Edgar Filing: NEW YORK COMMUNITY BANCORP INC

Form 10-Q

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, 2011

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. Large Accelerated Filer X Accelerated Filer Non-accelerated Filer Smaller Reporting Company

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

437,405,079

Number of shares of common stock outstanding at

November 3, 2011

NEW YORK COMMUNITY BANCORP, INC.

FORM 10-Q

Quarter Ended September 30, 2011


INDEX		Page No.

Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Condition as of September 30, 2011 (unaudited) and December 31, 2010		1

	Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2011 and 2010 (unaudited)		2

	Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2011 (unaudited)		3

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010 (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		87

Item 4.	Controls and Procedures		87

Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings		88

Item 1A.	Risk Factors		88

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		88

Item 3.	Defaults Upon Senior Securities		89

Item 4.	Removed and Reserved		89

Item 5.	Other Information		89

Item 6.	Exhibits		89

Signatures			90

Exhibits

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CONDITION

(in thousands, except share data)


	September 30, 2011 (unaudited)			December 31, 2010
Assets:
Cash and cash equivalents		$	1,596,680		$	1,927,542
Securities:
Available-for-sale ($369,846 and $500,811 pledged, respectively)			499,065			652,956
Held to maturity ($4,412,426 and $3,881,139 pledged, respectively) (fair value of $4,794,373 and $4,157,322, respectively)			4,648,551			4,135,935

Total securities			5,147,616			4,788,891

Non-covered loans held for sale			1,005,266			1,207,077
Non-covered loans held for investment, net of deferred loan fees and costs			25,131,934			23,707,494
Less: Allowance for losses on non-covered loans			(139,379)			(158,942)

Non-covered loans held for investment, net			24,992,555			23,548,552
Covered loans			3,873,294			4,297,869
Less: Allowance for losses on covered loans			(20,611)			(11,903)

Covered loans, net			3,852,683			4,285,966

Total loans, net			29,850,504			29,041,595
Federal Home Loan Bank stock, at cost			442,590			446,014
Premises and equipment, net			245,497			233,694
FDIC loss share receivable			728,355			814,088
Goodwill			2,436,131			2,436,159
Core deposit intangibles, net			57,116			77,734
Mortgage servicing rights			95,755			107,378
Bank-owned life insurance			762,312			742,481
Other real estate owned (includes $84,113 and $62,412, respectively, covered by loss sharing agreements)			186,768			90,478
Other assets			419,704			484,635

Total assets		$	41,969,028		$	41,190,689

Liabilities and Stockholders’ Equity:
Deposits:
NOW and money market accounts		$	8,588,686		$	8,235,825
Savings accounts			3,898,283			3,885,785
Certificates of deposit			7,528,701			7,835,161
Non-interest-bearing accounts			2,736,977			1,852,280

Total deposits			22,752,647			21,809,051
Borrowed funds:
Wholesale borrowings:
Federal Home Loan Bank advances			8,254,630			8,375,659
Repurchase agreements			4,125,000			4,125,000

Total wholesale borrowings			12,379,630			12,500,659
Junior subordinated debentures			426,890			426,992
Other borrowings			608,557			608,465

Total borrowed funds			13,415,077			13,536,116
Other liabilities			227,733			319,302

Total liabilities			36,395,457			35,664,469

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; 437,426,665 and 435,646,845 shares issued, and 437,421,005 and 435,646,845 shares outstanding, respectively)			4,374			4,356
Paid-in capital in excess of par			5,304,469			5,285,715
Retained earnings			316,572			281,844
Treasury stock, at cost (5,660 shares)			(69)			--
Accumulated other comprehensive loss, net of tax:
Net unrealized (loss) gain on securities available for sale, net of tax			(2,324)			12,600
Net unrealized loss on the non-credit portion of other-than-temporary impairment (“OTTI”) losses on securities, net of tax			(13,953)			(20,572)
Net unrealized loss on pension and post-retirement obligations, net of tax			(35,498)			(37,723)

Total accumulated other comprehensive loss, net of tax			(51,775)			(45,695)

Total stockholders’ equity			5,573,571			5,526,220

Total liabilities and stockholders’ equity		$	41,969,028		$	41,190,689

See accompanying notes to the 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,
	2011		2010		2011		2010
Interest Income:
Mortgage and other loans	$	400,114	$	410,178	$	1,224,348	$	1,241,021
Securities and money market investments		61,777		57,252		177,474		191,974

Total interest income		461,891		467,430		1,401,822		1,432,995


Interest Expense:
NOW and money market accounts		9,095		12,542		30,647		45,386
Savings accounts		3,696		4,824		12,029		16,369
Certificates of deposit		25,173		33,847		77,099		108,727
Borrowed funds		128,960		130,029		381,884		387,540

Total interest expense		166,924		181,242		501,659		558,022

Net interest income		294,967		286,188		900,163		874,973
Provision for losses on non-covered loans		18,000		32,000		59,000		74,000
Provision for losses on covered loans		--		--		8,708		--

Net interest income after provisions for loan losses		276,967		254,188		832,455		800,973


Non-Interest Income:
Total loss on OTTI of securities		--		(12,790)		(18,124)		(26,456)
Less: Non-credit portion of OTTI recorded in other comprehensive income (before taxes)		--		11,964		--		24,485

Net loss on OTTI recognized in earnings		--		(826)		(18,124)		(1,971)
Fee income		11,544		13,403		35,586		41,456
Bank-owned life insurance		6,890		6,792		21,343		20,968
Mortgage banking income		24,274		76,465		55,986		143,497
Net gain (loss) on sales of securities		6,734		--		35,469		(8)
Gain on business disposition		--		--		9,823		--
FDIC indemnification income		--		--		7,624		--
Gain on business acquisition		--		--		--		2,883
Gain on debt repurchase		--		2,441		--		2,734
Other		8,627		8,828		27,860		25,104

Total non-interest income		58,069		107,103		175,567		234,663


Non-Interest Expense:
Operating expenses:
Compensation and benefits		76,898		72,874		222,184		207,571
Occupancy and equipment		21,711		22,019		65,421		65,799
General and administrative		47,918		48,378		146,139		132,244

Total operating expenses		146,527		143,271		433,744		405,614
Amortization of core deposit intangibles		6,089		7,818		20,618		23,593

Total non-interest expense		152,616		151,089		454,362		429,207

Income before income taxes		182,420		210,202		553,660		606,429
Income tax expense		62,670		74,593		191,275		215,244

Net income	$	119,750	$	135,609	$	362,385	$	391,185

Other comprehensive income, net of tax:
Change in net unrealized (loss) gain on securities and non-credit portion of OTTI for the period		(2,114)		16,413		(8,305)		11,842
Change in pension and post-retirement obligations		741		781		2,225		2,450

Total comprehensive income, net of tax	$	118,377	$	152,803	$	356,305	$	405,477


Basic earnings per share		$0.27		$0.31		$0.82		$0.90

Diluted earnings per share		$0.27		$0.31		$0.82		$0.90

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, 2011
Common Stock (Par Value: $0.01):
Balance at beginning of year		$ 4,356
Shares issued for exercise of stock options (168,001 shares)		2
Shares issued for restricted stock awards (1,611,819 shares)		16

Balance at end of period		4,374


Paid-in Capital in Excess of Par:
Balance at beginning of year		5,285,715
Shares issued for restricted stock awards, net of forfeitures		(216)
Compensation expense related to restricted stock awards		12,096
Stock options		4,356
Tax effect of stock plans		2,518

Balance at end of period		5,304,469


Retained Earnings:
Balance at beginning of year		281,844
Net income		362,385
Dividends paid on common stock ($0.75 per share)		(327,657)

Balance at end of period		316,572


Treasury Stock:
Balance at beginning of year		--
Purchase of common stock (153,503 shares)		(2,769)
Exercise of stock options (135,162 shares)		2,500
Shares issued for restricted stock awards (12,681 shares)		200

Balance at end of period		(69)


Accumulated Other Comprehensive Loss, net of tax:
Balance at beginning of year		(45,695)
Other comprehensive loss, net of tax:
Change in net unrealized gain/loss on securities available for sale, net of tax of $3,502		(5,167)
Change in the non-credit portion of OTTI losses recognized in other comprehensive income, net of tax of $4,842		7,229
Change in pension and post-retirement obligations, net of tax of $1,509		2,225
Reclassification adjustment for net gain on sale of securities and loss on OTTI of securities, net of tax of $6,978		(10,367)

Total other comprehensive loss, net of tax		(6,080)

Balance at end of period		(51,775)

Total stockholders’ equity		$5,573,571

See accompanying notes to the consolidated financial statements.

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine Months Ended September 30,
	2011		2010
Cash Flows from Operating Activities:
Net income	$	362,385	$	391,185
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		67,708		74,000
Depreciation and amortization		17,642		14,682
(Accretion) amortization of discounts and premiums, net		(987)		3,218
Amortization of core deposit intangibles		20,618		23,593
Net (gain) loss on sale of securities		(35,469)		8
Net gain on sale of loans		(56,131)		(99,582)
Gain on business disposition		(9,823)		--
Gain on business acquisition		--		(2,883)
Stock plan-related compensation		12,096		11,884
Loss on OTTI of securities recognized in earnings		18,124		1,971
Changes in assets and liabilities:
Decrease in deferred tax asset, net		51,799		5,649
(Increase) decrease in other assets		(2,985)		33,522
(Decrease) increase in other liabilities		(82,526)		80,567
Origination of loans held for sale		(4,426,713)		(7,021,169)
Proceeds from sale of loans originated for sale		4,705,787		6,082,211

Net cash provided by (used in) operating activities		641,525		(401,144)

Cash Flows from Investing Activities:
Proceeds from repayment of securities held to maturity		1,821,919		3,514,161
Proceeds from repayment of securities available for sale		158,479		813,896
Proceeds from sale of securities held to maturity		284,406		--
Proceeds from sale of securities available for sale		740,738		660
Purchase of securities held to maturity		(2,609,676)		(3,292,660)
Purchase of securities available for sale		(748,721)		--
Net redemption of Federal Home Loan Bank stock		3,424		53,144
Net (increase) decrease in loans		(1,191,660)		135,168
Purchase of premises and equipment, net		(29,491)		(9,334)
Net cash acquired in business transactions		100,027		140,895

Net cash (used in) provided by investing activities		(1,470,555)		1,355,930

Cash Flows from Financing Activities:
Net increase (decrease) in deposits		943,596		(479,662)
Net increase in short-term borrowed funds		--		300,000
Net decrease in long-term borrowed funds		(121,039)		(914,012)
Tax effect of stock plans		2,518		1,533
Cash dividends paid on common stock		(327,657)		(325,612)
Treasury stock purchases		(2,769)		(2,868)
Net cash received from stock option exercises		3,519		4,200
Proceeds from issuance of common stock, net		--		28,935

Net cash provided by (used in) financing activities		498,168		(1,387,486)

Net decrease in cash and cash equivalents		(330,862)		(432,700)
Cash and cash equivalents at beginning of period		1,927,542		2,670,857

Cash and cash equivalents at end of period	$	1,596,680	$	2,238,157

Supplemental information:
Cash paid for interest	$	513,189	$	603,369
Cash paid for income taxes		106,480		233,878
Non-cash investing and financing activities:
Transfers to other real estate owned from loans	$	197,114	$	51,542


Note:		Excluding the core deposit intangible and 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 $230.5 million and $442.5 million, respectively.

See accompanying notes to the consolidated financial statements.

NEW YORK COMMUNITY BANCORP, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Basis of Presentation

Organization

Formerly known as Queens County Bancorp, Inc., New York Community Bancorp, Inc. (on a stand-alone basis, the “Parent Company” or, collectively with its subsidiaries, the “Company”) was organized under Delaware law on July 20, 1993 and is the holding company for New York Community Bank and New York Commercial Bank (hereinafter referred to as the “Community Bank” and the “Commercial Bank,” respectively, and collectively as the “Banks”). In addition, for the purpose of these Consolidated Financial Statements, the “Community Bank” and the “Commercial Bank” refer not only to the respective banks but also to their respective subsidiaries.

The Community Bank is the primary banking subsidiary of the Company. Founded on April 14, 1859 and formerly known as Queens County Savings Bank, the Community Bank converted from a state-chartered mutual savings bank to the capital stock form of ownership on November 23, 1993, on which date the Company completed its initial offering of common stock (par value: $0.01 per share) at a price of $25.00 per share. The Commercial Bank was established on December 30, 2005.

Reflecting nine stock splits, the Company’s initial offering price adjusts to $0.93 per share. All share and per share data presented in this report have been adjusted to reflect the impact of the stock splits.

The Company changed its name to New York Community Bancorp, Inc. on November 21, 2000 in anticipation of completing the first of eight business combinations that expanded its footprint well beyond Queens County to encompass all five boroughs of New York City, Long Island, and Westchester County in New York, and seven counties in the northern and central parts of New Jersey. The Company expanded beyond this region to south Florida, northeast Ohio, and central Arizona through its FDIC-assisted acquisition of certain assets and assumption of certain liabilities of AmTrust Bank (“AmTrust”) in December 2009, and extended its Arizona franchise through its FDIC-assisted acquisition of certain assets and assumption of certain liabilities of Desert Hills Bank (“Desert Hills”) in March 2010.

Reflecting this strategy of growth through acquisitions, the Community Bank currently operates 241 branches, four of which operate directly under the Community Bank name. The remaining 237 branches operate through seven divisional banks—Queens County Savings Bank, Roslyn Savings Bank, Richmond County Savings Bank, and Roosevelt Savings Bank (in New York), Garden State Community Bank in New Jersey, AmTrust Bank in Florida and Arizona, and Ohio Savings Bank in Ohio.

The Commercial Bank currently operates 34 branches in Manhattan, Queens, Brooklyn, Westchester County, and Long Island (all in New York), including 17 branches that operate under the name “Atlantic Bank.”

Basis of Presentation

The following is a description of the significant accounting and reporting policies that the Company and its wholly-owned subsidiaries follow in preparing and presenting their consolidated financial statements, which conform to U.S. generally accepted accounting principles (“GAAP”) and to general practices within the banking industry. The preparation of financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates that are particularly susceptible to change in the near term are used in connection with the determination of the allowance for losses on non-covered loans; the evaluation of goodwill for impairment; the evaluation of other-than-temporary impairment (“OTTI”) on securities; and the evaluation of the need for a valuation allowance on the Company’s deferred tax assets. The current economic environment has increased the degree of uncertainty inherent in these material estimates.

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 accounts and transactions are eliminated in consolidation. These unaudited consolidated financial statements should be read in conjunction with the audited

consolidated financial statements and notes thereto included in the Company’s 2010 Annual Report on Form 10-K. The Company currently has unconsolidated subsidiaries in the form of nine wholly-owned statutory business trusts, which were formed to issue guaranteed capital debentures (“capital securities”). Please see Note 6, “Borrowed Funds,” for additional information regarding these trusts.

When necessary, certain reclassifications have been made to prior-year amounts to conform to the current-year presentation.

Note 2. Computation of Earnings per Share

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Weighted-average common shares are adjusted to exclude unallocated Employee Stock Ownership Plan (“ESOP”) shares. Diluted EPS is computed using the same method as basic EPS, however, the computation reflects the potential dilution that would occur if outstanding in-the-money stock options were exercised and converted into common stock.

Unvested stock-based compensation awards containing non-forfeitable rights to dividends are considered participating securities and therefore are included in the two-class method for calculating EPS. Under the two-class method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends. The Company grants restricted stock to certain employees under its stock-based compensation plans. Recipients receive cash dividends during the vesting periods of these awards (i.e., including on the unvested portion of such awards). Since these dividends are non-forfeitable, the unvested awards are considered participating securities and have earnings allocated to them.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except share and per share data)	2011		2010		2011		2010
Net income		$119,750		$135,609		$362,385		$391,185
Less: Dividends paid on and earnings allocated to participating securities		(914)		(776)		(2,732)		(2,239)

Earnings applicable to common stock		$118,836		$134,833		$359,653		$388,946


Weighted average common shares outstanding		436,243,926		434,375,863		435,980,390		433,519,634

Basic earnings per common share		$0.27		$0.31		$0.82		$0.90


Earnings applicable to common stock		$118,836		$134,833		$359,653		$388,946


Weighted average common shares outstanding		436,243,926		434,375,863		435,980,390		433,519,634
Potential dilutive common shares⁽¹⁾		33,640		468,009		371,359		370,032

Total shares for diluted earnings per share computation		436,277,566		434,843,872		436,351,749		433,889,666


Diluted earnings per common share and common share equivalents		$0.27		$0.31		$0.82		$0.90

(1)

Options to purchase 8,918,493 and 3,122,124 shares, respectively, of the Company’s common stock that were outstanding in the three and nine months ended September 30, 2011, at respective weighted average exercise prices of $15.64 and $17.32, were excluded from the respective computations of diluted EPS because their inclusion would have had an antidilutive effect. 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 a weighted average exercise price of $19.18, were excluded from the respective computations of diluted EPS because their inclusion would have had an antidilutive effect.

Note 3. Securities

The following table summarizes the Company’s portfolio of securities available for sale at September 30, 2011:


	September 30, 2011
(in thousands)	Amortized Cost			Gross Unrealized Gain			Gross Unrealized Loss			Fair Value
Mortgage-Related Securities:
GSE⁽¹⁾ certificates		$	84,820		$	3,880		$	1		$	88,699
GSE CMOs⁽²⁾			15,929			845			--			16,774
Private label CMOs			26,988			--			1,063			25,925

Total mortgage-related securities		$	127,737		$	4,725		$	1,064		$	131,398

Other Securities:
GSE debentures		$	295,754		$	2,042		$	82		$	297,714
State, county, and municipal			1,310			64			--			1,374
Capital trust notes			36,754			141			6,270			30,625
Preferred stock			--			285			--			285
Common stock			42,154			1,683			6,168			37,669

Total other securities		$	375,972		$	4,215		$	12,520		$	367,667

Total securities available for sale⁽³⁾		$	503,709		$	8,940		$	13,584		$	499,065

(1)	Government-sponsored enterprises

(2)	Collateralized mortgage obligations

(3)	The non-credit portion of OTTI was $570,000 (before taxes).

As of September 30, 2011, the fair value of marketable equity securities included common stock of $37.7 million and Freddie Mac preferred stock of $285,000. Common stock primarily consisted of an investment in a large cap equity fund and certain other funds that are Community Reinvestment Act (“CRA”) eligible. The Freddie Mac preferred stock was recognized by the Company as other-than-temporarily impaired in the fourth quarter of 2008.

The following table summarizes the Company’s portfolio of securities available for sale at December 31, 2010:


	December 31, 2010
(in thousands)	Amortized Cost			Gross Unrealized Gain			Gross Unrealized Loss			Fair Value
Mortgage-Related Securities:
GSE certificates		$	203,480		$	8,067		$	32		$	211,515
GSE CMOs			213,839			8,464			--			222,303
Private label CMOs			51,657			110			405			51,362

Total mortgage-related securities		$	468,976		$	16,641		$	437		$	485,180

Other Securities:
U.S. Treasury obligations		$	57,859		$	694		$	--		$	58,553
GSE debentures			620			--			--			620
Corporate bonds			4,814			--			564			4,250
State, county, and municipal			1,304			41			11			1,334
Capital trust notes			38,843			8,550			5,389			42,004
Preferred stock			30,574			2,129			11,964			20,739
Common stock			42,044			3,786			5,554			40,276

Total other securities		$	176,058		$	15,200		$	23,482		$	167,776

Total securities available for sale⁽¹⁾		$	645,034		$	31,841		$	23,919		$	652,956

(1)	The non-credit portion of OTTI was $12.5 million (before taxes).

The following tables summarize the Company’s portfolio of securities held to maturity at September 30, 2011 and December 31, 2010:


	September 30, 2011
(in thousands)	Amortized Cost			Carrying Amount			Gross Unrealized Gain			Gross Unrealized Loss			Fair Value
Mortgage-Related Securities:
GSE certificates		$	670,899		$	670,899		$	41,498		$	--		$	712,397
GSE CMOs			2,460,494			2,460,494			99,459			--			2,559,953
Other mortgage-related securities			3,953			3,953			--			--			3,953

Total mortgage-related securities		$	3,135,346		$	3,135,346		$	140,957		$	--		$	3,276,303

Other Securities:
GSE debentures		$	1,298,132		$	1,298,132		$	16,674		$	--		$	1,314,806
Corporate bonds			83,516			83,516			6,757			49			90,224
Capital trust notes			153,331			131,557			7,096			25,613			113,040

Total other securities		$	1,534,979		$	1,513,205		$	30,527		$	25,662		$	1,518,070

Total securities held to maturity⁽¹⁾		$	4,670,325		$	4,648,551		$	171,484		$	25,662		$	4,794,373


(1) Held-to-maturity securities are reported at a carrying amount equal to amortized cost less the non-credit portion of OTTI recorded in accumulated other comprehensive loss, net of tax (“AOCL”). The non-credit portion of OTTI was $21.8 million (before taxes).

	December 31, 2010
(in thousands)	Amortized Cost			Carrying Amount			Gross Unrealized Gain			Gross Unrealized Loss			Fair Value
Mortgage-Related Securities:
GSE certificates		$	208,993		$	208,993		$	12,206		$	1,094		$	220,105
GSE CMOs			2,763,545			2,763,545			47,352			28,345			2,782,552
Other mortgage-related securities			6,777			6,777			--			--			6,777

Total mortgage-related securities		$	2,979,315		$	2,979,315		$	59,558		$	29,439		$	3,009,434

Other Securities:
GSE debentures		$	924,663		$	924,663		$	4,524		$	10,592		$	918,595
Corporate bonds			86,483			86,483			8,647			13			95,117
Capital trust notes			167,355			145,474			11,410			22,708			134,176

Total other securities		$	1,178,501		$	1,156,620		$	24,581		$	33,313		$	1,147,888

Total securities held to maturity⁽¹⁾		$	4,157,816		$	4,135,935		$	84,139		$	62,752		$	4,157,322

(1)	The non-credit portion of OTTI was $21.9 million (before taxes).

The Company had $442.6 million and $446.0 million of Federal Home Loan Bank (“FHLB”) stock, at cost, at September 30, 2011 and December 31, 2010, respectively. The Company is required to maintain this investment in order to have access to funding resources provided by the FHLB.

The following table summarizes the gross proceeds, gross realized gains, and gross realized losses from the sale of available-for-sale securities during the nine months ended September 30, 2011 and 2010:


	For the Nine Months Ended September 30,
(in thousands)	2011		2010
Gross proceeds		$740,738		$660
Gross realized gains		26,977		--
Gross realized losses		11		8

In addition, during the nine months ended September 30, 2011, the Company sold held-to-maturity securities with gross proceeds totaling $284.4 million and gross realized gains of $8.5 million. These sales occurred because the Company had either collected a substantial portion (at least 85%) of the initial principal balance or because there was evidence of significant deterioration in the issuer’s creditworthiness.

Included in the capital trust note portfolio at September 30, 2011 were three pooled trust preferred securities. The following table details the pooled trust preferred securities that had at least one credit rating below investment grade as of September 30, 2011:


	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			$629
Fair value		13,368			266			688
Unrealized gain (loss)		(1,596	)		(287	)		59
Lowest credit rating assigned to security		CCC-			C			C
Number of banks/insurance companies currently performing		24			60			24
Actual deferrals and defaults as a percentage of original collateral		11	%		32	%		36	%
Expected deferrals and defaults as a percentage of remaining performing collateral		25			25			19
Expected recoveries as a percentage of remaining performing collateral		--			--			2
Excess subordination as a percentage of remaining performing collateral		11			--			--

As of September 30, 2011, after taking into account the Company’s best estimates of future deferrals, defaults, and recoveries, two of its pooled trust preferred securities had no excess subordination in the classes it owns and one had excess subordination of 11%. 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 owned, after taking into account these projected deferrals, defaults, and recoveries.

The following table presents a roll-forward, from December 31, 2010 through September 30, 2011, 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, 2011. For credit-impaired debt securities, OTTI recognized in earnings after that date 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).


(in thousands)	For the Nine Months Ended September 30, 2011
Beginning credit loss amount as of December 31, 2010		$201,854
Add: Initial other-than-temporary credit losses		--
Subsequent other-than-temporary credit losses		6,160
Amount previously recognized in AOCL		11,964
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, 2011		$219,978

OTTI losses on securities (consisting entirely of preferred stock) totaled $18.1 million in the nine months ended September 30, 2011. As this entire amount was related to credit, it was recognized in earnings. OTTI was determined based on the Company’s expectation that it would no longer receive any cash flows from the impaired security.

The following table summarizes the carrying amount and estimated fair value of held-to-maturity debt securities, and the amortized cost and estimated fair value of available-for-sale debt securities, at September 30, 2011 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 ends of the estimated average lives 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 at September 30, 2011
(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 Securities:
Due within one year		$	--		--%		$	--		--%		$	--		--%		$	8,750		7.79%		$	8,761
Due from one to five years			--		--			--		--			--		--			23,986		5.80			24,798
Due from five to ten years			868,209		3.76			1,298,132		3.92			--		--			20,023		5.98			2,256,407
Due after ten years			2,267,137		3.74			--		--			--		--			162,314		7.17			2,504,407

Total debt securities held to maturity		$	3,135,346		3.75%		$	1,298,132		3.92%		$	--		--%		$	215,073		6.94%		$	4,794,373


Available-for-Sale Securities:⁽³⁾
Due within one year		$	--		--%		$	--		--%		$	125		5.39%		$	--		--%		$	126
Due from one to five years			2,531		6.91			--		--			489		6.01			--		--			3,084
Due from five to ten years			64,734		4.11			295,160		3.77			696		6.52			--		--			365,628
Due after ten years			60,472		4.74			594		2.75			--		--			36,754		4.62			92,273

Total debt securities available for sale		$	127,737		4.46%		$	295,754		3.76%		$	1,310		6.23%		$	36,754		4.62%		$	461,111

(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 $629,000 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.

The Company had no commitments to purchase securities at September 30, 2011.

The following tables present held-to-maturity and available-for-sale securities having a continuous unrealized loss position for less than twelve months and for twelve months or longer as of September 30, 2011:


At September 30, 2011	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		$	--		$	--		$	--		$	--		$	--		$	--
GSE certificates			--			--			--			--			--			--
GSE CMOs			--			--			--			--			--			--
Corporate bonds			4,951			49			--			--			4,951			49
Capital trust notes			920			93			62,867			25,520			63,787			25,613

Total temporarily impaired held-to-maturity debt securities		$	5,871		$	142		$	62,867		$	25,520		$	68,738		$	25,662


Temporarily Impaired Available-for-Sale Securities:
Debt Securities:
GSE certificates		$	--		$	--		$	14		$	1		$	14		$	1
Private label CMOs			25,925			1,063			--			--			25,925			1,063
GSE debentures			16,918			82			--			--			16,918			82
State, county, and municipal			--			--			--			--			--			--
Capital trust notes			13,633			1,883			9,751			4,387			23,384			6,270

Total temporarily impaired available-for-sale debt securities		$	56,476		$	3,028		$	9,765		$	4,388		$	66,241		$	7,416
Equity securities			40			--			23,998			6,168			24,038			6,168

Total temporarily impaired available-for-sale securities		$	56,516		$	3,028		$	33,763		$	10,556		$	90,279		$	13,584

The twelve months or longer unrealized losses of $6.2 million at September 30, 2011 relate to available-for-sale equity securities that primarily consisted of a large cap equity fund at that date. The twelve months or longer unrealized loss on this large cap equity fund was $5.4 million.


At December 31, 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 debentures		$	569,361		$	10,592		$	--		$	--		$	569,361		$	10,592
GSE certificates			54,623			1,094			--			--			54,623			1,094
GSE CMOs			1,251,850			28,345			--			--			1,251,850			28,345
Corporate bonds			4,987			13			--			--			4,987			13
Capital trust notes			--			--			66,698			22,708			66,698			22,708

Total temporarily impaired held-to-maturity debt securities		$	1,880,821		$	40,044		$	66,698		$	22,708		$	1,947,519		$	62,752


Temporarily Impaired Available-for-Sale Securities:
Debt Securities:
GSE certificates		$	12,809		$	28		$	779		$	4		$	13,588		$	32
Private label CMOs			--			--			35,511			405			35,511			405
Corporate bonds			--			--			4,250			564			4,250			564
State, county, and municipal			399			11			--			--			399			11
Capital trust notes			1,988			102			8,848			5,287			10,836			5,389

Total temporarily impaired available-for-sale debt securities		$	15,196		$	141		$	49,388		$	6,260		$	64,584		$	6,401
Equity securities			79			11			25,339			17,507			25,418			17,518

Total temporarily impaired available-for-sale securities		$	15,275		$	152		$	74,727		$	23,767		$	90,002		$	23,919

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 occurs, 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. Financial Accounting Standards Board (“FASB”) 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.

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 the 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 life 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, 2011, 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 position in AOCL were not other-than- temporarily impaired as of September 30, 2011.

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, is based on 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, 2011 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 will 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, 2011.

The Company reviews quarterly financial information related to its investments in capital trust notes as well as other information that is released by each financial institution to determine the continued creditworthiness of the issuer of the securities. The contractual terms of these investments do not permit settling the securities at prices that are less than the amortized costs of the investments; therefore, the Company expects that these investments will 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 them before the 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, 2011. It is possible that these securities will perform worse than is currently expected, which could lead to adverse changes in cash flows from 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 were insignificant at September 30, 2011. 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 will 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, 2011. 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 from these securities and potential OTTI losses in the future. 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, 2011, 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, 2011. 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 potential 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.

The investment securities designated as having a continuous loss position for twelve months or more at September 30, 2011 consisted of 11 capital trust notes, five equity securities, and one mortgage-backed security. At December 31, 2010, the investment securities designated as having a continuous loss position for twelve months or more consisted of two mortgage-related securities, one corporate debt obligation, eleven capital trust notes, and seven equity securities. At September 30, 2011 and December 31, 2010, the combined market value of these securities represented unrealized losses of $36.0 million and $46.5 million, respectively. At September 30, 2011, the fair value of securities having a continuous loss position for twelve months or more was 27.3% below their collective amortized cost of $132.1 million. At December 31, 2010, the fair value of such securities was 24.0% below their collective amortized cost of $193.5 million.

Note 4. Loans

The following table sets forth the composition of the loan portfolio at September 30, 2011 and December 31, 2010:


	September 30, 2011					December 31, 2010
(dollars in thousands)	Amount			Percent of Non-Covered Loans Held for Investment		Amount			Percent of Non-Covered Loans Held for Investment
Loans held for sale		$	1,005,266				$	1,207,077
Non-Covered Loans Held for Investment:
Mortgage Loans:
Multi-family			17,269,702		68.71%			16,807,913		70.88%
Commercial real estate			6,573,363		26.15			5,439,611		22.94
Acquisition, development, and construction			481,940		1.92			569,537		2.40
One-to-four family			138,685		0.56			170,392		0.72

Total mortgage loans held for investment			24,463,690		97.34			22,987,453		96.94

Other Loans:
Commercial and industrial			598,825		2.38			641,663		2.70
Other			70,502		0.28			85,559		0.36

Total other loans held for investment			669,327		2.66			727,222		3.06

Total non-covered loans held for investment			25,133,017		100.00%			23,714,675		100.00%

Net deferred loan origination fees			(1,083)					(7,181)
Allowance for losses on non-covered loans			(139,379)					(158,942)

Non-covered loans held for investment, net			24,992,555					23,548,552
Covered loans			3,873,294					4,297,869
Allowance for losses on covered loans			(20,611)					(11,903)

Total covered loans, net			3,852,683					4,285,966

Total loans, net		$	29,850,504				$	29,041,595

Non-Covered Loans

Non-Covered Loans Held for Investment

The majority of the loans the Company originates for investment are multi-family loans, most of which are 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 investment: 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. 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 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 could have a material adverse effect on the quality of the ADC loan portfolio, and could 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.

The Company sold $92.1 million of C&I loans in the second quarter of 2011, in connection with the disposition of the assets and liabilities of the Company’s insurance premium financing subsidiary, Standard Funding Corp. The Company recognized a gain of $9.8 million ($5.9 million after-tax) as a result of this business disposition during the three months ended June 30, 2011.

The markets served by the Company have been impacted by widespread economic weakness and high unemployment, which have contributed to it recording a higher level of charge-offs and non-performing assets than was the norm before the economy declined. 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, further 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 losses on covered loans. 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 Community Bank’s mortgage banking subsidiary, NYCB Mortgage Company, LLC, is one of the largest aggregators of one-to-four family loans for sale to GSEs in the United States. Community banks, credit unions, mortgage companies, and mortgage brokers use the subsidiary’s proprietary web-accessible mortgage banking platform to originate one-to-four family loans in all 50 states.

Prior to December 2010, the Company originated one-to-four family loans in its branches and on its web site on a pass-through, or conduit, basis, and would sell the loans to the third-party conduit shortly after they closed. Since December 2010, the Company has been originating one-to-four family loans in its branches and on its web site through several selected clients of its mortgage banking operation, rather than through the single third-party conduit with which it previously worked. The one-to-four family loans produced for its customers are aggregated with loans produced by its mortgage banking clients throughout the nation, and sold.

The Company also services mortgage loans for various third parties. At September 30, 2011, the unpaid principal balance of serviced loans amounted to $12.2 billion as compared to $9.5 billion at December 31, 2010.

Asset Quality

The following table presents information regarding the quality of the Company’s non-covered loans at September 30, 2011:


(in thousands)	30-89 Days Past Due		Non- Accrual		90 Days or More Delinquent and Still Accruing Interest		Total Delinquent Loans		Total Current Loans		Total Loans Receivable
Multi-family		$20,866		$259,578		$--		$280,444		$16,989,258		$17,269,702
Commercial real estate		7,112		75,556		--		82,668		6,490,695		6,573,363
Acquisition, development, and construction		2,999		51,468		--		54,467		427,473		481,940
One-to-four family		2,513		14,249		--		16,762		121,923		138,685
Commercial and industrial		3,695		13,940		--		17,635		581,190		598,825
Other		642		2,043		--		2,685		67,817		70,502

Total		$37,827		$416,834		$--		$454,661		$24,678,356		$25,133,017

The following table presents information regarding the quality of the Company’s non-covered loans at December 31, 2010:


(in thousands)	30-89 Days Past Due		Non- Accrual		90 Days or More Delinquent and Still Accruing Interest		Total Delinquent Loans		Total Current Loans		Total Loans Receivable
Multi-family		$121,188		$327,892		$--		$449,080		$16,358,833		$16,807,913
Commercial real estate		8,207		162,400		--		170,607		5,269,004		5,439,611
Acquisition, development, and construction		5,194		91,850		--		97,044		472,493		569,537
One-to-four family		5,723		17,813		--		23,536		146,856		170,392
Commercial and industrial		9,324		22,804		--		32,128		609,535		641,663
Other		1,404		1,672		--		3,076		82,483		85,559

Total		$151,040		$624,431		$--		$775,471		$22,939,204		$23,714,675

The following table summarizes the Company’s non-covered loan portfolio by credit quality indicator at September 30, 2011:


(in thousands)	Multi-Family		Commercial Real Estate		Acquisition, Development, and Construction		One-to-Four Family		Total Mortgage Segment		Commercial and Industrial		Other		Total Other Loan Segment
Credit Quality Indicator:
Pass		$16,861,947		$6,410,547		$422,667		$128,250		$23,823,411		$560,131		$68,459		$628,590
Special mention		56,016		66,111		6,560		--		128,687		16,413		--		16,413
Substandard		351,739		96,705		52,713		10,435		511,592		21,899		2,043		23,942
Doubtful		--		--		--		--		--		382		--		382
Loss		--		--		--		--		--		--		--		--

Total		$17,269,702		$6,573,363		$481,940		$138,685		$24,463,690		$598,825		$70,502		$669,327

The following table summarizes the Company’s non-covered loan portfolio by credit quality indicator at December 31, 2010:


(in thousands)	Multi-Family		Commercial Real Estate		Acquisition, Development, and Construction		One-to-Four Family		Total Mortgage Segment		Commercial and Industrial		Other		Total Other Loan Segment
Credit Quality Indicator:
Pass		$16,097,834		$5,239,936		$454,570		$158,240		$21,950,580		$594,373		$83,887		$678,260
Special mention		172,713		22,650		6,650		--		202,013		21,224		--		21,224
Substandard		535,366		176,797		108,317		12,152		832,632		23,564		1,672		25,236
Doubtful		2,000		228		--		--		2,228		2,502		--		2,502

Total		$16,807,913		$5,439,611		$569,537		$170,392		$22,987,453		$641,663		$85,559		$727,222

The preceding classifications follow regulatory guidelines and can be generally described as follows: pass loans are of satisfactory quality; special mention loans have a potential weakness or risk that may result in the deterioration of future repayment; substandard loans are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged (these loans have a well-defined weakness and there is a distinct possibility that the Company will sustain some loss); and doubtful loans, based on existing circumstances, have weaknesses that make collection or liquidation in full highly questionable and improbable. In addition, one-to-four family residential loans are classified utilizing an inter-regulatory agency methodology that incorporates the extent of delinquency and the loan-to-value ratios. These classifications are the most current available and have been generally updated within the last twelve months.

Troubled Debt Restructurings

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.

In April 2011, the FASB issued guidance regarding the determination of whether a restructuring is a TDR. In anticipation of such guidance the Company began applying these more conservative metrics at the beginning of

2011 and, accordingly, the Company did not record any additional TDRs as a result of adopting the FASB’s new guidance.

The following table presents information regarding the Company’s TDRs as of September 30, 2011 and December 31, 2010:


	September 30, 2011						December 31, 2010
(in thousands)	Accruing		Non-Accrual		Total		Accruing		Non-Accrual		Total
Loan Category:
Multi-family		$60,650		$174,322		$234,972		$148,738		$123,435		$272,173
Commercial real estate		3,422		43,055		46,477		3,917		56,814		60,731
Acquisition, development, and construction		--		34,021		34,021		--		17,666		17,666
Commercial and industrial		--		3,787		3,787		--		5,381		5,381
One-to-four family		--		1,499		1,499		--		1,520		1,520

Total		$64,072		$256,684		$320,756		$152,655		$204,816		$357,471

In an effort to proactively manage delinquent loans, the Company has selectively extended to certain borrowers concessions such as rate reductions, extension of maturity dates, capitalizing interest, and forbearance agreements. As of September 30, 2011, loans on which concessions were made with respect to rate reductions amounted to $247.2 million; loans on which maturities were extended or interest was capitalized amounted to $53.3 million; and loans in connection with which forbearance agreements were reached amounted to $20.3 million.

As of September 30, 2011, the financial effects of the Company’s TDRs for the three and nine months ended at that date are summarized as follows:


	Financial Effect of Modifications
	For the Three Months Ended September 30, 2011											For the Nine Months Ended September 30, 2011
	Weighted Average Interest Rate											Weighted Average Interest Rate
(dollars in thousands)	Number of Loans		Pre- Modification			Post- Modification			Charge-off Amount			Number of Loans		Pre- Modification			Post- Modification			Charge-off Amount
Loan Category:
Multi-family		1		8.00	%		5.50	%		$	--		22		4.27	%		3.96	%		$	9,853
Commercial real estate		2		7.63			5.46				--		6		6.88			3.78				--
Acquisition, development, and construction		2		7.50			5.00				--		2		7.50			5.00				--
Other		--		--			--				--		--		--			--				--

Total		5		7.52			5.06			$	--		30		4.74			4.06			$	9,853

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.

The following table presents TDRs that subsequently defaulted within twelve months of restructuring during the three and nine months ended September 30, 2011:


(dollars in thousands)	Number of Loans		Amount
Loan Category:
Multi-family		--		$	--
Commercial real estate		1			1,091
Acquisition, development, and construction		--			--
Commercial and industrial		--			--
One-to-four family		--			--

Total		1		$	1,091

Troubled debt restructurings are factored into the determination of the allowance for loan losses as the Company follows the fair value of collateral method defined in FASB Accounting Standards Codification (“ASC”)

301-10 and -40. The Company has determined that no allocation of the non-covered loan loss allowance was needed for TDRs as of September 30, 2011.

Covered Loans

The following table presents the balance of covered loans acquired in the AmTrust and Desert Hills acquisitions as of September 30, 2011:


(dollars in thousands)	Amount			Percent of Covered Loans
Loan Category:
One-to-four family		$	3,503,673		90.5%
All other loans			369,621		9.5

Total covered loans		$	3,873,294		100.0%

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 ASC 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. Under ASC 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.

At September 30, 2011 and December 31, 2010, the outstanding balance of covered loans (representing amounts owed to the Company) totaled $4.7 billion and $5.2 billion, respectively. The carrying values of such loans were $3.9 billion and $4.3 billion, respectively, at September 30, 2011 and December 31, 2010.

At the respective acquisition dates, the Company estimated the fair values of the AmTrust and Desert Hills loan portfolios, which represented the expected cash flows from the portfolios 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 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 loan portfolios at the acquisition date.

The accretable yield is affected by changes in interest rate indices for variable rate loans, changes in prepayment assumptions, and changes in expected principal and interest payments over the estimated lives of the loans. The accretable yield is affected by changes in interest rate indices for variable rate loans because expected future cash flows from interest payments are based on the variable rate in effect at the time of the regular periodic evaluations. Prepayments affect the estimated lives of covered loans and could change the amount of interest income and principal expected to be collected. Changes in the expected principal and interest payments over the estimated lives are driven by the credit outlook and actions taken with borrowers.

The Company periodically evaluates the estimates of cash flows expected to be collected. Expected future cash flows from interest payments are based on the variable rates at the time of the periodic evaluation. Estimates of expected cash flows that are impacted by changes in interest rate indices for variable rate loans and prepayment assumptions are treated as prospective yield adjustments and included in interest income.

Changes in the accretable yield for covered loans were as follows for the nine months ended September 30, 2011:


(in thousands)	Accretable Yield
Balance at beginning of period		$1,356,844
Reclassification from non-accretable difference		100,983
Accretion		(150,744)

Balance at end of period		$1,307,083

The line item in the above table titled “reclassification from non-accretable difference” includes changes in cash flows expected to be collected due to changes in prepayment assumptions and changes in interest rates on variable rate loans. As of the Company’s last periodic evaluation, prepayment assumptions declined and, accordingly, future expected principal and interest cash flows increased. This resulted in an increase in the accretable yield. In addition, an increase in the expected principal and interest payments was also driven by better expectations relating to credit. These increases were partially offset by a reduction in the expected cash flows from interest payments, as interest rates continued to be very low. As a result, a large percentage of the variable rate loans continue to reset at lower interest rates.

In connection with the Desert Hills acquisition, the Company also acquired other real estate owned (“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 the estimated selling costs. Any subsequent write-downs due to declines in fair value are charged to non-interest expense, and partially offset by the loss reimbursement under the FDIC loss sharing agreement. Any recoveries of previous write-downs are credited to non-interest expense and partially offset by the portion of the recovery that is due to the FDIC.

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.

The following table presents information regarding the Company’s covered loans 90 days or more past due at September 30, 2011 and December 31, 2010:


(in thousands)	September 30, 2011			December 31, 2010
Covered Loans 90 Days or More Past Due:
One-to-four family		$	305,838		$	310,929
Other loans			39,465			49,898

Total covered loans 90 days or more past due		$	345,303		$	360,827

The following table presents information regarding the Company’s covered loans that were 30 to 89 days past due at September 30, 2011 and December 31, 2010:


(in thousands)	September 30, 2011			December 31, 2010
Covered Loans 30-89 Days Past Due:
One-to-four family		$	102,039		$	108,691
Other loans			8,701			21,851

Total covered loans 30-89 days past due		$	110,740		$	130,542

At September 30, 2011, the Company had $110.7 million of covered loans that were 30 to 89 days past due, and covered loans of $345.3 million that were 90 days or more past due but considered to be performing due to the application of the yield accretion method under ASC 310-30. The remaining portion of the Company’s covered loan portfolio totaled $3.4 billion at September 30, 2011 and is considered current. ASC 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 ASC 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.

The Company recorded an $8.7 million provision for losses on covered loans during the nine months ended September 30, 2011. This provision was largely due to credit deterioration in the C&I loan portfolio acquired in the Desert Hills transaction, and in the portfolios of home equity lines of credit acquired in the acquisitions of both Desert Hills and AmTrust. The provision for covered loans was largely offset by FDIC indemnification income of $7.6 million that was recorded in non-interest income for the nine months ended September 30, 2011.

Note 5. Allowance for Loan Losses

The following tables provide additional information regarding the Company’s allowance for loan losses, based upon the method of evaluating loan impairment:


(in thousands)	Mortgage			Other			Total
Allowance for Loan Losses at September 30, 2011:
Individually evaluated for impairment		$	44		$	335		$	379
Collectively evaluated for impairment			122,272			16,728			139,000
Loans acquired with deteriorated credit quality			7,386			13,225			20,611

Total		$	129,702		$	30,288		$	159,990


(in thousands)	Mortgage			Other			Total
Allowance for Loan Losses at December 31, 2010:
Individually evaluated for impairment		$	15,877		$	130		$	16,007
Collectively evaluated for impairment			124,957			17,978			142,935
Loans acquired with deteriorated credit quality			4,873			7,030			11,903

Total		$	145,707		$	25,138		$	170,845

The following tables provide additional information regarding the methods used to evaluate the Company’s loan portfolio for impairment:


(in thousands)	Mortgage			Other			Total
Loans Receivable at September 30, 2011:
Individually evaluated for impairment		$	395,121		$	10,224		$	405,345
Collectively evaluated for impairment			24,068,569			659,103			24,727,672
Loans acquired with deteriorated credit quality			3,503,673			369,621			3,873,294

Total		$	27,967,363		$	1,038,948		$	29,006,311


(in thousands)	Mortgage			Other			Total
Loans Receivable at December 31, 2010:
Individually evaluated for impairment		$	747,869		$	12,929		$	760,798
Collectively evaluated for impairment			22,239,584			714,293			22,953,877
Loans acquired with deteriorated credit quality			3,874,449			423,420			4,297,869

Total		$	26,861,902		$	1,150,642		$	28,012,544

Non-Covered Loans

The following table summarizes activity in the allowance for losses on non-covered loans for the nine months ended September 30, 2011:


(in thousands)	Mortgage		Other		Total
Beginning balance at December 31, 2010		$140,834		$18,108		$158,942
Charge-offs		(73,994)		(9,485)		(83,479)
Recoveries		2,189		2,727		4,916
Provision for loan losses		53,287		5,713		59,000

Ending balance at September 30, 2011		$122,316		$17,063		$139,379

Non-accrual loans amounted to $416.8 million and $624.4 million, respectively, at September 30, 2011 and December 31, 2010. There were no loans over 90 days past due and still accruing interest at either of these dates.

The following table presents additional information regarding the Company’s impaired loans at or for the nine months ended September 30, 2011:


(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Multi-family		$285,436		$298,704		$--		$350,958		$3,935
Commercial real estate		59,180		60,858		--		67,623		1,229
Acquisition, development, and construction		46,309		47,177		--		47,907		285
One-to-four family		1,499		1,519		--		3,156		10
Commercial and industrial		8,886		13,001		--		6,591		--

Total impaired loans with no related allowance		$401,310		$421,259		$--		$476,235		$5,459


Impaired loans with an allowance recorded:
Multi-family		$2,697		$2,697		$ 44		$12,415		$45
Commercial real estate		--		--		--		11,847		--
Acquisition, development, and construction		--		--		--		19,327		--
One-to-four family		--		--		--		--		--
Commercial and industrial		1,338		1,338		335		2,448		--

Total impaired loans with an allowance recorded		$4,035		$4,035		$379		$46,037		$45


Total Impaired Loans:
Multi-family		$288,133		$301,401		$ 44		$363,373		$3,980
Commercial real estate		59,180		60,858		--		79,470		1,229
Acquisition, development, and construction		46,309		47,177		--		67,234		285
One-to-four family		1,499		1,519		--		3,156		10
Commercial and industrial		10,224		14,339		335		9,039		--

Total impaired loans		$405,345		$425,294		$379		$522,272		$5,504

The following table presents additional information regarding the Company’s impaired loans at December 31, 2010:


(in thousands)	Recorded Investment			Unpaid Principal Balance			Related Allowance
Loans with no related allowance:
Multi-family		$	447,137		$	464,011			$--
Commercial real estate			120,087			122,486			--
Acquisition, development, and construction			65,453			71,541			--
One-to-four family			3,611			3,707			--
Commercial and industrial			10,919			15,197			--

Total impaired loans with no related allowance		$	647,207		$	676,942			$--


Loans with an allowance recorded:
Multi-family		$	50,153		$	52,209		$	6,756
Commercial real estate			25,700			25,894			1,555
Acquisition, development, and construction			35,355			37,634			7,553
One-to-four family			373			373			13
Commercial and industrial			2,010			2,010			130

Total impaired loans with an allowance recorded		$	113,591		$	118,120		$	16,007


Total Impaired Loans:
Multi-family		$	497,290		$	516,220		$	6,756
Commercial real estate			145,787			148,380			1,555
Acquisition, development, and construction			100,808			109,175			7,553
One-to-four family			3,984			4,080			13
Commercial and industrial			12,929			17,207			130

Total impaired loans		$	760,798		$	795,062		$	16,007

The interest income recorded on these loans was not materially different from cash-basis interest income.

Covered Loans

Covered loans have been aggregated into pools of loans with common characteristics. In determining the allowance for losses on covered loans, the Company periodically performs an analysis to estimate the expected cash flows for each of the loan pools. The Company records a provision for loan losses on covered loans to the extent that the expected cash flows of a loan pool have decreased since the acquisition date.

Under the loss sharing agreements with the FDIC, covered loans 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 from 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 estimates made at the respective acquisition dates, the decrease in the present value of expected cash flows will be recorded as a provision for losses on covered loans charged to earnings, and an allowance for losses on covered loans will be established. A related credit to non-interest 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 sharing agreement percentages.

The following table summarizes activity in the allowance for losses on covered loans for the nine months ended September 30, 2011 and the twelve months ended December 31, 2010:


(in thousands)	September 30, 2011			December 31, 2010
Balance, beginning of period		$	11,903		$	--
Provision for loan losses			8,708			11,903

Balance, end of period		$	20,611		$	11,903

Note 6. Borrowed Funds

The following table summarizes the Company’s borrowed funds at September 30, 2011 and December 31, 2010:


(in thousands)	September 30, 2011			December 31, 2010
FHLB advances		$	8,254,630		$	8,375,659
Repurchase agreements			4,125,000			4,125,000
Junior subordinated debentures			426,890			426,992
Senior notes			601,957			601,865
Preferred stock of subsidiaries			6,600			6,600

Total borrowed funds		$	13,415,077		$	13,536,116

At September 30, 2011, the Company had $426.9 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. However, with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (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.

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.

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, 2011:

Issuer

Interest Rate of

Capital Securities

and Debentures

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⁽¹⁾

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