-outstanding loan balance. In either case, the minimum rate at repricing is equivalent to the rate in the initial five-year term.

Prepayment penalties also apply, with five percentage points of the then-current balance generally being charged on loans that refinance in the first year, scaling down to one percentage point of the then-current balance on loans that refinance in year five. Our CRE loans tend to refinance within five years of origination. Accordingly, the expected weighted average life of the portfolio was 3.9 years at December 31, 2009 and 3.4 years at December 31, 2008. If a loan remains outstanding in the sixth year, and the borrower selects the fixed-rate option, a schedule of prepayment penalties ranging from five points to one point begins again in year six.

The repayment of loans secured by commercial real estate is often dependent on the successful operation and management of the underlying properties. To minimize our credit risk, we originate CRE loans in adherence with conservative underwriting standards, and require that such loans qualify on the basis of the property’s current income stream and debt service coverage ratio. The approval of a loan also depends on the borrower’s credit history, profitability, and expertise in property management, and generally requires a minimum debt service coverage ratio of 130% and a maximum LTV ratio of 65%. In addition, the origination of CRE loans typically requires a security interest in the personal property of the borrower and/or an assignment of the rents and/or leases.

Acquisition, Development, and Construction (“ADC”) Loans

While the growth of our loan portfolio was fueled by multi-family and CRE lending, the increase was tempered by a reduction in ADC loans. In the interest of reducing our exposure to credit risk at a time when real estate values have been declining, we have, for the most part, limited our production of ADC loans since the second half of 2007 to advances that were committed prior to the onset of the credit cycle turn. As a result, originations declined by $255.1 million, or 68.4%, from the year-earlier volume to $117.9 million in 2009. ADC loans represented $666.4 million, or 2.9%, of total non-covered loans at December 31, 2009, representing a 14.4% reduction from $778.4 million at December 31, 2008.

At December 31, 2009, 60.2% of the loans in our ADC portfolio were for land acquisition and development; the remaining 39.8% consisted of loans that were provided for the construction of owner-occupied homes and commercial properties. Such loans are typically originated for terms of 18 to 24 months, and feature a floating rate of interest tied to prime, and a floor. They also generate origination fees that are recorded as interest income and amortized over the lives of the loans.

In addition, 68.9% of the loans in the ADC portfolio were for properties in New York City, with Manhattan accounting for more than half of New York City’s share. Long Island accounted for 20.5% of our ADC loans, with other parts of New York State and New Jersey accounting for 6.4%, combined. In previous years, limited ADC lending was done outside our immediate market and, even then, to borrowers we had lent to successfully within our marketplace.

Because ADC loans are generally considered to have a higher degree of credit risk, especially during a downturn in the credit cycle, borrowers are required to provide a personal guarantee of repayment and completion during construction. The risk of loss on an ADC loan is largely dependent upon the accuracy of the initial appraisal of the property’s value upon completion of construction; the estimated cost of construction, including interest; and the estimated time to complete and/or sell or lease such property. If the appraised value proves to be inaccurate, the cost of completion is greater than expected, or the length of time to complete and/or sell or lease the collateral property is greater than anticipated, the property could have a value upon completion that is insufficient to assure full repayment of the loan. At December 31, 2009, 11.9% of the loans in our ADC loan portfolio were non-performing, a result of the downturn in the credit cycle, and an indication of the length of time it has taken certain borrowers to sell or lease the properties underlying their loans.

When applicable, as a condition to closing a construction loan, it is our practice to require that residential properties be pre-sold or that borrowers secure permanent financing commitments from a recognized lender for an amount equal to, or greater than, the amount of our loan. In some cases, we ourselves may provide permanent financing. We typically require pre-leasing for loans on commercial properties.

One- to Four-Family Loans

Although we offer one- to four-family loans, it has long been our policy to produce such loans on a pass-through basis only, and to sell the loans we originate to the third-party conduit shortly after they close. Reflecting this practice, as well as repayments of seasoned loans that were produced before its adoption or were acquired in our pre-AmTrust merger transactions, non-covered one- to four-family loans declined $50.2 million year-over-year to $216.1 million, and represented less than 1% of total non-covered loans at December 31, 2009.

In connection with this practice, we participate in a private-label program with a nationally recognized third-party mortgage originator (the “conduit”), based on defined underwriting criteria. The loans are marketed through our branches, including those acquired in the AmTrust acquisition, as well as on our web sites. The loans that we originate through the conduit program generate fees that are recorded as “other non-interest income” in our Consolidated Statements of Income and Comprehensive Income.

In addition to ensuring that our customers are provided with an extensive range of one- to four-family products, the conduit arrangement supports two of our primary objectives: managing our exposure to interest rate risk and maintaining our efficiency.

With the addition of AmTrust’s mortgage banking unit, we now originate a far greater number of one- to four-family loans than we did before the acquisition, specifically consisting of agency-conforming loans for sale to Fannie Mae and Freddie Mac. The loans originated through the mortgage banking unit are made to borrowers on a nationwide platform, and in future periods will be reflected on the Consolidated Statement of Condition, together with the loans originated through our conduit program, as “non-covered one- to four-family loans held for sale.”

Other Loans

Our portfolio of other loans also declined in 2009, by $101.8 million, to $771.6 million at December 31st. Commercial and industrial (“C&I”) loans accounted for $653.2 million of other loans at the end of December, as compared to $713.1 million at December 31, 2008. Of the $672.6 million of other loans produced in the past four quarters, C&I loan originations accounted for $656.0 million, or 97.5%.

C&I loans are tailored to meet the specific needs of our borrowers, and include term loans, demand loans, revolving lines of credit, letters of credit, and loans that are partly guaranteed by the Small Business Administration. A broad range of C&I loans, both collateralized and unsecured, are made available to businesses for working capital (including inventory and accounts receivable), business expansion, the purchase of machinery and equipment, and other general corporate needs. In determining the tenor and structure of a C&I loan, several factors are considered, including its purpose, the collateral, and the anticipated sources of repayment. C&I loans are typically secured by business assets and personal guarantees of the borrower, and include financial covenants to monitor the borrower’s financial stability.

The interest rates on C&I loans can be fixed or floating, with floating rate loans being tied to prime or some other market index, plus an applicable spread. Depending on the profitability of our relationship with the borrower, our floating rate loans may or may not feature a floor rate of interest.

A benefit of C&I lending is the opportunity to establish full-scale banking relationships with our C&I customers. As a result, many of our borrowers provide us with deposits, and many take advantage of our cash management, investment, and trade finance services.

The remainder of the portfolio of other loans consists primarily of home equity loans and lines of credit, as well as a variety of consumer loans, most of which were originated by our pre-AmTrust merger partners prior to their joining the Company. We currently do not offer home equity loans or lines of credit.

Geographical Analysis of the Loan Portfolio

The following table presents a geographical analysis of our multi-family, CRE, and ADC loans (all of which are non-covered loans) at December 31, 2009:


	At December 31, 2009
	Multi-family Loans				Commercial Real Estate Loans				Acquisition, Development, and and Construction Loans
*(dollars in thousands)*	Amount		Percent of Total		Amount		Percent of Total		Amount		Percent of Total
*(dollars in thousands)*	Amount		Percent of Total		Amount		Percent of Total		Amount		Percent of Total
New York City:
Manhattan	$	5,306,808	31.71	%	$	1,834,807	36.78	%	$	271,419	40.73	%
Brooklyn		2,986,082	17.84			390,303	7.82			91,040	13.66
Bronx		2,329,002	13.91			192,233	3.85			17,827	2.68
Queens		1,889,069	11.29			529,423	10.61			53,541	8.03
Staten Island		116,278	0.69			56,632	1.14			25,001	3.75

Total New York City	$	12,627,239	75.44	%	$	3,003,398	60.20	%	$	458,828	68.85	%

Long Island		450,450	2.69			859,574	17.23			136,513	20.48
Other New York State		521,557	3.12			113,009	2.27			2,891	0.43
New Jersey		1,465,753	8.76			582,672	11.68			39,892	5.99
Pennsylvania		664,168	3.97			262,105	5.25			—	—
All other states		1,008,554	6.02			167,891	3.37			28,316	4.25

Total	$	16,737,721	100.00	%	$	4,988,649	100.00	%	$	666,440	100.00	%

The covered loans acquired in the AmTrust acquisition were made to borrowers throughout the United States, primarily for the purchase or refinancing of one- to four-family homes.

Loan Portfolio Analysis

The following table summarizes the composition of our loan portfolio at each year-end for the five years ended December 31, 2009:


	At December 31,
	2009							2008					2007					2006					2005
	Amount			Percent of Total Loans		Percent of Non- covered Loans		Amount			Percent of Total Loans		Amount			Percent of Total Loans		Amount			Percent of Total Loans		Amount			Percent of Total Loans
(dollars in thousands)	Amount			Percent of Total Loans		Percent of Non- covered Loans		Amount			Percent of Total Loans		Amount			Percent of Total Loans		Amount			Percent of Total Loans		Amount			Percent of Total Loans

Non-covered Mortgage Loans:
Multi-family	$	16,737,721		58.94	%	71.59	%	$	15,728,264		70.85	%	$	14,052,298		69.00	%	$	14,529,097		73.93	%	$	12,854,188		75.49	%
Commercial real estate		4,988,649		17.57		21.34			4,553,550		20.51			3,828,334		18.80			3,114,440		15.85			2,888,294		16.96
Acquisition, development, and construction		666,440		2.35		2.85			778,364		3.51			1,138,851		5.59			1,102,732		5.61			856,651		5.03
One- to four-family		216,078		0.76		0.92			266,307		1.20			380,824		1.87			230,508		1.17			254,510		1.49

Total non-covered mortgage loans	$	22,608,888		79.62		96.70		$	21,326,485		96.07		$	19,400,307		95.26		$	18,976,777		96.56		$	16,853,643		98.97

Non-covered Other Loans:
Commercial and industrial		653,159		2.30		2.79			713,099		3.21			705,810		3.47			643,116		3.27			152,638		0.90
Other loans		118,445		0.42		0.51			160,340		0.72			259,395		1.27			33,677		0.17			22,855		0.13

Total non-covered other loans		771,604		2.72		3.30			873,439		3.93			965,205		4.74			676,793		3.44			175,493		1.03

Total non-covered loans	$	23,380,492		82.34		100.00	%

Net deferred loan origination fees		(3,893	)						(7,712	)				(2,264	)				(679	)				(734	)
Allowance for loan losses		(127,491	)						(94,368	)				(92,794	)				(85,389	)				(79,705	)

Total non-covered loans, net	$	23,249,108						$	22,097,844				$	20,270,454				$	19,567,502				$	16,948,697
Total Covered Loans⁽¹⁾		5,016,100		17.66					—		—			—		—			—		—			—		—

Total loans, net	$	28,265,208		100.00	%			$	22,097,844		100.00	%	$	20,270,454		100.00	%	$	19,567,502		100.00	%	$	16,948,697		100.00	%

(1)	Covered loans include $4.7 billion of one- to four-family loans (of which $351.3 million were held for sale) and $309.9 million of other loans at December 31, 2009. We had no covered loans at any of the prior year-ends.

Lending Authority

The loans we originate for portfolio are subject to federal and state laws and regulations, and are underwritten in accordance with loan underwriting policies and procedures approved by the Mortgage and Real Estate Committee of the Board of Directors of the Community Bank (the “Mortgage Committee”), the Credit Committee of the Board of Directors of the Commercial Bank (the “Credit Committee”), and the respective Boards of Directors.

In accordance with the Banks’ policies, all loans of $10.0 million or more are reported to the respective Boards of Directors. In 2009, 52 loans of $10.0 million or more were originated by the Banks, with an aggregate loan balance of $1.2 billion at origination. In 2008, 104 such loans were originated by the Banks, with an aggregate loan balance at origination of $2.7 billion.

We also place a limit on the amount of loans that may be made to one borrower. At December 31, 2009, the largest concentration of loans to one borrower consisted of a $479.5 million multi-family loan provided by the Community Bank to Riverbay Corporation—Co-op City, a residential community with 15,372 units in the Bronx, New York, which was created under New York State’s Mitchell-Lama Housing Program in the late 1960s to provide affordable housing for middle-income residents of the State. The loan was originated on September 30, 2004 at an interest rate of 5.20%. At October 1, 2009, the interest rate on the loan was 6.20%. As of December 31, 2009, the loan has been current since its origination.

Mortgage Banking Unit

With the AmTrust acquisition, we acquired a mortgage banking unit that is currently originating only agency-conforming one- to four-family loans for sale to Fannie Mae and Freddie Mac. In connection with the activities of the mortgage banking unit, we have certain interest rate lock commitments to fund loans and other derivative financial instruments that obligate us to sell loans at specific dates in the future at specified prices. These commitments are considered derivatives, and are carried at fair value.

Most forward commitments to sell are entered into with primary dealers. Entering into commitments to sell loans can pose a risk if we are not able to deliver the loans on the appropriate delivery date. If we are unable to meet our obligation, we may be required to pay a fee to the counterparty.

We may retain the servicing on loans that we sell, in which case we would recognize a mortgage servicing right (“MSR”) asset. We estimate prepayment rates based on current interest rate levels, other economic conditions, and market forecasts, as well as relevant characteristics of the servicing portfolio. Generally, when market interest rates decline, prepayments increase as customers refinance their existing mortgages under more favorable interest rate terms. When a mortgage prepays, or when loans are expected to prepay earlier than originally expected, the anticipated cash flows associated with servicing these loans are terminated or reduced, resulting in a reduction to the fair value of the capitalized MSRs and a reduction in earnings. MSRs are recorded at fair value, with changes in fair value recorded as a component of non-interest income in each period.

Loan Maturity and Repricing Analysis

The following table sets forth the maturity or period to repricing of our loan portfolio at December 31, 2009. Loans that have adjustable rates are shown as being due in the period during which the interest rates are next subject to change.


	Covered and Non-covered Loans at December 31, 2009
*(in thousands)*	Multi-family		Commercial Real Estate		Acquisition, Development, and Construction		One- to Four- Family		Other		Total Loans
Amount due:
Within one year	$	2,055,458	$	731,885	$	655,619	$	1,456,231	$	864,196	$	5,763,389
After one year:
One to five years		11,708,252		3,017,927		10,344		1,952,709		153,895		16,843,127
Over five years		2,974,011		1,238,837		477		1,513,355		63,396		5,790,076

Total due or repricing after one year		14,682,263		4,256,764		10,821		3,466,064		217,291		22,633,203

Total amounts due or repricing, gross	$	16,737,721	$	4,988,649	$	666,440	$	4,922,295	$	1,081,487	$	28,396,592

The following table sets forth, as of December 31, 2009, the dollar amount of all loans due after December 31, 2010, and indicates whether such loans have fixed or adjustable rates of interest.


	Due after December 31, 2010
*(in thousands)*	Fixed		Adjustable		Total
Mortgage Loans:
Multi-family	$	4,125,900	$	10,556,363	$	14,682,263
Commercial real estate		1,371,989		2,884,775		4,256,764
Acquisition, development, and construction		10,821		—		10,821
One- to four-family		2,174,766		1,291,298		3,466,064

Total mortgage loans		7,683,476		14,732,436		22,415,912
Other loans		215,693		1,598		217,291

Total loans	$	7,899,169	$	14,734,034	$	22,633,203

Outstanding Loan Commitments

At December 31, 2009, we had outstanding loan commitments of $1.4 billion, including commitments to originate $232.1 million of multi-family loans; $50.3 million of CRE loans; $173.1 million of ADC loans; and $517.6 million of other loans, including $473.7 million of unadvanced lines of credit. Commitments to originate one- to four-family loans (all of which will be sold) totaled $474.4 million at December 31, 2009, as compared to $27.1 million at December 31, 2008, with the difference primarily being attributable to AmTrust’s mortgage banking unit.

In addition to loan commitments, we had commitments to issue financial stand-by, performance, and commercial letters of credit totaling $48.0 million at December 31, 2009. The commitments featured terms ranging from one to three years and are collateralized.

Financial stand-by letters of credit primarily are issued for the benefit of other financial institutions or municipalities, on behalf of certain of our current borrowers, and obligate us to guarantee payment of a specified financial obligation.

Performance letters of credit are primarily issued for the benefit of local municipalities on behalf of certain of our borrowers. These borrowers are mainly developers of residential subdivisions with whom we currently have a lending relationship. Performance letters of credit obligate us to make payments in the event that a specified third party fails to perform under non-financial contractual obligations.

Commercial letters of credit act as a means of ensuring payment to a seller upon shipment of goods to a buyer. Although commercial letters of credit are used to effect payment for domestic transactions, the majority are used to settle payments in international trade. Typically, such letters of credit require presentation of documents that describe the commercial transaction, and provide evidence of shipment and the transfer of title.

The fees we collect in connection with the issuance of letters of credit are included in “fee income” in the Consolidated Statements of Income and Comprehensive Income.

Asset Quality

The economic crisis that began in the second half of 2007 showed few signs of abating as unemployment continued to rise, more businesses faltered, and real estate values declined through most of 2009. Although the initial shock of the crisis faded away, its far-reaching impact continued, posing a challenge to both borrowers and lenders alike.

The following discussion refers to our non-covered loans only, as the covered loans we acquired in the AmTrust acquisition are considered to be performing, as discussed on page 60 under “Covered Loans.”

The impact of these economic forces was reflected in our non-performing assets and net charge-offs, both of which rose substantially in 2009. At $29.9 million, net charge-offs represented 0.13% of average loans in 2009, as compared to $6.2 million, representing 0.03% of average loans, in 2008. Multi-family loans accounted for $15.3 million of the 2009 net charge-offs, with ADC loans and other loans accounting for $6.0 million and $7.8 million, respectively. In 2008, the majority of our net charge-offs consisted of ADC and other loans.

Non-performing loans rose to $578.1 million in 2009 from the prior year’s $113.7 million, and represented 2.04% and 0.51% of total loans, respectively. The increase in non-performing loans was attributable to a $455.2 million rise in non-accrual mortgage loans to $557.1 million and a $9.2 million rise in non-accrual other loans to $20.9 million. The increase in non-accrual mortgage loans was largely due to a $340.0 million increase in loans secured by multi-family buildings, most of which were located outside our primary lending niche, as described earlier under “Multi-family Loans.” Although the reasons for this increase vary from credit to credit, such loans do not typically result in significant losses, given the value of the cash flows such buildings generate.

A loan generally is classified as a “non-accrual” loan when it is over 90 days past due. When a loan is placed on non-accrual status, we cease the accrual of interest owed, and previously accrued interest is reversed and charged against interest income. A loan is generally returned to accrual status when the loan is less than 90 days past due and we have reasonable assurance that the loan will be fully collectible.

Non-performing loans are reviewed regularly by management and reported on a monthly basis to the Mortgage Committee, the Credit Committee, and the Boards of Directors of the Banks. When necessary, non-performing loans are written down to their current appraised values, less certain transaction costs. Workout specialists from our Loan Recovery Unit actively pursue borrowers who are delinquent in repaying their loans in an effort to collect payment. In addition, outside counsel with experience in foreclosure proceedings are retained to institute such action with regard to such borrowers.

Properties that are acquired through foreclosure are classified as “other real estate owned” (“OREO”), and recorded at the lower of the unpaid principal balance or fair value at the date of acquisition, less the estimated cost of selling the property. At December 31, 2009, OREO totaled $15.2 million as compared to $1.1 million at the previous year-end.

It is our policy to require an appraisal and environmental assessment of properties classified as OREO before foreclosure, and to re-appraise the properties on an as-needed basis until they are sold. We dispose of such properties as quickly and prudently as possible, given current market conditions and the property’s condition.

Reflecting the increase in non-performing loans and OREO, non-performing assets rose $478.5 million year-over-year to $593.3 million, representing 1.41% of total assets at December 31, 2009. At December 31, 2008, the comparable ratio was 0.35%. In addition, loans 30 to 89 days past due totaled $273.0 million at the end of this December, a $170.2 million increase from the year-end 2008 amount.

To mitigate the potential for credit risk, we underwrite our loans in accordance with prudent credit standards. In the case of multi-family and CRE loans, we look first at the consistency of the cash flows being generated to determine the property’s economic value, and then at the market value of the property that collateralizes the loan. The amount of the loan is then based on the lower of the two values, with the economic value more typically used.

The condition of the collateral property is another critical factor. Multi-family buildings and CRE properties are inspected from rooftop to basement as a prerequisite to approval by management and the Mortgage or Credit Committee, as applicable. A member of the Mortgage or Credit Committee participates in inspections on multi-family loans originated in excess of $4.0 million. Similarly, a member of the Mortgage or Credit Committee participates in inspections on CRE loans in excess of $2.5 million. Furthermore, independent appraisers, whose appraisals are carefully reviewed by our experienced in-house appraisal officers, perform appraisals on collateral properties.

In addition, we work with a select group of mortgage brokers who are familiar with our credit standards and whose track record with our lending officers is typically greater than ten years. In addition, in New York City, where 75.4% of the buildings securing our multi-family loans are located, the rents that tenants may be charged on the apartments in certain buildings is restricted under certain rent-control or rent-stabilization laws. As a result, the average rents that tenants pay in such apartments are generally lower than current market rents. Buildings with a preponderance of such rent-regulated apartments are, therefore, less likely to experience vacancies in times of economic adversity.

To further manage our credit risk, our lending policies limit the amount of credit granted to any one borrower, and typically require a minimum debt service coverage ratio of 120% for multi-family loans and 130% for CRE loans. Although we typically will lend up to 75% of the appraised value on multi-family buildings and up to 65% on commercial properties, the current average LTV ratios of such credits were well below those amounts at December 31, 2009, as previously noted. Exceptions to these LTV limitations are reviewed on a case-by-case basis, requiring the approval of the Mortgage or Credit Committee, as applicable.

The repayment of loans secured by commercial real estate is often dependent on the successful operation and management of the underlying properties. To minimize our credit risk, we originate CRE loans in adherence with conservative underwriting standards, and require that such loans qualify on the basis of the property’s current income stream and debt service coverage ratio. The approval of a loan also depends on the borrower’s credit history, profitability, and expertise in property management; in addition, the origination of CRE loans typically requires an assignment of the rents and/or leases.

The Boards of Directors also take part in the ADC lending process, with all ADC loans requiring the approval of the Mortgage or Credit Committee, as applicable. In addition, a member of the pertinent committee participates in inspections when the loan amount exceeds $2.5 million. ADC loans have primarily have been made to well-established builders who have worked with us or our merger partners in the past. We typically lend up to 75% of the estimated as-completed market value of multi-family and residential tract projects; however, in the case of home construction loans to individuals, the limit is 80%. With respect to commercial construction loans, which are not our primary focus, we typically lend up to 65% of the estimated as-completed market value of the property.

Credit risk is also managed through the loan disbursement process. Loan proceeds are disbursed periodically in increments as construction progresses, and as warranted by inspection reports provided to us by our own lending officers and/or consulting engineers.

C&I loans are typically underwritten on the basis of the cash flows produced by the borrower’s business, and are generally collateralized by various business assets, including, but not limited to, inventory, equipment, and accounts receivable. As a result, the capacity of the borrower to repay is substantially dependent on the degree to which the business is successful. Furthermore, the collateral underlying the loan may depreciate over time, may not be conducive to appraisal, and may fluctuate in value, based upon the operating results of the business. Accordingly, personal guarantees are also a normal requirement for C&I loans.

Our loan portfolio has been structured to manage our exposure to both credit and interest rate risk. The vast majority of the loans in our portfolio are intermediate-term credits, with multi-family and CRE loans typically repaying or refinancing within three to five years of origination, and the duration of ADC loans ranging up to 36 months, with 18 to 24 months more the norm. Furthermore, our multi-family loans are largely secured by buildings with rent-regulated apartments that tend to maintain a high level of occupancy, regardless of economic conditions in our marketplace.

The procedures we follow with respect to delinquent loans are generally consistent across all categories, with late charges assessed, and notices mailed to the borrower, at specified dates. We attempt to reach the borrower by telephone to ascertain the reasons for delinquency and the prospects for repayment. When contact is made with a borrower at any time prior to foreclosure or recovery against collateral property, we attempt to obtain full payment, and will consider a repayment schedule to avoid taking such action. Delinquencies are addressed by our Loan Recovery Unit and every effort is made to collect rather than initiate foreclosure proceedings.

While we strive to originate loans that will perform fully, the severity of the credit cycle has resulted in an increase in non-performing loans and assets, as well as net charge-offs. In view of the weakened economy and the increase in non-performing assets and net charge-offs, we increased our allowance for loan losses in 2009. The allowance for loan losses rose $33.1 million, or 35.1%, year-over-year to $127.5 million, as net charge-offs of $29.9 million were exceeded by loan loss provisions of $63.0 million. In 2008, the provision for loan losses totaled $7.7 million and exceeded that year’s net charge-offs by $1.5 million. At December 31, 2009, the allowance for loan losses represented 0.45% of total loans and 22.05% of non-performing loans.

The manner in which the allowance for loan losses is established, and the assumptions made in that process, are considered critical to our financial condition and results. Such assumptions are based on judgments that are difficult, complex, and subjective regarding various matters of inherent uncertainty. The current economic environment has increased the degree of uncertainty inherent in these judgments. Accordingly, the policies that govern our assessment of the allowance for loan losses are considered “Critical Accounting Policies” and are discussed under that heading earlier in this report.

Based upon all relevant and available information, management believes that the allowance for loan losses at December 31, 2009 was appropriate at that date.

Historically, our level of charge-offs has been relatively low in adverse credit cycles, even when the volume of non-performing loans has increased. This distinction has largely been due to the nature of our primary lending niche (multi-family loans collateralized by non-luxury residential apartment buildings in the New York Metropolitan region that have a preponderance of apartments with below-market rents); and to our conservative underwriting practices that require, among other things, low LTV ratios.

Despite the rise in non-performing multi-family loans in 2009, we would not expect to see a comparable increase in losses. This is primarily due to the strength of the underlying collateral for these loans and the collateral structure upon which these loans are based. Low LTV ratios provide a greater likelihood of full recovery and reduce the possibility of incurring a severe loss on a credit. Furthermore, in many cases, low LTV ratios result in our having fewer loans with a potential for the borrower to “walk-away” from the property. Although borrowers may default on loan payments, they have a greater incentive to protect their equity in the collateral property and to return the loan to performing status.

Similarly, an increase in CRE loans would not necessarily be expected to result in a corresponding increase in our loan loss allowance for such credits. At December 31, 2009, CRE loans represented 21.3% of non-covered loans outstanding, an 83 basis point increase from the year-earlier amount. Charge-offs of CRE loans represented 1.8% of total charge-offs in the current twelve-month period and 0.26% in the twelve months ended December 31, 2008. We believe this favorable loan loss experience is due to our historical practice of underwriting CRE loans in accordance with standards similar to those we follow in underwriting our multi-family loans.

In 2009, we continued to de-emphasize the production of ADC and other loans, as well as one- to four-family loans for portfolio, in order to mitigate credit risk. At December 31, 2009, ADC, other loans, and one- to four-family loans represented 2.4%, 2.7%, and 0.76%, respectively, of loans outstanding, as compared to 3.5%, 3.9%, and 1.2%, respectively, at December 31, 2008. At December 31, 2009, 11.9%, 2.7%, and 6.6% of ADC, other loans, and one- to four-family loans were non-performing, respectively. Although ADC, other loans, and one- to four-family loans each

represented a smaller percentage of loans outstanding, the level of the loan loss allowance for such loans at December 31, 2009 either increased or remained consistent with the year-earlier level, reflecting the trend in non-performing loans and our ongoing assessment of the risk inherent in these portfolios.

In view of these factors, we believe that a significant increase in non-performing loans will not necessarily result in a comparable increase in loan losses and, accordingly, will not necessarily require a significant increase in our loan loss allowance or in the provision for loan losses recorded in any given period. As indicated, while non-performing loans represented 2.04% of total loans at December 31, 2009, the ratio of net charge-offs to average loans for the twelve months ended at that date was 0.13%. The allowance for loan losses is determined in accordance with the methodology described earlier in this report under “Critical Accounting Policies.”

Covered Loans

Although the AmTrust acquisition increased our loan portfolio by $5.0 billion, the credit risk associated with the acquired loans was substantially mitigated by the Community Bank’s loss sharing agreements with the FDIC. Under the terms of the loss sharing agreements, the FDIC will reimburse us for 80% of losses (and share in 80% of any recoveries) up to $907.0 million and reimburse us for 95% of any losses (and share in 95% of any recoveries) with respect to losses exceeding that initial amount. The loss sharing (and reimbursement) agreement applicable to one- to four-family mortgage loans and HELOCs is effective for a ten-year period. The loss sharing agreement applicable to consumer loans provides for the FDIC to reimburse us for losses for a five-year period; the period for sharing in recoveries on consumer loans extends for a period of eight years.

We consider the covered loans to be performing due to the application of the yield accretion method under Codification Topic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” Topic 310-30 allows us to aggregate credit-impaired loans acquired in the same fiscal quarter into one or more pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Accordingly, loans that may have been classified as non-performing loans by AmTrust are no longer classified as non-performing because, at acquisition, we believe we will fully collect the new carrying value of these loans. The new carrying value represents the contractual balance, reduced by the portion expected to be uncollectible (referred to as the “non-accretable difference”) and by an accretable yield (discount) that is recognized as interest income. It is important to note that management’s judgment is required in reclassifying loans subject to Codification Topic 310-30 as performing loans, and is dependent on having a reasonable expectation about the timing and amount of the cash flows to be collected, even if the loan is contractually past due.

In addition, the Community Bank agreed to pay to the FDIC on January 18, 2020 (the “True-Up Measurement Date”), half of the amount, if positive, calculated as (1) $181,400,000 minus (2) the sum of (a) 25% of the asset discount bid made in connection with the AmTrust acquisition; (b) 25% of the Cumulative Shared-Loss Payments (as defined in the agreements); and (c) the sum of the period servicing amounts for every consecutive twelve-month period prior to, and ending on, the True-Up Measurement Date in respect of each of the shared loss agreements during which the applicable shared loss agreement is in effect.

These reimbursable losses and recoveries are based on the book value of the relevant loans and other assets as determined by the FDIC as of the effective date of the acquisition. The amount that the Community Bank realizes on these assets could differ materially from the carrying value that will be reflected in any financial statements, based upon the timing and amount of collections and recoveries on the covered loans in future periods.

In connection with the loss sharing agreements, we established an FDIC loss share receivable in the amount of $740.0 million, which was the acquisition date fair value of the loss sharing agreements (expected reimbursements from the FDIC over the terms of the agreements. The loss share receivable may increase if the losses increase, and may decrease if the losses fall short of the expected amount. Gains and recoveries on covered loans will offset losses or be paid to the FDIC at the applicable loss share percentage at the time of recovery.

In addition, the one- to four-family loans originated for sale by AmTrust’s mortgage banking unit are underwritten to Fannie Mae and Freddie Mac standards. At the time of sale, certain representations and warranties with regard to the underwriting and documentation of these loans are made. We may be required to repurchase the loans from Fannie Mae and Freddie Mac if it is found that a breach of the representations and warranties was made at the time of sale.

Asset Quality Analysis

The following table presents information regarding our consolidated allowance for loan losses, non-performing assets, and delinquencies at each year-end in the five years ended December 31, 2009. Covered loans are considered to be performing due to the application of the yield accretion method, as discussed on page 60 of this report. Therefore, covered loans are not reflected in any of the 2009 amounts or ratios provided in this table.


	At December 31,
*(dollars in thousands)*	2009			2008			2007			2006			2005
Allowance for Loan Losses:
Balance at beginning of year	$	94,368		$	92,794		$	85,389		$	79,705		$	78,057
Provision for loan losses		63,000			7,700			—			—			—
Charge-offs:
Multi-family		(15,261	)		(175	)		—			—			—
Commercial real estate		(530	)		(16	)		—			—			—
Acquisition, development, and construction		(5,990	)		(2,517	)		—			—			—
One- to four-family		(322	)		—			—			—			—
Other loans		(7,828	)		(3,460	)		(431	)		(420	)		(21	)

Total charge-offs		(29,931	)		(6,168	)		(431	)		(420	)		(21	)
Recoveries		54			42			—			—			—
Allowance acquired in merger transactions		—			—			7,836			6,104			1,669

Balance at end of year	$	127,491		$	94,368		$	92,794		$	85,389		$	79,705


Non-performing Assets:
Non-accrual mortgage loans:
Multi-family	$	393,113		$	53,153		$	3,061		$	—		$	263
Commercial real estate		70,618			12,785			3,293			2,583			3,000
Acquisition, development, and construction		79,228			24,839			2,939			11,375			5,906
1-4 family		14,171			11,155			5,598			4,114			6,382

Total non-accrual mortgage loans		557,130			101,932			14,891			18,072			15,551
Other non-accrual loans		20,938			11,765			7,301			3,131			1,338
Loans 90 days or more past due and still accruing interest		—			—			—			—			10,674

Total non-performing loans		578,068			113,697			22,192			21,203			27,563
Other real estate owned		15,205			1,107			658			1,341			1,294

Total non-performing assets	$	593,273		$	114,804		$	22,850		$	22,544		$	28,857


Ratios:
Non-performing loans to total loans		2.04	%		0.51	%		0.11	%		0.11	%		0.16	%
Non-performing assets to total assets		1.41			0.35			0.07			0.08			0.11
Allowance for loan losses to non-performing loans		22.05			83.00			418.14			402.72			289.17
Allowance for loan losses to total loans		0.45			0.43			0.46			0.43			0.47
Net charge-offs during the period to average loans outstanding during the period		0.13			0.03			0.00			0.00			0.00


Loans 30-89 Days Past Due:
Multi-family	$	155,790		$	37,266		$	15,461		$	15,545		$	4,017
Commercial real estate		42,324			29,090			1,762			4,191			3,083
Acquisition, development, and construction		48,838			21,380			2,870			19,301			—
One- to four-family		5,019			4,885			4,875			4,440			3,601
Other loans		21,036			10,170			9,333			6,926			510

Total loans 30-89 days past due	$	273,007		$	102,791		$	34,301		$	50,403		$	11,211

In accordance with GAAP, we are required to account for certain loan modifications or restructurings as “troubled debt restructurings.” In general, the modification or restructuring of a loan constitutes a troubled debt restructuring when we grant a concession to a borrower experiencing financial difficulty. Loans modified in a troubled debt restructuring are placed on non-accrual status until we determine that future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate performance according to the restructured terms for a period of at least six months. Loans modified in a troubled debt restructuring, all of which had non-accrual status, totaled $184.8 million at December 31, 2009. There were no troubled debt restructurings at any of the previous year-ends included in the preceding asset quality analysis.

Summary of the Allowance for Loan Losses

The following table sets forth the allocation of the consolidated allowance for loan losses at each year-end in the five years ended December 31, 2009. The entire allowance for loan losses at December 31, 2009 relates to non-covered loans.


	2009				2008				2007				2006				2005
*(dollars in thousands)*	Amount		Percent of Loans in Each Category to Total Non- covered Loans		Amount		Percent of Loans in Each Category to Total Loans		Amount		Percent of Loans in Each Category to Total Loans		Amount		Percent of Loans in Each Category to Total Loans		Amount		Percent of Loans in Each Category to Total Loans
Multi-family loans	$	75,567	71.59	%	$	43,908	70.85	%	$	43,066	69.00	%	$	46,525	73.93	%	$	44,336	75.49	%
Commercial real estate loans		32,079	21.34			29,622	20.51			29,461	18.80			23,313	15.85			23,379	16.96
Acquisition, development, and construction loans		8,276	2.85			10,289	3.51			10,243	5.59			9,089	5.61			8,281	5.03
One- to four-family loans		1,530	0.92			1,685	1.20			1,884	1.87			1,048	1.17			1,304	1.49
Other loans		10,039	3.30			8,864	3.93			8,140	4.74			5,414	3.44			2,405	1.03

Total loans	$	127,491	100.00	%	$	94,368	100.00	%	$	92,794	100.00	%	$	85,389	100.00	%	$	79,705	100.00	%

The preceding allocation is based upon an estimate of various factors, as discussed in “Critical Accounting Policies” earlier in this report, and a different allocation methodology may be deemed to be more appropriate in the future. In addition, it should be noted that the portion of the loan loss allowance allocated to each non-covered loan category does not represent the total amount available to absorb losses that may occur within that category, since the total loan loss allowance is available for the entire non-covered loan portfolio.

Securities

Securities represented $5.7 billion, or 13.6%, of total assets at December 31, 2009, as compared to $5.9 billion, or 18.2%, of total assets at December 31, 2008. While the balance of securities had declined steadily from January through November, we acquired $760.0 million of securities in the AmTrust acquisition, which limited the degree to which the portfolio declined year-over-year. Included in the acquired amount were U.S. Treasury notes of $608.0 million and GSE obligations of $152.0 million.

The investment policies of the Company and the Banks are established by the respective Boards of Directors and implemented by their respective Investment Committees, in concert with the respective Asset and Liability Management Committees. The Investment Committees generally meet quarterly or on an as-needed basis to review the portfolios and specific capital market transactions. In addition, the securities portfolios are reviewed monthly by the Boards of Directors as a whole. Furthermore, the policies guiding the Company’s and the Banks’ investments are reviewed at least annually by the respective Investment Committees, as well as by the respective Boards. While the policies permit investment in various types of liquid assets, neither the Company nor the Banks currently maintain a trading portfolio.

Our general investment strategy is to purchase liquid investments with various maturities to ensure that our overall interest rate risk position stays within the required limits of our investment policies. In 2009, we limited our investments to government-sponsored enterprise (“GSE”) obligations (defined as GSE certificates; GSE collateralized mortgage obligations (“CMOs”) and GSE debentures). At December 31, 2009, 91.8% of our securities portfolio consisted of GSE obligations, including those acquired in the AmTrust acquisition, as compared to 89.9% at December 31, 2008. The remainder of the portfolio was comprised of private label CMOs, corporate bonds, trust preferred securities, corporate equities, and municipal obligations. We have no investment securities that are backed by subprime or Alt-A loans.

Depending on management’s intent at the time of purchase, securities are classified as either “available for sale” or “held to maturity.” While available-for-sale securities are intended to generate earnings, they also represent a significant source of cash flows and liquidity for future loan production, the reduction of higher-cost funding, and general operating activities. These cash flows stem from the repayment of principal and interest, in addition to the sale of such securities. Held-to-maturity securities also generate cash flows from repayments and serve as a source of earnings.

Securities expected to be held for an indefinite period of time are classified as available for sale. A decision to purchase or sell these securities is based on economic conditions, including changes in interest rates, liquidity, and our asset and liability management strategy. All of the securities acquired in the AmTrust acquisition were classified as available for sale. Accordingly, available-for-sale securities represented $1.5 billion, or 26.4%, of total securities at the end of this December, up from $1.0 billion, or 17.1%, of total securities at December 31, 2008. Included in the respective year-end amounts were mortgage-related securities of $774.2 million and $833.7 million, and other securities of $744.4 million and $176.8 million, respectively. The estimated weighted average lives of the available-for-sale securities portfolio were 2.2 years and 5.6 years, respectively, at December 31, 2009 and 2008.

Held-to-maturity securities represented $4.2 billion, or 73.6%, of total securities at the end of this December, as compared to $4.9 billion, or 82.9%, of total securities at the prior year-end. At December 31, 2009, the fair value of securities held to maturity represented 100.62% of their carrying value, an improvement from the year-earlier percentage of 98.7%. Mortgage-related securities accounted for $2.5 billion and $3.2 billion, respectively, of the year-end 2009 and 2008 totals, with other securities representing the remaining $1.8 billion and $1.7 billion. Included in the latter year-end amounts were GSE obligations of $1.5 billion and $1.4 billion; capital trust notes of $167.1 million and $220.4 million; and corporate bonds of $101.1 million and $133.2 million, respectively. The estimated weighted average lives of the held-to-maturity securities portfolio were 6.2 years and 5.2 years at the corresponding dates.

OTTI losses declined to $96.5 million in 2009 from $104.3 million in the year-earlier period. Included in the 2009 amount was OTTI of $25.1 million on certain trust preferred securities that was recognized based on information received subsequent to the issuance of our fourth quarter 2009 earnings release on January 27, 2010. For the twelve months ended December 31, 2009, the OTTI losses on securities consisted of $96.3 million on trust preferred securities ($86.6 million of which was recognized in earnings); and $10.0 million related to corporate debt (all of which was recognized in earnings).

Prior to April 1, 2009, if the decline in fair value below an investment’s carrying amount was deemed to be other than temporary, the investment was written down to fair value and the entire amount of the write-down was charged to the income statement. A decline in fair value of an investment was deemed to be other than temporary if we did not expect to recover the carrying amount of the investment or we did not have the intent and ability to hold the investment to its anticipated recovery. Effective April 1, 2009, with the adoption of revised OTTI accounting requirements issued by the FASB, unless we have the intent to sell, or it is more likely than not that we will be required to sell a security, an OTTI is recognized as a realized loss on the income statement to the extent that the decline in fair value is credit-related. The decline in value attributable to factors other than credit is charged to AOCL. If there is a decline in fair value of a security below its carrying amount and we have the intent to sell it, or it is more likely than not that we will be required to sell the security, the entire amount of the decline in fair value will be charged to the income statement.

Partly reflecting an improvement in market conditions during the year, the after-tax net unrealized loss on securities available for sale and the non-credit portion of OTTI, net of taxes, amounted to $6.3 million at the end of this December as compared to after-tax net unrealized losses of $32.5 million at December 31, 2008. The respective after-tax losses were recorded as a component of stockholders’ equity in the Consolidated Statements of Condition at the corresponding dates.

Federal Home Loan Bank (“FHLB”) Stock

The Community Bank and the Commercial Bank are members of the FHLB-NY, one of 12 regional FHLBs comprising the FHLB system. Each regional FHLB manages its customer relationships, while the 12 FHLBs use their combined size and strength to obtain their necessary funding at the lowest possible cost.

As members of the FHLB-NY, the Community Bank and the Commercial Bank are required to acquire and hold shares of its capital stock. In addition, the Community Bank acquired shares of the capital stock of the FHLB-Cincinnati with a value of $110.6 million in connection with the AmTrust acquisition.

As a result, the Community Bank and the Commercial Bank held FHLB stock of $488.3 million and $8.4 million, respectively, at December 31, 2009. FHLB stock continued to be valued at par, with no impairment required, at that date.

For the fiscal year ended December 31, 2009, dividends from the FHLB to the Community Bank and the Commercial Bank respectively amounted to $22.6 million and $473,000; in 2008, such dividends amounted to $18.0 million and $487,000, respectively. A reduction in the dividend paid by the FHLB or an increase in the interest paid on future FHLB advances would adversely impact our net interest income. The FHLB has stated that it expects to continue to pay dividends, but has acknowledged that future economic events, regulatory actions, and other actions could impact its ability to pay such dividends. In addition, a reduction in the capital levels of the FHLB could adversely impact our ability to redeem our shares and the value thereof.

Bank-Owned Life Insurance (“BOLI”)

At December 31, 2009, our investment in BOLI was $716.0 million, as compared to $691.4 million at December 31, 2008. The increase in our investment reflects the increase in the cash surrender value of the underlying policies during 2009.

BOLI is recorded as the total cash surrender value of the policies in the Consolidated Statements of Condition, and the income generated by the increase in the cash surrender value of the policies is recorded in “non-interest income” in the Consolidated Statements of Income and Comprehensive Income.

FDIC Loss Share Receivable

In connection with our loss sharing agreements with the FDIC with respect to the loans acquired in the AmTrust acquisition, we recorded an FDIC loss share receivable which represents the acquisition date fair value of $740.0 million for the reimbursements we expect to receive under the loss sharing agreements. The initial balance may be increased or decreased over time, primarily depending on the performance of the covered loan portfolio and the extent of losses incurred.

Goodwill and Core Deposit Intangibles (“CDI”)

We record goodwill and CDI in our Consolidated Statements of Condition in connection with our various business combinations.

At December 31, 2009 goodwill totaled $2.4 billion, equal to the balance at December 31, 2008. CDI rose $18.0 million year-over-year, to $105.8 million, reflecting the $40.8 million of CDI acquired in the AmTrust acquisition less $22.8 million of amortization stemming from previous mergers and acquisitions.

Sources of Funds

The Parent Company (i.e, the Company on an unconsolidated basis) has four primary funding sources for the payment of dividends, share repurchases, and other corporate uses: capital raised through the issuance of stock; dividends paid to the Company by the Banks; funding raised through the issuance of debt instruments; and repayments of, and income from, investment securities.

On a consolidated basis, our funding primarily stems from the deposits we acquire in our business combinations or gather through our branch network, and brokered deposits; the use of borrowed funds, primarily in the form of wholesale borrowings; the cash flows generated through the repayment of loans and securities; and the cash flows generated through the sale of loans and securities. In 2009, these funding sources were complemented by the AmTrust-related infusion of $4.0 billion in cash and cash equivalents.

In 2009, loan repayments and sales totaled $3.3 billion, down from $4.1 billion in the prior year. Included in the 2009 amount were repayments of $2.4 million and sales of $835.7 million, primarily reflecting loans originated for sale by AmTrust’s mortgage banking unit. Cash flows from the repayment and sale of securities totaled $2.7 billion and $10.3 million, respectively, and were partially offset by purchases of securities totaling $1.8 billion over the course of the year. In 2008, securities repayments and sales generated cash flows of $2.5 billion and $11.5 million and were offset by purchases of $2.7 billion.

Consistent with our business model, the cash flows from loans and securities were primarily invested in loans and, to a lesser extent, in GSE obligations.

Deposits

Our funding mix and our ability to attract retail deposits were substantially enhanced by the AmTrust acquisition on December 4, 2009. With the addition of 66 branches in Florida, Ohio, and Arizona and $8.2 billion in deposits, we expanded our franchise to 276 branches (including 210 branches in Metro New York and New Jersey) and increased our deposits to $22.3 billion at December 31, 2009. Year-over-year, deposits were up $7.9 billion, equivalent to an increase of 55.2%. Deposits represented 52.9% of total assets at the end of this December, an improvement from 44.3% at year-end 2008.

While the vast majority of our deposits, historically, have been acquired through business combinations or gathered through our branch network, our mix of deposits has also included brokered CDs and brokered money market accounts. Depending on the availability and pricing of such wholesale funding sources, we typically refrain from pricing our retail deposits at the higher end of the market in order to contain or reduce our funding costs.

CDs represented $9.1 billion, or 40.6%, of total deposits at the end of December, and were up $2.3 billion, or 33.2%, year-over-year. Brokered CDs accounted for $358.5 million of the December 31, 2009 balance, down from $1.6 billion of the balance at December 31, 2008. The balance of CDs at December 31, 2009 also includes CDs in excess of $100,000 that feature preferential rates of interest and are accepted by both the Community Bank and the Commercial Bank. At December 31, 2009, CDs due to mature within one year totaled $7.2 billion, representing 79.6% of total CDs at that date.

Core deposits (defined as all deposits other than CDs) rose $5.7 billion year-over-year to $13.3 billion, and represented 59.4% of total deposits at December 31, 2009. The increase was across the board, with NOW and money market accounts rising $3.9 billion year-over-year to $7.7 billion; savings accounts rising $1.2 billion to $3.8

billion; and non-interest-bearing accounts rising $640.3 million to $1.8 billion. The increase in the balance of NOW and money market accounts was partially due to a $1.1 billion increase in brokered money market accounts to $2.6 billion at year-end 2009.

Borrowed Funds

Borrowed funds consist primarily of wholesale borrowings (i.e., FHLB advances, repurchase agreements, and federal funds purchased); junior subordinated debentures; and other borrowed funds (consisting primarily of preferred stock of subsidiaries and senior notes).

The cost of borrowed funds is largely based on short-term rates of interest, the level of which is partially impacted by the actions of the Federal Open Market Committee of the Federal Reserve Board of Governors (the “FOMC.”) The FOMC reduces, maintains, or increases the target federal funds rate as it deems necessary. While the target federal funds rate declined dramatically in 2008, from 4.25% in January to a range of 0 to 25 basis points in December, the rate was maintained at that historically low range throughout 2009.

In the interest of reducing our cost of funds and enhancing our net interest margin, we used a portion of the cash received in the AmTrust acquisition to pay down the repurchase agreements we acquired. In the third quarter of 2009, we exchanged shares of our common stock for BONUSES units; and in the fourth quarter of 2009, we repurchased certain REIT- and trust preferred securities.

Wholesale Borrowings

Although wholesale borrowings of $2.6 billion were assumed in the AmTrust acquisition, we utilized a portion of the cash received in that transaction to pay down $865.0 million of such borrowings before the end of the year. As a result, wholesale borrowings rose $737.7 million from the December 31, 2008 balance to $13.1 billion at December 31, 2009.

FHLB advances represented $9.0 billion of wholesale borrowings at the end of this December, a $1.2 billion increase from the balance at December 31, 2008. Included in the year-end 2009 amount were $1.7 billion of FHLB-Cincinnati advances that were acquired in the AmTrust acquisition. The remaining advances were from the FHLB-NY. The Community Bank and the Commercial Bank are both members of, and have lines of credit with, the FHLB-NY. Pursuant to blanket collateral agreements with the Banks, our FHLB advances and overnight line-of-credit borrowings are secured by a pledge of certain eligible collateral in the form of loans and securities.

Also included in wholesale borrowings at year-end 2009 were repurchase agreements of $4.1 billion, down $360.0 million from the balance at December 31, 2008. Repurchase agreements are contracts for the sale of securities owned or borrowed by the Banks with an agreement to repurchase those securities at an agreed-upon price and date. Our repurchase agreements are primarily collateralized by GSE obligations, and may be entered into with the FHLB-NY or certain brokerage firms. The brokerage firms we utilize are subject to our ongoing internal financial review to ensure that we borrow funds only from those dealers whose financial strength will minimize the risk of loss due to default. In addition, a master repurchase agreement must be executed and on file for the brokerage firms we use. While the balance of wholesale borrowings at year-end 2008 included overnight federal funds purchased of $150.0 million, we had no federal funds purchased at year-end 2009.

A significant portion of our wholesale borrowings at year-end 2009 consisted of callable advances and callable repurchase agreements. At December 31, 2009, $9.9 billion of our wholesale borrowings were callable in 2010 and $2.2 billion were callable in 2011. Given the current interest rate environment, we do not expect these borrowings to be called.

Junior Subordinated Debentures

Junior subordinated debentures declined to $427.4 million at December 31, 2009 from $484.2 million at December 31, 2008. The reduction was due to the exchange of BONUSES units for common stock in the third quarter, and the repurchase of New York Community Capital Trust XI securities in the fourth quarter of the year.

Other Borrowings

Other borrowings totaled $656.5 million at December 31, 2009, as compared to $669.4 million at the prior year-end. The reduction was attributable to the fourth quarter repurchase of REIT-preferred securities that had been issued by Richmond County Financial Corp. and Roslyn Bancorp, Inc. prior to merging with and into the Company in 2001 and 2003, respectively.

Included in the balance of other borrowings at both year-ends were $602.0 million of fixed rate senior notes that were issued by the Community Bank under the FDIC’s Temporary Liquidity Guarantee Program in December 2008.

Please see Note 8 to the Consolidated Financial Statements, “Borrowed Funds,” in Item 8, “Financial Statements and Supplementary Data” for a further discussion of our wholesale borrowings, junior subordinated debentures, and other borrowings.

Liquidity, Contractual Obligations and Off-Balance-Sheet Commitments, and Capital Position

Liquidity

We manage our liquidity to ensure that cash flows are sufficient to support our operations, and to compensate for any temporary mismatches between sources and uses of funds caused by variable loan and deposit demand.

As discussed under “Sources of Funds,” the loans we produce are funded through four primary sources: (1) the deposits we acquire in connection with our business combinations, those we gather organically through our branch network, and brokered deposits; (2) borrowed funds, primarily in the form of wholesale borrowings; (3) cash flows from the repayment of loans and securities; and (4) cash flows from the sale of securities and loans.

While borrowed funds and the scheduled amortization of securities and loans are generally more predictable funding sources, deposit flows and loan and securities repayments are less predictable in nature, as they are subject to external factors beyond our control. Among these are changes in the economy and local real estate values; competition from other financial institutions and non-traditional financial services companies; and changes in short- and intermediate-term interest rates. Depending on the volume and cost of deposits acquired in our business combinations, we may opt not to compete aggressively for deposits, and may also allow our higher-cost deposits to run off.

Our principal investing activity is multi-family lending, which is supplemented by the production of CRE and, to a lesser extent, ADC and C&I loans. In 2009, loan originations totaled $4.3 billion, including multi-family loans and CRE loans of $1.9 billion and $673.8 million, respectively. While the growth of the loan portfolio in 2009 was largely due to the AmTrust acquisition, organic loan production was primarily funded with cash flows from loan repayments, borrowed funds, and brokered deposits, while the cash flows from the sale and repayment of securities were primarily reinvested into GSE securities. The net cash provided by investing activities in 2009 totaled $3.8 billion, including cash and cash equivalents received in the AmTrust acquisition. In addition, our operating activities provided net cash of $211.6 million in 2009.

In 2009, the net cash used in financing activities totaled $1.5 billion, primarily reflecting a $266.4 million net decrease in cash flows from deposits and the net proceeds of $864.9 million from our common stock offering in December 2009. These inflows were partially offset by the use of $347.6 million for the payment of cash dividends.

We monitor our liquidity on a daily basis to ensure that sufficient funds are available to meet our financial obligations. Our most liquid assets are cash and cash equivalents, which totaled $2.7 billion at the end of this December, in contrast to $203.2 million at December 31, 2008. Reflected in the current year-end balance was the cash received in the AmTrust acquisition, which is currently awaiting deployment into higher-yielding assets. Additional liquidity stems from our portfolio of available-for-sale securities, which totaled $1.5 billion at the end of this December, and from the Banks’ approved lines of credit with the FHLB-NY.

CDs due to mature in one year or less from December 31, 2009 totaled $7.2 billion, representing 79.6% of total CDs at that date. Our ability to retain these CDs and to attract new deposits depends on numerous factors,

including customer satisfaction, the rates of interest we pay on our deposits, the types of products we offer, and the attractiveness of their terms. As previously mentioned, there are times that we may choose not to compete for deposits, depending on our access to deposits through acquisitions, the availability of lower-cost funding sources, the competitiveness of the market and its impact on pricing, and our need for such deposits to fund loan demand.

In 2009, the primary sources of funds for the Parent Company included dividend payments from the Banks, the proceeds from the issuance of common stock, and the sale and repayment of investment securities. The ability of the Community Bank and the Commercial Bank to pay dividends and other capital distributions to the Parent Company is generally limited by New York State banking law and regulations, and by certain regulations of the FDIC. In addition, the New York State Superintendent of Banks (the “Superintendent”), the FDIC, and the Federal Reserve Bank, for reasons of safety and soundness, may prohibit the payment of dividends that are otherwise permissible by regulation.

Under New York State Banking Law, a New York State-chartered stock-form savings bank or commercial bank may declare and pay dividends out of its net profits, unless there is an impairment of capital. However, the approval of the Superintendent is required if the total of all dividends declared in a calendar year would exceed the total of a bank’s net profits for that year, combined with its retained net profits for the preceding two years. In 2009, the Banks paid dividends totaling $300.0 million to the Parent Company, leaving $274.2 million that they could dividend to the Parent Company without regulatory approval at December 31st. In addition, the Parent Company had $167.8 million in cash and cash equivalents at year-end 2009, together with $6.9 million of available-for-sale securities. If either of the Banks applies to the Superintendent for approval to make a dividend or capital distribution in excess of the dividend amounts permitted under the regulations, there can be no assurance that such an application would be approved by the regulatory authorities.

In 2009, the Federal Reserve Bank issued a policy statement regarding the payment of dividends by bank holding companies. In general, the Federal Reserve Bank’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality, and overall financial condition. The Federal Reserve Bank’s policies also require that a bank holding company serve as a source of financial strength to its subsidiary banks by standing ready to use available resources to provide adequate capital funds to those banks during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. Under the prompt corrective action laws, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory policies could affect the ability of the Company to pay dividends or otherwise engage in capital distributions.

Contractual Obligations and Off-Balance-Sheet Commitments

In the normal course of business, we enter into a variety of contractual obligations in order to manage our assets and liabilities, fund loan growth, operate our branch network, and address our capital needs.

For example, we offer CDs to our customers under contract, and borrow funds under contract from the FHLB and various brokerage firms. These contractual obligations are reflected in the Consolidated Statements of Condition under “deposits” and “borrowed funds,” respectively. At December 31, 2009, we recorded CDs of $9.1 billion and long-term debt (defined as borrowed funds with an original maturity in excess of one year) of $14.2 billion.

We also are obligated under certain non-cancelable operating leases on the buildings and land we use in operating our branch network and in performing our back-office responsibilities. These obligations are not included in the Consolidated Statements of Condition and totaled $188.1 million at December 31, 2009.

Contractual Obligations

The following table sets forth the maturity profile of the aforementioned contractual obligations:


*(in thousands)*	Certificates of Deposit		Long-term Debt⁽¹⁾		Operating Leases ⁽²⁾		Total
One year or less	$	7,210,758	$	1,069,663	$	27,889	$	8,308,310
One to three years		1,694,703		1,174,156		49,749		2,918,608
Three to five years		141,305		996,863		38,836		1,177,004
More than five years		7,125		10,924,004		71,654		11,002,783

Total	$	9,053,891	$	14,164,686	$	188,128	$	23,406,705

(1)

Includes FHLB advances, repurchase agreements, junior subordinated debentures, preferred stock of subsidiaries, and senior notes.

(2)

Includes leases for AmTrust’s banking facilities. (Please see Item 2, “Properties,” for further information.)

We had no contractual obligations to purchase loans or securities at December 31, 2009.

At December 31, 2009, we had commitments to extend credit in the form of mortgage and other loan originations. These off-balance-sheet commitments consist of agreements to extend credit, as long as there is no violation of any condition established in the contract under which the loan is made. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

At December 31, 2009, commitments to originate mortgage loans totaled $929.9 million, including $474.4 million of one- to four-family loans committed for sale. Commitments to originate other loans totaled $517.6 million, including unadvanced lines of credit. The majority of our loan commitments were expected to be funded within 90 days of that date.

In addition, we had off-balance-sheet commitments to issue commercial, performance, and financial stand-by letters of credit of $12.2 million, $12.6 million, and $23.2 million, respectively, at December 31, 2009.

The following table sets forth our off-balance-sheet commitments relating to outstanding loan commitments and letters of credit at December 31, 2009:


*(in thousands)*
Mortgage Loan Commitments:
Multi-family loans	$	232,093
Commercial real estate loans		50,311
Acquisition, development, and construction loans		173,091
One- to four-family loans held for sale		474,411

Total mortgage loan commitments		929,906

Other loan commitments		43,942
Unused lines of credit		473,659

Total other loan commitments		517,601

Total loan commitments	$	1,447,507
Commercial, performance, and financial stand-by letters of credit		47,976

Total commitments	$	1,495,483

Based upon the current strength of our liquidity position, we expect that our funding will be sufficient to fulfill these obligations and commitments when they are due.

Derivative Financial Instruments

The Company uses various financial instruments, including derivatives, in connection with strategies to reduce price risk resulting from changes in interest rates. The Company’s derivative financial instruments consist of financial forward and futures contracts, interest rate lock commitments, swaps, and options. These derivatives relate to mortgage banking operations, MSRs, and other risk management activities. These derivatives seek to mitigate or reduce the Company’s exposure to losses from adverse changes in interest rates. These activities will vary in scope based on the level and volatility of interest rates, the type of assets held, and other changing market conditions. The Company held derivative financial instruments with notional values of $1.4 billion at December 31, 2009. Please see Note 15, “Derivative Financial Instruments.”

Capital Position

In 2009, our capital position was significantly strengthened by strategic actions that were taken to increase our tangible capital and our measures of tangible capital strength. In addition to selling 13.2 million shares of our common stock through our DRP during the year, we exchanged 1.4 million of our BONUSES units for 4.8 million common shares in August, and sold 69.0 million shares in a common stock offering in December 2009 in conjunction with the AmTrust acquisition. The sale of shares through our DRP generated $147.3 million, while the common stock offering generated net proceeds of $864.9 million and the BONUSES unit exchange generated $39.1 million.

Reflecting these actions, as well as the increase in our 2009 earnings, stockholders’ equity rose to $5.4 billion at December 31, 2009 from $4.2 billion at December 31, 2008. The balance at December 31, 2009 was equivalent to 12.73% of total assets and a book value per share of $12.40, as compared to 13.00% of total assets and a book value of $12.25 per share at December 31, 2008. The calculations of book value per share at the respective year-ends were based on 432,898,084 and 344,353,808 shares, respectively.

We calculate book value per share by subtracting the number of unallocated Employee Stock Ownership Plan (“ESOP”) shares at the end of a period from the number of shares outstanding at the same date, and then dividing our total stockholders’ equity by the resultant number of shares. Reflecting the actions described above, the number of shares outstanding rose to 433,197,332 at December 31, 2009 from 344,985,111 at December 31, 2008. Included in the respective year-end amounts were unallocated ESOP shares of 299,248 and 631,303. (Please see the definition of book value per share that appears in the Glossary on page 3 of this report.)

Tangible stockholders’ equity rose 66.6% year-over-year to $2.8 billion from $1.7 billion at December 31, 2008. We calculate our tangible stockholders’ equity by subtracting the goodwill and CDI that stemmed from our various business combinations from the balance of stockholders’ equity. At December 31, 2009, we recorded goodwill of $2.4 billion, consistent with the year-earlier level, and CDI of $105.8 million, as compared to $87.8 million at December 31, 2008. The growth of our tangible capital was paralleled by the enhancement of our tangible capital measures. At December 31, 2009, tangible stockholders’ equity represented 7.13% of tangible assets, a 147-basis point increase from the measure at December 31, 2008. Excluding AOCL from the calculation, the ratio of adjusted tangible stockholders’ equity to adjusted tangible assets rose to 7.25% at the end of this December from 5.94% at the prior year-end. (Please see the reconciliations of stockholders’ equity and tangible stockholders’ equity and the related measures on page 85 of this report.)

The year-over-year increase in tangible stockholders’ equity reflects the benefit of the aforementioned strategic actions, which was somewhat tempered by the distribution of cash dividends totaling $347.6 million in the form of four quarterly cash dividends of $0.25 per share, or $1.00 per share, annualized. The latter increase was more than offset by a $10.4 million reduction in the charge to stockholders’ equity stemming from our pension and post-retirement plan obligations to $39.7 million, and a $27.0 million decline in after-tax net unrealized securities losses to $10.2 million. Reflecting the reductions in the respective charges, AOCL declined $37.4 million year-over-year to $49.9 million at December 31, 2009.

Consistent with our focus on capital strength and preservation, the level of stockholders’ equity at December 31, 2009 continued to exceed the minimum federal requirements for a bank holding company. The following tables set forth our total risk-based, Tier 1 risk-based, and leverage capital amounts and ratios on a consolidated basis at December 31, 2009 and 2008, and the respective minimum regulatory capital requirements:

Regulatory Capital Analysis


At December 31, 2009	Actual				Minimum Required
*(dollars in thousands)*	Amount		Ratio		Ratio
Total risk-based capital	$	3,500,748	15.03	%	8.00	%
Tier 1 risk-based capital		3,373,258	14.48		4.00
Leverage capital		3,373,258	10.03		4.00


At December 31, 2008	Actual				Minimum Required
*(dollars in thousands)*	Amount		Ratio		Ratio
Total risk-based capital	$	2,430,510	11.96	%	8.00	%
Tier 1 risk-based capital		2,336,142	11.49		4.00
Leverage capital		2,336,142	7.84		4.00

The capital strength of the Company is paralleled by the solid capital position of the Banks. At December 31, 2009, the capital ratios for the Community Bank and the Commercial Bank continued to exceed the minimum levels required for classification as “well capitalized” institutions under the Federal Deposit Insurance Corporation Improvement Act of 1991, as further discussed in Note 18 to the Consolidated Financial Statements, “Regulatory Matters,” in Item 8, “Financial Statements and Supplementary Data.”

RESULTS OF OPERATIONS: 2009 and 2008 COMPARISON

Earnings Summary

In 2009, our net income rose to $398.6 million from $77.9 million in 2008. The 2009 amount was equivalent to diluted earnings per share of $1.13, up from $0.23 per diluted share in the year-earlier twelve months.

The growth of our 2009 earnings was primarily fueled by an increase in net interest income, the expansion of our net interest margin, and the benefit of the AmTrust acquisition on December 4th. Net interest income rose $229.8 million, or 34.0%, year-over-year to $905.3 million, while our net interest margin rose 64 basis points to 3.12%. These improvements were primarily due to the growth of the loan portfolio through organic loan production and the AmTrust acquisition; the steepening of the yield curve, as short-term rates of interest remained at historically low levels; and the reduction of our funding costs over the course of the year.

Although our 2009 earnings reflected less than one month of combined operations, the AmTrust acquisition provided a pre-tax bargain purchase gain (the “gain on AmTrust acquisition”) of $139.6 million, which accounted for $84.2 million of our 2009 earnings and $0.22 of our 2009 diluted earnings per share. In addition, we recorded an after-tax gain of $1.9 million in connection with the termination of an AmTrust-related servicing hedge.

We also recorded a $4.3 million pre-tax gain on the strategic repurchase of certain REIT- and trust preferred securities in the fourth quarter, and a $5.7 million pre-tax gain on the exchange of our BONUSES units for common shares in the third quarter of 2009. Reflecting these gains, as well as those that stemmed from the AmTrust acquisition, our non-interest income rose to $157.6 million in 2009 from $15.5 million in 2008. On an after-tax basis, the respective gains were equivalent to $3.1 million and $3.4 million.

The growth of our non-interest income was partly offset by pre-tax OTTI losses of $96.5 million, equivalent to $58.5 million after-tax. Included in the pre-tax amount was an OTTI loss of $25.1 million that was recognized based on information received subsequent to the issuance of our fourth quarter 2009 earnings release. On an after-tax basis, this loss was equivalent to $15.3 million.

Reflecting the resolution of various tax audits, our 2009 earnings also included a $14.3 million reduction in income tax expense. This contribution to earnings combined with the gains recorded in non-interest income to more than offset the impact of the OTTI losses and a special assessment imposed on all FDIC-insured banks in the second quarter of the year. In our case, the special assessment was equivalent to $14.8 million, or $8.9 million after-tax.

The net effect of the aforementioned gains and the aforementioned charges was a $49.3 million contribution to 2009 earnings and a $0.14 contribution to diluted earnings per share.

Earnings growth was somewhat constrained by a $55.3 million increase in our provision for loan losses to $63.0 million, and by a $26.3 million increase in FDIC insurance premiums, recorded in 2009 general and administrative (“G&A”) expense. Although operating expenses were generally increased by the AmTrust-related expansion of our staff and operations, the impact of the increase was more than offset by the contributions of AmTrust to our 2009 earnings and by the potential for continued earnings and revenue growth in future periods.

In 2008, our earnings were reduced by certain charges which more than offset the benefit of a $17.1 million after-tax gain on the repurchase of certain trust preferred securities and a $1.1 million

after-tax Visa-related gain. Reflecting the strategic prepayment of certain borrowed funds in the second quarter, we recorded an after-tax debt repositioning charge of $199.2 million in 2008. In addition, after-tax OTTI losses totaled $62.7 million in the wake of Wall Street’s third quarter 2008 turmoil. Our 2008 earnings were further reduced by a $2.3 million after-tax litigation settlement charge.

The net effect of these 2008 charges and gains was a $244.6 million reduction in 2008 earnings and a $0.73 reduction in our 2008 diluted earnings per share. Please see the comparison of our 2008 and 2007 earnings beginning on page 78 for a more detailed description of the factors that influenced our earnings in 2008.

Net Interest Income

The level of net interest income is a function of the average balance of our interest-earning assets, the average balance of our interest-bearing liabilities, and the spread between the yield on such assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of our interest-earning assets and our interest-bearing liabilities which, in turn, are impacted by various external factors, including the local economy, competition for loans and deposits, the monetary policy of the FOMC, and market interest rates.

The cost of our deposits and borrowed funds is largely based on short-term rates of interest, the level of which is partially impacted by the actions of the FOMC. The FOMC reduces, maintains, or increases the target federal funds rate (the rate at which banks borrow from one another), as it deems necessary. In an effort to energize an economy plagued by rising unemployment and falling real estate values, the FOMC reduced the target federal funds rate seven times in 2008, from 4.25% at the start of the year to an historically low range of zero to 25 basis points on December 16th. Despite statistical indications that the two-year-long recession had ended, unemployment rose to 10.1% in October 2009 and was 10.0% in December. With unemployment increasing, real estate values still depressed, and home foreclosures rising, the FOMC maintained the target federal funds rate at zero to 25 basis points throughout 2009.

As a result of the low level of short-term interest rates, we substantially reduced our cost of deposits and borrowed funds over the course of the year. With certain of our competitors offering higher rates to attract deposits, we chose to utilize lower-cost wholesale funding to fuel our loan and asset growth. Consistent with our practice of using wholesale funds when they present an attractively priced alternative to retail funding, we continued to use FHLB advances and lower-cost brokered deposits through most of 2009. With the infusion of AmTrust’s deposits in December, we enhanced our mix of funding sources, increasing our ratio of deposits to total assets to 52.9% from 44.3% at year-end 2008.

The yields generated by our loans and other interest-earning assets are typically driven by intermediate-term interest rates, which are set by the market and generally vary from day to day. While intermediate-term rates were generally lower in 2009 than they were in 2008, the disparity between intermediate and short-term rates was such that the spreads on our loans were wider as the yield curve steepened between 2008 and 2009.

The yields on our loans are also impacted by the level of prepayment penalty income we receive. In 2009, the continuing reluctance of property owners to refinance their loans as real estate values eroded and economic uncertainty continued, resulted in a 69.4% decline in prepayment penalty income to $7.6 million from an already modest $24.9 million in 2008. As a result, prepayment penalty income added three basis points to our average yield on loans in the current twelve-month period, down from twelve basis points in 2008. However, the impact of this decline on our interest income was far exceeded by the benefit of the growth of our average loan portfolio. In addition to the loans acquired in the AmTrust acquisition, loan growth was driven by organic loan production, with originations exceeding loan repayments by $1.0 billion in 2009.

As a result of these factors, net interest income rose 34.0% in 2009 to $905.3 million, from $675.5 million in 2008. The level of net interest income in 2008 was reduced by a debt repositioning charge of $39.6 million in connection with the prepayment of $700.0 million of wholesale borrowings.

In addition, the level of net interest income in 2009 reflects the amortization and accretion of mark-to-market adjustments on the assets and liabilities acquired in the AmTrust acquisition on December 4th.

Interest Income

Interest income rose $29.5 million year-over-year to $1.6 billion in the twelve months ended December 31, 2009. Although the average yield on interest-earning assets fell 27 basis points to 5.63% from the year-earlier level, the impact of this decline was exceeded by the benefit of a $1.8 billion, or 6.8%, increase in the average balance to $29.0 billion. Loans generated $1.3 billion of 2009’s interest income, representing a $65.3 million increase from the year-earlier amount. The increase was the net effect of a $2.2 billion rise in the average balance of loans to $23.0 billion and a 29-basis point reduction in the average yield to 5.76%. The interest income produced by loans was also somewhat tempered by the reduction in prepayment penalty income year-over-year.

The increase in interest income produced by loans was only partially offset by a $35.8 million decline in the interest income produced by securities and money market investments to $309.0 million. This decline was the result of a $308.8 million reduction in the average balance to $6.0 billion and a 32-basis point reduction in the average yield to 5.11%. Although securities of $760.0 million were acquired in the AmTrust acquisition, their addition to the balance of such assets at the end of December was not sufficient to offset the impact of our year-long strategic decline in securities.

Interest Expense

Notwithstanding a $2.1 billion, or 8.2%, increase in the average balance of such funds to $27.6 billion, the interest expense produced by interest-bearing liabilities in 2009 declined $200.3 million to $729.3 million from the level recorded in 2008. The impact of the higher average balance on interest expense was exceeded by the benefit of a 100-basis point reduction in the average cost of funds to 2.65%.

While the rise in the average balance of interest-bearing liabilities primarily reflects the liabilities acquired in the AmTrust acquisition, the lower cost reflects a combination of factors, including the low level of short-term interest rates; the year-long run-off of higher-cost deposits; and the strategic actions we took in the second half of the year. In the third quarter of 2009, we exchanged 1.4 million BONUSES units with an average cost of 6.0% for common shares and then, in the fourth quarter, repurchased certain of our REIT- and trust preferred securities. In addition, we continued to benefit from the second quarter 2008 prepayment of wholesale borrowings totaling $4.0 billion with an average cost of 5.19%.

The bulk of the decrease in interest expense was attributable to interest-bearing deposits, which generated 2009 interest expense of $212.8 million, down $135.6 million from the level recorded in 2008. While the average balance of such funds rose $1.0 billion to $13.6 billion, the impact was far exceeded by a 121-basis point reduction in the average cost to 1.56%.

CDs accounted for $163.2 million of the interest expense produced by interest-bearing deposits, a $108.4 million reduction from the 2008 amount. At 2.59%, the average cost of CDs was 140 basis points lower than the year-earlier measure; in addition, the average balance declined $514.7 million year-over-year to $6.3 billion. The interest expense produced by NOW and money market accounts fell $20.8 million to $33.8 million, as the impact of a $1.4 billion increase in the average balance to $4.5 billion was exceeded by the benefit of a 99-basis point decline in the average cost to 0.75%. Similarly, the interest expense produced by savings accounts fell $6.3 million to $15.9 million, the net effect of a $208.4 million increase in the average balance to $2.8 billion and a 29-basis point decline in the average cost to 0.56%.

Borrowed funds contributed $516.5 million to 2009 interest expense, down $64.8 million from the year-earlier level, as the impact of a $1.1 billion increase in the average balance to $13.9 billion was exceeded by the benefit of an 81-basis point decline in the average cost to 3.70%. The interest expense produced by borrowed funds in 2008 included a debt repositioning charge of $39.6 million in connection with the strategic prepayment of wholesale borrowings in the second quarter of that year.

Net Interest Margin and Interest Rate Spread

Reflecting the same combination of factors that increased our net interest income, our spread and margin also rose in 2009. At 2.98%, our interest rate spread was 73 basis points wider than the year-earlier measure; at 3.12%, our net interest margin was 64 basis points wider than the measure recorded in 2008. The expansion of these measures occurred despite the decline in prepayment penalty income, which contributed three basis points to each of our 2009 spread and margin, as compared to nine basis points to each of these measures in 2008.

It should be noted that the level of prepayment penalty income in any given period depends on the volume of loans that refinance or prepay during that time. Such activity is largely dependent on current market conditions, including real estate values, the perceived or actual direction of market interest rates, and the contractual repricing and maturity dates of our multi-family and CRE loans. As a result, the level of prepayment penalty income we record is difficult to predict.

Net Interest Income Analysis

The following table sets forth certain information regarding our average balance sheet for the years indicated, including the average yields on our interest-earning assets and the average costs of our interest-bearing liabilities. Average yields are calculated by dividing the interest income produced by the average balance of interest-earning assets. Average costs are calculated by dividing the interest expense produced by the average balance of interest-bearing liabilities. The average balances for the year are derived from average balances that are calculated daily. The average yields and costs include fees and premiums and discounts (including mark-to-market adjustments from acquisitions) that are considered adjustments to such average yields and costs.


	For the Years Ended December 31,
	2009						2008						2007
*(dollars in thousands)*	Average Balance		Interest		Average Yield/ Cost		Average Balance		Interest		Average Yield/ Cost		Average Balance		Interest		Average Yield/ Cost
ASSETS:
Interest-earning assets:
Mortgage and other loans, net⁽¹⁾	$	22,996,752	$	1,325,601	5.76	%	$	20,843,714	$	1,260,291	6.05	%	$	19,425,469	$	1,217,348	6.27	%
Securities and money market investments⁽²⁾⁽³⁾		6,046,016		309,011	5.11			6,354,826		344,838	5.43			6,468,182		349,397	5.40

Total interest-earning assets		29,042,768		1,634,612	5.63			27,198,540		1,605,129	5.90			25,893,651		1,566,745	6.05
Non-interest-earning assets		4,241,521						3,961,236						3,754,921

Total assets	$	33,284,289					$	31,159,776					$	29,648,572

LIABILITIES AND STOCKHOLDERS’ EQUITY:
Interest-bearing liabilities:
NOW and money market accounts	$	4,481,377	$	33,788	0.75	%	$	3,131,137	$	54,599	1.74	%	$	2,925,648	$	90,346	3.09	%
Savings accounts		2,829,237		15,859	0.56			2,620,864		22,179	0.85			2,534,276		27,714	1.09
Certificates of deposit		6,296,344		163,168	2.59			6,811,031		271,615	3.99			6,683,162		307,764	4.61

Total interest-bearing deposits		13,606,958		212,815	1.56			12,563,032		348,393	2.77			12,143,086		425,824	3.51
Borrowed funds		13,943,594		516,472	3.70			12,890,813		581,241	4.51			11,991,559		524,391	4.37

Total interest-bearing liabilities		27,550,552		729,287	2.65			25,453,845		929,634	3.65			24,134,645		950,215	3.94
Non-interest-bearing deposits		1,221,709						1,316,237						1,318,633
Other liabilities		222,003						212,362						279,352

Total liabilities		28,994,264						26,982,444						25,732,630
Stockholders’ equity		4,290,025						4,177,332						3,915,942

Total liabilities and stockholders’ equity	$	33,284,289					$	31,159,776					$	29,648,572

Net interest income/interest rate spread			$	905,325	2.98	%			$	675,495	2.25	%			$	616,530	2.11	%

Net interest-earning assets/net interest margin	$	1,492,216			3.12	%	$	1,744,695			2.48	%	$	1,759,006			2.38	%

Ratio of interest-earning assets to interest-bearing liabilities					1.05	x					1.07	x					1.07	x

(1)

Amounts are net of net deferred loan origination costs/(fees) and the allowance for loan losses, and include loans held for sale and non-performing loans.

(2)

Amounts are at amortized cost.

(3)

Includes FHLB stock.

Rate/Volume Analysis

The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) the changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) the changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.


	Year Ended December 31, 2009 Compared to Year Ended December 31, 2008									Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
	Increase/(Decrease)									Increase/(Decrease)
	Due to									Due to
*(in thousands)*	Volume			Rate			Net			Volume			Rate			Net
INTEREST-EARNING ASSETS:
Mortgage and other loans, net	$	119,105		$	(53,795	)	$	65,310		$	82,848		$	(39,905	)	$	42,943
Securities and money market investments		(16,314	)		(19,513	)		(35,827	)		(6,161	)		1,602			(4,559	)

Total		102,791			(73,308	)		29,483			76,687			(38,303	)		38,384

INTEREST-BEARING LIABILITIES:
NOW and money market accounts	$	65,800		$	(86,611	)	$	(20,811	)	$	6,877		$	(42,624	)	$	(35,747	)
Savings accounts		1,947			(8,267	)		(6,320	)		985			(6,520	)		(5,535	)
Certificates of deposit		(19,249	)		(89,198	)		(108,447	)		6,020			(42,169	)		(36,149	)
Borrowed funds		54,615			(119,384	)		(64,769	)		40,189			16,661			56,850

Total		103,113			(303,460	)		(200,347	)		54,071			(74,652	)		(20,581	)

Change in net interest income	$	(322	)	$	230,152		$	229,830		$	22,616		$	36,349		$	58,965

Provision for Loan Losses

The provision for loan losses is based on management’s periodic assessment of the adequacy of the loan loss allowance which, in turn, is based on its evaluation of inherent losses in our loan portfolio in accordance with GAAP.

In 2009, management’s assessments considered several factors, including the current and historical performance of the loan portfolio; its inherent risk characteristics; the level of non-performing loans and charge-offs; delinquency levels and trends; local economic and market conditions; declines in real estate values; and the levels of unemployment and vacancy rates.

Reflecting management’s assessment of these factors, we increased our provision for loan losses over the course of the year to $63.0 million from $7.7 million in 2008. The 2009 provision exceeded the year’s net charge-offs by $33.1 million; as a result, the allowance for loan losses rose to $127.5 million from $94.4 million at December 31, 2008.

For additional information about the provision for loan losses, please see the discussion of the allowance for loan losses under “Critical Accounting Policies” earlier in this filing, together with the discussion of “Asset Quality” that begins on page 57 of this report.

Non-interest Income

The non-interest income we produce stems from several sources, some of which are ongoing and some of which are not. Among our ongoing sources of non-interest income are “fee income” in the form of retail deposit fees and charges on loans; income from our investment in BOLI; and “other income” which is typically derived from such varied sources as the sale of third-party investment products; the sale of one- to four-family loans on a conduit basis; and revenues from our wholly-owned subsidiary, Peter B. Cannell & Co., Inc. (“PBC”), an investment advisory firm. In connection with the AmTrust acquisition, the other income derived from these traditional sources was supplemented by other income from AmTrust’s mortgage banking unit which originates loans held for sale to Fannie Mae and Freddie Mac.

In 2009, the combined non-interest income from fee income, BOLI income, and other income rose to $104.2 million from $102.3 million in 2008. While fee income and BOLI income declined modestly year-over-year, to

$40.1 million and $27.4 million, respectively, the combined reduction of $2.4 million was exceeded by a $4.2 million increase in other income to $36.7 million. Included in the latter amount was a $3.1 million gain on the termination of a mortgage servicing hedge acquired in the AmTrust acquisition and other AmTrust-related revenues of $12.1 million. These additions to other income more than offset year-over-year declines in revenues from the sale of third-party investment products and the revenues produced by PBC.

In addition to the non-interest income produced by these ongoing sources, we recorded a $139.6 million gain on the AmTrust acquisition in 2009. The gain reflects the degree to which the fair value of the assets acquired in the AmTrust acquisition exceeded the fair value of the liabilities assumed. Please see Note 3, “Business Combinations,” in Item 8, “Financial Statements and Supplementary Data.”

We also recorded a $10.1 million gain on the repurchase of certain REIT- and trust preferred securities in the fourth quarter and on the exchange of BONUSES units in the third quarter of the year. Although the gain on debt repurchases/exchange we recorded in 2009 was $6.9 million less than the gain on debt repurchase recorded in 2008, our 2009 OTTI losses were $7.8 million less than the OTTI losses recorded in the prior year. OTTI losses of $9.7 million in 2009 related to non-credit factors and were therefore charged to AOCL in accordance with new accounting requirements described on page 64 under “Securities.”

This combination of factors resulted in our recording 2009 non-interest income of $157.6 million, in contrast to $15.5 million in 2008.

Non-interest Income Analysis

The following table summarizes our sources of non-interest income in 2009, 2008, and 2007:


	For the Year Ended December 31,
*(dollars in thousands)*	2009			2008			2007
Fee income	$	40,074		$	41,191		$	42,170
BOLI		27,406			28,644			26,142
Net gain on sale of securities		338			573			1,888
Gain (loss) on debt repurchases/exchanges		10,054			16,962			(1,848	)
Gain on AmTrust acquisition		139,607			—			—
Loss on OTTI of securities		(96,533	)		(104,317	)		(56,958	)
Gain on sale of bank-owned property		—			—			64,879
Other income:
PBC		10,610			13,205			14,905
Third-party investment product sales		9,936			12,188			9,539
Gain on sale of loans		10,470			326			705
Other		5,677			6,757			9,670

Total other income		36,693			32,476			34,819

Total non-interest income	$	157,639		$	15,529		$	111,092

Non-interest Expense

Non-interest expense has two primary components: operating expenses, which include compensation and benefits, occupancy and equipment, and G&A expenses; and the amortization of the CDI stemming from our various business combinations. CDI amortization totaled $22.8 million in 2009 as compared to $23.3 million in 2008.

In 2009, we recorded operating expenses of $384.0 million, up $63.2 million from the year-earlier amount. Although the increase stemmed from all three categories, the bulk of the increase was attributable to higher FDIC premiums and the FDIC special assessment imposed in the second quarter, which totaled $45.8 million, and accounted for the $45.4 million increase in G&A expense to $125.6 million. Also reflected in 2009 G&A expense were $7.5 million in AmTrust acquisition-related costs.

Compensation and benefits expense rose $14.7 million year-over-year, to $184.7 million, partly reflecting the AmTrust acquisition-related expansion of our branch and back-office staffs. In addition, the increase in compensation and benefits expense reflects normal salary increases, the expansion of certain existing back-office departments, and the granting of incentive stock awards. The increase in occupancy and equipment expense in 2009 was far more modest, rising $3.1 million to $73.7 million year-over-year.

Although operating expenses rose year-over-year, the increase was exceeded by the growth of our net interest income and non-interest income, resulting in an improvement in our efficiency ratio to 36.13% in 2009 from 46.43% in 2008. While our 2010 operating expenses will reflect the full-year impact of the AmTrust acquisition, we would expect the acquisition to benefit our net interest income and non-interest income as well.

In 2008, the level of non-interest expense recorded was increased by a charge of $285.4 million for the prepayment of $3.3 billion in wholesale borrowings and other borrowed funds. Reflecting the impact of this charge, 2008 non-interest expense totaled $629.5 million; in contrast, we recorded non-interest expense of $406.8 million in 2009.

Income Tax Expense (Benefit)

Income tax expense (benefit) includes federal, New York State, and New York City income taxes, as well as non-material income taxes from other jurisdictions where we have branch operations or operate certain of our subsidiaries.

In 2009, we recorded pre-tax income of $593.1 million, in contrast to $53.8 million in 2008. As a result of this significant difference, we recorded 2009 income tax expense of $194.5 million in contrast to an income tax benefit of $24.1 million in the year-earlier twelve months. Similarly, our effective tax rate was 32.79% in 2009, in contrast to a negative 44.78% in 2008.

In 2008, our pre-tax earnings were substantially reduced by the $325.0 million debt repositioning charge recorded in the second quarter and by OTTI losses of $104.3 million. In 2009, our OTTI losses were more than offset by the benefit of the aforementioned gain on the AmTrust acquisition. In addition, our 2009 income tax expense reflects the benefit of a $14.3 million downward adjustment in connection with the resolution of various tax audits in the second half of the year.

In July 2009, new tax laws were enacted that were effective for the determination of our New York City income tax liability for calendar year 2009. In general, these laws conformed the New York City tax rules to those of New York State. Included in these new tax laws was a provision requiring the inclusion of income earned by a subsidiary taxed as a REIT for federal tax purposes, regardless of the location in which the REIT subsidiary conducts its business or the timing of its distribution of earnings. Although the full inclusion of REIT-generated income will begin in 2011, the new tax law increased our 2009 income tax expense by $1.6 million. Absent any change in the manner in which we conduct our business, current income tax expense is estimated to increase by approximately $1.3 million for 2010, with a larger increase starting in 2011.

RESULTS OF OPERATIONS: 2008 and 2007 COMPARISON

Earnings Summary

Our 2008 earnings were highlighted by a $59.0 million, or 9.6%, increase in net interest income to $675.5 million, and by a ten-basis point increase in our net interest margin to 2.48%. The increases were driven by double-digit loan growth and by a meaningful reduction in our cost of funds. The increase in net interest income occurred despite a $32.8 million decline in prepayment penalty income to $24.9 million, which was equivalent to a nine-basis point reduction in our average interest-earning assets yield.

The reduction in our funding costs was partly due to the steady decline in the target federal funds rate, but also to certain strategic actions taken during the year. In May and June 2008, we prepaid $4.0 billion of higher-cost borrowed funds, as previously mentioned, and replaced those funds with $3.8 billion of wholesale borrowings featuring lower interest rates.

While the repositioning of our debt contributed to the expansion of our margin and net interest income in the third and fourth quarters, it generated a pre-tax charge of $325.0 million in the second quarter of the year. Of the latter amount, $39.6 million was recorded as interest expense, thus reducing our net interest income by that amount to the aforementioned level and our net interest margin by 15 basis points to the measure cited above. The remaining $285.4 million of the pre-tax charge was recorded in non-interest expense.

Primarily reflecting the $285.4 million debt repositioning charge, and a $21.2 million increase in operating expenses to $320.8 million, non-interest expense rose $304.0 million to $629.5 million year-over-year. The increase in operating expenses in large part reflects the full-year impact of our 2007 acquisitions of PennFed Financial Services, Inc. (“PennFed”), Synergy Financial Group, Inc. (“Synergy”), and 11 branches of Doral Bank, FSB (“Doral”) in New York City, which not only increased our number of branches, but also our staffing and G&A expense.

On an after-tax basis, the combined debt repositioning charge reduced our 2008 earnings by $199.2 million, or $0.60 per common and diluted share.

The decline in the capital markets also had an impact on our 2008 performance, as we recorded total losses of $104.3 million on the OTTI of securities during the year. The OTTI losses reduced our 2008 non-interest income to $15.5 million and, on an after-tax basis, reduced our 2008 earnings by $62.7 million, or $0.19 per diluted share.

In view of the weakening economy and the increase in non-performing assets, we also recorded a $7.7 million provision for loan losses in 2008. Reflecting the loan loss provision and net charge-offs of $6.1 million, the allowance for loan losses rose to $94.4 million at the end of the year.

While our 2008 earnings were highlighted by the increase in net interest income and the expansion of our net interest margin, the benefits of these increases were exceeded by the combined after-tax impact of the debt repositioning and OTTI losses, which together reduced our earnings by $261.9 million, or $0.79 per basic and diluted share. Reflecting the impact of the latter amount on our performance, we recorded earnings of $77.9 million, or $0.23 per basic and diluted share in 2008. Our results for 2008 include an income tax benefit of $24.1 million.

In 2007, we recorded earnings of $279.1 million, equivalent to $0.90 per basic and diluted share. Our 2007 earnings reflected the nine-month benefit of the PennFed transaction, the five-month benefit of the Doral transaction, and the three-month benefit of the transaction with Synergy. In addition, our 2007 earnings reflected the following after-tax gains and charges:

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A $44.8 million gain on the sale of our Atlantic Bank headquarters in Manhattan;

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A $2.6 million benefit from certain tax audit developments;