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 MARCH 31, 2013

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

440,858,405

Number of shares of common stock outstanding at

May 2, 2013

NEW YORK COMMUNITY BANCORP, INC.

FORM 10-Q

Quarter Ended March 31, 2013


INDEX		Page No.

Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Condition as of March 31, 2013 (unaudited) and December 31, 2012	1

	Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2013 and 2012 (unaudited)	2

	Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2013 (unaudited)	3

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012 (unaudited)	4

	Notes to the Unaudited Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	84

Item 4.	Controls and Procedures	84

Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings	84

Item 1A.	Risk Factors	84

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85

Item 3.	Defaults Upon Senior Securities	85

Item 4.	Mine Safety Disclosures	85

Item 5.	Other Information	85

Item 6.	Exhibits	85

Signatures		86

Exhibits

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CONDITION

(in thousands, except share data)


	March 31, 2013 (unaudited)			December 31, 2012
Assets:
Cash and cash equivalents		$	2,055,058		$	2,427,258
Securities:
Available-for-sale ($91,483 and $196,300 pledged, respectively)			324,361			429,266
Held-to-maturity ($4,845,118 and $4,084,380 pledged, respectively) (fair value of $5,320,255 and $4,705,960, respectively)			5,139,826			4,484,262

Total securities			5,464,187			4,913,528

Non-covered loans held for sale			718,095			1,204,370
Non-covered loans held for investment, net of deferred loan fees and costs			28,114,377			27,284,464
Less: Allowance for losses on non-covered loans			(140,387)			(140,948)

Non-covered loans held for investment, net			27,973,990			27,143,516
Covered loans			3,166,897			3,284,061
Less: Allowance for losses on covered loans			(55,813)			(51,311)

Covered loans, net			3,111,084			3,232,750

Total loans, net			31,803,169			31,580,636
Federal Home Loan Bank stock, at cost			456,557			469,145
Premises and equipment, net			264,660			264,149
FDIC loss share receivable			548,604			566,479
Goodwill			2,436,131			2,436,131
Core deposit intangibles, net			27,603			32,024
Mortgage servicing rights			172,978			144,713
Bank-owned life insurance			873,506			867,250
Other real estate owned (includes $46,887 and $45,115, respectively, covered by loss sharing agreements)			117,206			74,415
Other assets			292,059			369,372

Total assets		$	44,511,718		$	44,145,100

Liabilities and Stockholders’ Equity:
Deposits:
NOW and money market accounts		$	9,297,827		$	8,783,795
Savings accounts			4,846,361			4,213,972
Certificates of deposit			8,652,828			9,120,914
Non-interest-bearing accounts			2,680,656			2,758,840

Total deposits			25,477,672			24,877,521
Borrowed funds:
Wholesale borrowings:
Federal Home Loan Bank advances			8,566,301			8,842,974
Repurchase agreements			4,125,000			4,125,000
Fed funds purchased			125,000			100,000

Total wholesale borrowings			12,816,301			13,067,974
Junior subordinated debentures			357,967			357,917
Other borrowings			4,300			4,300

Total borrowed funds			13,178,568			13,430,191
Other liabilities			189,864			181,124

Total liabilities			38,846,104			38,488,836

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; 440,867,068 and 439,133,951 shares issued, and 440,867,068 and 439,050,966 shares outstanding, respectively)			4,409			4,391
Paid-in capital in excess of par			5,327,491			5,327,111
Retained earnings			396,242			387,534
Treasury stock, at cost (0 and 82,985 shares, respectively)			--			(1,067)
Accumulated other comprehensive loss, net of tax:
Net unrealized gain on securities available for sale, net of tax			10,277			12,614
Net unrealized loss on the non-credit portion of other-than-temporary impairment (“OTTI”) losses on securities, net of tax			(13,497)			(13,525)
Net unrealized loss on pension and post-retirement obligations, net of tax			(59,308)			(60,794)

Total accumulated other comprehensive loss, net of tax			(62,528)			(61,705)

Total stockholders’ equity			5,665,614			5,656,264

Total liabilities and stockholders’ equity		$	44,511,718		$	44,145,100

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 March 31,
	2013		2012
Interest Income:
Mortgage and other loans	$	366,999	$	398,184
Securities and money market investments		45,808		48,454

Total interest income		412,807		446,638


Interest Expense:
NOW and money market accounts		9,175		8,733
Savings accounts		4,021		3,496
Certificates of deposit		22,235		23,720
Borrowed funds		102,200		122,275

Total interest expense		137,631		158,224

Net interest income		275,176		288,414
Provision for losses on non-covered loans		5,000		15,000
Provision for losses on covered loans		4,502		--

Net interest income after provision for loan losses		265,674		273,414


Non-Interest Income:
Mortgage banking income		26,109		35,165
Fee income		8,772		9,758
Bank-owned life insurance		7,253		9,585
Gain on sales of securities		16,622		718
FDIC indemnification income		3,602		--
Other income		13,193		6,770

Total non-interest income		75,551		61,996


Non-Interest Expense:
Operating expenses:
Compensation and benefits		83,506		73,617
Occupancy and equipment		23,600		21,884
General and administrative		44,569		49,517

Total operating expenses		151,675		145,018
Amortization of core deposit intangibles		4,421		5,159

Total non-interest expense		156,096		150,177

Income before income taxes		185,129		185,233
Income tax expense		66,454		66,980

Net income	$	118,675	$	118,253

Other comprehensive (loss) income, net of tax:
Change in net unrealized gains and losses on securities available for sale, net of tax of $463 and $1,377, respectively		685		2,091
Amortization of the non-credit portion of OTTI losses recognized in other comprehensive income, net of tax of $17 and $15, respectively		28		23
Change in pension and post-retirement obligations, net of tax of $1,008 and $1,042, respectively		1,486		1,537
Less: Reclassification adjustment for sales of available-for-sale securities, net of tax of $2,048 and $275, respectively		(3,022)		(443)

Total other comprehensive (loss) income, net of tax		(823)		3,208

Total comprehensive income, net of tax	$	117,852	$	121,461


Basic earnings per share	$	0.27	$	0.27

Diluted earnings per share	$	0.27	$	0.27

See accompanying notes to the consolidated financial statements.

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)


	For the Three Months Ended March 31, 2013
Common Stock (Par Value: $0.01):
Balance at beginning of year		$	4,391
Shares issued for restricted stock awards (1,729,950 shares)			18

Balance at end of period			4,409


Paid-in Capital in Excess of Par:
Balance at beginning of year			5,327,111
Shares issued for restricted stock awards, net of forfeitures			(5,093)
Compensation expense related to restricted stock awards			5,537
Tax effect of stock plans			(64)

Balance at end of period			5,327,491


Retained Earnings:
Balance at beginning of year			387,534
Net income			118,675
Dividends paid on common stock ($0.25 per share)			(109,955)
Exercise of stock options			(12)

Balance at end of period			396,242


Treasury Stock:
Balance at beginning of year			(1,067)
Purchase of common stock (304,830 shares)			(4,079)
Exercise of stock options (5,344 shares)			71
Shares issued for restricted stock awards (382,471 shares)			5,075

Balance at end of period			--


Accumulated Other Comprehensive Loss, net of tax:
Balance at beginning of year			(61,705)
Other comprehensive loss, net of tax			(823)

Balance at end of period			(62,528)

Total stockholders’ equity		$	5,665,614

See accompanying notes to the consolidated financial statements.

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	For the Three Months Ended March 31,
	2013		2012
Cash Flows from Operating Activities:
Net income	$	118,675	$	118,253
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		9,502		15,000
Depreciation and amortization		6,880		6,005
Accretion of premiums and discounts, net		(199)		(216)
Amortization of core deposit intangibles		4,421		5,159
Net gain on sale of securities		(16,622)		(718)
Net gain on sale of loans		(25,883)		(40,014)
Stock plan-related compensation		5,537		5,109
Changes in assets and liabilities:
Decrease in deferred tax asset, net		7,259		9,360
Decrease in other assets		11,170		60,249
Increase in other liabilities		11,234		19,818
Origination of loans held for sale		(2,361,315)		(2,487,034)
Proceeds from sale of loans originated for sale		2,861,356		3,030,905

Net cash provided by operating activities		632,015		741,876

Cash Flows from Investing Activities:
Proceeds from repayment of securities held to maturity		313,394		250,495
Proceeds from repayment of securities available for sale		48,852		154,624
Proceeds from sale of securities held to maturity		191,142		--
Proceeds from sale of securities available for sale		335,064		240,218
Purchase of securities held to maturity		(1,148,160)		(739,371)
Purchase of securities available for sale		(278,000)		(239,500)
Net redemption (purchase) of Federal Home Loan Bank stock		12,588		(14,170)
Net increase in loans		(706,193)		(904,364)
Purchase of premises and equipment, net		(7,391)		(5,802)

Net cash used in investing activities		(1,238,704)		(1,257,870)

Cash Flows from Financing Activities:
Net increase in deposits		600,151		666,663
Net (decrease) increase in short-term borrowed funds		(225,000)		318,000
Net decrease in long-term borrowed funds		(26,623)		(2,289)
Tax effect of stock plans		(64)		(354)
Cash dividends paid on common stock		(109,955)		(109,554)
Treasury stock purchases		(4,079)		(2,425)
Net cash received from stock option exercises		59		--

Net cash provided by financing activities		234,489		870,041

Net (decrease) increase in cash and cash equivalents		(372,200)		354,047
Cash and cash equivalents at beginning of period		2,427,258		2,001,737

Cash and cash equivalents at end of period	$	2,055,058	$	2,355,784

Supplemental information:
Cash paid for interest	$	130,989	$	161,951
Cash paid for income taxes		10,270		39,746
Non-cash investing and financing activities:
Transfers to other real estate owned from loans		49,587		33,263

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, at which date the Company issued 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 its 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 its assumption of certain liabilities of Desert Hills Bank (“Desert Hills”) in March 2010. On June 28, 2012, the Company completed its 11th transaction when it assumed the deposits of Aurora Bank FSB.

Reflecting this strategy of growth through acquisitions, the Community Bank currently operates 239 branches, four of which operate directly under the Community Bank name. The remaining 235 Community Bank 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 35 branches in Manhattan, Queens, Brooklyn, Westchester County, and Long Island (all in New York), including 18 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 allowances for loan losses; the valuation of loans held for sale; 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 2012 Annual Report on Form 10-K. The Company currently has unconsolidated subsidiaries in the form of wholly-owned statutory business trusts, which were formed to issue guaranteed capital debentures (“capital securities”). Please see Note 7, “Borrowed Funds,” for additional information regarding these trusts.

When necessary, reclassifications are 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. 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 March 31,
(in thousands, except share and per share amounts)	2013		2012
Net income		$118,675		$118,253
Less: Dividends paid on, and earnings allocated to, participating securities		(1,212)		(1,089)

Earnings applicable to common stock		$117,463		$117,164


Weighted average common shares outstanding		438,703,468		437,467,859

Basic earnings per common share		$0.27		$0.27


Earnings applicable to common stock		$117,463		$117,164


Weighted average common shares outstanding		438,703,468		437,467,859
Potential dilutive common shares⁽¹⁾		5,052		5,330

Total shares for diluted earnings per share computation		438,708,520		437,473,189


Diluted earnings per common share and common share equivalents		$0.27		$0.27

(1)

Options to purchase 253,500 and 5,247,328 shares, respectively, of the Company’s common stock that were outstanding as of March 31, 2013 and 2012, at respective weighted average exercise prices of $22.14 and $15.70, were excluded from the respective computations of diluted EPS because their inclusion would have had an antidilutive effect.

Note 3. Reclassifications Out of Accumulated Other Comprehensive Loss


(in thousands)	For the Three Months Ended March 31, 2013
Details About Accumulated Other Comprehensive Loss	Amount Reclassified from Accumulated Other Comprehensive Loss ⁽¹⁾			Affected Line Item in the Consolidated Statement of Income and Comprehensive Income
Unrealized gains on available-for-sale securities		$	5,070	Gain on sales of securities
			(2,048)	Tax expense

		$	3,022	Net gain on sales of securities, net of tax


Amortization of defined benefit pension items:
Prior-service costs		$	62	(2)
Actuarial (losses)			(2,515)	(2)

			(2,453)	Total before tax
			991	Tax benefit

		$	(1,462)	Amortization of defined benefit pension items, net of tax

Total reclassifications for the period		$	1,560

(1)	Amounts in parentheses indicate expense items.

(2)	These accumulated other comprehensive loss components are included in the computation of net periodic (credit) expense. (Please see Note 9, Pension and Other Post-Retirement Benefits, for additional information).

Note 4. Securities

The following table summarizes the Company’s portfolio of securities available for sale at March 31, 2013:


	March 31, 2013
(in thousands)	Amortized Cost			Gross Unrealized Gain			Gross Unrealized Loss			Fair Value
Mortgage-Related Securities:
GSE certificates		$	30,553		$	1,942		$	4		$	32,491
GSE CMOs ⁽¹⁾			62,197			4,287			--			66,484
Private label CMOs			16,362			178			--			16,540

Total mortgage-related securities		$	109,112		$	6,407		$	4		$	115,515

Other Securities:
Municipal bonds		$	1,074		$	140		$	--		$	1,214
Capital trust notes			35,234			4,218			3,372			36,080
Preferred stock			118,205			7,561			--			125,766
Common stock			44,092			2,294			600			45,786

Total other securities		$	198,605		$	14,213		$	3,972		$	208,846

Total securities available for sale ⁽²⁾		$	307,717		$	20,620		$	3,976		$	324,361

(1)	Collateralized mortgage obligations

(2)	At March 31, 2013, the non-credit portion of OTTI recorded in accumulated other comprehensive loss (“AOCL”) was $570,000 (before taxes).

As of March 31, 2013, the fair value of marketable equity securities included common stock of $45.8 million, corporate preferred stock of $125.2 million, and Freddie Mac preferred stock of $556,000. 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, 2012:


	December 31, 2012
(in thousands)	Amortized Cost			Gross Unrealized Gain			Gross Unrealized Loss			Fair Value
Mortgage-Related Securities:
GSE certificates		$	85,488		$	7,197		$	6		$	92,679
GSE CMOs			62,236			4,924			--			67,160
Private label CMOs			17,276			140			--			17,416

Total mortgage-related securities		$	165,000		$	12,261		$	6		$	177,255

Other Securities:
Municipal bonds		$	46,288		$	128		$	120		$	46,296
Capital trust notes			35,231			7,363			4,159			38,435
Preferred stock			118,205			6,843			30			125,018
Common stock			43,984			1,191			2,913			42,262

Total other securities		$	243,708		$	15,525		$	7,222		$	252,011

Total securities available for sale ⁽¹⁾		$	408,708		$	27,786		$	7,228		$	429,266

(1)	At December 31, 2012, the non-credit portion of OTTI recorded in AOCL was $570,000 (before taxes).

The following tables summarize the Company’s portfolio of securities held to maturity at March 31, 2013 and December 31, 2012:


	March 31, 2013
(in thousands)	Amortized Cost			Carrying Amount			Gross Unrealized Gain			Gross Unrealized Loss			Fair Value
Mortgage-Related Securities:
GSE certificates		$	1,291,554		$	1,291,554		$	73,498		$	272		$	1,364,780
GSE CMOs			1,596,858			1,596,858			77,832			--			1,674,690
Other mortgage-related securities			3,174			3,174			--			--			3,174

Total mortgage-related securities		$	2,891,586		$	2,891,586		$	151,330		$	272		$	3,042,644

Other Securities:
GSE debentures		$	2,004,767		$	2,004,767		$	14,714		$	34		$	2,019,447
Corporate bonds			72,601			72,601			12,011			--			84,612
Municipal bonds			61,926			61,926			167			--			62,093
Capital trust notes			130,470			108,946			15,031			12,518			111,459

Total other securities		$	2,269,764		$	2,248,240		$	41,923		$	12,552		$	2,277,611

Total securities held to maturity ⁽¹⁾		$	5,161,350		$	5,139,826		$	193,253		$	12,824		$	5,320,255

(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 March 31, 2013, the non-credit portion of OTTI recorded in AOCL was $21.5 million (before taxes).


	December 31, 2012
(in thousands)	Amortized Cost			Carrying Amount			Gross Unrealized Gain			Gross Unrealized Loss			Fair Value
Mortgage-Related Securities:
GSE certificates		$	1,253,769		$	1,253,769		$	87,860		$	5		$	1,341,624
GSE CMOs			1,898,228			1,898,228			104,764			--			2,002,992
Other mortgage-related securities			3,220			3,220			--			--			3,220

Total mortgage-related securities		$	3,155,217		$	3,155,217		$	192,624		$	5		$	3,347,836

Other Securities:
GSE debentures		$	1,129,618		$	1,129,618		$	15,739		$	--		$	1,145,357
Corporate bonds			72,501			72,501			12,504			--			85,005
Municipal bonds			16,982			16,982			245			--			17,227
Capital trust notes			131,513			109,944			14,588			13,997			110,535

Total other securities		$	1,350,614		$	1,329,045		$	43,076		$	13,997		$	1,358,124

Total securities held to maturity ⁽¹⁾		$	4,505,831		$	4,484,262		$	235,700		$	14,002		$	4,705,960

(1)	At December 31, 2012, the non-credit portion of OTTI recorded in AOCL was $21.6 million (before taxes).

The Company had $456.6 million and $469.1 million of Federal Home Loan Bank (“FHLB”) stock, at cost, at March 31, 2013 and December 31, 2012, respectively. The Company is required to maintain this investment in order to have access to the 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 three months ended March 31, 2013 and 2012:


	For the Three Months Ended March 31,
(in thousands)	2013			2012
Gross proceeds		$	335,064		$	240,218
Gross realized gains			5,070			718
Gross realized losses			--			--

In addition, during the three months ended March 31, 2013, the Company sold held-to-maturity securities with gross proceeds of $191.1 million and gross realized gains of $11.5 million. These sales occurred because the Company had collected a substantial portion (at least 85%) of the initial principal balance.

The $147.5 million market value of the capital trust note portfolio at March 31, 2013 included 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 March 31, 2013:


	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			$	449
Fair value			18,955				546				805
Unrealized gain (loss)			3,991				(7	)			356
Lowest credit rating assigned to security			CCC				C				C
Number of banks/insurance companies currently performing			23				59				24
Actual deferrals and defaults as a percentage of original collateral			9	%			17	%			34	%
Expected deferrals and defaults as a percentage of remaining performing collateral			22				25				19
Expected recoveries as a percentage of remaining performing collateral			--				--				--
Excess subordination as a percentage of remaining performing collateral			21				--				--

As of March 31, 2013, 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 21%. Excess subordination is calculated after taking into account the projected 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.

As the following table indicates, there was no activity from December 31, 2012 through March 31, 2013 in 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, 2012. 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 Three Months Ended March 31, 2013
Beginning credit loss amount as of December 31, 2012		$	219,978
Add: Initial other-than-temporary credit losses			--
Subsequent other-than-temporary credit losses			--
Amount previously recognized in AOCL			--
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 March 31, 2013		$	219,978

The following table summarizes the carrying amounts and estimated fair values of held-to-maturity debt securities, and the amortized costs and estimated fair values of available-for-sale debt securities, at March 31, 2013, 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.


	At March 31, 2013
(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		$	--		--%		$	--		--%		$			--%		$	--		--%		$	--
Due from one to five years			--		--			60,563		4.17			1,588		2.96			--		--			71,530
Due from five to ten years			1,808,336		3.17			894,204		2.52			--		--			46,749		4.04			2,865,039
Due after ten years			1,083,250		3.53			1,050,000		2.66			60,338		2.85			134,798		6.20			2,383,686

Total debt securities held to maturity		$	2,891,586		3.3%		$	2,004,767		2.64%		$	61,926		2.86%		$	181,547		5.64%		$	5,320,255


Available-for-Sale Securities: ⁽³⁾
Due within one year		$	109		4.32%		$	--		--%		$	124		5.90%		$	--		--%		$	242
Due from one to five years			7,760		7.08			--		--			532		6.36			--		--			8,906
Due from five to ten years			19,374		3.57			--		--			418		6.59			--		--			21,638
Due after ten years			81,869		3.91			--		--			--		--			35,234		4.54			122,023

Total debt securities available for sale		$	109,112		4.08%		$	--		--%		$	1,074		6.39%		$	35,234		4.54%		$	152,809

(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 $449,000 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.

At March 31, 2013, the Company had commitments to purchase $37.7 million of securities, all of which were GSE securities.

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 March 31, 2013:


At March 31, 2013	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		$ 499,966		$ 34		$ --		$ --			$ 499,966		$ 34
GSE Certificates		24,380		272		--		--			24,380		272
GSE CMOs		--		--		--		--			--		--
Corporate bonds		--		--		--		--			--		--
Capital trust notes		--		--		33,632		12,518			33,632		12,518

Total temporarily impaired held-to-maturity debt securities		$ 524,346		$306		$33,632		$ 12,518			$ 557,978		$ 12,824


Temporarily Impaired Available-for-Sale Securities:
Debt Securities:
GSE certificates		$ 247		$ 4		$ --		$ --			$ 247		$ 4
Private label CMOs		--		--		--		--			--		--
Corporate bonds		--		--		--		--			--		--
State, county, and municipal		--		--		--		--			--		--
Capital trust notes		--		--		5,161		3,372			5,161		3,372

Total temporarily impaired available-for-sale debt securities		$ 247		$ 4		$ 5,161		$ 3,372			$ 5,408		$ 3,376

Equity securities						1,075		600	⁽¹⁾		1,075		600
Total temporarily impaired available-for-sale securities		$ 247		$ 4		$ 6,236		$ 3,972			$ 6,483		$ 3,976

(1)	The twelve months or longer unrealized losses on equity securities of $600,000 at March 31, 2013 relate to an investment in a financial institution. The principal balance of the investment was $1.7 million at that date.


At December 31, 2012	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			2,238			5			--			--				2,238			5
GSE CMOs			--			--			--			--				--			--
Corporate bonds			--			--			--			--				--			--
Capital trust notes			--			--			32,148			13,997				32,148			13,997

Total temporarily impaired held-to-maturity debt securities		$	2,238		$	5		$	32,148		$	13,997			$	34,386		$	14,002


Temporarily Impaired Available-for-Sale Securities:
Debt Securities:
GSE certificates		$	297		$	5		$	53		$	1			$	350		$	6
Private label CMOs			--			--			--			--				--			--
Corporate bonds			--			--			--			--				--			--
State, county, and municipal			45,096			120			--			--				45,096			120
Capital trust notes			--			--			4,371			4,159				4,371			4,159

Total temporarily impaired available-for-sale debt securities		$	45,393		$	125		$	4,424		$	4,160			$	49,817		$	4,285
Equity securities			15,262			30			28,989			2,913	⁽¹⁾			44,251			2,943

Total temporarily impaired available-for-sale securities		$	60,655		$	155		$	33,413		$	7,073			$	94,068		$	7,228

(1)

The twelve months or longer unrealized losses on equity securities of $2.9 million at December 31, 2012 relate to available-for-sale equity securities that consisted of a large cap equity fund and investments in certain financial institutions. The principal balance of the large cap equity fund was $30.2 million and the twelve months or longer unrealized loss was $2.2 million at that date. The principal balance of investments in financial institutions totaled $1.7 million and the twelve months or longer unrealized loss was $709,000 at that date.

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 March 31, 2013, 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 March 31, 2013.

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 a 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 Company reviews quarterly financial information related to its investments in capital trust notes as well as other information that is released by each of the financial institutions that issued the notes to determine their continued creditworthiness. 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 March 31, 2013. 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 the fair values of 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.

At March 31, 2013, the Company’s equity securities portfolio consisted of perpetual preferred and common stock, and mutual funds. The Company considers a decline in the 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. The unrealized losses on the Company’s equity securities were primarily caused by market volatility. 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 reasonably sufficient period of time to realize a near-term forecasted recovery of fair value, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2013. 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 potentially 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.

The investment securities designated as having a continuous loss position for twelve months or more at March 31, 2013 consisted of seven capital trust notes and one equity security. At December 31, 2012, the investment securities designated as having a continuous loss position for twelve months or more consisted of seven capital trust notes, three equity securities, and one mortgage-backed security. At March 31, 2013 and December 31, 2012, the combined market value of the respective securities represented unrealized losses of $16.5 million and $21.1 million. At March 31, 2013, the fair value of securities having a continuous loss position for twelve months or more was 29.6% below the collective amortized cost of $55.8 million. At December 31, 2012, the fair value of such securities was 24.5% below the collective amortized cost of $86.1 million.

Note 5. Loans

The following table sets forth the composition of the loan portfolio at March 31, 2013 and December 31, 2012:


	March 31, 2013				December 31, 2012
(dollars in thousands)	Amount		Percent of Non-Covered Loans Held for Investment		Amount		Percent of Non-Covered Loans Held for Investment
Non-Covered Loans Held for Investment:
Mortgage Loans:
Multi-family		$19,217,617		68.38%		$18,595,833		68.18%
Commercial real estate		7,542,437		26.84		7,436,598		27.27
Acquisition, development, and construction		399,168		1.42		397,917		1.46
One-to-four family		305,339		1.09		203,435		0.75

Total mortgage loans held for investment		27,464,561		97.73		26,633,783		97.66

Other Loans:
Commercial and industrial		591,007		2.10		590,044		2.16
Other		46,655		0.17		49,880		0.18

Total other loans held for investment		637,662		2.27		639,924		2.34

Total non-covered loans held for investment		$28,102,223		100.00%		$27,273,707		100.00%

Net deferred loan origination costs		12,154				10,757
Allowance for losses on non-covered loans		(140,387)				(140,948)

Non-covered loans held for investment, net		$27,973,990				$27,143,516
Covered loans		3,166,897				3,284,061
Allowance for losses on covered loans		(55,813)				(51,311)

Total covered loans, net		$ 3,111,084				$ 3,232,750
Loans held for sale		718,095				1,204,370

Total loans, net		$31,803,169				$31,580,636

Non-Covered Loans

Non-Covered Loans Held for Investment

The vast 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. In addition, the Company originates commercial real estate (“CRE”) loans, most of which are collateralized by properties located in New York City and, to a lesser extent, on Long Island and in New Jersey.

The Company also originates acquisition, development, and construction (“ADC”) loans, commercial and industrial (“C&I”) loans, and one-to-four family loans for investment. ADC loans are primarily originated for multi-family and residential tract projects in New York City and on Long Island, while secured and unsecured C&I loans are made to small and mid-size businesses in New York City, Long Island, New Jersey, and, to a lesser extent, Arizona. C&I loans are typically made 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 loans secured by improved or owner-occupied real estate. Accordingly, borrowers are required to provide a guarantee of repayment and completion, and loan proceeds are disbursed as construction progresses, as certified by in-house or third-party engineers. 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 conservative 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 ability of the Company’s borrowers to repay their loans, and the value of the collateral securing such loans, could be 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 an increase in charge-offs and/or non-performing assets, but also could necessitate an increase in the provision for losses on non-covered loans. These events, if they were to occur, would have an adverse impact on the Company’s results of operations and its capital.

While the vast majority of the one-to-four family loans the Company holds for investment are loans that were acquired in merger transactions prior to 2009, the portfolio also includes hybrid jumbo one-to-four family loans that the Company has been originating for investment since 2012.

Loans Held for Sale

The Community Bank’s mortgage banking operation is one of the largest aggregators of one-to-four family loans for sale in the nation. Community banks, credit unions, mortgage companies, and mortgage brokers use its proprietary web-accessible mortgage banking platform to originate and close one-to-four family loans in all 50 states. These loans are generally sold, servicing retained, to government-sponsored enterprises (“GSEs”). To a much lesser extent, the Community Bank uses its mortgage banking platform to originate fixed-rate jumbo loans under contract for sale to other financial institutions. Although the volume of jumbo loan originations has been immaterial to date, and the Company does not expect the origination of such loans to represent a material portion of the held-for-sale loans it produces, it decided to originate jumbo loans to complement its position in the residential loan origination marketplace.

The Company also services mortgage loans for various third parties, primarily including those it sells to GSEs. The unpaid principal balance of serviced loans was $19.5 billion at March 31, 2013 and $17.6 billion at December 31, 2012.

Asset Quality

The following table presents information regarding the quality of the Company’s non-covered loans held for investment at March 31, 2013:


(in thousands)	Loans 30-89 Days Past Due			Non- Accrual Loans			Loans 90 Days or More Delinquent and Still Accruing Interest			Total Past Due Loans			Current Loans			Total Loans Receivable
Multi-family		$	11,099		$	109,688		$	--		$	120,787		$	19,096,830		$	19,217,617
Commercial real estate			5,305			55,735			--			61,040			7,481,397			7,542,437
Acquisition, development, and construction			--			8,959			--			8,959			390,209			399,168
One-to-four family			1,726			11,317			--			13,043			292,296			305,339
Commercial and industrial			1,298			6,254			--			7,552			583,455			591,007
Other			374			1,660			--			2,034			44,621			46,655

Total		$	19,802		$	193,613		$	--		$	213,415		$	27,888,808		$	28,102,223

The following table presents information regarding the quality of the Company’s non-covered loans held for investment at December 31, 2012:


(in thousands)	Loans 30-89 Days Past Due			Non- Accrual Loans			Loans 90 Days or More Delinquent and Still Accruing Interest			Total Past Due Loans			Current Loans			Total Loans Receivable
Multi-family		$	19,945		$	163,460		$	--		$	183,405		$	18,412,428		$	18,595,833
Commercial real estate			1,679			56,863			--			58,542			7,378,056			7,436,598
Acquisition, development, and construction			1,178			12,091			--			13,269			384,648			397,917
One-to-four family			2,645			10,945			--			13,590			189,845			203,435
Commercial and industrial			262			17,372			--			17,634			572,410			590,044
Other			1,876			599			--			2,475			47,405			49,880

Total		$	27,585		$	261,330		$	--		$	288,915		$	26,984,792		$	27,273,707

The following table summarizes the Company’s non-covered held-for-investment loan portfolio by credit quality indicator at March 31, 2013:


(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		$18,958,146		$	7,444,746		$	389,113		$	296,564		$	27,088,569		$	570,343		$	44,996		$	615,339
Special mention		57,636			24,800			--			285			82,721			12,175			--			12,175
Substandard		200,558			72,391			6,971			8,490			288,410			8,489			1,659			10,148
Doubtful		1,277			500			3,084			--			4,861			--			--			--

Total		$19,217,617		$	7,542,437		$	399,168		$	305,339		$	27,464,561		$	591,007		$	46,655		$	637,662

The following table summarizes the Company’s non-covered held-for-investment loan portfolio by credit quality indicator at December 31, 2012:


(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		$18,285,333		$	7,337,315		$	383,557		$	195,232		$	26,201,437		$	561,541		$	49,281		$	610,822
Special mention		55,280			26,523			--			294			82,097			10,211			--			10,211
Substandard		253,794			72,260			11,277			7,909			345,240			18,292			599			18,891
Doubtful		1,426			500			3,083			--			5,009			--			--			--

Total		$18,595,833		$	7,436,598		$	397,917		$	203,435		$	26,633,783		$	590,044		$	49,880		$	639,924

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 generally have been updated within the last twelve months.

Troubled Debt Restructurings

In accordance with GAAP, the Company is required to account for certain held-for-investment 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 as 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 consecutive months.

The following table presents information regarding the Company’s TDRs as of March 31, 2013 and December 31, 2012:


	March 31, 2013						December 31, 2012
(in thousands)	Accruing		Non-Accrual		Total		Accruing		Non-Accrual		Total
Loan Category:
Multi-family		$65,830		$ 68,944		$134,774		$ 66,092		$114,556		$180,648
Commercial real estate		2,255		38,750		41,005		37,457		39,127		76,584
Acquisition, development, and construction		--		--		--		--		510		510
Commercial and industrial		1,410		--		1,410		1,463		--		1,463
One-to-four family		--		1,101		1,101		--		1,101		1,101

Total		$69,495		$108,795		$178,290		$105,012		$155,294		$260,306

The $35.2 million decline in accruing CRE loans noted in the preceding table was due to the pay-off of a single CRE loan in the first quarter of 2013.

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, and forbearance agreements. As of March 31, 2013, loans on which concessions were made with respect to rate reductions and/or extension of maturity dates amounted to $158.5 million and loans on which forbearance agreements were reached amounted to $19.8 million.

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.

In the three months ended March 31, 2013, the Company classified one new loan (a CRE loan) in the amount of $627,000 as a non-accrual TDR. While other concessions were granted to the borrower, the interest rate on the loan was maintained at 5.50%. As a result, the TDR did not have a financial impact on the Company’s results of operations.

During the three months ended March 31, 2013, there were no payment defaults on any loans that had been modified as TDRs during the preceding twelve months. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

The Company does not consider a payment to be in default when the loan is in forbearance, or otherwise granted a delay of payment, when the agreement to forebear or allow a delay of payment is part of a modification. Subsequent to the modification, the loan is not considered to be in default until payment is contractually past due in accordance with the modified terms. However, the Company does consider a loan with multiple modifications or forbearance periods to be in default, and would also consider a loan to be in default if it were in bankruptcy or, subsequent to modification, was partially charged off.

Covered Loans

The following table presents the balance of covered loans acquired in the AmTrust and Desert Hills acquisitions as of March 31, 2013:


(dollars in thousands)	Amount			Percent of Covered Loans
Loan Category:
One-to-four family		$	2,870,871		90.6%
All other loans			296,026		9.4

Total covered loans		$	3,166,897		100.0%

The Company refers to the loans acquired in the AmTrust and Desert Hills acquisitions as “covered loans” because the Company is being reimbursed for a substantial portion of losses on these loans under the terms of the FDIC loss sharing agreements. Covered loans are accounted for under Accounting Standards Codification (“ASC”) Topic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”), 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 March 31, 2013 and December 31, 2012, the unpaid principal balances of covered loans were $3.8 billion and $3.9 billion, respectively. The carrying values of such loans were $3.2 billion and $3.3 billion, respectively, at the corresponding dates.

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 expected amount and timing of undiscounted 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 amount by which the undiscounted contractual cash flows exceed 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 respective acquisition dates.

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. Changes in interest rate indices for variable rate loans increase or decrease the amount of interest income expected to be collected, depending on the direction of interest rates. Prepayments affect the estimated lives of covered loans and could change the amount of interest income and principal expected to be collected. Changes in expected principal and interest payments over the estimated lives of covered loans are driven by the credit outlook and actions that may be taken with borrowers.

The Company periodically evaluates the estimates of the cash flows it expects to collect. Expected future cash flows from interest payments are based on 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 for the three months ended March 31, 2013 were as follows:


(in thousands)	Accretable Yield
Balance at beginning of period		$1,201,172
Reclassification from non-accretable difference		50,052
Accretion		(40,552)

Balance at end of period		$1,210,672

In the preceding table, the line item “reclassification from non-accretable difference” includes changes in cash flows that the Company expects to collect 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 decreased and, accordingly, future expected interest cash flows increased. This resulted in an increase in the accretable yield. In addition, these increases were partially offset by additional reductions in the expected cash flows from interest payments, as interest rates continued to be very low. As a result, a large percentage of the Company’s covered variable rate loans continue to reset at lower interest rates. In addition, the accretable yield increased due to increases in the expected principal and interest payments, driven by better expectations relating to credit.

In connection with the AmTrust and Desert Hills transactions, the Company has acquired other real estate owned (“OREO”), all of which is covered under FDIC loss sharing agreements. Covered OREO is 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 loss reimbursements under the FDIC loss sharing agreements. 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 and OREO 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 is reduced as losses on covered loans are recognized and as 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 lower than the 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 March 31, 2013 and December 31, 2012:


(in thousands)	March 31, 2013		December 31, 2012
Covered Loans 90 Days or More Past Due:
One-to-four family		$281,039		$297,265
Other loans		15,001		15,308

Total covered loans 90 days or more past due		$296,040		$312,573

The following table presents information regarding the Company’s covered loans that were 30 to 89 days past due at March 31, 2013 and December 31, 2012:


(in thousands)	March 31, 2013		December 31, 2012
Covered Loans 30-89 Days Past Due:
One-to-four family		$57,335		$75,129
Other loans		5,046		6,057

Total covered loans 30-89 days past due		$62,381		$81,186

At March 31, 2013, the Company had $62.4 million of covered loans that were 30 to 89 days past due, and covered loans of $296.0 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 $2.8 billion at March 31, 2013 and was considered current at that date. 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 were 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 that is expected to be uncollectible (i.e., 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 such judgment 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 primary credit quality indicator for covered loans is the expectation of underlying cash flows. The Company recorded a provision for losses on covered loans of $4.5 million during the three months ended March 31, 2013 and a recovery of $3.3 million during the three months ended December 31, 2012. The first quarter 2013 provision was largely due to credit deterioration in the acquired portfolios of one-to-four family and home equity loans and was largely offset by FDIC indemnification income of $3.6 million recorded in non-interest income in the same quarter. The fourth quarter 2012 recovery was largely due to improvement in the credit quality of the same loan portfolios and was largely offset by FDIC indemnification expense of $2.6 million recorded in non-interest income in the same three-month period.

Note 6. Allowance for Loan Losses

The following table provides additional information regarding the Company’s allowances for losses on covered and non-covered loans by segment (i.e., mortgage and other), based upon the method of evaluating loan impairment:


(in thousands)	Mortgage			Other			Total
Allowance for Loan Losses at March 31, 2013:
Loans individually evaluated for impairment		$	1,258		$	--		$	1,258
Loans collectively evaluated for impairment			126,643			12,486			139,129
Acquired loans with deteriorated credit quality			36,473			19,340			55,813

Total		$	164,374		$	31,826		$	196,200


(in thousands)	Mortgage			Other			Total
Allowance for Loan Losses at December 31, 2012:
Loans individually evaluated for impairment		$	1,486		$	1,199		$	2,685
Loans collectively evaluated for impairment			126,448			11,815			138,263
Acquired loans with deteriorated credit quality			32,593			18,718			51,311

Total		$	160,527		$	31,732		$	192,259

The following table provides additional information, by segment, regarding the methods used to evaluate the Company’s loan portfolio for impairment:


(in thousands)	Mortgage			Other			Total
Loans Receivable at March 31, 2013:
Loans individually evaluated for impairment		$	250,997		$	7,571		$	258,568
Loans collectively evaluated for impairment			27,213,564			630,091			27,843,655
Acquired loans with deteriorated credit quality			2,870,871			296,026			3,166,897

Total		$	30,335,432		$	933,688		$	31,269,120


(in thousands)	Mortgage			Other			Total
Loans Receivable at December 31, 2012:
Loans individually evaluated for impairment		$	309,694		$	17,702		$	327,396
Loans collectively evaluated for impairment			26,324,088			622,223			26,946,311
Acquired loans with deteriorated credit quality			2,976,067			307,994			3,284,061

Total		$	29,609,849		$	947,919		$	30,557,768

Non-Covered Loans

The following table summarizes activity in the allowance for losses on non-covered loans, by segment, for the three months ended March 31, 2013 and 2012:


	March 31,
	2013						2012
(in thousands)	Mortgage		Other		Total		Mortgage		Other		Total
Balance, beginning of period		$127,934		$13,014		$140,948		$121,995		$15,295		$137,290
Charge-offs		(1,431)		(6,173)		(7,604)		(14,531)		(2,508)		(17,039)
Recoveries		1,675		368		2,043		317		1,199		1,516
Provision for losses on non-covered loans		(277)		5,277		5,000		14,845		155		15,000

Balance, end of period		$127,901		$12,486		$140,387		$122,626		$14,141		$136,767

Please see “Critical Accounting Policies” for additional information regarding the Company’s allowance for losses on non-covered loans.

The following table presents additional information regarding the Company’s impaired non-covered loans at March 31, 2013:


(in thousands)	Recorded Investment			Unpaid Principal Balance			Related Allowance			Average Recorded Investment			Interest Income Recognized
Impaired loans with no related allowance:
Multi-family		$	172,761		$	181,952		$	--		$	183,131		$	1,118
Commercial real estate			59,709			60,453			--			70,081			410
Acquisition, development, and construction			7,109			7,639			--			8,656			--
One-to-four family			1,101			1,147			--			1,101			--
Commercial and industrial			7,572			31,047			--			9,068			22

Total impaired loans with no related allowance		$	248,252		$	282,238		$	--		$	272,037		$	1,550


Impaired loans with an allowance recorded:
Multi-family		$	6,717		$	11,337		$	519		$	13,513		$	38
Commercial real estate			3,599			3,926			739			3,256			19
Acquisition, development, and construction			--			--			--			608			--
One-to-four family			--			--			--			--			--
Commercial and industrial			--			--			--			3,569			--

Total impaired loans with an allowance recorded		$	10,316		$	15,263		$	1,258		$	20,946		$	57


Total impaired loans:
Multi-family		$	179,478		$	193,289		$	519		$	196,644		$	1,156
Commercial real estate			63,308			64,379			739			73,337			429
Acquisition, development, and construction			7,109			7,639			--			9,264			--
One-to-four family			1,101			1,147			--			1,101			--
Commercial and industrial			7,572			31,047			--			12,637			22

Total impaired loans		$	258,568		$	297,501		$	1,258		$	292,983		$	1,607

The following table presents additional information regarding the Company’s impaired non-covered loans at December 31, 2012:


(in thousands)	Recorded Investment			Unpaid Principal Balance			Related Allowance			Average Recorded Investment			Interest Income Recognized
Impaired loans with no related allowance:
Multi-family		$	193,500		$	211,329		$	--		$	189,510		$	4,929
Commercial real estate			80,453			81,134			--			72,271			1,705
Acquisition, development, and construction			10,203			14,297			--			20,954			790
One-to-four family			1,101			1,147			--			1,114			--
Commercial and industrial			10,564			14,679			--			10,021			380

Total impaired loans with no related allowance		$	295,821		$	322,586		$	--		$	293,870		$	7,804


Impaired loans with an allowance recorded:
Multi-family		$	20,307		$	21,620		$	1,055		$	27,894		$	802
Commercial real estate			2,914			2,940			402			3,693			98
Acquisition, development, and construction			1,216			1,494			29			1,877			--
One-to-four family			--			--			--			--			--
Commercial and industrial			7,138			10,252			1,199			1,785			1,405

Total impaired loans with an allowance recorded		$	31,575		$	36,306		$	2,685		$	35,249		$	2,305


Total impaired loans:
Multi-family		$	213,807		$	232,949		$	1,055		$	217,404		$	5,731
Commercial real estate			83,367			84,074			402			75,964			1,803
Acquisition, development, and construction			11,419			15,791			29			22,831			790
One-to-four family			1,101			1,147			--			1,114			--
Commercial and industrial			17,702			24,931			1,199			11,806			1,785

Total impaired loans		$	327,396		$	358,892		$	2,685		$	329,119		$	10,109

Covered Loans

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. 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 from a loan pool have decreased since the acquisition date. Accordingly, if there is a decrease in expected cash flows due to an increase in estimated credit losses, as compared to the estimates made at the respective acquisition dates, the decrease in the present value of expected cash flows is recorded as a provision for covered loan losses charged to earnings, and an allowance for covered loan losses is established. A related credit to non-interest income and an increase in the FDIC loss share receivable is recognized at the same time, and measured based on the applicable loss sharing agreement percentages.

The following table summarizes activity in the allowance for losses on covered loans for the three months ended March 31, 2013 and 2012:


	March 31,
(in thousands)	2013			2012
Balance, beginning of period		$	51,311		$	33,323
Provision for loan losses			4,502			--

Balance, end of period		$	55,813		$	33,323

Note 7. Borrowed Funds

The following table summarizes the Company’s borrowed funds at March 31, 2013 and December 31, 2012:


(in thousands)	March 31, 2013			December 31, 2012
Wholesale borrowings:
FHLB advances		$	8,566,301		$	8,842,974
Repurchase agreements			4,125,000			4,125,000
Fed funds purchased			125,000			100,000

Total wholesale borrowings		$	12,816,301		$	13,067,974
Junior subordinated debentures			357,967			357,917
Preferred stock of subsidiaries			4,300			4,300

Total borrowed funds		$	13,178,568		$	13,430,191

At March 31, 2013 and December 31, 2012, the Company had $358.0 million and $357.9 million, respectively, of outstanding junior subordinated deferrable interest debentures (“junior subordinated debentures”) held by wholly-owned statutory business trusts (the “Trusts”) that issued guaranteed capital securities. Traditionally, these capital securities qualified as Tier 1 capital of the Company. 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 by January 1, 2016. As the rules relating to this phase-out have not yet been finalized, the Company has not yet reduced the contribution of its capital securities to its Tier 1 capital. However, if the Company had reduced that contribution by the 25% proposed, the impact would have been a 21-basis point reduction in its Tier 1 leverage capital ratio and a 32-basis point reduction in its Tier 1 risk-based capital ratio at March 31, 2013.

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 junior subordinated debentures were outstanding at March 31, 2013:

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)

New York Community Capital Trust V (BONUSES^SMUnits)

6.000

$144,041

$137,690

Nov. 4, 2002

Nov. 1, 2051

Nov. 4, 2007 ⁽¹⁾

New York Community Capital Trust X

1.880

123,712

120,000

Dec. 14, 2006

Dec. 15, 2036

Dec. 15, 2011⁽²⁾

PennFed Capital Trust III

3.530

30,928

30,000

June 2, 2003

June 15, 2033

June 15, 2008 ⁽²⁾

New York Community Capital Trust XI

1.934

59,286

57,500

April 16, 2007

June 30, 2037

June 30, 2012 ⁽²⁾

Total junior subordinated debentures

$357,967

$345,190

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

(2)	Callable from this date forward.

On December 31, 2012, the Company redeemed the following junior subordinated debentures totaling $69.2 million: Haven Capital Trust II, Queens County Capital Trust I, Queens Statutory Trust I, LIF Statutory Trust I, and PennFed Capital Trust II. As a result, $2.3 million loss on debt redemption was recorded in non-interest income in the fourth quarter of 2012.

Note 8. Mortgage Servicing Rights

The Company had mortgage servicing rights (“MSRs”) of $173.0 million and $144.7 million, respectively, at March 31, 2013 and December 31, 2012. The Company has two classes of MSRs for which it separately manages the economic risk: residential and securitized.

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 regarding its residential MSRs. MSRs do not trade in an active open market with readily observable prices. Accordingly, the Company bases the fair value of its MSRs on the present value of estimated future net servicing income cash flows utilizing an internal valuation model. The Company estimates future net servicing income cash flows with assumptions that market participants would use to estimate fair value, including estimates of prepayment speeds, discount rates, default rates, refinance rates, servicing costs, escrow account earnings, contractual servicing fee income, 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 residential MSRs at any given time is significantly affected by the mortgage interest rates that are then currently available in the marketplace which, in turn, influence mortgage loan prepayment speeds. During periods of declining interest rates, the value of MSRs generally declines as an increase in mortgage refinancing activity results in an increase in prepayments. Conversely, during periods of rising interest rates, the value of MSRs generally increases as mortgage refinancing activity declines.

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 their carrying amount and their current fair value. If it is determined that impairment exists, the resultant loss is charged against earnings.

The following tables set forth the changes in the balances of residential and securitized MSRs for the periods indicated below:


	For the Three Months Ended March 31, 2013				For the Year Ended December 31, 2012
(in thousands)	Residential		Securitized		Residential		Securitized
Carrying value, beginning of year		$144,520		$193		$116,416		$ 596
Additions		31,601		--		116,407		--
Increase (decrease) in fair value:
Due to changes in valuation assumptions		13,094		--		(20,938)		--
Due to other changes⁽¹⁾		(16,366)		--		(67,365)		--
Amortization		--		(64)		--		(403)

Carrying value, end of period		$172,849		$ 129		$144,520		$ 193

(1)	Includes net servicing cash flows and the passage of time.

The following table presents the key assumptions used in calculating the fair value of the Company’s residential MSRs at the dates indicated:


		March 31, 2013			December 31, 2012
Expected Weighted Average Life			73 months			64 months
Constant Prepayment Speed			13.2	%		15.4	%
Discount Rate			10.5			10.5
Primary Mortgage Rate to Refinance			3.8			3.6
Cost to Service (per loan per year):
Current			$ 53			$ 53
30-59 days or less delinquent			103			103
60-89 days delinquent			203			203
90-119 days delinquent			303			303
Over 120 days delinquent	&nb

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents