Edgar Filing: NEW YORK COMMUNITY BANCORP INC

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

For the Quarterly Period Ended September 30, 2010

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2010

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)

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

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 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 “large accelerated filer,” “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 Exchange Act). Yes ¨ No x

435,611,875

Number of shares of common stock outstanding at

November 3, 2010

NEW YORK COMMUNITY BANCORP, INC.

FORM 10-Q

Quarter Ended September 30, 2010


INDEX		Page No.

Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Condition as of September 30, 2010 (unaudited) and December 31, 2009		1

	Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2010 and 2009 (unaudited)		2

	Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2010 (unaudited)		3

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009 (unaudited)		4

	Notes to the Unaudited Consolidated Financial Statements		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		40

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		79

Item 4.	Controls and Procedures		79

Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings		80

Item 1A.	Risk Factors		80

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		80

Item 3.	Defaults Upon Senior Securities		81

Item 4.	Removed and Reserved		81

Item 5.	Other Information		81

Item 6.	Exhibits		81

Signatures			82

Exhibits

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CONDITION

(in thousands, except share data)


	September 30, 2010			December 31, 2009
	(unaudited)
Assets:
Cash and cash equivalents	$	2,235,091		$	2,670,857
Securities available for sale:
Mortgage-related ($489,317 and $602,233 pledged, respectively)		542,929			774,205
Other securities ($65,060 and $302,022 pledged, respectively)		185,236			744,441

Total available-for-sale securities		728,165			1,518,646

Securities held to maturity:
Mortgage-related ($3,109,757 and $2,459,161 pledged, respectively) (fair value of $3,248,297 and $2,551,608, respectively)		3,141,279			2,465,956
Other securities ($658,929 and $1,564,585 pledged, respectively) (fair value of $858,116 and $1,698,054, respectively)		856,515			1,757,641

Total held-to-maturity securities		3,997,794			4,223,597

Total securities		4,725,959			5,742,243
Loans held for sale		1,368,889			—
Non-covered loans held for investment, net of deferred loan fees and costs		23,604,552			23,376,599
Less: Allowance for loan losses		(155,866	)		(127,491	)

Non-covered loans held for investment, net		23,448,686			23,249,108
Covered loans (includes $351.3 million of loans held for sale at December 31, 2009)		4,473,718			5,016,100

Total loans, net		29,291,293			28,265,208
Federal Home Loan Bank (“FHLB”) stock, at cost		447,185			496,742
Premises and equipment, net		199,817			205,165
FDIC loss share receivable		811,623			743,276
Goodwill		2,436,325			2,436,401
Core deposit intangibles, net		85,407			105,764
Bank-owned life insurance		735,435			715,962
Other real estate owned ($56.9 million covered by FDIC loss sharing agreements at September 30, 2010)		76,427			15,205
Other assets		661,876			757,046

Total assets	$	41,706,438		$	42,153,869


Liabilities and Stockholders’ Equity:
Deposits:
NOW and money market accounts	$	8,204,752		$	7,706,288
Savings accounts		3,887,736			3,788,294
Certificates of deposit		8,209,296			9,053,891
Non-interest-bearing accounts		1,925,607			1,767,938

Total deposits		22,227,391			22,316,411

Borrowed funds:
FHLB advances		8,429,664			8,955,769
Repurchase agreements		4,125,000			4,125,000

Total wholesale borrowings		12,554,664			13,080,769
Junior subordinated debentures		427,079			427,371
Other borrowings		613,435			656,546

Total borrowed funds		13,595,178			14,164,686
Other liabilities		388,571			305,870

Total liabilities		36,211,140			36,786,967

Stockholders’ equity:
Preferred stock at par $0.01 (5,000,000 shares authorized; none issued)		—			—
Common stock at par $0.01 (600,000,000 shares authorized; 435,586,117 and 433,197,332 shares issued and outstanding, respectively)		4,356			4,332
Paid-in capital in excess of par		5,281,201			5,238,231
Retained earnings		245,597			175,193
Unallocated common stock held by Employee Stock Ownership Plan (“ESOP”)		(245	)		(951	)
Accumulated other comprehensive loss, net of tax:
Net unrealized gain (loss) on securities available for sale, net of tax		22,235			(457	)
Net unrealized losses on the non-credit portion of other-than-temporary impairment (“OTTI”) losses and securities transferred from available-for-sale to held to maturity, net of tax		(20,594	)		(9,744	)
Net unrealized loss on pension and post-retirement obligations, net of tax		(37,252	)		(39,702	)

Total accumulated other comprehensive loss, net of tax		(35,611	)		(49,903	)

Total stockholders’ equity		5,495,298			5,366,902

Total liabilities and stockholders’ equity	$	41,706,438		$	42,153,869

See accompanying notes to the unaudited consolidated financial statements.

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2010			2009			2010			2009
Interest Income:
Mortgage and other loans	$	410,178		$	327,120		$	1,241,021		$	970,477
Securities and money market investments		57,252			75,816			191,974			234,261

Total interest income		467,430			402,936			1,432,995			1,204,738


Interest Expense:
NOW and money market accounts		12,542			7,380			45,386			22,257
Savings accounts		4,824			3,687			16,369			11,468
Certificates of deposit		33,847			35,482			108,727			132,822
Borrowed funds		130,029			130,027			387,540			387,331

Total interest expense		181,242			176,576			558,022			553,878

Net interest income		286,188			226,360			874,973			650,860
Provision for loan losses		32,000			15,000			74,000			33,000

Net interest income after provision for loan losses		254,188			211,360			800,973			617,860


Non-Interest Income:
Total loss on OTTI of securities		(12,790	)		(22,550	)		(26,456	)		(73,623	)
Less: Non-credit portion of OTTI recorded in other comprehensive income (before taxes)		11,964			9,275			24,485			20,620

Net loss on OTTI recognized in earnings		(826	)		(13,275	)		(1,971	)		(53,003	)
Fee income		13,403			9,682			41,456			28,255
Bank-owned life insurance		6,792			6,914			20,968			20,482
Net loss on sale of securities		—			—			(8	)		—
Gain on business acquisition		—			—			10,780			—
Gain on debt repurchases/exchange		2,441			5,717			2,734			5,717
Mortgage banking income		76,465			—			143,497			—
Other		8,828			6,034			25,104			18,086

Total non-interest income		107,103			15,072			242,560			19,537


Non-Interest Expense:
Operating expenses:
Compensation and benefits		72,874			46,093			207,571			133,560
Occupancy and equipment		22,019			17,700			65,799			54,343
General and administrative		48,378			26,274			132,244			88,002

Total operating expenses		143,271			90,067			405,614			275,905
Amortization of core deposit intangibles		7,818			5,412			23,593			16,575

Total non-interest expense		151,089			95,479			429,207			292,480

Income before income taxes		210,202			130,953			614,326			344,917
Income tax expense		74,593			32,380			218,310			101,207

Net Income	$	135,609		$	98,573		$	396,016		$	243,710

Other comprehensive income, net of tax:
Change in net unrealized gain on securities and non-credit portion of OTTI for the period		16,413			6,797			11,842			16,091
Change in pension and post-retirement obligations		781			1,110			2,450			3,424

Total comprehensive income, net of tax	$	152,803		$	106,480		$	410,308		$	263,225


Basic earnings per share	$	0.31		$	0.28		$	0.91		$	0.70

Diluted earnings per share	$	0.31		$	0.28		$	0.91		$	0.70

See accompanying notes to the unaudited consolidated financial statements.

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)


	Nine Months Ended
	September 30, 2010
Common Stock (Par Value: $0.01):
Balance at beginning of year	$	4,332
Shares issued for restricted stock awards (374,858 shares)		4
Shares issued for stock options exercised (247,445 shares)		3
Shares issued in connection with the direct stock purchase feature of the Dividend Reinvestment and Stock Purchase Plan (“DRP”) (1,766,482 shares)		17

Balance at end of period		4,356


Paid-in Capital in Excess of Par:
Balance at beginning of year		5,238,231
Allocation of ESOP stock		2,886
Shares issued for restricted stock awards, net of forfeitures		(1,145	)
Compensation expense related to restricted stock awards		8,291
Exercise of stock options		2,486
Tax effect of stock plans		1,534
Shares issued in connection with the direct stock purchase feature of the DRP		28,918

Balance at end of period		5,281,201


Retained Earnings:
Balance at beginning of year		175,193
Net income		396,016
Dividends paid on common stock ($0.75 per share)		(325,612	)

Balance at end of period		245,597


Treasury Stock:
Balance at beginning of year		—
Purchase of common stock (181,935 shares)		(2,868	)
Exercise of stock options (109,593 shares)		1,727
Shares issued for restricted stock awards (72,342 shares)		1,141

Balance at end of period		—


Unallocated Common Stock Held by ESOP:
Balance at beginning of year		(951	)
Earned portion of ESOP		706

Balance at end of period		(245	)


Accumulated Other Comprehensive Loss, net of tax:
Balance at beginning of year		(49,903	)
Change in net unrealized gain on securities available for sale, net of tax of $14,031		21,545
Non-credit portion of OTTI loss recognized in other comprehensive income, net of tax of $9,657		(14,829	)
Amortization of net unrealized loss on securities transferred from available for sale to held to maturity, net of tax of $2,557		3,927
Change in pension and post-retirement obligations, net of tax of $1,604		2,450
Reclassification adjustment for loss on sale and OTTI of securities, net of tax of $780		1,199

Balance at end of period		(35,611	)


Total stockholders’ equity at end of period	$	5,495,298

See accompanying notes to the unaudited consolidated financial statements.

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine Months Ended September 30,
	2010			2009
Cash Flows from Operating Activities:
Net income	$	396,016		$	243,710
Adjustments to reconcile net income to net cash used in operating activities:
Provision for loan losses		74,000			33,000
Depreciation and amortization		14,682			15,027
Amortization of premiums (accretion of discounts), net		3,218			(4,537	)
Net change in net deferred loan origination costs and fees		2,403			(1,625	)
Amortization of core deposit intangibles		23,594			16,575
Net loss on sale of securities		8			—
Net gain on sale of loans		(99,582	)		(536	)
Gain on business acquisition		(10,780	)		—
Stock plan-related compensation		11,884			9,898
Loss on OTTI of securities recognized in earnings		1,971			53,003
Changes in assets and liabilities:
Decrease (increase) in deferred tax asset, net		5,649			(54,905	)
Decrease (increase) in other assets		33,522			(41,066	)
Increase (decrease) in other liabilities		80,567			(157,556	)
Origination of loans held for sale		(7,021,169	)		(78,537	)
Proceeds from sale of loans originated for sale		6,082,210			76,733

Net cash (used in) provided by operating activities		(401,807	)		109,184

Cash Flows from Investing Activities:
Proceeds from repayment of securities held to maturity		3,514,161			2,039,229
Proceeds from repayment of securities available for sale		813,896			193,341
Proceeds from sale of securities available for sale		660			—
Purchase of securities held to maturity		(3,292,660	)		(1,808,546	)
Net redemption (purchase) of FHLB stock		53,144			(22,049	)
Net decrease (increase) in loans		132,765			(863,258	)
Purchase of premises and equipment, net		(9,334	)		(4,887	)
Net cash acquired in business acquisition		140,895			—

Net cash provided by (used in) investing activities		1,353,527			(466,170	)

Cash Flows from Financing Activities:
Net (decrease) increase in deposits		(479,662	)		92,253
Net increase in short-term borrowed funds		300,000			366,600
Net (decrease) increase in long-term borrowed funds		(914,012	)		39,763
Tax effect of stock plans		1,533			3,794
Cash dividends paid on common stock		(325,612	)		(258,202	)
Treasury stock purchases		(2,868	)		(1,289	)
Net cash received from stock option exercises		4,200			25
Proceeds from issuance of common stock, net		28,935			64,664

Net cash (used in) provided by financing activities		(1,387,486	)		307,608

Net decrease in cash and cash equivalents		(435,766	)		(49,378	)
Cash and cash equivalents at beginning of period		2,670,857			203,216

Cash and cash equivalents at end of period	$	2,235,091		$	153,838

Supplemental information:
Cash paid for interest	$	603,369		$	554,481
Cash paid for income taxes		233,878			170,914
Non-cash investing and financing activities:
Transfers to other real estate owned from loans	$	51,542		$	14,372
Exchange of debt for common stock		—			39,153


Note:		Excluding the core deposit intangible and the FDIC loss share receivable, the fair values of non-cash assets acquired and of liabilities assumed in the acquisition of Desert Hills Bank on March 26, 2010 were $245.4 million and $445.6 million, respectively.

See accompanying notes to the unaudited consolidated financial statements.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of New York Community Bancorp, Inc. and subsidiaries (the “Company”), including its two bank subsidiaries, New York Community Bank (the “Community Bank”) and New York Commercial Bank (the “Commercial Bank”). The unaudited consolidated financial statements reflect all normal recurring adjustments that, in the opinion of management, are necessary to present a fair statement of the results for the periods presented. There are no other adjustments reflected in the accompanying consolidated financial statements. The results of operations for the three and nine months ended September 30, 2010 are not necessarily indicative of the results of operations that may be expected for all of 2010.

Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).

The unaudited consolidated financial statements include the accounts of the Company and other entities in which the Company has a controlling financial interest. All inter-company balances and transactions have been eliminated. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2009 Annual Report on Form 10-K.

Certain reclassifications have been made to the prior-period consolidated financial statements to conform to the current-period presentation.

Note 2. Business Combinations

AmTrust Bank

On December 4, 2009, the Community Bank acquired certain assets and assumed certain liabilities of AmTrust Bank (“AmTrust”) from the FDIC in an FDIC-assisted transaction (the “AmTrust acquisition”). Headquartered in Cleveland, Ohio, AmTrust was a savings bank that operated 29 branches in Ohio, 25 branches in Florida, and 12 branches in Arizona.

The purpose of the AmTrust acquisition was to expand the Company’s footprint into new markets, and to enhance its funding mix with the acquisition of low-cost core deposits.

As part of the Purchase and Assumption Agreement entered into by the Community Bank with the FDIC in connection with the AmTrust acquisition, the Community Bank entered into loss sharing agreements, in accordance with which the FDIC will cover a substantial portion of any future losses on the acquired loans. The acquired loans that are subject to the loss sharing agreements are collectively referred to as “covered loans.” Under the terms of the loss sharing agreements, the FDIC is obligated to reimburse the Community Bank for 80% of losses up to $907.0 million and 95% of losses in excess of $907.0 million with respect to the covered loans. The Community Bank will reimburse the FDIC for 80% of recoveries with respect to losses for which the FDIC paid the Community Bank 80% reimbursement, and for 95% of recoveries with respect to losses for which the FDIC paid the Community Bank 95% reimbursement under the loss sharing agreements. The expected net reimbursements under the loss sharing agreements were recorded as an indemnification asset (an “FDIC loss share receivable”) at an estimated fair value of $740.0 million on the acquisition date. The loss sharing agreements are subject to the Company following certain servicing procedures, as specified in the loss sharing agreements with the FDIC.

Furthermore, the Community Bank has 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 below); 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 (with such period servicing amounts to equal, for any

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

twelve-month period with respect to which each of the shared loss agreements during which such shared loss agreement is in effect, the product of the simple average of the principal amount of shared loss loans and shared loss assets at the beginning and end of such period and 1%). For the purposes of the above calculation, Cumulative Shared-Loss Payments means (i) the aggregate of all of the payments made or payable to the Community Bank under the shared-loss agreements minus (ii) the aggregate of all of the payments made or payable to the FDIC under the shared-loss agreements.

These reimbursable losses and recoveries are based on the book value of the relevant loans as determined by the FDIC as of the effective date of the AmTrust acquisition. The amount that the Community Bank realizes on these loans 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.

Based on the closing with the FDIC as of December 4, 2009, the Community Bank (a) acquired $5.0 billion in loans, $760.0 million in investment securities, $4.0 billion in cash and cash equivalents (including $3.2 billion due from, and subsequently paid by, the FDIC), and $1.2 billion in other assets; and (b) assumed $8.2 billion in deposits, $2.6 billion in borrowings, and $92.5 million in other liabilities.

The Company has determined that the AmTrust acquisition constitutes a business combination as defined by Codification Topic 805, “Business Combinations.” Codification Topic 805 establishes principles and requirements as to how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. Accordingly, the acquired assets, including the FDIC loss share receivable (which is accounted for as an indemnification asset under Codification Topic 805) and identifiable intangible assets, and the liabilities assumed in the AmTrust acquisition, were measured and recorded at estimated fair value as of the December 4, 2009 acquisition date.

The application of the acquisition method of accounting resulted in a bargain purchase gain of $139.6 million, which is included in “non-interest income” in the Company’s Consolidated Statement of Income and Comprehensive Income for the year ended December 31, 2009. This gain amounted to $84.2 million after-tax.

Because of the short time period between the December 4, 2009 closing of the transaction and the end of the Company’s fiscal year on December 31, 2009, the Company continues to analyze its estimates of the fair values of the loans acquired and the indemnification asset recorded. As the Company finalizes its analysis of these assets, there may be adjustments to the recorded carrying values.

A summary of the net assets acquired and the estimated fair value adjustments resulting in the net gain follows:


(in thousands)	December 4, 2009
AmTrust’s cost basis liabilities in excess of assets	$	(2,799,630	)
Cash payments received from the FDIC		3,220,650

Net assets acquired before fair value adjustments		421,020
Fair value adjustments:
Loans		(946,083	)
FDIC loss share receivable		740,000
Core deposit intangible		40,797
Federal Home Loan Bank (“FHLB”) borrowings		(69,814	)
Repurchase agreements		(11,180	)
Certificates of deposit		(26,858	)
FDIC equity appreciation instrument		(8,275	)

Pre-tax gain on the AmTrust acquisition	$	139,607
Deferred income tax liability		(55,410	)

Net after-tax gain on the AmTrust acquisition	$	84,197

The net after-tax gain represents the excess of the estimated fair value of the assets acquired (including cash payments received from the FDIC) over the estimated fair value of the liabilities assumed, and is influenced significantly by the FDIC-assisted transaction process. Under the FDIC-assisted transaction process, only certain assets and liabilities are transferred to the acquirer and, depending on the nature and amount of the acquirer’s bid,

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the FDIC may be required to make a cash payment to the acquirer. As indicated in the preceding table, net liabilities of $2.8 billion (i.e., the cost basis) were transferred to the Company in the AmTrust acquisition, and the FDIC made cash payments to the Company totaling $3.2 billion.

In many cases, the determination of the fair value of the assets acquired and liabilities assumed required management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and subject to change. These fair value estimates are considered preliminary, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. The Community Bank and the FDIC may engage in discussions that may impact which assets and liabilities are ultimately acquired or assumed by the Community Bank and/or the purchase price.

The following table sets forth the assets acquired and liabilities assumed, at fair value, in the AmTrust acquisition:


(in thousands)	December 4, 2009
Assets
Cash and cash equivalents	$	4,021,454
Securities available for sale:
Mortgage-related securities		121,846
Other securities		638,170

Total securities		760,016
Loans covered by loss sharing agreements:
One- to four-family mortgage loans		4,701,591
Home equity lines of credit (“HELOCs”) and consumer loans		314,412

Total loans covered by loss sharing agreements		5,016,003
FDIC loss share receivable		740,000
FHLB-Cincinnati stock		110,592
Core deposit intangible		40,797
Other assets		275,827

Total assets acquired	$	10,964,689

Liabilities
Deposits:
NOW and money market accounts	$	2,861,172
Savings accounts		878,365
Certificates of deposit		3,853,929
Non-interest-bearing accounts		613,678

Total deposits		8,207,144
Borrowed funds:
FHLB advances		2,119,632
Repurchase agreements		461,180

Total borrowed funds		2,580,812
Other liabilities		92,536

Total liabilities assumed	$	10,880,492


Net assets acquired	$	84,197

In addition, as part of the consideration for the transaction, the Company issued an equity appreciation instrument to the FDIC. Under the terms of the equity appreciation instrument, the FDIC had the opportunity to obtain, at the sole option of the Company, a cash payment or shares of its common stock with a value equal to the product of (a) $25 million and (b) the amount by which the average of the volume-weighted average price of its common stock for each of the two New York Stock Exchange trading days immediately prior to the exercise of the equity appreciation instrument exceeded $12.33. The equity appreciation instrument was exercisable by the FDIC from December 9, 2009 through December 23, 2009 and was valued at $8.3 million when issued. The FDIC exercised the equity appreciation instrument, which was settled in cash for $23.3 million by the Company.

In December 2009, the Company extinguished the acquired repurchase agreements with a cash payment of $461.2 million.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Desert Hills Bank

On March 26, 2010, the Community Bank acquired certain assets and assumed certain liabilities of Desert Hills Bank (“Desert Hills”) from the FDIC in an FDIC-assisted transaction (the “Desert Hills acquisition”). Headquartered in Phoenix, Arizona, Desert Hills operated six branch locations in Arizona. In the second quarter of 2010, three of those locations were consolidated into neighboring branches of AmTrust Bank.

The purpose of the Desert Hills acquisition was to strengthen the Company’s franchise in Arizona and to enhance its funding mix with the acquisition of low-cost core deposits.

As part of the Purchase and Assumption Agreement entered into by the Community Bank with the FDIC in connection with the Desert Hills acquisition, the Community Bank entered into loss sharing agreements in accordance with which the FDIC will cover a substantial portion of any future losses on loans and other real estate owned (“OREO”). The acquired loans that are subject to the loss sharing agreements are collectively referred to as “covered loans” and the acquired OREO that is subject to the loss sharing agreements is collectively referred to as “covered OREO.” The loans and OREO acquired in the Desert Hills acquisition are referred to collectively as “covered assets.” Under the terms of the loss sharing agreements, the FDIC is obligated to reimburse the Community Bank for 80% of losses of up to $101.4 million and 95% of losses in excess of $101.4 million with respect to the covered assets.

In addition, the Community Bank will reimburse the FDIC for 80% of recoveries with respect to losses for which the FDIC paid the Community Bank 80% reimbursement, and for 95% of recoveries with respect to losses for which the FDIC paid the Community Bank 95% reimbursement under the loss sharing agreements. The expected net reimbursements under the loss sharing agreements were recorded as an indemnification asset (an FDIC loss share receivable) at an estimated fair value of $62.6 million on the acquisition date. The loss sharing agreements are subject to the Company following certain servicing procedures, as specified in the loss sharing agreements with the FDIC.

Furthermore, the Community Bank has agreed to pay to the FDIC, on May 6, 2020 (the “True-Up Measurement Date”), half of the amount, if positive, calculated as (1) $20,282,800 minus (2) the sum of (a) 25% of the asset discount bid made in connection with the Desert Hills acquisition; (b) 25% of the Cumulative Shared-Loss Payments (as defined below); 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 (with such period servicing amounts to equal, for any twelve-month period with respect to which each of the shared loss agreements during which such shared loss agreement is in effect, the product of the simple average of the principal amount of shared loss loans and shared loss assets at the beginning and end of such period and 1%). For the purposes of the above calculation, Cumulative Shared-Loss Payments means (i) the aggregate of all of the payments made or payable to the Community Bank under the shared-loss agreements minus (ii) the aggregate of all of the payments made or payable to the FDIC under the shared-loss agreements.

The reimbursable losses and recoveries discussed above are based on the book value of the relevant assets as determined by the FDIC as of the effective date of the Desert Hills 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 assets in future periods.

The Company has determined that the Desert Hills acquisition constitutes a business combination as defined by Codification Topic 805. Accordingly, the acquired assets, including the FDIC loss share receivable (which is accounted for as an indemnification asset under Codification Topic 805) and identifiable intangible assets, and the liabilities assumed in the Desert Hills acquisition, were measured and recorded at estimated fair value as of the March 26, 2010 acquisition date.

The application of the acquisition method of accounting resulted in a bargain purchase gain of $10.8 million, which is included in “non-interest income” in the Company’s Consolidated Statement of Income and Comprehensive Income for the nine months ended September 30, 2010. This gain amounted to $6.6 million after-tax.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Under the FDIC-assisted transaction process, only certain assets and liabilities are transferred to the acquirer and, depending on the nature and amount of the acquirer’s bid, the FDIC may be required to make a cash payment to the acquirer. The Community Bank acquired assets at fair value including $140.9 million in cash and cash equivalents (inclusive of $86.8 million received from the FDIC), loans of $196.7 million, OREO of $38.6 million, and securities of $5.2 million. The Community Bank also assumed, at fair value, $390.6 million in deposits and $44.5 million in FHLB-San Francisco advances. These advances were extinguished by the Community Bank in March with a cash payment of $44.5 million on March 29, 2010.

In many cases, the determination of the fair value of the assets acquired and liabilities assumed required management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and subject to change. These fair value estimates are considered preliminary. They are also subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. The Community Bank and the FDIC may engage in discussions that may impact which assets and liabilities are ultimately acquired or assumed by the Community Bank and/or the purchase price.

Fair Value of Assets Acquired and Liabilities Assumed

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, reflecting assumptions that a market participant would use when pricing an asset or liability. In some cases, the estimation of fair values requires management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and are subject to change. Described below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the AmTrust and Desert Hills acquisitions.

Cash and Cash Equivalents

With respect to the AmTrust acquisition, included in cash and cash equivalents at December 4, 2009 were cash and due from banks of $394.1 million, federal funds sold of $415.0 million, and $3.2 billion due from the FDIC. Cash payments of $3.0 billion and $186.0 million were subsequently made by the FDIC to the Community Bank on December 7 and December 30, 2009, respectively. With respect to the Desert Hills acquisition, included in the $140.9 million of cash and cash equivalents acquired on March 26, 2010 was $86.8 million due from the FDIC. A cash payment of $86.8 million was subsequently made by the FDIC to the Community Bank on March 29, 2010.

The estimated fair values of cash and cash equivalents approximate their stated face amounts, as these financial instruments are either due on demand or have short-term maturities.

Investment Securities and FHLB Stock

Quoted market prices for the securities acquired were used to determine their fair values. If quoted market prices were not available for a specific security, then quoted prices for similar securities in active markets were used to estimate the fair value.

The fair value of FHLB stock approximates the redemption amount.

Loans

The acquired loan portfolios were segregated into various components for valuation purposes in order to group loans based on their significant financial characteristics, such as loan type (mortgages, HELOCs, commercial and industrial, or consumer), borrower type, and payment status (performing or non-performing). The estimated fair values of mortgage and other loans were computed by discounting the anticipated cash flows from the respective portfolios. We estimated the cash flows expected to be collected at the acquisition date by using interest rate risk and prepayment risk models that incorporated our best estimate of current key assumptions, such as default rates, loss severity rates, and prepayment speeds. Prepayment assumptions use swap rates and various relevant reference rates (e.g., U.S. Treasury obligations) as benchmarks. Prepayment assumptions are developed by reference to historical prepayment speeds of loans with similar characteristics and by developing base curves for loans with particular reset and prepayment penalty periods. Once the base curves are determined, other factors that will

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

influence constant prepayment rates in the future include, but are not limited to, current loan-to-value ratios, loan balances, home price appreciation, documentation type, and forward rates. Loss severity rates are based on or developed by using historical loss rates of loans in a loan performance database. The major inputs include, but are not limited to, current loan-to-value ratios, home price appreciation, payment history, original FICO scores, original debt-to-income ratios, property type, and loan balances.

The expected cash flows from the acquired loan portfolios were discounted at market rates. The discount rates assumed a risk-free rate plus an additional spread to compensate for the uncertainty inherent in the acquired loans. The methods used to estimate fair value are extremely sensitive to the assumptions and estimates used. While management attempted to use assumptions and estimates that best reflected the acquired loan portfolios and current market conditions, a greater degree of subjectivity is inherent in these values than in those determined in active markets. Accordingly, readers are cautioned in using this information for purposes of evaluating the financial condition and/or value of the Company in and of itself or in comparison with any other company.

The Company refers to the loans acquired in the AmTrust and Desert Hills acquisitions as “covered loans” because the Company will be reimbursed for a substantial portion of any future losses on these loans under the terms of the FDIC loss sharing agreements. Covered loans are accounted for under Codification Topic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the lives of the loans. On the acquisition dates, the Company estimated the fair value of the acquired loan portfolios, excluding loans held for sale, which represented the expected cash flows from the portfolio discounted at market-based rates. In estimating such fair value, the Company (a) calculated the contractual amount and timing of undiscounted principal and interest payments (the “undiscounted contractual cash flows”); and (b) estimated the amount and timing of undiscounted expected principal and interest payments (the “undiscounted expected cash flows”). The amount by which the undiscounted expected cash flows exceed the estimated fair value (the “accretable yield”) is accreted into interest income over the life of the loans. The difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is referred to as the “non-accretable difference.” The non-accretable difference represents an estimate of the credit risk in the acquired loan portfolios at the acquisition dates. Under Codification Topic 310-30, purchasers are permitted to aggregate acquired loans 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.

Other Real Estate Owned (“OREO”)

OREO is recorded at its estimated fair value on the date of acquisition, based on independent appraisals less estimated selling costs.

FDIC Loss Share Receivable

The respective FDIC loss share receivables were measured separately from the respective covered assets as they are not contractually embedded in any of the covered loans or covered OREO. For example, the loss share receivable related to estimated future loan losses is not transferable should the Company sell a loan prior to foreclosure or maturity. The fair value of the combined loss share receivable represents the present value of the estimated cash payments expected to be received from the FDIC for future losses on covered assets, based on the credit adjustment estimated for each covered asset and the loss sharing percentages. These cash flows reflect the uncertainty of the timing and receipt of the loss sharing reimbursements from the FDIC and are discounted at a market-based rate. The amount ultimately collected for this asset is dependent upon the performance of the underlying covered assets, the passage of time, and claims submitted to the FDIC.

Core Deposit Intangible (“CDI”)

CDI is a measure of the value of non-interest-bearing accounts, checking accounts, savings accounts, and NOW and money market accounts that are acquired in a business combination. The fair value of the CDI stemming from any given business combination is based on the present value of the expected cost savings attributable to the core deposit funding, relative to an alternative source of funding. The CDI that relates to the AmTrust and Desert Hills acquisitions will be amortized over an estimated useful life of seven years to approximate the existing deposit relationships acquired. The Company evaluates such identifiable intangibles for impairment when an indication of impairment exists.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Deposit Liabilities

The fair values of deposit liabilities with no stated maturity (i.e., NOW and money market accounts, savings accounts, and non-interest-bearing accounts) are equal to the carrying amounts payable on demand. The fair values of certificates of deposit (“CDs”) represent contractual cash flows, discounted using interest rates currently offered on deposits with similar characteristics and remaining maturities.

Borrowed Funds

The estimated fair value of borrowed funds is based on bid quotations received from securities dealers or the discounted value of contractual cash flows with interest rates currently in effect for borrowed funds with similar maturities.

Note 3. Stock-Based Compensation

At September 30, 2010, the Company had 4,605,858 shares available for grant as options, restricted stock, or other forms of related rights under the New York Community Bancorp, Inc. 2006 Stock Incentive Plan (the “2006 Stock Incentive Plan”). Under the 2006 Stock Incentive Plan, the Company granted 463,000 shares of restricted stock in the nine months ended September 30, 2010, with an average fair value of $16.29 per share on the date of grant and a vesting period of five years. The nine-month amount includes 38,500 shares that were granted in the third quarter with an average fair value of $16.09 per share on the date of grant. Compensation and benefits expense related to restricted stock grants is recognized on a straight-line basis over the vesting period, and totaled $2.6 million and $2.3 million, respectively, in the three months ended September 30, 2010 and 2009, and $8.3 million and $7.1 million, respectively, in the nine months ended at those dates.

A summary of activity with regard to restricted stock awards during the nine months ended September 30, 2010 is presented in the following table:


	For the Nine Months Ended September 30, 2010
	Number of Shares			Weighted Average Grant Date Fair Value
Unvested at January 1, 2010		3,000,824		$	13.95
Granted		463,000			16.29
Vested		(451,600	)		15.93
Forfeited		(15,800	)		13.35

Unvested at September 30, 2010		2,996,424			14.02

As of September 30, 2010, unrecognized compensation costs relating to unvested restricted stock totaled $35.3 million. This amount will be recognized over a remaining weighted average period of 3.6 years.

In addition, the Company had ten stock option plans at September 30, 2010: the 1993 and 1997 New York Community Bancorp, Inc. Stock Option Plans; the 1993 and 1996 Haven Bancorp, Inc. Stock Option Plans; the 1998 Richmond County Financial Corp. Stock Compensation Plan; the Roslyn Bancorp, Inc. 1997 and 2001 Stock-based Incentive Plans; the 1998 Long Island Financial Corp. Stock Option Plan; and the 2003 and 2004 Synergy Financial Group, Inc. Stock Option Plans (all ten plans collectively referred to as the “Stock Option Plans”). All stock options granted under the Stock Option Plans expire ten years from the date of grant.

The Company recognizes compensation costs related to share-based payments at fair value on the date of grant, and recognizes such costs in the financial statements over the vesting period during which the employee provides service in exchange for the award. However, as there were no unvested options at any time during the nine months ended September 30, 2010 or the year ended December 31, 2009, the Company did not record any compensation and benefits expense relating to stock options during these periods.

Generally, the Company issues new shares of common stock to satisfy the exercise of options. The Company may also use common stock held in Treasury to satisfy the exercise of options. In such event, the difference between the average cost of Treasury shares and the exercise price is recorded as an adjustment to retained earnings

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

or paid-in capital on the date of exercise. At September 30, 2010, there were 12,634,854 stock options outstanding. The number of shares available for future issuance under the Stock Option Plans was 11,151 at September 30, 2010.

The status of the Company’s Stock Option Plans at September 30, 2010 and the changes that occurred during the nine months ended at that date are summarized in the following table:


	For the Nine Months Ended September 30, 2010
	Number of Stock Options			Weighted Average Exercise Price
Stock options outstanding and exercisable at January 1, 2010		13,037,564		$	15.56
Exercised		(385,580	)		11.25
Forfeited/expired		(17,130	)		12.54

Stock options outstanding and exercisable at September 30, 2010		12,634,854			15.70

Total stock options outstanding and exercisable at September 30, 2010 had a weighted average remaining contractual life of 1.59 years, a weighted average exercise price of $15.70 per share, and an aggregate intrinsic value of $15.4 million. The intrinsic value of options exercised during the nine months ended September 30, 2010 was $2.0 million. The intrinsic value of options exercised in the year-earlier nine-month period was nominal.

Note 4. Securities

The following table summarizes the Company’s portfolio of securities available for sale at September 30, 2010:


	September 30, 2010
(in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Mortgage-Related Securities:
GSE⁽¹⁾certificates	$	213,479	$	8,639	$	78	$	222,040
GSE CMOs⁽²⁾		244,866		9,988		—		254,854
Private label CMOs		66,442		254		661		66,035

Total mortgage-related securities	$	524,787	$	18,881	$	739	$	542,929

Other Securities:
U.S. Treasury obligations	$	58,239	$	963	$	—	$	59,202
GSE debentures		620		6		—		626
Corporate bonds		5,809		4		838		4,975
State, county, and municipal		1,427		90		—		1,517
Capital trust notes		38,843		26,065		5,707		59,201
Preferred stock		30,574		1,980		11,964		20,590
Common stock		43,880		2,213		6,968		39,125

Total other securities	$	179,392	$	31,321	$	25,477	$	185,236

Total securities available for sale⁽³⁾	$	704,179	$	50,202	$	26,216	$	728,165

(1)	Government-sponsored enterprises

(2)	Collateralized mortgage obligations

(3)	As of September 30, 2010, the non-credit portion of OTTI recorded in accumulated other comprehensive loss, net of tax (“AOCL”) was $12.5 million (before taxes).

As of September 30, 2010, the amortized cost of marketable equity securities included perpetual preferred stock of $30.6 million and common stock of $43.9 million. Perpetual preferred stock consisted of investments in two financial institutions: one of the largest banking and financial services organizations in the world and a Florida-based diversified financial services firm that provides a variety of banking, wealth management, and outsourced business processing services to high-net worth clients and premier financial institutions. Common stock primarily consisted of an investment in a large cap equity fund and certain other funds that are Community Reinvestment Act (“CRA”) eligible.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the Company’s portfolio of securities available for sale at December 31, 2009:


	December 31, 2009
(in thousands)	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Mortgage-Related Securities:
GSE certificates	$	264,769	$	7,741	$	702	$	271,808
GSE CMOs		400,770		16,013		—		416,783
Private label CMOs		91,612		—		5,998		85,614

Total mortgage-related securities	$	757,151	$	23,754	$	6,700	$	774,205

Other Securities:
U.S. Treasury obligations	$	607,022	$	21	$	592	$	606,451
GSE debentures		30,179		11		—		30,190
Corporate bonds		5,811		9		919		4,901
State, county, and municipal		6,402		38		281		6,159
Capital trust notes		39,151		5,125		5,438		38,838
Preferred stock		31,400		1,117		11,283		21,234
Common stock		42,693		1,606		7,631		36,668

Total other securities	$	762,658	$	7,927	$	26,144	$	744,441

Total securities available for sale	$	1,519,809	$	31,681	$	32,844	$	1,518,646

The following tables summarize the Company’s portfolio of securities held to maturity at September 30, 2010 and December 31, 2009:


	September 30, 2010
(in thousands)	Amortized Cost		Carrying Amount⁽¹⁾		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Mortgage-Related Securities:
GSE certificates	$	199,642	$	199,642	$	15,087	$	122	$	214,607
GSE CMOs		2,934,939		2,934,939		92,053		—		3,026,992
Other mortgage-related securities		6,698		6,698		—		—		6,698

Total mortgage-related securities	$	3,141,279	$	3,141,279	$	107,140	$	122	$	3,248,297

Other Securities:
GSE debentures	$	608,622	$	608,622	$	8,306	$	—	$	616,928
Corporate bonds		91,763		91,763		9,018		—		100,781
Capital trust notes		178,045		156,130		7,980		23,703		140,407

Total other securities	$	878,430	$	856,515	$	25,304	$	23,703	$	858,116

Total securities held to maturity	$	4,019,709	$	3,997,794	$	132,444	$	23,825	$	4,106,413

(1)	Held-to-maturity securities are reported at a carrying amount equal to amortized cost less the non-credit portion of OTTI recorded in AOCL. At September 30, 2010, the non-credit portion recorded in AOCL was $21.9 million (before taxes).

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	December 31, 2009
(in thousands)	Amortized Cost		Carrying Amount		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
Mortgage-Related Securities:
GSE certificates	$	234,290	$	234,290	$	16,031	$	—	$	250,321
GSE CMOs		2,224,873		2,224,873		75,948		6,327		2,294,494
Other mortgage-related securities		6,793		6,793		—		—		6,793

Total mortgage-related securities	$	2,465,956	$	2,465,956	$	91,979	$	6,327	$	2,551,608

Other Securities:
GSE debentures	$	1,489,488	$	1,489,488	$	564	$	24,505	$	1,465,547
Corporate bonds		101,084		101,084		4,363		1,578		103,869
Capital trust notes		176,784		167,069		2,054		40,485		128,638

Total other securities	$	1,767,356	$	1,757,641	$	6,981	$	66,568	$	1,698,054

Total securities held to maturity	$	4,233,312	$	4,223,597	$	98,960	$	72,895	$	4,249,662

Included in the $199.6 million market value of the capital trust note portfolio held at September 30, 2010 are three pooled trust preferred securities. The table below details the pooled trust preferred securities that have at least one credit rating below investment grade as of September 30, 2010:


	INCAPS Funding I			Alesco Preferred Funding VII Ltd.			Preferred Term Securities II
(dollars in thousands)	Class B-2 Notes			Class C-1 Notes			Mezzanine Notes
Book value	$	14,964		$	553		$	625
Fair value		21,039			1,014			1,367
Unrealized gain		6,076			462			741
Lowest credit rating assigned to security		B			CC			CC
Number of banks currently performing		26			63			23
Actual deferrals and defaults as a percentage of original collateral		6	%		28	%		36	%
Expected deferrals and defaults as a percentage of remaining performing collateral		25			27			0
Expected recoveries as a percentage of remaining performing collateral		0			0			10
Excess subordination as a percentage of remaining performing collateral		8			0			0

As of September 30, 2010, after taking into account our best estimates of future deferrals, defaults, and recoveries, two of our pooled trust preferred securities had no excess subordination in the classes we own and one had excess subordination of 8%. Excess subordination is calculated after taking into account the deferrals, defaults, and recoveries noted in the table above, and indicates whether there is sufficient additional collateral to cover the outstanding principal balance of the class we own, after taking into account these projected deferrals, defaults, and recoveries.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table presents a roll-forward of the credit loss component of OTTI on debt securities for which a non-credit component of OTTI was recognized in AOCL. The beginning balance represents the credit loss component for debt securities for which OTTI occurred prior to January 1, 2010. OTTI recognized in earnings after that date for credit-impaired debt securities is presented as an addition in two components, based upon whether the current period is the first time a debt security was credit-impaired (initial credit impairment) or is not the first time a debt security was credit-impaired (subsequent credit impairment). Changes in the credit loss component of credit-impaired debt securities were as follows:


		For the Nine Months Ended September 30, 2010
(in thousands)
Beginning credit loss amount as of December 31, 2009		$	199,883
Add:	Initial other-than-temporary credit losses		1,157
	Subsequent other-than-temporary credit losses		814
Less:	Realized losses for securities sold		—
	Securities intended or required to be sold		—
	Increases in expected cash flows on debt securities		—

Ending credit loss amount as of September 30, 2010		$	201,854

OTTI losses on securities totaled $26.5 million in the nine months ended September 30, 2010 and consisted of $12.8 million relating to preferred stock and $13.7 million relating to trust preferred securities. The OTTI losses that were related to credit were recognized in earnings and totaled $2.0 million during 2010, as determined through a present-value analysis of expected cash flows on the securities. The significant inputs that the Company used to determine these expected cash flows were the anticipated magnitude and timing of interest payment deferrals, if any, and the underlying creditworthiness of the individual issuers whose debt acts as collateral for these trust preferred securities. The discount rate used to estimate the fair value was determined by considering the weighted average of certain market credit spreads, as well as credit spreads interpolated using other market factors. The discount rate used in determining the credit portion of OTTI, if any, is the yield on the position at the time of purchase.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table presents held-to-maturity and available-for-sale securities having a continuous unrealized loss position for less than twelve months or for twelve months or longer as of September 30, 2010:


At September 30, 2010	Less than Twelve Months				Twelve Months or Longer				Total
(in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Temporarily Impaired Held-to-Maturity Debt Securities:
GSE certificates	$	27,842	$	122	$	—	$	—	$	27,842	$	122
Capital trust notes		1,570		9		72,328		23,694		73,898		23,703

Total temporarily impaired held-to-maturity debt securities	$	29,412	$	131	$	72,328	$	23,694	$	101,740	$	23,825


Temporarily Impaired Available-for-Sale Securities:
Debt Securities:
GSE certificates	$	10,406	$	78	$	—	$	—	$	10,406	$	78
Private label CMOs		—		—		40,385		661		40,385		661
Corporate bonds		—		—		3,966		838		3,966		838
Capital trust notes		6,013		104		8,531		5,603		14,544		5,707

Total temporarily impaired available-for-sale debt securities	$	16,419	$	182	$	52,882	$	7,102	$	69,301	$	7,284
Equity Securities		40		11		23,860		18,921		23,900		18,932

Total temporarily impaired available-for-sale securities	$	16,459	$	193	$	76,742	$	26,023	$	93,201	$	26,216

The twelve months or longer unrealized losses of $18.9 million relating to available-for-sale equity securities primarily consisted of two security positions. The first is a perpetual preferred stock of a Florida-based diversified financial services firm, which was evaluated under the debt model described on page 119 of the Company’s 2009 Annual Report on Form 10-K; and the second was a large cap equity fund. The respective twelve months or longer unrealized losses on the preferred stock and the large cap equity fund were $12.0 million and $6.1 million, respectively.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


At December 31, 2009	Less than Twelve Months				Twelve Months or Longer				Total
(in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Temporarily Impaired Held-to-Maturity Debt Securities:
GSE debentures	$	1,403,687	$	24,505	$	—	$	—	$	1,403,687	$	24,505
GSE CMOs		59,147		1,115		102,067		5,212		161,214		6,327
Corporate bonds		27,710		1,256		14,317		322		42,027		1,578
Capital trust notes		34,830		429		71,016		40,056		105,846		40,485

Total temporarily impaired held-to-maturity debt securities	$	1,525,374	$	27,305	$	187,400	$	45,590	$	1,712,774	$	72,895


Temporarily Impaired Available-for-Sale Securities:
Debt Securities:
U.S. Treasury obligations	$	185,928	$	592	$	—	$	—	$	185,928	$	592
GSE certificates		81,981		702		—		—		81,981		702
Private label CMOs		43,849		5,452		41,765		546		85,614		5,998
Corporate bonds		—		—		3,855		919		3,855		919
State, county, and municipal		524		22		4,723		259		5,247		281
Capital trust notes		3,983		44		9,224		5,394		13,207		5,438

Total temporarily impaired available-for-sale debt securities	$	316,265	$	6,812	$	59,567	$	7,118	$	375,832	$	13,930
Equity Securities		—		—		30,498		18,914		30,498		18,914

Total temporarily impaired available-for-sale securities	$	316,265	$	6,812	$	90,065	$	26,032	$	406,330	$	32,844

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In April 2009, the Financial Accounting Standards Board (the “FASB”) amended the OTTI accounting model for debt securities. The OTTI accounting model for equity securities was not affected. Under this guidance, an OTTI loss on impaired securities must be fully recognized in earnings if an investor has the intent to sell the debt security or if it is more likely than not that the investor will be required to sell the debt security before recovery of its amortized cost. However, even if an investor does not expect to sell a debt security, it must evaluate the expected cash flows to be received and determine if a credit loss has occurred. In the event that a credit loss has occurred, only the amount of impairment associated with the credit loss is recognized in earnings. Amounts relating to factors other than credit losses are recorded in AOCL. The guidance also requires additional disclosures regarding the calculation of credit losses as well as factors considered by the investor in reaching a conclusion that an investment is not other-than-temporarily impaired. The Company adopted this guidance effective April 1, 2009 and recorded a $967,000 pre-tax transition adjustment for the non-credit portion of the OTTI on securities held at April 1, 2009 that were previously considered other-than-temporarily impaired.

Available-for-sale securities in unrealized loss positions are analyzed as part of the Company’s ongoing assessment of OTTI. When the Company intends to sell such available-for-sale securities, the Company recognizes an impairment loss equal to the full difference between the amortized cost basis and the fair value of those securities. When the Company does not intend to sell available-for-sale equity or debt securities in an unrealized loss position, potential OTTI is considered based on a variety of factors, including the length of time and extent to which the fair value has been less than cost; adverse conditions specifically related to the industry, the geographic area, or financial condition of the issuer, or the underlying collateral of a security; the payment structure of the security; changes to the rating of the security by a rating agency; the volatility of the fair value changes; and changes in fair value of the security after the balance sheet date. For debt securities, the Company estimates cash flows over the remaining lives of the underlying collateral to assess whether credit losses exist and, where applicable, to determine if any adverse changes in cash flows have occurred. The Company’s cash flow estimates take into account expectations of relevant market and economic data as of the end of the reporting period. As of September 30, 2010, the Company did not intend to sell the securities with an unrealized loss position in AOCL, and it was more likely than not that the Company would not be required to sell these securities before recovery of their amortized cost basis. The Company believes that the securities with an unrealized loss in AOCL were not other-than-temporarily impaired as of September 30, 2010.

Other factors considered in determining whether a loss is temporary include the length of time and the extent to which fair value has been below cost; the severity of the impairment; the cause of the impairment; the financial condition and near-term prospects of the issuer; activity in the market of the issuer that may indicate adverse credit conditions; and the forecasted recovery period using current estimates of volatility in market interest rates (including liquidity and risk premiums).

Management’s assertion regarding its intent not to sell, or that it is not more likely than not that the Company will be required to sell the security before its anticipated recovery, considers a number of factors, including a quantitative estimate of the expected recovery period (which may extend to maturity) and management’s intended strategy with respect to the identified security or portfolio. If management does have the intent to sell, or believes it is more likely than not that the Company will be required to sell the security before its anticipated recovery, the unrealized loss is charged directly to earnings in the Consolidated Statement of Income and Comprehensive Income.

The unrealized losses on the Company’s GSE debentures and GSE CMOs at September 30, 2010 were primarily caused by movements in market interest rates and spread volatility, rather than credit risk. The Company purchased these investments either at par or at a discount relative to their face amount, and the contractual cash flows of these investments are guaranteed by the GSEs. Accordingly, it is expected that these securities would not be settled at a price that is less than the amortized cost of the Company’s investment. Because the Company does not have the intent to sell the investments and it is not more likely than not that the Company will be required to sell the investments before anticipated recovery of fair value, which may be at maturity, the Company did not consider these investments to be other-than-temporarily impaired at September 30, 2010.

The Company reviews quarterly financial information related to its investments in capital securities as well as other information that is released by each financial institution to determine the continued creditworthiness of the securities it issued. The contractual terms of these investments do not permit settling the securities at prices that are

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

less than the amortized costs of the investments; therefore, the Company expects that these investments would not be settled at prices that are less than their amortized costs. The Company continues to monitor these investments and currently estimates that the present value of expected cash flows is not less than the amortized cost of the securities. Because the Company does not have the intent to sell the investments and it is not more likely than not that the Company will be required to sell the investments before anticipated recovery of fair value, which may be at maturity, it did not consider these investments to be other-than-temporarily impaired at September 30, 2010. It is possible that these securities will perform worse than is currently expected, which could lead to adverse changes in cash flows on these securities and potential OTTI losses in the future. Events that may occur in the future at the financial institutions that issued these securities could trigger material unrecoverable declines in fair values for the Company’s investments and therefore could result in future potential OTTI losses. Such events include, but are not limited to, government intervention, deteriorating asset quality and credit metrics, significantly higher levels of default and loan loss provisions, losses in value on the underlying collateral, deteriorating credit enhancement, net operating losses, and further illiquidity in the financial markets.

The unrealized losses on the Company’s private label CMOs at September 30, 2010 were primarily attributable to market interest rate volatility and a significant widening of interest rate spreads from the acquisition dates across market sectors relating to the continued illiquidity and uncertainty in the financial markets, rather than to credit risk. Current characteristics of each security owned, such as delinquency and foreclosure levels, credit enhancement, and projected losses and coverage, are reviewed periodically by management. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. Because the Company does not have the intent to sell the investments and it is not more likely than not that the Company will be required to sell the investments before anticipated recovery of fair value, which may be at maturity, the Company did not consider these investments to be other than temporarily impaired at September 30, 2010. It is possible that the underlying loan collateral of these securities will perform worse than is currently expected, which could lead to adverse changes in cash flows on these securities and future OTTI losses. Events that could trigger material unrecoverable declines in fair values, and therefore potential OTTI losses for these securities in the future, include, but are not limited to, deterioration of credit metrics, significantly higher levels of default, loss in value on the underlying collateral, deteriorating credit enhancement, and further illiquidity in the financial markets.

At September 30, 2010, the Company’s equity securities portfolio consisted of perpetual preferred and common stock, and mutual funds. The Company considers a decline in fair value of available-for-sale equity securities to be other than temporary if the Company does not expect to recover the entire amortized cost basis of the security. In analyzing its investments in perpetual preferred stock for OTTI, the Company uses an impairment model that is applied to debt securities, consistent with guidance provided by the SEC, provided that there has been no evidence of deterioration in the creditworthiness of the issuer. The unrealized losses on the Company’s equity securities were primarily caused by market volatility. In addition, perpetual preferred stock was impacted by widening interest rate spreads across market sectors related to the continued illiquidity and uncertainty in the marketplace. The Company evaluated the near-term prospects of a recovery of fair value for each security in the portfolio, together with the severity and duration of impairment to date. Based on this evaluation, and the Company’s ability and intent to hold these investments for a reasonable period of time sufficient to realize a near-term forecasted recovery of fair value, the Company did not consider these investments to be other than temporarily impaired at September 30, 2010. Nonetheless, it is possible that these equity securities will perform worse than is currently expected, which could lead to adverse changes in their fair values or the failure of the securities to fully recover in value as presently forecasted by management, causing the Company to record OTTI losses in future periods. Events that could trigger material declines in the fair values of these securities include, but are not limited to, deterioration in the equity markets; a decline in the quality of the loan portfolios of the issuers in which the Company has invested; and the recording of higher loan loss provisions and net operating losses by such issuers.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following tables summarize the carrying amounts and estimated fair values of held-to-maturity debt securities and the amortized cost and estimated fair values of available-for-sale debt securities at September 30, 2010 by contractual maturity. Mortgage-related securities held to maturity and available for sale, all of which have prepayment provisions, are distributed to a maturity category based on the end of the estimated average life of such securities. Principal and amortization prepayments are not shown in maturity categories as they occur, but are considered in the determination of estimated average life.


	Carrying Amount																				Fair Value
(dollars in thousands)	Mortgage- Related Securities		Average Yield			U.S. Treasury and GSE Obligations		Average Yield			State, County, and Municipal		Average Yield⁽¹⁾			Other Debt Securities⁽²⁾		Average Yield			Fair Value
Held-to-Maturity Debt Securities:
Due within one year	$	—		—	%	$	—		—	%	$	—		—	%	$	—		—	%	$	—
Due from one to five years		—		—			—		—			—		—			32,750		6.34			33,868
Due from five to ten years		8,811		6.14			558,622		3.73			—		—			23,026		5.20			602,222
Due after ten years		3,132,468		4.02			50,000		4.00			—		—			192,117		7.45			3,470,323

Total debt securities held to maturity	$	3,141,279		4.02	%	$	608,622		3.75	%	$	—		—	%	$	247,893		7.10	%	$	4,106,413


	Amortized Cost																				Fair Value
(dollars in thousands)	Mortgage- Related Securities		Average Yield			U.S. Treasury and GSE Obligations		Average Yield			State, County, and Municipal		Average Yield⁽¹⁾			Other Debt Securities⁽²⁾		Average Yield			Fair Value
Available-for-Sale Debt Securities:⁽³⁾
Due within one year	$	175		8.58	%	$	—		—	%	$	125		5.12	%	$	1,005		5.60	%	$	1,313
Due from one to five years		900		5.20			58,239		1.19			493		5.75			4,804		4.13			64,645
Due from five to ten years		12,993		6.86			—		—			674		6.48			—		—			14,097
Due after ten years		510,719		4.66			620		5.26			135		6.66			38,843		5.00			588,395

Total debt securities available for sale	$	524,787		4.72	%	$	58,859		1.24	%	$	1,427		6.13	%	$	44,652		4.92	%	$	668,450

(1)	Not presented on a tax-equivalent basis.

(2)

Includes corporate bonds and capital trust notes. Included in capital trust notes are $15.5 million and $625,000 of pooled trust preferred securities available for sale and held to maturity, respectively, all of which are due after ten years. The remaining capital trust notes consist of single-issue trust preferred securities.

(3)	As equity securities have no contractual maturity, they have been excluded from this table.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 5. Loans, net

The following table provides a summary of the Company’s loan portfolio at the dates indicated:


	September 30, 2010						December 31, 2009
(dollars in thousands)	Amount			Percent of Non-Covered Loans			Amount			Percent of Non-Covered Loans
Non-Covered Loans:
Mortgage Loans:
Multi-family	$	16,808,512			67.29	%	$	16,737,721			71.59	%
Commercial real estate		5,284,994			21.16			4,988,649			21.34
Acquisition, development, and construction		607,679			2.43			666,440			2.85
One- to four-family		180,211			0.72			216,078			0.92
Loans held for sale		1,368,889			5.48			—			—

Total Mortgage Loans	$	24,250,285			97.08		$	22,608,888			96.70

Other Loans:
Commercial and industrial		635,797			2.55			653,159			2.79
Other		93,655			0.37			118,445			0.51

Total Other Loans		729,452			2.92			771,604			3.30

Total non-covered loans		24,979,737			100.00	%	$	23,380,492			100.00	%

Net deferred loan origination fees		(6,296	)					(3,893	)
Allowance for loan losses		(155,866	)					(127,491	)

Total Non-Covered Loans, Net		24,817,575						23,249,108
Total Covered Loans		4,473,718						5,016,100

Loans, net	$	29,291,293					$	28,265,208

Covered loans refer to the loans acquired from the FDIC in the AmTrust and Desert Hills acquisitions, all of which are subject to the previously mentioned loss sharing agreements. At December 31, 2009, the balance of covered loans included loans held for sale of $351.3 million. Non-covered loans refer to all loans in the Company’s loan portfolio excluding covered loans.

Non-Covered Loans

Loans Originated for Portfolio

The vast majority of the loans the Company originates for portfolio are multi-family loans. Within this niche, the Company’s primary focus is loans collateralized by non-luxury apartment buildings in New York City that feature below-market rents.

The Company also originates the following types of loans for portfolio: commercial real estate (“CRE”) loans, primarily in New York City, Long Island, and New Jersey; and, to a lesser extent, acquisition, development, and construction (“ADC”) loans and commercial and industrial (“C&I”) loans. ADC loans are primarily originated for multi-family and residential tract projects in New York City and Long Island, while C&I loans are made to small and mid-size businesses in New York City, Long Island, New Jersey, and Arizona on both a secured and unsecured basis for working capital, business expansion, and the purchase of machinery and equipment.

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 the Company’s borrowers to repay these loans may be impacted by adverse conditions in the local real estate market and the local economy. While the Company generally requires that such loans be qualified on the basis of the collateral property’s current cash flows, appraised value, and debt service coverage ratio, among other factors, there can be no assurance that its underwriting policies will protect the Company from credit-related losses or delinquencies.

ADC loans typically involve a higher degree of credit risk than financing on improved, owner-occupied real estate. The risk of loss on an ADC loan is largely dependent upon the accuracy of the initial appraisal of the

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

property’s value upon completion of construction or development; the estimated cost of construction, including interest; and the estimated time to complete and/or sell or lease such property. The Company seeks to minimize these risks by maintaining consistent lending policies and rigorous underwriting standards. However, if the estimate of value proves to be inaccurate, the cost of completion is greater than expected, the length of time to complete and/or sell or lease the collateral property is greater than anticipated, or if there is a downturn in the local economy or real estate market, the property could have a value upon completion that is insufficient to assure full repayment of the loan. This would have a material adverse effect on the quality of the ADC loan portfolio, and result in significant losses or delinquencies.

The Company seeks 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 operations of the business.

Since 2008, the markets served by the Company have been impacted by widespread economic decline and rising unemployment, which have contributed to a rise in charge-offs and non-performing assets. The ability of the Company’s borrowers to repay their loans, and the value of the collateral securing such loans, could be further adversely impacted by continued or more significant economic weakness in its local markets as a result of increased unemployment, declining real estate values, or increased residential and office vacancies. This not only could result in the Company experiencing a further increase in charge-offs and/or non-performing assets, but also could necessitate an increase in the provision for loan losses. These events, if they were to occur, would have an adverse impact on the Company’s results of operations and its capital.

One- to Four-Family Loans Originated for Sale

The origination of one- to four-family loans occurs on two distinctly different platforms. Since December 1, 2000, the Company has originated such loans as a customer service in its local markets through a third-party conduit. The loans have been originated at its branches and on its web sites, and have been sold to the third-party conduit shortly after closing, servicing released.

In connection with the AmTrust acquisition, the Company acquired its mortgage banking operation, which aggregates agency-conforming one- to four-family loans on a nationwide platform and sells these loans to GSEs.

Asset Quality

At September 30, 2010 and December 31, 2009, the Company had $659.9 million and $578.1 million, respectively, of non-accrual non-covered loans. In addition, at September 30, 2010, the Company had $169.6 million of covered loans that were 30 to 89 days past due, and covered loans of $311.6 million that were over 90 days past due but considered to be performing due to the application of the yield accretion method under Codification Topic 310-30. Codification Topic 310-30 allows the Company 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 or Desert Hills are no longer classified as non-performing because, at the respective dates of acquisition, the Company believed that it would 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.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table presents information regarding the Company’s non-performing loans at September 30, 2010 and December 31, 2009, excluding covered loans:


(in thousands)	September 30, 2010		December 31, 2009
Non-Performing Loans:
Non-accrual mortgage loans:
Multi-family	$	357,295	$	393,113
Commercial real estate		162,421		70,618
Acquisition, development, and construction		95,286		79,228
One- to four-family		18,178		14,171

Total non-accrual mortgage loans		633,180		557,130
Other non-accrual loans		26,724		20,938
Loans 90 days or more past due and still accruing interest		—		—

Total non-performing loans	$	659,904	$	578,068

In accordance with GAAP, the Company is required to account for certain loan modifications or restructurings as troubled debt restructurings (“TDRs”). In general, a modification or restructuring of a loan constitutes a TDR if the Company grants a concession to a borrower experiencing financial difficulty. Loans modified in TDRs are placed on non-accrual status until the Company determines 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. At September 30, 2010, loans modified in TDRs totaled $360.8 million; of this amount, $210.5 million were non-accrual loans and $150.3 million were accruing interest. At December 31, 2009, loans modified in TDRs totaled $184.8 million; of this amount, $167.3 million were non-accrual loans and $17.5 million were accruing interest.

The following table presents additional information regarding the Company’s TDRs as of September 30, 2010:


(in thousands)	Accruing		Non-Accrual		Total
Multi-family	$	142,101	$	127,380	$	269,481
Commercial real estate		8,191		57,818		66,009
Acquisition, development, and construction		—		17,666		17,666
Commercial and industrial		—		6,086		6,086
One- to four-family		—		1,520		1,520

Total	$	150,292	$	210,470	$	360,762

In an effort to proactively deal with delinquent loans, the Company has selectively extended to certain borrowers concessions such as rate reductions, forbearance of arrears, extension of maturity dates, and conversion from amortizing to interest-only payments. As of September 30, 2010, concessions made with respect to rate reductions amounted to $267.5 million; maturity extensions amounted to $57.2 million; and forbearance agreements amounted to $36.1 million.

Most of the Company’s TDRs involve rate reductions and/or forbearance of arrears, which have thus far proven the most successful in enabling selected borrowers to emerge from delinquency and keep their loans current.

The eligibility of a borrower for work-out concessions of any nature depends upon the facts and circumstances of each transaction, which may change from period to period, and involve judgment by Company personnel regarding the likelihood that the concession will result in the maximum recovery for the Company.

At September 30, 2010, non-covered loans included $1.4 billion of loans held for sale, the vast majority of which were originated by AmTrust’s mortgage banking operation for sale to GSEs.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table provides a summary of activity in the allowance for loan losses for the dates indicated:


(in thousands)	At or For the Nine Months Ended September 30, 2010			At or For the Year Ended December 31, 2009
Balance at beginning of period	$	127,491		$	94,368
Provision for loan losses		74,000			63,000
Charge-offs		(46,266	)		(29,931	)
Recoveries		641			54

Balance at end of period	$	155,866		$	127,491

At September 30, 2010, the Company had $718.2 million of non-covered impaired loans. At September 30, 2010, $13.9 million of the Company’s allowance for loan losses related to non-covered impaired loans of $93.0 million.

The average balance of impaired loans for the three and nine months ended September 30, 2010, was $727.4 million and $674.5 million, respectively. The interest income recorded on these loans, which was not materially different from cash-basis interest income, amounted to $2.0 million and $7.9 million for the respective periods. For the three and nine months ended September 30, 2009, the average balance of impaired loans was $498.9 million and $344.5 million, respectively, and the interest income amounted to $4.6 million and $13.7 million, respectively.

Covered Loans

The following table presents the balance of covered loans acquired in the AmTrust and Desert Hills acquisitions as of September 30, 2010:


(dollars in thousands)	Amount		Percent of Covered Loans
Loan Category:
One- to four-family	$	4,012,721		89.7	%
All other loans		460,997		10.3

Total loans	$	4,473,718		100.0	%

At the acquisition date, we estimated the fair values of the Desert Hills loan portfolio at $196.7 million, which represented the expected cash flows from the portfolio discounted at market-based rates. In estimating such fair value, we (a) calculated the contractual amount and timing of undiscounted principal and interest payments (the “undiscounted contractual cash flows”); and (b) estimated the amount and timing of undiscounted expected principal and interest payments (the “undiscounted expected cash flows”). The amount by which the undiscounted expected cash flows exceed the estimated fair value (the “accretable yield”) is accreted into interest income over the lives of the loans. The difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is referred to as the “non-accretable difference.” The non-accretable difference represents an estimate of the credit risk in the Desert Hills loan portfolio at the acquisition date. On the acquisition date, the estimate of the contractual principal and interest payments for covered loans acquired in the Desert Hills acquisition was $275.4 million. On the acquisition date, the accretable yield was $28.3 million and the non-accretable difference was $50.3 million.

In connection with the Desert Hills acquisition, the Company also acquired $38.6 million of OREO, all of which is covered under an FDIC loss sharing agreement. Covered OREO was initially recorded at its estimated fair value on the acquisition date based on independent appraisals less estimated selling costs. Any subsequent write downs due to declines in fair value will be charged to non-interest expense with a partially offsetting non-interest income item for the loss reimbursement under the FDIC loss sharing agreement. Any recoveries of previous write downs are credited to non-interest expense with a corresponding charge to non-interest income for the portion of the recovery that is due to the FDIC.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At September 30, 2010, the combined outstanding balance (representing amounts owed to the Company) of loans acquired in the AmTrust and Desert Hills acquisitions was $5.4 billion. The carrying values of such loans were $4.5 billion and $4.6 billion, respectively at June 30, 2010; the carrying value of loans acquired in the AmTrust transaction was $5.0 billion at December 31, 2009.

Changes in the accretable yield for acquired loans were as follows for the nine months ended September 30, 2010:


(in thousands)	Accretable Yield
Balance at beginning of period⁽¹⁾	$	2,081,765
Additions		28,315
Accretion		(188,017	)

Balance at end of period	$	1,922,063

(1)	Excludes loans held for sale.

Covered loans under the loss sharing agreements with the FDIC are reported exclusive of the FDIC loss share receivable. The covered loans acquired in the AmTrust and Desert Hills acquisitions are, and will continue to be, reviewed for collectability based on the expectations of cash flows on these loans. As a result, if there is a decrease in expected cash flows due to an increase in estimated credit losses compared to the estimate made at the acquisition date, the decrease in the present value of expected cash flows will be recorded as a provision for covered loan losses charged to earnings, and an allowance for covered loan losses will be established. A related credit to income and an increase in the FDIC loss share receivable will be recognized at the same time, and will be measured based on the loss share percentages described earlier in this report.

The FDIC loss share receivable represents the present value of the estimated losses on covered loans to be reimbursed by the FDIC. The estimated losses were based on the same cash flow estimates used in determining the fair value of the covered loans. The FDIC loss share receivable will be reduced as losses are recognized on covered loans and loss sharing payments are received from the FDIC. Realized losses in excess of acquisition date estimates will result in an increase in the FDIC loss share receivable. Conversely, if realized losses are less than acquisition date estimates, the FDIC loss share receivable will be reduced.

Under Codification Topic 310-30, purchasers are permitted to aggregate acquired loans 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.

Note 6. Mortgage Servicing Rights

The Company had mortgage servicing rights (“MSRs”) of $51.3 million and $10.6 million at September 30, 2010 and December 31, 2009, respectively. MSRs are included in “other assets” in the Consolidated Statements of Condition. The Company has two classes of MSRs for which it separately manages economic risk: residential MSRs and securitized MSRs. Residential MSRs are carried at fair value, with changes in fair value recorded as a component of non-interest income in each period. The Company uses various derivative instruments to mitigate the income statement-effect of changes in fair value due to changes in valuation inputs and assumptions of its residential MSRs. MSRs do not trade in an active, open market with readily observable prices. Accordingly, the Company utilizes a valuation model that calculates the present value of estimated future cash flows. The model incorporates various assumptions, including estimates of prepayment speeds, discount rates, refinance rates, servicing costs, and ancillary income. The Company reassesses and periodically adjusts the underlying inputs and assumptions in the model to reflect market conditions and assumptions that a market participant would consider in valuing the MSR asset. The value of MSRs is significantly affected by mortgage interest rates available in the marketplace, which influence mortgage loan prepayment speeds. In general, during periods of declining interest rates, the value of MSRs declines due to increasing prepayments attributable to increased mortgage refinancing activity. Conversely, during periods of rising interest rates, the value of MSRs generally increases due to reduced mortgage refinancing activity.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Securitized MSRs are carried at the lower of the initial carrying value, adjusted for amortization, or fair value and are amortized in proportion to, and over the period of, estimated net servicing income. Such MSRs are periodically evaluated for impairment based on the difference between the carrying amount and current fair value. If it is determined that impairment exists, the resultant loss is charged against earnings.

The following table sets forth the changes in residential and securitized MSRs for the nine months ended September 30, 2010 and the year ended December 31, 2009:


	For the Nine Months Ended September 30, 2010						For the Year Ended December 31, 2009
(in thousands)	Residential			Securitized			Residential		Securitized
Carrying value, beginning of year	$	8,617		$	1,965		$	—	$	3,568
Additions		55,776			—			—		—
Decrease in fair value		(14,496	)		—			—		—
Amortization		—			(580	)		—		(1,603	)
Additions recorded at fair value in the AmTrust acquisition		—			—			8,617		—

Carrying value, end of period	$	49,897		$	1,385		$	8,617	$	1,965

Note 7. Borrowed Funds

The following table provides a summary of the Company’s borrowed funds at the dates indicated:


(in thousands)	September 30, 2010		December 31, 2009
Wholesale borrowings:
FHLB advances	$	8,429,664	$	8,955,769
Repurchase agreements		4,125,000		4,125,000

Total wholesale borrowings		12,554,664		13,080,769

Junior subordinated debentures		427,079		427,371
Senior debt		601,835		601,746
Preferred stock of subsidiaries		11,600		54,800

Total borrowed funds	$	13,595,178	$	14,164,686

At September 30, 2010, the Company had $427.1 million of outstanding junior subordinated deferrable interest debentures (“junior subordinated debentures”) held by nine statutory business trusts (the “Trusts”) that issued guaranteed capital securities. The capital securities qualified as Tier 1 capital of the Company at that date. The Trusts are accounted for as unconsolidated subsidiaries in accordance with GAAP. The proceeds of each issuance were invested in a series of junior subordinated debentures of the Company and the underlying assets of each statutory business trust are the relevant debentures. The Company has fully and unconditionally guaranteed the obligations under each trust’s capital securities to the extent set forth in a guarantee by the Company to each trust. The Trusts’ capital securities are each subject to mandatory redemption, in whole or in part, upon repayment of the debentures at their stated maturity or earlier redemption. However, with the passage of the Dodd-Frank Act in July 2010, the qualification of capital securities as Tier 1 capital is expected to be phased out over a three-year period beginning January 1, 2013 and ending January 1, 2016.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table provides a summary of the outstanding capital securities issued by each trust and the carrying amounts of the junior subordinated debentures issued by the Company to each trust as of September 30, 2010:


Issuer	Interest Rate of Capital Securities and Debentures⁽¹⁾			Junior Subordinated Debenture Carrying Amount		Capital Securities Amount Outstanding		Date of Original Issue		Stated Maturity		First Optional Redemption Date
				(dollars in thousands)
Haven Capital Trust II		10.250	%	$	23,333	$	22,550		May 26, 1999		June 30, 2029		June 30, 2009⁽²⁾
Queens County Capital Trust I		11.045			10,309		10,000		July 26, 2000		July 19, 2030		July 19, 2010
Queens Statutory Trust I		10.600			15,464		15,000		September 7, 2000		September 7, 2030		September 7, 2010
New York Community Capital Trust V		6.000			143,584		137,233		November 4, 2002		November 1, 2051		November 4, 2007⁽³⁾
New York Community Capital Trust X		1.892			123,712		120,000		December 14, 2006		December 15, 2036		December 15, 2011
LIF Statutory Trust I		10.600			7,732		7,500		September 7, 2000		September 7, 2030		September 7, 2010
PennFed Capital Trust II		10.180			12,731		12,359		March 28, 2001		June 8, 2031		June 8, 2011
PennFed Capital Trust III		3.542			30,928		30,000		June 2, 2003		June 15, 2033		June 15, 2008⁽²⁾
New York Community Capital Trust XI		1.939			59,286		57,500		April 16, 2007		June 30, 2037		June 30, 2012

				$	427,079	$	412,142

(1)	Excludes the effect of purchase accounting adjustments.

(2)	Callable at any time subsequent to this date.

(3)	Callable subject to certain conditions as described in the prospectus filed with the SEC on November 4, 2002.

Note 8. Pension and Other Post-Retirement Benefits

The following table sets forth certain disclosures for the Company’s pension and post-retirement plans for the periods indicated:


	For the Three Months Ended September 30,
	2010						2009
(in thousands)	Pension Benefits			Post-Retirement Benefits			Pension Benefits			Post-Retirement Benefits
Components of net periodic (credit) expense:
Interest cost	$	1,515		$	198		$	1,611		$	228
Service cost		—			1			—			1
Expected return on plan assets		(2,866	)		—			(2,576	)		—
Unrecognized past service liability		49			(62	)		50			(62	)
Amortization of unrecognized loss		1,286			78			1,746			75

Net periodic (credit) expense	$	(16	)	$	215		$	831		$	242


	For the Nine Months Ended September 30,
	2010						2009
(in thousands)	Pension Benefits			Post-Retirement Benefits			Pension Benefits			Post-Retirement Benefits
Components of net periodic (credit) expense:
Interest cost	$	4,543		$	595		$	4,832		$	683
Service cost		—			3			—			3
Expected return on plan assets		(8,597	)		—			(7,726	)		—
Unrecognized past service liability		147			(187	)		152			(187	)
Amortization of unrecognized loss		3,858			235			5,237			227

Net periodic (credit) expense	$	(49	)	$	646		$	2,495		$	726

As discussed in the notes to the consolidated financial statements presented in the Company’s 2009 Annual Report on Form 10-K, the Company expects to contribute $1.7 million to its post-retirement plan to pay premiums and claims for the fiscal year ending December 31, 2010. At December 31, 2009, the Company’s pension plan was overfunded. Accordingly, the Company does not expect to contribute to its pension plan in 2010 period.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 9. Computation of Earnings per Share

The following table presents the Company’s computation of basic and diluted earnings per share for the periods indicated:


	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except share and per share data)	2010			2009			2010			2009

Net income	$	135,609		$	98,573		$	396,016		$	243,710
Less: Dividends paid on and earnings allocated to participating securities		(776	)		(548	)		(2,269	)		(1,419	)

Earnings applicable to common stock	$	134,833		$	98,025		$	393,747		$	242,291


Weighted average common shares outstanding		434,375,863			346,176,162			433,519,634			344,359,415

Basic earnings per common share	$	0.31		$	0.28		$	0.91		$	0.70


Earnings applicable to common stock	$	134,833		$	98,025		$	393,747		$	242,291


Weighted average common shares outstanding		434,375,863			346,176,162			433,519,634			344,359,415
Potential dilutive common shares⁽¹⁾		468,009			75,027			370,032			76,200

Total shares for diluted earnings per share computation		434,843,872			346,251,189			433,889,666			344,435,615


Diluted earnings per common share and common share equivalents	$	0.31		$	0.28		$	0.91		$	0.70

(1)

Options to purchase 2,818,863 and 2,824,373 shares, respectively, of the Company’s common stock that were outstanding in the three and nine months ended September 30, 2010, at respective weighted average exercise prices of $19.18 and $19.18, were excluded from the respective computations of diluted earnings per share because their inclusion would have had an antidilutive effect. Options to purchase 12,884,811 shares of the Company’s common stock that were outstanding in the three and nine months ended September 30, 2009, were excluded from the respective computations of diluted earnings per share because their inclusion would have had an antidilutive effect.

Note 10. Fair Value Measurement

The Company carries loans held for sale originated by the mortgage banking unit at fair value, in accordance with applicable accounting guidance (the “Fair Value Option”). In 2008, the FASB issued a standard that, among other things, defined fair value, established a consistent framework for measuring fair value, and expanded disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. The standard clarified that fair value is an “exit” price, representing the amount that would be received when selling an asset, or paid when transferring a liability, in an orderly transaction between market participants. Fair value is thus a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the standard established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

•

Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

•

Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

•

Level 3 – Inputs to the valuation methodology are significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants use in pricing an asset or liability.

A financial instrument’s categorization within this valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following tables present assets and liabilities that were measured at fair value on a recurring basis as of September 30, 2010 and December 31, 2009, and that were included in the Company’s Consolidated Statement of Condition at those dates:


	Fair Value Measurements at September 30, 2010 Using
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Netting Adjustments⁽¹⁾		Total Fair Value
Mortgage-Related Securities Available for Sale:
GSE certificates	$	—	$	222,040	$	—	$	—	$	222,040
GSE CMOs		—		254,854		—		—		254,854
Private label CMOs		—		66,035		—		—		66,035

Total mortgage-related securities	$	—	$	542,929	$	—	$	—	$	542,929

Other Securities Available for Sale:
GSE debentures	$	—	$	626	$	—	$	—	$	626
Corporate bonds		—		4,975		—		—		4,975
U. S. Treasury obligations		59,202		—		—		—		59,202
State, county, and municipal		—		1,517		—		—		1,517
Capital trust notes		—		35,135		24,066		—		59,201
Preferred stock		—		14,430		6,160		—		20,590
Common stock		39,125		—		—		—		39,125

Total other securities	$	98,327	$	56,683	$	30,226	$	—	$	185,236

Total securities available for sale	$	98,327	$	599,612	$	30,226	$	—	$	728,165

Other Assets:
Loans held for sale	$	—	$	1,363,844	$	—	$	—	$	1,363,844
Mortgage servicing rights		—		—		49,897		—		49,897
Derivative assets		5,632		102		27,884		—		33,618
Liabilities:
Derivative liabilities	$	2,018	$	8,805	$	—	$	—	$	10,823

(1)	Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle positive and negative positions with the same counterparties.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


	Fair Value Measurements at December 31, 2009 Using
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Netting Adjustments⁽¹⁾			Total Fair Value
Mortgage-Related Securities Available for Sale:
GSE certificates	$	—	$	271,808	$	—	$	—		$	271,808
GSE CMOs		—		416,783		—		—			416,783
Private label CMOs		—		85,614		—		—			85,614

Total mortgage-related securities	$	—	$	774,205	$	—	$	—		$	774,205

Other Securities Available for Sale:
GSE debentures	$	—	$	30,190	$	—	$	—		$	30,190
Corporate bonds		—		4,901		—		—			4,901
U. S. Treasury obligations		606,451		—		—		—			606,451
State, county, and municipal		—		6,159		—		—			6,159
Capital trust notes		—		15,273		23,565		—			38,838
Preferred stock		—		13,567		7,667		—			21,234
Common stock		36,668		—		—		—			36,668

Total other securities	$	643,119	$	70,090	$	31,232	$	—		$	744,441

Total securities available for sale	$	643,119	$	844,295	$	31,232	$	—		$	1,518,646

Other Assets:
Loans held for sale	$	—	$	351,322	$	—	$	—		$	351,322
Mortgage servicing rights		—		—		8,617		—			8,617
Derivative assets		48		20,416		32		(2,243	)		18,253
Liabilities:
Derivative liabilities	$	344	$	—	$	—	$	(83	)	$	261

(1)	Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle positive and negative positions with the same counterparties.

The Company reviews and updates the fair value hierarchy classifications for its assets on a quarterly basis. Changes from one quarter to the next that are related to the observability of inputs to a fair value measurement may result in a reclassification from one hierarchy level to another.

A description of the methods and significant assumptions utilized in estimating the fair value of available-for-sale securities follows:

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and exchange-traded securities.

If quoted market prices are not available for the specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. These pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices, and credit spreads. In addition to observable market information, models incorporate transaction details such as maturity and cash flow assumptions. Securities valued in this manner would generally be classified within Level 2 of the valuation hierarchy and primarily include such instruments as mortgage-related securities and corporate debt.

The fair value of loans held for sale is primarily based on quoted market prices for securities backed by similar types of loans. The changes in fair value of these assets are largely driven by changes in interest rates subsequent to loan funding and changes in the fair value of servicing associated with the mortgage loans held for sale. Loans held for sale are classified within Level 2 of the valuation hierarchy.

In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. In valuing collateralized debt obligations (“CDOs”) (which include pooled trust preferred securities and income notes) and certain single-issue capital trust notes, both of which are classified within Level 3, the determination of fair value may require benchmarking to similar instruments or analyzing default and recovery rates. Therefore, CDOs and certain single-issue capital trust notes are valued using a

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

model based on the specific collateral composition and cash flow structure of the securities. Key inputs to the model consist of market spread data for each credit rating, collateral type, and other relevant contractual features. In instances where quoted price information is available, that price is considered when arriving at the security’s fair value. Where there is limited activity or less transparency around the inputs to the valuation of preferred stock, the valuation is based on a discounted cash flow model.

MSRs do not trade in an active open market with readily observable prices. Accordingly, the Company utilizes a valuation model that calculates the present value of estimated future cash flows. The model incorporates various assumptions, including estimates of prepayment speeds, discount rates, refinance rates, servicing costs, and ancillary income. The Company reassesses and periodically adjusts the underlying inputs and assumptions in the model to reflect market conditions and assumptions that a market participant would consider in valuing the MSR asset. MSR fair value measurements use significant unobservable inputs and, accordingly, are classified as Level 3.

For interest rate lock commitments for residential mortgage loans that the Company intends to sell, the fair value is based on internally developed models. The key model inputs primarily include the sum of the value of the forward commitment based on the loans’ expected settlement dates and the projected value of the MSRs, government agency price adjustment factors, and historical interest rate lock commitment fall-out factors. Such derivatives are classified as Level 3.

While the Company believes its valuation methods are appropriate and consistent with those of other market participants, the use of different methodologies or assumptions to determine the fair values of certain financial instruments could result in different estimates of fair values at the reporting date.

The Company had no transfers in or out of Level 1 or 2 during the nine months ended September 30, 2010.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Changes in Level 3 Fair Value Measurements

The following tables include a roll-forward of the balance sheet amounts for the nine months ended September 30, 2010 and 2009 (including the change in fair value) for financial instruments classified in Level 3 of the valuation hierarchy:


			Total Realized/Unrealized Gains/(Losses) Recorded in					Purchases, Issuances, and Settlements, Net							Change in Unrealized Gains and (Losses) Related to Instruments Held at September 30, 2010
(in thousands)	Fair Value January 1, 2010		Income			Comprehensive Income		Purchases, Issuances, and Settlements, Net			Transfers in/out of Level 3		Fair Value at Sept. 30, 2010
Available-for-Sale Debt Securities:
Capital securities and preferred stock	$	31,232	$	(13,668	)	$	12,664	$	(2	)	$	—	$	30,226	$	(1,004	)
Mortgage servicing rights		8,617		(14,496	)		—		55,776			—		49,897		(14,496	)
Derivatives, net		32		27,852			—		—			—		27,884		27,852
			Total Realized/Unrealized Gains/(Losses) Recorded in					Purchases, Issuances, and Settlements, Net							Change in Unrealized Gains and (Losses) Related to Instruments Held at September 30, 2009
(in thousands)	Fair Value January 1, 2009		Income			Comprehensive Income		Purchases, Issuances, and Settlements, Net			Transfers in/out of Level 3		Fair Value at Sept. 30, 2009
Available-for-Sale Debt Securities:
Capital securities	$	14,590	$	(4,420	)	$	9,986	$	495		$	9,758	$	30,409	$	10,705

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Assets Measured at Fair Value on a Non-Recurring Basis

Certain assets are measured at fair value on a non-recurring basis. Such instruments are subject to fair value adjustments under certain circumstances (e.g., when there is evidence of impairment). The following tables present assets and liabilities that were measured at fair value on a non-recurring basis as of September 30, 2010 and December 31, 2009, and that were included in the Company’s Consolidated Statements of Condition at those dates:


	Fair Value Measurements at September 30, 2010 Using
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Loans held for sale	$	—	$	5,045	$	—	$	5,045
Certain impaired loans		—		—		226,141		226,141

Total	$	—	$	5,045	$	226,141	$	231,186


	Fair Value Measurements at December 31, 2009 Using
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Loans held for sale	$	—	$	4,729	$	—	$	4,729
Certain impaired loans		—		—		139,848		139,848

Total	$	—	$	4,729	$	139,848	$	144,577

The fair values of collateral-dependent impaired loans are determined using various valuation techniques, including consideration of appraised values and other pertinent real estate market data.

Other Fair Value Disclosures

Certain FASB guidance requires the disclosure of fair value information about the Company’s on- and off-balance-sheet financial instruments. Quoted market prices, when available, are used as the measure of fair value. In cases where quoted market prices are not available, fair values are based on present-value estimates or other valuation techniques. Such fair values are significantly affected by the assumptions used, the timing of future cash flows, and the discount rate.

Because assumptions are inherently subjective in nature, estimated fair values cannot be substantiated by comparison to independent market quotes. Furthermore, in many cases, the estimated fair values provided would not necessarily be realized in an immediate sale or settlement of such instruments.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the carrying values and estimated fair values of the Company’s financial instruments at September 30, 2010 and December 31, 2009:


	September 30, 2010				December 31, 2009
(in thousands)	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets:
Cash and cash equivalents	$	2,235,091	$	2,235,091	$	2,670,857	$	2,670,857
Securities held to maturity		3,997,794		4,106,413		4,223,597		4,249,662
Securities available for sale		728,165		728,165		1,518,646		1,518,646
FHLB stock		447,185		447,185		496,742		496,742
Loans, net		29,291,293		30,310,107		28,265,208		28,302,882
Mortgage servicing rights		51,282		51,282		10,582		10,582
Derivatives		33,618		33,618		18,253		18,253
Financial Liabilities:
Deposits	$	22,227,391	$	22,280,386	$	22,316,411	$	22,373,559
Borrowed funds		13,595,178		15,275,532		14,164,686		15,271,668
Derivatives		10,823		10,823		261		261

The methods and significant assumptions used to estimate fair values for the Company’s financial instruments are as follows:

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks and federal funds sold. The estimated fair values of cash and cash equivalents are assumed to equal their carrying values, as these financial instruments are either due on demand or have short-term maturities.

Securities Held to Maturity and Available for Sale

If quoted market prices are not available for a specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. These pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices, and credit spreads. In addition to observable market information, pricing models also incorporate transaction details such as maturity and cash flow assumptions.

FHLB Stock

The fair value of FHLB stock approximates the carrying amount, which is at cost.

Loans

The loan portfolio is segregated into various components for valuation purposes in order to group loans based on their significant financial characteristics, such as loan type (mortgages or other) and payment status (performing or non-performing). The estimated fair values of mortgage and other loans are computed by discounting the anticipated cash flows from the respective portfolios. The discount rates reflect current market rates for loans with similar terms to borrowers of similar credit quality. The estimated fair values of non-performing mortgage and other loans are based on recent collateral appraisals.

The methods used to estimate the fair value of loans are extremely sensitive to the assumptions and estimates used. While management has attempted to use assumptions and estimates that best reflect the Company’s loan portfolio and current market conditions, a greater degree of subjectivity is inherent in these values than in those determined in active markets. Accordingly, readers are cautioned in using this information for purposes of evaluating the financial condition and/or value of the Company in and of itself or in comparison with any other company.

In addition, these methods of estimating fair value do not incorporate the exit-price concept of fair value described in Codification Topic 820-10, “Fair Value Measurements and Disclosures.”

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Loans Held for Sale

Fair value is based on independent quoted market prices, where available, and adjusted as necessary for such items as servicing value, guaranty fee premiums, and credit spread adjustments.

Mortgage Servicing Rights (“MSRs”)

MSRs do not trade in an active market with readily observable prices. Accordingly, the Company utilizes a valuation model that calculates the present value of estimated future cash flows. The model incorporates various assumptions, including estimates of prepayment speeds, discount rates, refinance rates, servicing costs, and ancillary income. The Company reassesses and periodically adjusts the underlying inputs and assumptions in the model to reflect market conditions and assumptions that a market participant would consider in valuing the MSR asset.

Derivative Financial Instruments

For exchange-traded futures and exchange-traded options, the fair value is based on observable quoted market prices in an active market. For forward commitments to buy and sell loans and mortgage-backed securities, the fair value is based on observable market prices for similar securities in an active market. For interest rate lock commitments for residential mortgage loans that the Company intends to sell, the fair value is based on internally developed models. The key model inputs primarily include the sum of the value of the forward commitment based on the loans’ expected settlement dates, the value of MSRs arrived at by an independent MSR broker, government agency price adjustment factors, and historical interest rate lock commitment fall-out factors.

Deposits

The fair values of deposit liabilities with no stated maturity (i.e., NOW and money market accounts, savings accounts, and non-interest-bearing accounts) are equal to the carrying amounts payable on demand. The fair values of CDs represent contractual cash flows, discounted using interest rates currently offered on deposits with similar characteristics and remaining maturities. These estimated fair values do not include the intangible value of core deposit relationships, which comprise a significant portion of the Company’s deposit base.

Borrowed Funds

The estimated fair value of borrowed funds is based either on bid quotations received from securities dealers or the discounted value of contractual cash flows with interest rates currently in effect for borrowed funds with similar maturities and structures.

Off-Balance-Sheet Financial Instruments

The fair values of commitments to extend credit and unadvanced lines of credit are estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining terms of the commitments and the creditworthiness of the potential borrowers. The estimated fair values of such off-balance-sheet financial instruments were insignificant at September 30, 2010 and December 31, 2009.

Note 11. Derivative Financial Instruments

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, and 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 derivatives not designated as hedges with a notional amount of $8.2 billion at September 30, 2010. Changes in the fair value of these derivatives are reflected in current-period earnings.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table sets forth information concerning the Company’s derivative financial instruments (that are designated as hedges) at September 30, 2010:


	September 30, 2010
	Notional Amount		Unrealized⁽¹⁾
(in thousands)	Notional Amount		Gain		Loss
Treasury options	$	460,000	$	310	$	—
Eurodollar futures		1,400,000		—		2,018
Forward commitments to sell loans/mortgage-backed securities		3,117,805		—		10,433
Forward commitments to buy loans/mortgage-backed securities		535,000		1,730		—
Interest rate lock commitments		2,696,134		27,884		—

Total derivatives	$	8,208,939	$	29,924	$	12,451

(1)	Derivatives in a net gain position are recorded as other assets, and derivatives in a net loss position are recorded as other liabilities in the Consolidated Statements of Condition.

The Company uses various financial instruments, including derivatives, in connection with its strategies to reduce price risk resulting from changes in interest rates. Derivative instruments may include interest rate lock commitments entered into with borrowers or correspondents/brokers to acquire conforming fixed and adjustable rate residential mortgage loans that will be held for sale. Other derivative instruments include Treasury options and Eurodollar futures. Gains or losses due to changes in the fair value of derivatives are recognized currently in earnings.

The Company enters into forward contracts to sell fixed rate mortgage-backed securities to protect against changes in the prices of conforming fixed rate loans held for sale. Forward contracts are entered into with securities dealers in an amount related to the portion of interest rate lock commitments that are expected to close. The value of these forward sales contracts moves inversely with the value of the loans in response to changes in interest rates.

To manage the price risk associated with fixed rate non-conforming mortgage loans, the Company generally enters into forward contracts on mortgage-backed securities or forward commitments to sell loans to approved investors. Short positions in Eurodollar futures contracts are used to manage price risk on adjustable rate mortgage loans held for sale.

The Company also purchases put and call options to manage the risk associated with variations in the amount of interest rate lock commitments that ultimately close.

In addition, the Company mitigates a portion of the risk associated with changes in the value of MSRs. The general strategy for hedging the value of servicing assets is to purchase hedge instruments that gain value when interest rates fall, thereby offsetting the corresponding decline in the value of the MSRs. The Company purchases call options on Treasury futures and enters into forward contracts to purchase fixed rate mortgage-backed securities to offset the risk of declines in the value of MSRs.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table sets forth the effect of derivative instruments on the Consolidated Statements of Income for the nine months ended September 30, 2010 and for the period from December 4, 2009 (the date of the AmTrust acquisition) through December 31, 2009:


	Gain (Loss) Included in Mortgage Banking Income
(in thousands)	For the Nine Months Ended September 30, 2010			From December 4, 2009 through December 31, 2009
Mortgage Banking:
Treasury options	$	5,860		$	(77	)
Eurodollar futures		(3,110	)		186
Forward commitments to buy/sell loans/mortgage-backed securities		(44,624	)		16,224
Other Management Activities:
Interest rate swaps		—			1,221

Total (loss) gain	$	(41,874	)	$	17,554

Note 12. Impact of Recent Accounting Pronouncements

In July 2010, the FASB issued Accounting Standard Update (“ASU”) 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” ASU 2010-20 was issued to improve the disclosures that an entity provides about the credit quality of its financing receivables and the related allowance for credit losses. As a result of these amendments, an entity is required to disaggregate, by portfolio segment or class, certain existing disclosures and provide certain new disclosures about its financing receivables and related allowance for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The amendments in ASU 2010-20 encourage, but do not require, comparative disclosures for earlier reporting periods that ended before initial adoption. However, an entity should provide comparative disclosures for those reporting periods ending after initial adoption. The Company’s adoption of ASU 2010-20 is not expected to have a material effect on its consolidated financial statements.

In January 2010, the FASB issued a standard that requires more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll-forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.

In July 2009, the FASB released the Codification as the single source of authoritative non-governmental GAAP. The Codification is effective for interim and annual periods ended after September 15, 2009. All previously existing accounting standards documents are superseded. All other accounting literature not included in the Codification is non-authoritative.

Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification has become non-authoritative.

Following the Codification, the FASB will not issue new standards in the form of Statements of Financial Accounting Standards, FASB Staff Positions, Emerging Issues Task Force Abstracts, or other types of pronouncements previously used. Instead, it will issue ASUs, which will serve to update the Codification, provide background information about the guidance, and provide the basis for conclusions on changes to the Codification.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

GAAP is not intended to be changed as a result of the Codification, but the Codification will change the way that guidance is organized and presented. As a result, these changes will have a significant impact on how companies reference GAAP in their financial statements and in their accounting policies for financial statements issued for interim and annual periods ended after September 15, 2009.

In April 2009, the FASB issued new requirements regarding disclosure of fair value measurements and accounting for the impairment of securities. The requirements address fair value measurements in inactive markets consistent with the principles presented in previously issued standards; increase the frequency of fair value disclosures; and establish new principles with respect to accounting for, and presenting, impairment losses on securities.

These requirements address the determination of fair values when there is no active market or where the price inputs being used represent distressed sales, and reaffirm that the objective of fair value measurement, as set forth in previously issued guidance, is to reflect how much an asset would be sold for in an orderly transaction (the exit price, as opposed to a distressed or forced transaction) at the date of the financial statements and under current market conditions. Furthermore, the FASB specifically reaffirmed the need to use judgment in ascertaining if a formerly active market has become inactive and in determining fair values when markets have become inactive.

Prior to issuing these requirements, fair values for financial instruments held by public companies were disclosed once a year. The new requirements call for quarterly disclosures that provide qualitative and quantitative information about fair value estimates.

New requirements relating to OTTI also were issued by the FASB to bring greater consistency to the timing of impairment recognition, and to provide greater clarity to investors about the credit and non-credit components of impaired debt securities that are not intended or expected to be sold. The measure of impairment in comprehensive income remains fair value. The guidance also requires increased and timelier disclosure regarding expected cash flows, credit losses, and the aging of securities with unrealized losses. In accordance with these requirements, the Company recorded a cumulative-effect adjustment at the adoption date of April 1, 2009 with respect to certain previously recognized OTTI.

The FASB requirements issued in April 2009 were effective for interim and annual periods ending after June 15, 2009 and were adopted by the Company on April 1, 2009. The Company’s adoption of these requirements did not have a material effect on its consolidated financial statements.

In June 2009, the FASB issued a standard that, among other things, affects the accounting for transfers of financial assets, including securitization transactions, and requires more information when companies have continuing exposure to the risks related to transferred financial assets. The standard eliminated the concept of a “qualifying special-purpose entity,” changed the requirements for derecognizing financial assets, and required additional disclosures.

Another standard issued by the FASB in June 2009 changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting or similar rights should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design, and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance.

Both of these standards were effective as of the beginning of the first annual reporting period that began after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The adoption of these standards on January 1, 2010, did not have a material impact on the Company’s consolidated financial condition or results of operations.

In June 2009, the FASB also issued a standard regarding subsequent events. This ASU established general standards of accounting for, and disclosing, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It required the disclosure of the date through which an entity evaluated subsequent events and the basis for that date, i.e., whether that date represented the date the financial statements were issued or were available to be issued. In February 2010, the FASB issued additional guidance regarding the recognition and disclosure requirements for subsequent events. This guidance addresses both the

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

interaction of the requirements of Codification Topic 855, “Subsequent Events,” with the SEC’s reporting requirements, and the intended breadth of the reissuance disclosures provision related to subsequent events. The amendments in this guidance have the potential to change reporting by both private and public entities; however, the nature of the change may vary depending on facts and circumstances. The Company has determined there are no disclosures required under the February 2010 guidance.

NEW YORK COMMUNITY BANCORP, INC.

ITEM 2.

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

For the purpose of this Quarterly Report on Form 10-Q, 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