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 JUNE 30, 2012

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

439,118,145

Number of shares of common stock outstanding at

August 2, 2012

NEW YORK COMMUNITY BANCORP, INC.

FORM 10-Q

Quarter Ended June 30, 2012


INDEX		Page No.

Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Condition as of June 30, 2012 (unaudited) and December 31, 2011		1

	Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2012 and 2011 (unaudited)		2

	Consolidated Statement of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2012 (unaudited)		3

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011 (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		89

Item 4.	Controls and Procedures		89

Part II.	OTHER INFORMATION		90

Item 1.	Legal Proceedings		90

Item 1A.	Risk Factors		90

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		90

Item 3.	Defaults Upon Senior Securities		90

Item 4.	Mine Safety Disclosures		90

Item 5.	Other Information		90

Item 6.	Exhibits		91

Signatures			92

Exhibits

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CONDITION

(in thousands, except share data)


	June 30, 2012 (unaudited)			December 31, 2011
Assets:
Cash and cash equivalents		$	3,160,673		$	2,001,737
Securities:
Available-for-sale ($227,545 and $590,488 pledged, respectively)			411,503			724,662
Held to maturity ($3,268,071 and $3,610,172 pledged, respectively) (fair value of $4,032,094 and $3,966,185, respectively)			3,853,587			3,815,854

Total securities			4,265,090			4,540,516

Non-covered loans held for sale			1,059,340			1,036,918
Non-covered loans held for investment, net of deferred loan fees and costs			26,492,755			25,532,818
Less: Allowance for losses on non-covered loans			(137,914)			(137,290)

Non-covered loans held for investment, net			26,354,841			25,395,528
Covered loans			3,516,097			3,753,031
Less: Allowance for losses on covered loans			(51,771)			(33,323)

Covered loans, net			3,464,326			3,719,708

Total loans, net			30,878,507			30,152,154
Federal Home Loan Bank stock, at cost			424,269			490,228
Premises and equipment, net			250,675			250,859
FDIC loss share receivable			631,156			695,179
Goodwill			2,436,131			2,436,131
Core deposit intangibles, net			41,589			51,668
Mortgage servicing rights			136,562			117,012
Bank-owned life insurance			777,990			768,996
Other real estate owned (includes $50,732 and $71,400, respectively, covered by loss sharing agreements)			98,033			155,967
Other assets			386,672			363,855

Total assets		$	43,487,347		$	42,024,302

Liabilities and Stockholders’ Equity:
Deposits:
NOW and money market accounts		$	8,692,549		$	8,757,198
Savings accounts			4,107,372			3,953,859
Certificates of deposit			9,852,702			7,373,263
Non-interest-bearing accounts			2,344,026			2,189,810

Total deposits			24,996,649			22,274,130
Borrowed funds:
Wholesale borrowings:
Federal Home Loan Bank advances			7,847,283			9,314,193
Repurchase agreements			4,125,000			4,125,000
Fed funds purchased			185,000			--

Total wholesale borrowings			12,157,283			13,439,193
Junior subordinated debentures			427,029			426,936
Other borrowings			4,300			94,284

Total borrowed funds			12,588,612			13,960,413
Other liabilities			290,567			224,055

Total liabilities			37,875,828			36,458,598

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; 439,133,951 and 437,426,665 shares issued, and 439,124,100 and 437,344,796 shares outstanding, respectively)			4,391			4,374
Paid-in capital in excess of par			5,316,176			5,309,269
Retained earnings			355,215			324,967
Treasury stock, at cost (9,851 and 81,869 shares)			(134)			(996)
Accumulated other comprehensive loss, net of tax:
Net unrealized gain on securities available for sale, net of tax			5,979			1,321
Net unrealized loss on the non-credit portion of other-than-temporary impairment (“OTTI”) losses on securities, net of tax			(13,578)			(13,627)
Net unrealized loss on pension and post-retirement obligations, net of tax			(56,530)			(59,604)

Total accumulated other comprehensive loss, net of tax			(64,129)			(71,910)

Total stockholders’ equity			5,611,519			5,565,704

Total liabilities and stockholders’ equity		$	43,487,347		$	42,024,302

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 June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
Interest Income:
Mortgage and other loans		$406,481		$408,292		$804,665		$824,234
Securities and money market investments		48,499		60,716		96,953		115,697

Total interest income		454,980		469,008		901,618		939,931


Interest Expense:
NOW and money market accounts		9,357		10,398		18,090		21,552
Savings accounts		3,565		4,206		7,061		8,333
Certificates of deposit		23,489		24,952		47,209		51,926
Borrowed funds		121,913		127,508		244,188		252,924

Total interest expense		158,324		167,064		316,548		334,735

Net interest income		296,656		301,944		585,070		605,196
Provision for losses on non-covered loans		15,000		15,000		30,000		41,000
Provision for losses on covered loans		18,448		8,708		18,448		8,708

Net interest income after provisions for loan losses		263,208		278,236		536,622		555,488


Non-Interest Income:
Total loss on OTTI of securities		--		(18,124)		--		(18,124)
Less: Non-credit portion of OTTI recorded in other comprehensive income (before taxes)		--		--		--		--

Net loss on OTTI recognized in earnings		--		(18,124)		--		(18,124)
Fee income		9,433		12,143		19,191		24,042
Bank-owned life insurance		6,802		7,564		16,387		14,453
Net gain on sales of securities		141		18,743		859		28,735
Mortgage banking income		58,323		11,774		93,488		31,712
Gain on business disposition		--		9,823		--		9,823
FDIC indemnification income		14,759		7,624		14,759		7,624
Other		8,747		9,341		15,517		19,233

Total non-interest income		98,205		58,888		160,201		117,498


Non-Interest Expense:
Operating expenses:
Compensation and benefits		73,591		73,218		147,208		145,286
Occupancy and equipment		23,249		21,770		45,133		43,710
General and administrative		53,669		52,912		103,186		98,221

Total operating expenses		150,509		147,900		295,527		287,217
Amortization of core deposit intangibles		4,920		7,144		10,079		14,529

Total non-interest expense		155,429		155,044		305,606		301,746

Income before income taxes		205,984		182,080		391,217		371,240
Income tax expense		74,772		62,621		141,752		128,605

Net Income		$131,212		$119,459		$249,465		$242,635

Other comprehensive income (loss), net of tax:
Change in net unrealized gain/loss on securities available for sale, net of tax of $2,096; $5,065; $3,473; and $7,643, respectively		3,094		(7,439)		5,185		(11,276)
Change in the non-credit portion of OTTI losses recognized in other comprehensive income, net of tax of $16; $4,811; $31; and $4,825, respectively		26		7,187		49		7,207
Change in pension and post-retirement obligations, net of tax of $1,044; $505; $2,086; and $1,006, respectively		1,537		740		3,074		1,484
Less: Reclassification adjustment for sales of available for sale securities and loss on OTTI of securities, net of tax of $57; $250; $332; and $1,428, respectively		(84)		(369)		(527)		(2,122)

Total other comprehensive income (loss), net of tax		4,573		119		7,781		(4,707)

Total comprehensive income, net of tax		$135,785		$119,578		$257,246		$237,928


Basic earnings per share		$0.30		$0.27		$0.56		$0.55

Diluted earnings per share		$0.30		$0.27		$0.56		$0.55

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)


	For the Six Months Ended June 30, 2012
Common Stock (Par Value: $0.01):
Balance at beginning of year		$	4,374
Shares issued for restricted stock awards (1,707,286 shares)			17

Balance at end of period			4,391


Paid-in Capital in Excess of Par:
Balance at beginning of year			5,309,269
Shares issued for restricted stock awards, net of forfeitures			(3,395)
Compensation expense related to restricted stock awards			10,337
Tax effect of stock plans			(35)

Balance at end of period			5,316,176


Retained Earnings:
Balance at beginning of year			324,967
Net income			249,465
Dividends paid on common stock ($0.50 per share)			(219,217)

Balance at end of period			355,215


Treasury Stock:
Balance at beginning of year			(996)
Purchase of common stock (197,057 shares)			(2,554)
Shares issued for restricted stock awards (269,075 shares)			3,416

Balance at end of period			(134)


Accumulated Other Comprehensive Loss, net of tax:
Balance at beginning of year			(71,910)
Other comprehensive income, net of tax			7,781

Balance at end of period			(64,129)

Total stockholders’ equity		$	5,611,519

See accompanying notes to the consolidated financial statements.

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Six Months Ended June 30,
	2012		2011
Cash Flows from Operating Activities:
Net income	$	249,465	$	242,635
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		48,448		49,708
Depreciation and amortization		12,139		11,876
Accretion of premiums and discounts, net		(742)		(850)
Amortization of core deposit intangibles		10,079		14,529
Net gain on sale of securities		(859)		(28,735)
Net gain on sale of loans		(92,976)		(25,213)
Gain on business disposition		--		(9,823)
Stock plan-related compensation		10,375		7,919
Loss on OTTI of securities recognized in earnings		--		18,124
Changes in assets and liabilities:
Decrease in deferred tax asset, net		13,512		38,358
Decrease (increase) in other assets		51,779		(11,574)
Increase (decrease) in other liabilities		71,671		(83,978)
Origination of loans held for sale		(5,094,278)		(2,640,272)
Proceeds from sale of loans originated for sale		5,117,092		3,379,810

Net cash provided by operating activities		395,705		962,514

Cash Flows from Investing Activities:
Proceeds from repayment of securities held to maturity		1,378,707		963,317
Proceeds from repayment of securities available for sale		370,667		81,642
Proceeds from sale of securities held to maturity		--		284,406
Proceeds from sale of securities available for sale		330,859		544,149
Purchase of securities held to maturity		(1,415,389)		(2,609,676)
Purchase of securities available for sale		(379,890)		(142,178)
Net redemption of Federal Home Loan Bank stock		65,959		21,277
Net increase in loans		(704,639)		(653,405)
Purchase of premises and equipment, net		(11,955)		(24,027)
Net cash acquired in business transactions		--		100,027

Net cash used in investing activities		(365,681)		(1,434,468)

Cash Flows from Financing Activities:
Net increase (decrease) in deposits		2,722,519		(11,340)
Net decrease in short-term borrowed funds		(1,277,000)		(500,000)
Net decrease in long-term borrowed funds		(94,801)		(18,832)
Tax effect of stock plans		(35)		2,252
Cash dividends paid on common stock		(219,217)		(218,397)
Treasury stock purchases		(2,554)		(2,677)
Net cash received from stock option exercises		--		3,519

Net cash provided by (used in) financing activities		1,128,912		(745,475)

Net increase (decrease) in cash and cash equivalents		1,158,936		(1,217,429)
Cash and cash equivalents at beginning of period		2,001,737		1,927,542

Cash and cash equivalents at end of period	$	3,160,673	$	710,113

Supplemental information:
Cash paid for interest		$311,632		$346,984
Cash paid for income taxes		171,965		89,958
Non-cash investing and financing activities:
Transfers to other real estate owned from loans		59,208		111,612

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. On June 28, 2012, the Company completed its 11^th transaction when it assumed the deposits of Aurora Bank FSB.

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 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 2011 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. 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				Six Months Ended
	June 30,				June 30,
(in thousands, except share and per share data)	2012		2011		2012		2011
Net income		$131,212		$119,459		$249,465		$242,635
Less: Dividends paid on and earnings allocated to participating securities		(1,246)		(921)		(2,339)		(1,815)

Earnings applicable to common stock		$129,966		$118,538		$247,126		$240,820


Weighted average common shares outstanding		437,820,639		436,179,448		437,644,249		435,872,952

Basic earnings per common share		$0.30		$0.27		$0.56		$0.55


Earnings applicable to common stock		$129,966		$118,538		$247,126		$240,820


Weighted average common shares outstanding		437,820,639		436,179,448		437,644,249		435,872,952
Potential dilutive common shares⁽¹⁾		4,063		437,504		4,698		646,914

Total shares for diluted earnings per share computation		437,824,702		436,616,952		437,648,947		436,519,866


Diluted earnings per common share and common share equivalents		$0.30		$0.27		$0.56		$0.55

(1)

Options to purchase 4,981,879 shares of the Company’s common stock that were outstanding in the three and six months ended June 30, 2012, at a weighted average exercise price of $15.40, were excluded from the respective computations of diluted EPS because their inclusion would have had an antidilutive effect. Options to purchase 744,838 and 736,938 shares, respectively, of the Company’s common stock that were outstanding in the three and six months ended June 30, 2011, at respective weighted average exercise prices of $21.37 and $21.42, 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 June 30, 2012:


	June 30, 2012
(in thousands)	Amortized Cost			Gross Unrealized Gain			Gross Unrealized Loss			Fair Value
Mortgage-Related Securities:
GSE ⁽¹⁾ certificates		$	91,166		$	6,355		$	8		$	97,513
GSE CMOs ⁽²⁾			62,305			4,538			--			66,843
Private label CMOs			21,728			--			626			21,102

Total mortgage-related securities		$	175,199		$	10,893		$	634		$	185,458

Other Securities:
GSE debentures		$	97,388		$	399		$	--		$	97,787
State, county, and municipal			1,192			108			--			1,300
Capital trust notes			35,437			900			4,037			32,300
Preferred stock			49,890			2,888			--			52,778
Common stock			42,983			1,178			2,281			41,880

Total other securities		$	226,890		$	5,473		$	6,318		$	226,045

Total securities available for sale ⁽³⁾		$	402,089		$	16,366		$	6,952		$	411,503

(1)	Government-sponsored enterprises

(2)	Collateralized mortgage obligations

(3)	The non-credit portion of OTTI recorded in accumulated other comprehensive loss (“AOCL”) was $570,000 (before taxes).

As of June 30, 2012, the fair value of marketable equity securities included common stock of $41.9 million, corporate preferred stock of $52.5 million, and Freddie Mac preferred stock of $280,000. 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, 2011:


	December 31, 2011
(in thousands)	Amortized Cost			Gross Unrealized Gain			Gross Unrealized Loss			Fair Value
Mortgage-Related Securities:
GSE certificates		$	97,642		$	5,013		$	10		$	102,645
GSE CMOs			62,373			2,903			--			65,276
Private label CMOs			25,306			--			1,265			24,041

Total mortgage-related securities		$	185,321		$	7,916		$	1,275		$	191,962

Other Securities:
GSE debentures		$	456,969		$	1,797		$	--		$	458,766
State, county, and municipal			1,188			97			--			1,285
Capital trust notes			36,754			141			4,692			32,203
Preferred stock			--			195			--			195
Common stock			42,863			1,604			4,216			40,251

Total other securities		$	537,774		$	3,834		$	8,908		$	532,700

Total securities available for sale ⁽¹⁾		$	723,095		$	11,750		$	10,183		$	724,662

(1)	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 June 30, 2012 and December 31, 2011:


	June 30, 2012
(in thousands)	Amortized Cost			Carrying Amount			Gross Unrealized Gain			Gross Unrealized Loss			Fair Value
Mortgage-Related Securities:
GSE certificates		$	912,030		$	912,030		$	63,322		$	62		$	975,290
GSE CMOs			2,251,818			2,251,818			96,927			--			2,348,745
Other mortgage-related securities			3,303			3,303			--			--			3,303

Total mortgage-related securities		$	3,167,151		$	3,167,151		$	160,249		$	62		$	3,327,338

Other Securities:
GSE debentures		$	436,312		$	436,312		$	12,866		$	--		$	449,178
Corporate bonds			101,304			101,304			9,001			160			110,145
Municipal bonds			17,432			17,432			3			226			17,209
Capital trust notes			153,044			131,388			15,733			18,897			128,224

Total other securities		$	708,092		$	686,436		$	37,603		$	19,283		$	704,756

Total securities held to maturity ⁽¹⁾		$	3,875,243		$	3,853,587		$	197,852		$	19,345		$	4,032,094

(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. The non-credit portion of OTTI recorded in AOCL was $21.7 million (before taxes).


	December 31, 2011
(in thousands)	Amortized Cost			Carrying Amount			Gross Unrealized Gain			Gross Unrealized Loss			Fair Value
Mortgage-Related Securities:
GSE certificates		$	660,945		$	660,945		$	47,064		$	--		$	708,009
GSE CMOs			2,331,916			2,331,916			93,216			--			2,425,132
Other mortgage-related securities			3,379			3,379			--			--			3,379

Total mortgage-related securities		$	2,996,240		$	2,996,240		$	140,280		$	--		$	3,136,520

Other Securities:
GSE debentures		$	633,258		$	633,258		$	14,878		$	146		$	647,990
Corporate bonds			54,759			54,759			2,826			12			57,573
Capital trust notes			153,334			131,597			12,362			19,857			124,102

Total other securities		$	841,351		$	819,614		$	30,066		$	20,015		$	829,665

Total securities held to maturity ⁽¹⁾		$	3,837,591		$	3,815,854		$	170,346		$	20,015		$	3,966,185

(1)	The non-credit portion of OTTI recorded in AOCL was $21.7 million (before taxes).

The Company had $424.3 million and $490.2 million of Federal Home Loan Bank (“FHLB”) stock, at cost, at June 30, 2012 and December 31, 2011, 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 six months ended June 30, 2012 and 2011:


	For the Six Months Ended June 30,
(in thousands)		2012		2011

Gross proceeds			$330,859		$544,149
Gross realized gains			859		20,243
Gross realized losses			--		11

In addition, during the six months ended June 30, 2011, the Company sold held-to-maturity securities with gross proceeds of $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 issuers’ creditworthiness.

The $160.5 million market value of the capital trust note portfolio at June 30, 2012 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 June 30, 2012:


	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		$579
Fair value		15,745		228		666
Unrealized gain (loss)		781		(325)		87
Lowest credit rating assigned to security		CCC		C		C
Number of banks/insurance companies currently performing		24		58		24
Actual deferrals and defaults as a percentage of original collateral		8%		18%		36%
Expected deferrals and defaults as a percentage of remaining performing collateral		22		25		19
Expected recoveries as a percentage of remaining performing collateral		--		--		2
Excess subordination as a percentage of remaining performing collateral		17		--		--

As of June 30, 2012, 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 17%. 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.

As the following table indicates, there was no activity from December 31, 2011 through June 30, 2012 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 Six Months Ended June 30, 2012
Beginning credit loss amount as of December 31, 2011		$	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 June 30, 2012		$	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 June 30, 2012 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 June 30, 2012
(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		$	--		--%		$	--		--%		$	--		--%		$	23,994		5.80%		$	24,670
Due from one to five years			--		--			--		--			--		--			--		--			--
Due from five to ten years			1,324,066		3.38			432,524		3.20			1,859		2.92			46,509		4.04			1,912,802
Due after ten years			1,843,085		3.76			3,788		2.76			15,573		3.90			162,189		7.21			2,094,622

Total debt securities held to maturity		$	3,167,151		3.60%		$	436,312		3.20%		$	17,432		3.79%		$	232,692		6.43%		$	4,032,094


Available-for-Sale Securities: ⁽³⁾
Due within one year		$	--		--%		$	--		--%		$	125		5.63%		$	--		--%		$	127
Due from one to five years			8,363		7.22			--		--			510		6.21			--		--			9,353
Due from five to ten years			72,944		3.55			97,388		3.56			557		6.56			--		--			177,524
Due after ten years			93,892		3.90			--		--			--		--			35,437		4.62			129,841

Total debt securities available for sale		$	175,199		3.91%		$	97,388		3.56%		$	1,192		6.31%		$	35,437		4.62%		$	316,845

(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 $579,000 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 June 30, 2012, the Company had commitments to purchase $707.4 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 June 30, 2012:


At June 30, 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 certificates		$ 62,557		$	62		$ --		$ --			$ 62,557		$ 62
Corporate bonds		46,349			160		--		--			46,349		160
Municipal bonds		15,347			226		--		--			15,347		226
Capital trust notes		--			--		69,238		18,897			69,238		18,897

Total temporarily impaired held-to-maturity debt securities		$124,253		$	448		$69,238		$18,897			$193,491		$19,345


Temporarily Impaired Available-for-Sale Securities:
Debt Securities:
GSE certificates		$ 354		$	8		$ --		$ --			$ 354		$ 8
Private label CMOs		21,102			626		--		--			21,102		626
Capital trust notes		--			--		10,658		4,037			10,658		4,037

Total temporarily impaired available-for-sale debt securities		$21,456		$	634		$10,658		$ 4,037			$ 32,114		$ 4,671
Equity securities		--			--		28,721		2,281	⁽¹⁾		28,721		2,281

Total temporarily impaired available-for-sale securities		$21,456		$	634		$39,379		$ 6,318			$ 60,835		$ 6,952

(1)

The twelve months or longer unrealized losses on equity securities of $2.3 million at June 30, 2012 relate to available-for-sale equity securities that primarily consisted of a large cap equity fund at that date. The principal balance of this large cap equity fund was $29.0 million and the twelve months or longer unrealized loss was $1.6 million.


At December 31, 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		$62,601		$	146		$ --		$ --		$ 62,601		$ 146
GSE certificates		--			--		--		--		--		--
GSE CMOs		--			--		--		--		--		--
Corporate bonds		4,987			12		--		--		4,987		12
Capital trust notes		971			43		68,570		19,814		69,541		19,857

Total temporarily impaired held-to-maturity debt securities		$68,559		$	201		$68,570		$19,814		$137,129		$20,015


Temporarily Impaired Available-for-Sale Securities:
Debt Securities:
GSE certificates		$181		$	9		$ 13		$ 1		$ 194		$ 10
Private label CMOs		24,041			1,265		--		--		24,041		1,265
Corporate bonds		--			--		--		--		--		--
State, county, and municipal		--			--		--		--		--		--
Capital trust notes		15,154			363		9,810		4,329		24,964		4,692

Total temporarily impaired available-for-sale debt securities		$39,376		$	1,637		$9,823		$ 4,330		$ 49,199		$ 5,967
Equity securities		784			40		26,651		4,176		27,435		4,216

Total temporarily impaired available-for-sale securities		$40,160		$	1,677		$36,474		$ 8,506		$ 76,634		$10,183

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 June 30, 2012, 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 June 30, 2012.

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 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 June 30, 2012. 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 June 30, 2012, 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 period of time reasonably 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 June 30, 2012. 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 June 30, 2012 consisted of 11 capital trust notes and six equity securities. At December 31, 2011, the investment securities designated as having a continuous loss position for twelve months or more consisted of one mortgage-related security, eleven capital trust notes, and six equity securities. At June 30, 2012 and December 31, 2011, the combined market value of the respective securities represented unrealized losses of $25.2 million and $28.3 million. At June 30, 2012, the fair value of securities having a continuous loss position for twelve months or more was 18.9% below the collective amortized cost of $133.3 million. At December 31, 2011, the fair value of such securities was 21.2% below the collective amortized cost of $133.4 million.

Note 4. Loans

The following table sets forth the composition of the loan portfolio at June 30, 2012 and December 31, 2011:


	June 30, 2012					December 31, 2011
(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		$	18,181,045		68.65%		$	17,430,628		68.28%
Commercial real estate			7,157,726		27.03			6,855,244		26.85
Acquisition, development, and construction			390,590		1.47			445,671		1.75
One-to-four family			120,186		0.45			127,361		0.50

Total mortgage loans held for investment		$	25,849,547		97.60		$	24,858,904		97.38

Other Loans:
Commercial and industrial			579,960		2.19			599,986		2.35
Other			55,673		0.21			69,907		0.27

Total other loans held for investment			635,633		2.40			669,893		2.62

Total non-covered loans held for investment		$	26,485,180		100.00%		$	25,528,797		100.00%

Net deferred loan origination costs			7,575					4,021
Allowance for losses on non-covered loans			(137,914)					(137,290)

Non-covered loans held for investment, net		$	26,354,841				$	25,395,528
Covered loans			3,516,097					3,753,031
Allowance for losses on covered loans			(51,771)					(33,323)

Total covered loans, net		$	3,464,326				$	3,719,708
Loans held for sale			1,059,340					1,036,918

Total loans, net		$	30,878,507				$	30,152,154

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.

To a lesser extent, the Company also originates 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 on Long Island, while 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, on both a secured and unsecured basis, for working capital, business expansion, and the purchase of machinery and equipment.

Payments on multi-family and CRE loans generally depend on the income produced by the underlying properties which, in turn, depends on their successful operation and management. Accordingly, the ability of the Company’s borrowers to repay these loans may be impacted by adverse conditions in the local real estate market and the local economy. While the Company generally requires that such loans be qualified on the basis of the collateral property’s current cash flows, appraised value, and debt service coverage ratio, among other factors, there can be no assurance that its underwriting policies will protect the Company from credit-related losses or delinquencies.

ADC loans typically involve a higher degree of credit risk than loans secured by improved or 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 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 loan losses. These events, if they were to occur, would have an adverse impact on the Company’s results of operations and its capital.

One-to-Four Family Loans Originated for Sale

The Community Bank’s mortgage banking operation is one of the largest aggregators of one-to-four family loans for sale to GSEs in the nation. Community banks, credit unions, mortgage companies, and mortgage brokers use the subsidiary’s proprietary web-accessible mortgage banking platform to originate and close one-to-four family loans in all 50 states. The Company sells these loans, primarily servicing retained.

Prior to December 2010, the Company would originate one-to-four family loans for in its branches and on its website on a pass-through, or conduit, basis, and would sell the loans to the third-party conduit shortly after they closed. Since then, the Company had been originating one-to-four family loans through its mortgage banking operation, directly and indirectly, rather than through the single third-party conduit with which it previously worked. The one-to-four family loans produced for the Company’s customers are aggregated with loans produced by its mortgage banking clients throughout the nation, and then sold.

The Company also services mortgage loans for various third parties. At June 30, 2012, the unpaid principal balance of serviced loans amounted to $15.6 billion. At December 31, 2011, the unpaid principal balance of loans serviced for others amounted to $13.1 billion.

Asset Quality

The following table presents information regarding the quality of the Company’s non-covered loans at June 30, 2012:


(in thousands)	30-89 Days Past Due			Non- Accrual			90 Days or More Delinquent and Still Accruing Interest			Total Past Due			Current			Total Loans Receivable
Multi-family		$	27,554		$	156,711		$	--		$	184,265		$	17,996,780		$	18,181,045
Commercial real estate			6,319			54,888			--			61,207			7,096,519			7,157,726
Acquisition, development, and construction			--			24,996			--			24,996			365,594			390,590
One-to-four family			2,747			8,977			--			11,724			108,462			120,186
Commercial and industrial			1,631			5,375			--			7,006			572,954			579,960
Other			321			1,059			--			1,380			54,293			55,673

Total		$	38,572		$	252,006		$	--		$	290,578		$	26,194,602		$	26,485,180

The following table presents information regarding the quality of the Company’s non-covered loans at December 31, 2011:


(in thousands)	30-89 Days Past Due		Non- Accrual		90 Days or More Delinquent and Still Accruing Interest		Total Past Due		Current		Total Loans Receivable
Multi-family		$ 46,702		$205,064		$--		$251,766		$17,178,862		$17,430,628
Commercial real estate		53,798		68,032		--		121,830		6,733,414		6,855,244
Acquisition, development, and construction		6,520		29,886		--		36,406		409,265		445,671
One-to-four family		2,712		11,907		--		14,619		112,742		127,361
Commercial and industrial		1,223		8,827		--		10,050		589,936		599,986
Other		702		2,099		--		2,801		67,106		69,907

Total		$111,657		$325,815		$--		$437,472		$25,091,325		$25,528,797

The following table summarizes the Company’s non-covered loan portfolio by credit quality indicator at June 30, 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		$	17,968,840		$	7,070,472		$	357,656		$	113,500		$	25,510,468		$	561,498		$	54,614		$	616,112
Special mention			12,119			10,775			6,398			--			29,292			6,112			--			6,112
Substandard			200,086			76,479			26,536			6,686			309,787			12,350			1,059			13,409
Doubtful			--			--			--			--			--			--			--			--

Total		$	18,181,045		$	7,157,726		$	390,590		$	120,186		$	25,849,547		$	579,960		$	55,673		$	635,633

The following table summarizes the Company’s non-covered loan portfolio by credit quality indicator at December 31, 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		$	17,135,461		$	6,704,824		$	399,811		$	118,293		$	24,358,389		$	570,442		$	67,808		$	638,250
Special mention			58,134			64,802			6,489			--			129,425			13,234			--			13,234
Substandard			237,033			85,618			39,371			9,068			371,090			15,928			2,099			18,027
Doubtful			--			--			--			--			--			382			--			382

Total		$	17,430,628		$	6,855,244		$	445,671		$	127,361		$	24,858,904		$	599,986		$	69,907		$	669,893

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 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 June 30, 2012 and December 31, 2011:


	June 30, 2012								December 31, 2011
(in thousands)	Accruing			Non-Accrual		Total			Accruing			Non-Accrual		Total
Loan Category:
Multi-family		$	75,141		$136,034		$	211,175		$	60,454		$166,248		$	226,702
Commercial real estate			37,489		39,266			76,755			3,389		39,054			42,443
Acquisition, development, and construction			--		12,208			12,208			--		15,886			15,886
Commercial and industrial			--		--			--			--		667			667
One-to-four family			--		1,126			1,126			--		1,411			1,411

Total		$	112,630		$188,634		$	301,264		$	63,843		$223,266		$	287,109

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 June 30, 2012, loans on which concessions were made with respect to rate reductions and/or extension of maturity dates amounted to $269.5 million and loans on which forbearance agreements were reached amounted to $31.8 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.

The financial effects of TDRs granted in the three and six months ended June 30, 2012 were as follows:


	Financial Effect of Modifications
	For the Three Months Ended June 30, 2012											For the Six Months Ended June 30, 2012
	Weighted Average Interest Rate								Charge-off Amount			Weighted Average Interest Rate								Charge-off Amount
(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		4		6.19	%		5.34	%		$	--		4		6.19	%		5.34	%		$	--
Commercial real estate		2		6.27			4.48				--		3		6.30			4.50				--
Acquisition, development, and construction		--		--			--				--		--		--			--				--
Other		--		--			--				--		--		--			--				--

Total/average		6		6.25	%		4.70	%		$	--		7		6.28	%		4.71	%		$	--

As of June 30, 2012, 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.

Covered Loans

The following table presents the balance of covered loans acquired in the AmTrust and Desert Hills acquisitions as of June 30, 2012:


(dollars in thousands)	Amount			Percent of Covered Loans
Loan Category:
One-to-four family		$	3,169,838		90.2	%
All other loans			346,259		9.8

Total covered loans		$	3,516,097		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 June 30, 2012 and December 31, 2011, the outstanding balances of covered loans (representing amounts owed to the Company) were $4.2 billion and $4.5 billion, respectively. The carrying values of such loans were $3.5 billion and $3.8 billion, respectively, at June 30, 2012 and December 31, 2011.

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 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. 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 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 six months ended June 30, 2012:


(in thousands)	Accretable Yield
Balance at beginning of period		$1,365,978
Reclassification to non-accretable difference		(115,975)
Accretion		(90,858)

Balance at end of period		$1,159,145

The line item in the preceding table titled “reclassification to non-accretable difference” includes changes in cash flows 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 increased and, accordingly, future expected interest cash flows decreased. This resulted in a decrease in the accretable yield. In addition, these decreases were coupled with 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. Partially offsetting these decreases were 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 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 less 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 June 30, 2012 and December 31, 2011:


(in thousands)	June 30, 2012		December 31, 2011
Covered Loans 90 Days or More Past Due:
One-to-four family		$311,258		$314,821
Other loans		20,686		32,621

Total covered loans 90 days or more past due		$331,944		$347,442

The following table presents information regarding the Company’s covered loans that were 30 to 89 days past due at June 30, 2012 and December 31, 2011:


(in thousands)	June 30, 2012		December 31, 2011
Covered Loans 30-89 Days Past Due:
One-to-four family		$78,268		$103,495
Other loans		9,114		8,494

Total covered loans 30-89 days past due		$87,382		$111,989

At June 30, 2012, the Company had $87.4 million of covered loans that were 30 to 89 days past due, and covered loans of $331.9 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 $3.1 billion at June 30, 2012 and was considered current as of 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 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 that is 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 its 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 an $18.4 million provision for losses on covered loans during the three and six months ended June 30, 2012. This provision was largely due to credit deterioration in the acquired portfolios of one-to-four family and home equity loans. The provision for covered loans was largely offset by FDIC indemnification income of $14.8 million that was recorded in non-interest income for the three and six months ended June 30, 2012.

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 June 30, 2012:
Individually evaluated for impairment		$	3,540	$	--	$	3,540
Collectively evaluated for impairment			120,754		13,620		134,374
Acquired loans with deteriorated credit quality			30,804		20,967		51,771

Total		$	155,098	$	34,587	$	189,685


(in thousands)	Mortgage			Other		Total
Allowance for Loan Losses at December 31, 2011:
Individually evaluated for impairment		$	490	$	--	$	490
Collectively evaluated for impairment			121,505		15,295		136,800
Acquired loans with deteriorated credit quality			14,227		19,096		33,323

Total		$	136,222	$	34,391	$	170,613

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 June 30, 2012:
Individually evaluated for impairment	$	325,467	$	6,305	$	331,772
Collectively evaluated for impairment		25,524,080		629,328		26,153,408
Acquired loans with deteriorated credit quality		3,169,838		346,259		3,516,097

Total	$	29,019,385	$	981,892	$	30,001,277


(in thousands)	Mortgage		Other		Total
Loans Receivable at December 31, 2011:
Individually evaluated for impairment	$	324,427	$	5,995	$	330,422
Collectively evaluated for impairment		24,534,477		663,898		25,198,375
Acquired loans with deteriorated credit quality		3,366,456		386,575		3,753,031

Total	$	28,225,360	$	1,056,468	$	29,281,828

Non-Covered Loans

The following table summarizes activity in the allowance for losses on non-covered loans for the six months ended June 30, 2012 and 2011:


	June 30,
	2012									2011
(in thousands)	Mortgage			Other			Total			Mortgage			Other			Total
Balance, beginning of period		$	121,995		$	15,295		$	137,290		$	140,834		$	18,108		$	158,942
Charge-offs			(28,982)			(2,813)			(31,795)			(60,051)			(8,211)			(68,262)
Recoveries			442			1,977			2,419			772			2,019			2,791
Provision for (recovery of ) loan losses			30,839			(839)			30,000			38,745			2,255			41,000

Balance, end of period		$	124,294		$	13,620		$	137,914		$	120,300		$	14,171		$	134,471

Non-accrual loans amounted to $252.0 million and $325.8 million, respectively, at June 30, 2012 and December 31, 2011. 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 six months ended June 30, 2012:


(in thousands)	Recorded Investment			Unpaid Principal Balance			Related Allowance			Average Recorded Investment			Interest Income Recognized
Impaired loans with no related allowance:
Multi-family		$	173,937		$	190,177		$	--		$	194,266		$	2,641
Commercial real estate			78,661			80,086			--			59,382			518
Acquisition, development, and construction			21,610			25,704			--			25,884			366
One-to-four family			1,127			1,147			--			1,221			--
Commercial and industrial			6,305			10,980			--			5,915			57

Total impaired loans with no related allowance		$	281,640		$	308,094		$	--		$	286,668		$	3,582


Impaired loans with an allowance recorded:
Multi-family		$	44,543		$	46,014		$	2,907		$	19,704		$	--
Commercial real estate			4,373			5,257			605			5,220			--
Acquisition, development, and construction			1,216			1,494			28			2,098			--
One-to-four family			--			--			--			--			--
Commercial and industrial			--			--			--			--			--

Total impaired loans with an allowance recorded		$	50,132		$	52,765		$	3,540		$	27,022		$	--


Total impaired loans:
Multi-family		$	218,480		$	236,191		$	2,907		$	213,970		$	2,641
Commercial real estate			83,034			85,343			605			64,602			518
Acquisition, development, and construction			22,826			27,198			28			27,982			366
One-to-four family			1,127			1,147			--			1,221			--
Commercial and industrial			6,305			10,980			--			5,915			57

Total impaired loans		$	331,772		$	360,859		$	3,540		$	313,690		$	3,582

The following table presents additional information regarding the Company’s impaired loans at or for the year ended December 31, 2011:


(in thousands)	Recorded Investment			Unpaid Principal Balance			Related Allowance			Average Recorded Investment			Interest Income Recognized
Impaired loans with no related allowance:
Multi-family		$	235,100		$	244,684		$	--		$	321,994		$	3,435
Commercial real estate			49,258			52,152			--			63,032			1,397
Acquisition, development, and construction			26,680			27,143			--			42,600			1,141
One-to-four family			1,127			1,520			--			2,649			10
Commercial and industrial			5,995			10,240			--			6,442			60

Total impaired loans with no related allowance		$	318,160		$	335,739		$	--		$	436,717		$	6,043


Impaired loans with an allowance recorded:
Multi-family		$	6,329		$	6,899		$	408		$	10,893		$	187
Commercial real estate			5,648			5,857			53			10,297			--
Acquisition, development, and construction			--			--			--			14,495			--
One-to-four family			285			373			29			71			--
Commercial and industrial			--			--			--			1,837			--

Total impaired loans with an allowance recorded		$	12,262		$	13,129		$	490		$	37,593		$	187


Total impaired loans:
Multi-family		$	241,429		$	251,583		$	408		$	332,887		$	3,622
Commercial real estate			54,906			58,009			53			73,329			1,397
Acquisition, development, and construction			26,680			27,143			--			57,095			1,141
One-to-four family			1,412			1,893			29			2,720			10
Commercial and industrial			5,995			10,240			--			8,279			60

Total impaired loans		$	330,422		$	348,868		$	490		$	474,310		$	6,230

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

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 loss sharing agreement percentages.

The following table summarizes activity in the allowance for losses on covered loans for the six months ended June 30, 2012 and 2011:


(in thousands)	June 30, 2012			June 30, 2011
Balance, beginning of period		$	33,323		$	11,903
Provision for loan losses			18,448			8,708

Balance, end of period		$	51,771		$	20,611

Note 6. Borrowed Funds

The following table summarizes the Company’s borrowed funds at June 30, 2012 and December 31, 2011:


(in thousands)	June 30, 2012			December 31, 2011
FHLB advances		$	7,847,283		$	9,314,193
Repurchase agreements			4,125,000			4,125,000
Fed funds purchased			185,000			--
Junior subordinated debentures			427,029			426,936
Senior notes			--			89,984
Preferred stock of subsidiaries			4,300			4,300

Total borrowed funds		$	12,588,612		$	13,960,413

At June 30, 2012, the Company had $427.0 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 June 30, 2012:

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⁾

Queens County Capital Trust I

11.045

10,309

10,000

July 26, 2000

July 19, 2030

July 19, 2010 ⁽²⁾

Queens Statutory Trust I

10.600

15,464

15,000

September 7, 2000

September 7, 2030

September 7, 2010 ⁽¹⁾

New York Community Capital Trust V

6.000

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