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, 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

440,873,285

Number of shares of common stock outstanding at

August 1, 2013

NEW YORK COMMUNITY BANCORP, INC.

FORM 10-Q

Quarter Ended June 30, 2013


INDEX		Page No.

Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Condition as of June 30, 2013 (unaudited) and December 31, 2012	1

	Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2013 and 2012 (unaudited)	2

	Consolidated Statement of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2013 (unaudited)	3

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 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	43

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	89

Item 4.	Controls and Procedures	89

Part II.	OTHER INFORMATION

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, 2013 (unaudited)			December 31, 2012
Assets:
Cash and cash equivalents		$	1,319,710		$	2,427,258
Securities:
Available-for-sale ($86,531 and $196,300 pledged, respectively)			315,090			429,266
Held-to-maturity ($4,551,901 and $4,084,380 pledged, respectively) (fair value of $5,540,835 and $4,705,960, respectively)			5,626,605			4,484,262

Total securities			5,941,695			4,913,528

Non-covered loans held for sale			756,601			1,204,370
Non-covered loans held for investment, net of deferred loan fees and costs			28,051,342			27,284,464
Less: Allowance for losses on non-covered loans			(140,689)			(140,948)

Non-covered loans held for investment, net			27,910,653			27,143,516
Covered loans			3,032,172			3,284,061
Less: Allowance for losses on covered loans			(60,431)			(51,311)

Covered loans, net			2,971,741			3,232,750

Total loans, net			31,638,995			31,580,636
Federal Home Loan Bank stock, at cost			482,173			469,145
Premises and equipment, net			265,321			264,149
FDIC loss share receivable			531,787			566,479
Goodwill			2,436,131			2,436,131
Core deposit intangibles, net			23,422			32,024
Mortgage servicing rights			215,055			144,713
Bank-owned life insurance			880,435			867,250
Other real estate owned (includes $39,108 and $45,115, respectively, covered by loss sharing agreements)			123,586			74,415
Other assets			327,528			369,372

Total assets		$	44,185,838		$	44,145,100

Liabilities and Stockholders’ Equity:
Deposits:
NOW and money market accounts		$	9,437,891		$	8,783,795
Savings accounts			5,423,628			4,213,972
Certificates of deposit			7,906,158			9,120,914
Non-interest-bearing accounts			2,520,185			2,758,840

Total deposits			25,287,862			24,877,521
Borrowed funds:
Wholesale borrowings:
Federal Home Loan Bank advances			9,104,698			8,842,974
Repurchase agreements			3,425,000			4,125,000
Fed funds purchased			100,000			100,000

Total wholesale borrowings			12,629,698			13,067,974
Other borrowings			362,319			362,217

Total borrowed funds			12,992,017			13,430,191
Other liabilities			217,498			181,124

Total liabilities			38,497,377			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 440,858,405 and 439,050,966 shares outstanding, respectively)			4,409			4,391
Paid-in capital in excess of par			5,333,295			5,327,111
Retained earnings			408,680			387,534
Treasury stock, at cost (8,663 and 82,985 shares, respectively)			(118)			(1,067)
Accumulated other comprehensive loss, net of tax:
Net unrealized gain on securities available for sale, net of tax			6,001			12,614
Net unrealized loss on the non-credit portion of other-than-temporary impairment (“OTTI”) losses on securities, net of tax			(5,984)			(13,525)
Net unrealized loss on pension and post-retirement obligations, net of tax			(57,822)			(60,794)

Total accumulated other comprehensive loss, net of tax			(57,805)			(61,705)

Total stockholders’ equity			5,688,461			5,656,264

Total liabilities and stockholders’ equity		$	44,185,838		$	44,145,100

See accompanying notes to the unaudited consolidated financial statements.

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
Interest Income:
Mortgage and other loans	$	388,156	$	406,481	$	755,155	$	804,665
Securities and money market investments		48,418		48,499		94,226		96,953

Total interest income		436,574		454,980		849,381		901,618


Interest Expense:
NOW and money market accounts		9,777		9,357		18,952		18,090
Savings accounts		5,206		3,565		9,227		7,061
Certificates of deposit		21,782		23,489		44,017		47,209
Borrowed funds		99,925		121,913		202,125		244,188

Total interest expense		136,690		158,324		274,321		316,548

Net interest income		299,884		296,656		575,060		585,070
Provision for losses on non-covered loans		5,000		15,000		10,000		30,000
Provision for losses on covered loans		4,618		18,448		9,120		18,448

Net interest income after provisions for loan losses		290,266		263,208		555,940		536,622


Non-Interest Income:
Mortgage banking income		23,216		58,323		49,325		93,488
Fee income		9,961		9,433		18,733		19,191
Bank-owned life insurance		7,337		6,802		14,590		16,387
Gain on sales of securities		123		141		16,745		859
FDIC indemnification income		3,694		14,759		7,296		14,759
Other		9,414		8,747		22,607		15,517

Total non-interest income		53,745		98,205		129,296		160,201


Non-Interest Expense:
Operating expenses:
Compensation and benefits		77,400		73,591		160,906		147,208
Occupancy and equipment		24,159		23,249		47,759		45,133
General and administrative		45,925		53,669		90,494		103,186

Total operating expenses		147,484		150,509		299,159		295,527
Amortization of core deposit intangibles		4,181		4,920		8,602		10,079

Total non-interest expense		151,665		155,429		307,761		305,606

Income before income taxes		192,346		205,984		377,475		391,217
Income tax expense		69,829		74,772		136,283		141,752

Net income	$	122,517	$	131,212	$	241,192	$	249,465

Other comprehensive income, net of tax:
Change in net unrealized gain/loss on securities available for sale, net of tax of $2,845; $2,096; $2,382; and $3,473, respectively		(4,203)		3,094		(3,518)		5,185
Change in the non-credit portion of OTTI losses recognized in other comprehensive income, net of tax of $4,768; $16; $4,785; and $31, respectively		7,513		26		7,541		49
Change in pension and post-retirement obligations, net of tax of $1,008; $1,044; $2,016; and $2,086, respectively		1,486		1,537		2,972		3,074
Less: Reclassification adjustment for sales of available for sale securities, net of tax of $50; $57; $2,098; and $332, respectively		(73)		(84)		(3,095)		(527)

Total other comprehensive income, net of tax		4,723		4,573		3,900		7,781

Total comprehensive income, net of tax	$	127,240	$	135,785	$	245,092	$	257,246


Basic earnings per share	$	0.28	$	0.30	$	0.55	$	0.56

Diluted earnings per share	$	0.28	$	0.30	$	0.55	$	0.56

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, 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
Shares issued for exercise of stock options (3,167 shares)			--

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			10,963
Tax effect of stock plans			314

Balance at end of period			5,333,295


Retained Earnings:
Balance at beginning of year			387,534
Net income			241,192
Dividends paid on common stock ($0.50 per share)			(220,034)
Exercise of stock options			(12)

Balance at end of period			408,680


Treasury Stock:
Balance at beginning of year			(1,067)
Purchase of common stock (313,493 shares)			(4,197)
Exercise of stock options (5,344 shares)			71
Shares issued for restricted stock awards (382,471 shares)			5,075

Balance at end of period			(118)


Accumulated Other Comprehensive Loss, net of tax:
Balance at beginning of year			(61,705)
Other comprehensive income, net of tax			3,900

Balance at end of period			(57,805)

Total stockholders’ equity		$	5,688,461

See accompanying notes to the unaudited consolidated financial statements.

NEW YORK COMMUNITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	For the Six Months Ended June 30,
	2013		2012
Cash Flows from Operating Activities:
Net income	$	241,192	$	249,465
Adjustments to reconcile net income to net cash provided by operating activities:
Provisions for loan losses		19,120		48,448
Depreciation and amortization		13,919		12,139
Accretion of premiums and discounts, net		(1,071)		(742)
Amortization of core deposit intangibles		8,602		10,079
Net gain on sale of securities		(16,745)		(859)
Net gain on sale of loans		(42,973)		(92,976)
Stock plan-related compensation		10,963		10,375
Deferred tax expense		7,905		13,512
Changes in operating assets and liabilities:
(Increase) decrease in other assets		(66,401)		51,779
Increase in other liabilities		41,363		71,671
Origination of loans held for sale		(4,426,828)		(5,094,278)
Proceeds from sale of loans originated for sale		4,869,711		5,117,092

Net cash provided by operating activities		658,757		395,705

Cash Flows from Investing Activities:
Proceeds from repayment of securities held to maturity		506,277		1,378,707
Proceeds from repayment of securities available for sale		50,875		370,667
Proceeds from sale of securities held to maturity		191,142		--
Proceeds from sale of securities available for sale		414,186		330,859
Purchase of securities held to maturity		(1,814,586)		(1,415,389)
Purchase of securities available for sale		(357,000)		(379,890)
Net (purchase) redemption of Federal Home Loan Bank stock		(13,028)		65,959
Net increase in loans		(477,389)		(704,639)
Purchase of premises and equipment, net		(15,091)		(11,955)

Net cash used in investing activities		(1,514,614)		(365,681)

Cash Flows from Financing Activities:
Net increase in deposits		410,341		2,722,519
Net increase (decrease) in short-term borrowed funds		300,000		(1,277,000)
Net decrease in long-term borrowed funds		(738,174)		(94,801)
Tax effect of stock plans		314		(35)
Cash dividends paid on common stock		(220,034)		(219,217)
Treasury stock purchases		(4,197)		(2,554)
Net cash received from stock option exercises		59		--

Net cash (used in) provided by financing activities		(251,691)		1,128,912

Net (decrease) increase in cash and cash equivalents		(1,107,548)		1,158,936
Cash and cash equivalents at beginning of period		2,427,258		2,001,737

Cash and cash equivalents at end of period	$	1,319,710	$	3,160,673

Supplemental information:
Cash paid for interest		$275,018		$311,632
Cash paid for income taxes		102,718		171,965
Non-cash investing and financing activities:
Transfers to other real estate owned from loans		77,516		59,208

See accompanying notes to the unaudited 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 therefore 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 June 30,				Six Months Ended June 30,
(in thousands, except share and per share data)	2013		2012		2013		2012
Net income		$122,517		$131,212		$241,192		$249,465
Less: Dividends paid on and earnings allocated to participating securities		(791)		(1,246)		(1,525)		(2,339)

Earnings applicable to common stock		$121,726		$129,966		$239,667		$247,126


Weighted average common shares outstanding		439,452,048		437,820,639		439,079,827		437,644,249

Basic earnings per common share		$0.28		$0.30		$0.55		$0.56


Earnings applicable to common stock		$121,726		$129,966		$239,667		$247,126


Weighted average common shares outstanding		439,452,048		437,820,639		439,079,827		437,644,249
Potential dilutive common shares⁽¹⁾		3,298		4,063		3,445		4,698

Total shares for diluted earnings per share computation		439,455,346		437,824,702		439,083,272		437,648,947


Diluted earnings per common share and common share equivalents		$0.28		$0.30		$0.55		$0.56

(1)

Options to purchase 253,500 shares of the Company’s common stock that were outstanding in the three and six months ended June 30, 2013, at a weighted average exercise price of $22.14, were excluded from the respective computations of diluted EPS because their inclusion would have had an antidilutive effect. 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 also would have had an antidilutive effect.

Note 3. Reclassifications Out of Accumulated Other Comprehensive Loss


(in thousands)	For the Six Months Ended June 30, 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		$	5,193	Gain on sales of securities
			(2,098)	Tax expense

		$	3,095	Net gain on sales of securities, net of tax

Amortization of defined benefit pension items:
Prior-service costs		$	124	(2)
Actuarial losses			(5,030)	(2)

			(4,906)	Total before tax
			1,982	Tax benefit

		$	(2,924)	Amortization of defined benefit pension items, net of tax

Total reclassifications for the period		$	171

(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 June 30, 2013:


	June 30, 2013
(in thousands)	Amortized Cost			Gross Unrealized Gain			Gross Unrealized Loss			Fair Value
Mortgage-Related Securities:
GSE certificates ⁽¹⁾		$	27,848		$	1,543		$	2		$	29,389
GSE CMOs ⁽²⁾			62,160			970			--			63,130
Private label CMOs			13,465			--			95			13,370

Total mortgage-related securities		$	103,473		$	2,513		$	97		$	105,889

Other Securities:
Municipal bonds		$	1,077		$	103		$	--		$	1,180
Capital trust notes			32,666			4,471			2,478			34,659
Preferred stock			118,205			4,406			898			121,713
Common stock			49,619			2,776			746			51,649

Total other securities		$	201,567		$	11,756		$	4,122		$	209,201

Total securities available for sale ⁽³⁾		$	305,040		$	14,269		$	4,219		$	315,090

(1)	Government-sponsored enterprises

(2)	Collateralized mortgage obligations

(3)	At June 30, 2013, the non-credit portion of OTTI recorded in accumulated other comprehensive loss (“AOCL”) was $570,000 (before taxes).

As of June 30, 2013, the fair value of marketable equity securities included corporate preferred stock of $121.7 million and common stock of $51.6 million, with the latter primarily consisting of an investment in a large cap equity fund and certain other funds that are Community Reinvestment Act (“CRA”) eligible.

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 June 30, 2013 and December 31, 2012:


	June 30, 2013
(in thousands)	Amortized Cost			Carrying Amount			Gross Unrealized Gain			Gross Unrealized Loss			Fair Value
Mortgage-Related Securities:
GSE certificates		$	1,541,696		$	1,541,696		$	33,051		$	34,912		$	1,539,835
GSE CMOs			1,567,381			1,567,381			40,563			11,169			1,596,775
Other mortgage-related securities			3,054			3,054			--			--			3,054

Total mortgage-related securities		$	3,112,131		$	3,112,131		$	73,614		$	46,081		$	3,139,664

Other Securities:
GSE debentures		$	2,304,716		$	2,304,716		$	7,722		$	116,622		$	2,195,816
Corporate bonds			72,698			72,698			9,651			--			82,349
Municipal bonds			61,396			61,396			17			3,257			58,156
Capital trust notes			84,908			75,664			1,180			11,994			64,850

Total other securities		$	2,523,718		$	2,514,474		$	18,570		$	131,873		$	2,401,171

Total securities held to maturity ⁽¹⁾		$	5,635,849		$	5,626,605		$	92,184		$	177,954		$	5,540,835

(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 June 30, 2013, the non-credit portion of OTTI recorded in AOCL was $9.2 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 $482.2 million and $469.1 million of Federal Home Loan Bank (“FHLB”) stock, at cost, at June 30, 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 six months ended June 30, 2013 and 2012:


	For the Six Months Ended June 30,
(in thousands)	2013			2012
Gross proceeds		$	414,186		$	330,859
Gross realized gains			5,193			859
Gross realized losses			--			--

In addition, during the six months ended June 30, 2013, the Company sold held-to-maturity securities with gross proceeds of $191.1 million and gross realized gains of $11.6 million. These sales occurred because the Company had collected a substantial portion (at least 85%) of the initial principal balance.

The $99.5 million market value of the capital trust note portfolio at June 30, 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 June 30, 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			452
Fair value		19,319			574			952
Unrealized gain (loss)		4,355			21			500
Lowest credit rating assigned to security		CCC			C			C
Number of banks/insurance companies currently performing		19			52			10
Actual deferrals and defaults as a percentage of original collateral		9	%		17	%		26	%
Expected deferrals and defaults as a percentage of remaining performing collateral		22			25			46
Expected recoveries as a percentage of remaining performing collateral		--			--			--
Excess subordination as a percentage of remaining performing collateral		22			--			--

As of June 30, 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 22%. 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.

In the following table, the beginning balance represents the credit loss component for debt securities for which OTTI occurred prior to January 1, 2013. 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, 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			4,256

Ending credit loss amount as of June 30, 2013		$	215,722

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, 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 June 30, 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			--		--			60,502		4.17			1,486		2.96			--		--			69,250
Due from five to ten years			2,100,609		3.08			894,214		2.52			--		--			46,830		4.04			3,004,703
Due after ten years			1,011,522		3.51			1,350,000		2.62			59,910		2.85			101,532		5.52			2,466,882

Total debt securities held to maturity		$	3,112,131		3.22%		$	2,304,716		2.62%		$	61,396		2.85%		$	148,362		5.05%		$	5,540,835

Available-for-Sale Securities:⁽³⁾
Due within one year		$	65		3.88%		$	--		--%		$	125		5.90%		$	--		--%		$	193
Due from one to five years			7,351		7.02			--		--			533		6.36			--		--			8,357
Due from five to ten years			19,061		3.65			--		--			419		6.59			--		--			20,415
Due after ten years			76,996		4.47			--		--			--		--			32,666		4.27			112,763

Total debt securities available for sale		$	103,473		4.50%		$	--		--%		$	1,077		6.39%		$	32,666		4.27%		$	141,728

(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 $452,000 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, 2013, the Company had commitments to purchase $413.1 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, 2013:


At June 30, 2013 (in thousands)	Less than Twelve Months						Twelve Months or Longer							Total
At June 30, 2013 (in thousands)	Fair Value			Unrealized Loss			Fair Value			Unrealized Loss				Fair Value			Unrealized Loss
Temporarily Impaired Held-to-Maturity Debt Securities:
GSE debentures		$	2,120,642		$	116,622		$	--		$	--			$	2,120,642		$	116,622
GSE Certificates			896,722			34,912			--			--				896,722			34,912
GSE CMOs			390,518			11,169			--			--				390,518			11,169
Municipal notes/bonds			56,653			3,257			--			--				56,653			3,257
Capital trust notes			24,441			560			34,721			11,434				59,162			11,994

Total temporarily impaired held-to-maturity debt securities		$	3,488,976		$	166,520		$	34,721		$	11,434			$	3,523,697		$	177,954

Temporarily Impaired Available-for-Sale Securities:
Debt Securities:
GSE certificates		$	--		$	--		$	198		$	2			$	198		$	2
Private label CMOs			13,370			95			--			--				13,370			95
Corporate bonds			--			--			--			--				--			--
State, county, and municipal			--			--			--			--				--			--
Capital trust notes			1,955			45			4,979			2,433				6,934			2,478

Total temporarily impaired available-for-sale debt securities		$	15,325		$	140		$	5,177		$	2,435			$	20,502		$	2,575
Equity securities			78,970			963			994			681	⁽¹⁾			79,964			1,644

Total temporarily impaired available-for-sale securities		$	94,295		$	1,103		$	6,171		$	3,116			$	100,466		$	4,219

(1)	The twelve months or longer unrealized losses on equity securities of $681,000 at June 30, 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 June 30, 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 June 30, 2013.

Other factors considered in determining whether or not an impairment 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 unrealized losses on the Company’s GSE debentures at June 30, 2013 were primarily caused by movements in market interest rates and spread volatility, rather than credit risk. The Company purchased these investments either at par or at a discount or premium relative to their face amount, and the contractual cash flows of these investments are guaranteed by the GSEs. Accordingly, it is expected that these securities will not be settled at a price that is less than the amortized cost of the Company’s investment. Because the Company does not have the intent to sell the investments, and it is not more likely than not that the Company will be required to sell them before the anticipated recovery of fair value, which may be at maturity, the Company did not consider these investments to be other-than-temporarily impaired at June 30, 2013.

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 June 30, 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 June 30, 2013, the Company’s equity securities portfolio consisted of perpetual preferred stock, 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 at the end of June 2013 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 June 30, 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. This would cause 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, 2013 consisted of six capital trust notes, two mortgage-backed securities, 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 June 30, 2013 and December 31, 2012, the combined market value of the respective securities represented unrealized losses of $14.6 million and $21.1 million. At June 30, 2013, the fair value of securities having a continuous loss position for twelve months or more was 26.2% below the collective amortized cost of $55.4 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 June 30, 2013 and December 31, 2012:


	June 30, 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		$	19,218,540		68.54%		$	18,595,833		68.18%
Commercial real estate			7,310,119		26.07			7,436,598		27.27
Acquisition, development, and construction			417,948		1.49			397,917		1.46
One-to-four family			375,585		1.35			203,435		0.75

Total mortgage loans held for investment			27,322,192		97.45			26,633,783		97.66

Other Loans:
Commercial and industrial			671,074		2.39			590,044		2.16
Other			44,985		0.16			49,880		0.18

Total other loans held for investment			716,059		2.55			639,924		2.34

Total non-covered loans held for investment		$	28,038,251		100.00%		$	27,273,707		100.00%

Net deferred loan origination costs			13,091					10,757
Allowance for losses on non-covered loans			(140,689)					(140,948)

Non-covered loans held for investment, net		$	27,910,653				$	27,143,516
Covered loans			3,032,172					3,284,061
Allowance for losses on covered loans			(60,431)					(51,311)

Total covered loans, net		$	2,971,741				$	3,232,750
Loans held for sale			756,601					1,204,370

Total loans, net		$	31,638,995				$	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, one-to-four family loans, and commercial and industrial (“C&I”) 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 in-market C&I loans are made to small and mid-size businesses in New York City, on Long Island, in New Jersey, and, to a lesser extent, in Arizona. In-market C&I loans are typically made for working capital, business expansion, and the purchase of machinery and equipment. In June 2013, the Company began the funding of asset-based, equipment financing, and dealer floor plan loans to nationally recognized borrowers throughout the U.S. All of these C&I loans are senior debt-secured.

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 in-market 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 an in-market 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.

To minimize the risk involved in specialty finance C&I lending, the Company participates in broadly syndicated asset-based, equipment financing, and dealer floor plan loans that are presented by an approved list of select, nationally recognized sources with whom it has established long-term funding relationships. The loans, which are secured by a perfected first security interest in the underlying collateral and structured as senior debt, are made to large corporate obligors, the majority of which are publicly traded, carry investment grade or near-investment grade ratings, participate in stable industries, and are located nationwide. To further minimize the risk involved in specialty finance lending, the Company re-underwrites each transaction; in addition, it retains outside counsel to conduct a further review of the underlying documentation.

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. Such loans feature conservative loan-to-value ratios and are made to borrowers with a strong record of repaying their debt.

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 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 $20.5 billion at June 30, 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 June 30, 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		$	23,195		$	112,904		$	--		$	136,099		$	19,082,441		$	19,218,540
Commercial real estate			12,432			30,329			--			42,761			7,267,358			7,310,119
Acquisition, development, and construction			--			6,737			--			6,737			411,211			417,948
One-to-four family			2,738			10,881			--			13,619			361,966			375,585
Commercial and industrial			814			4,767			--			5,581			665,493			671,074
Other			546			1,475			--			2,021			42,964			44,985

Total		$	39,725		$	167,093		$	--		$	206,818		$	27,831,433		$	28,038,251

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 portfolio of non-covered held-for-investment loans by credit quality indicator at June 30, 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		$19,015,112		$	7,228,098		$	410,897		$	366,868		$	27,020,975		$	652,336		$	43,510		$	695,846
Special mention		60,273			32,753			--			276			93,302			11,913			--			11,913
Substandard		141,954			48,768			7,051			8,441			206,214			6,825			1,475			8,300
Doubtful		1,201			500			--			--			1,701			--			--			--

Total		$19,218,540		$	7,310,119		$	417,948		$	375,585		$	27,322,192		$	671,074		$	44,985		$	716,059

The following table summarizes the Company’s portfolio of non-covered held-for-investment loans 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

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 June 30, 2013 and December 31, 2012:


	June 30, 2013						December 31, 2012
(in thousands)	Accruing		Non-Accrual		Total		Accruing		Non-Accrual		Total
Loan Category:
Multi-family		$10,608		$ 93,604		$104,212		$ 66,092		$114,556		$180,648
Commercial real estate		2,232		16,625		18,857		37,457		39,127		76,584
Acquisition, development, and construction		--		--		--		--		510		510
Commercial and industrial		1,329		--		1,329		1,463		--		1,463
One-to-four family		--		--		--		--		1,101		1,101

Total		$14,169		$110,229		$124,398		$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. The $22.5 million decline in non-accrual CRE loans was primarily due to the pay-off of a $22.0 million loan relationship.

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, 2013, loans on which concessions were made with respect to rate reductions and/or extension of maturity dates amounted to $114.2 million; loans on which forbearance agreements were reached amounted to $10.2 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 six months ended June 30, 2013, the Company classified two loans (both CRE loans) totaling $1.7 million as non-accrual TDRs. While other concessions were granted to the borrowers, the interest rates on the loans were maintained. As a result, these TDRs did not have a financial impact on the Company’s results of operations.

During the six months ended June 30, 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 was partially charged off subsequent to modification.

Covered Loans

The following table presents the carrying value of covered loans acquired in the AmTrust and Desert Hills acquisitions as of June 30, 2013:


(dollars in thousands)	Amount			Percent of Covered Loans
Loan Category:
One-to-four family		$	2,753,300		90.8%
All other loans			278,872		9.2

Total covered loans		$	3,032,172		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, 2013 and December 31, 2012, the unpaid principal balances of covered loans were $3.6 billion and $3.9 billion, respectively. The carrying values of such loans were $3.0 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 June 30, 2013 were as follows:


(in thousands)	Accretable Yield
Balance at beginning of period		$1,201,172
Reclassification to non-accretable difference		(164,717)
Accretion		(80,326)

Balance at end of period		$956,129

In the preceding table, the line item “reclassification to 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 increased and, accordingly, future expected interest cash flows decreased. This resulted in a decrease in the accretable yield. In addition, partially contributing to the decreases in the expected cash flows were additional decreases in expected cash flows from interest payments due to declining coupon rates. As a result, the Company’s covered variable rate loans continue to reset at lower interest rates.

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 June 30, 2013 and December 31, 2012:


(in thousands)	June 30, 2013		December 31, 2012
Covered Loans 90 Days or More Past Due:
One-to-four family		$255,260		$297,265
Other loans		12,561		15,308

Total covered loans 90 days or more past due		$267,821		$312,573

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


(in thousands)	June 30, 2013		December 31, 2012
Covered Loans 30-89 Days Past Due:
One-to-four family		$61,213		$75,129
Other loans		4,178		6,057

Total covered loans 30-89 days past due		$65,391		$81,186

At June 30, 2013, the Company had $65.4 million of covered loans that were 30 to 89 days past due, and covered loans of $267.8 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 $2.7 billion at June 30, 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.

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 provisions for losses on covered loans of $4.6 million and $9.1 million, respectively, in the three and six months ended June 30, 2013. These provisions were largely due to credit deterioration in the acquired portfolios of one-to-four family and home equity loans, and were largely offset by FDIC indemnification income of $3.7 million and $7.3 million, respectively, recorded in non-interest income for the three and six months ended June 30, 2013. 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.

Note 6. Allowance for Loan Losses

The following tables provide 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 June 30, 2013:
Loans individually evaluated for impairment		$	--		$	--		$	--
Loans collectively evaluated for impairment			123,915			16,774			140,689
Acquired loans with deteriorated credit quality			39,086			21,345			60,431

Total		$	163,001		$	38,119		$	201,120


(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 tables provide 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 June 30, 2013:
Loans individually evaluated for impairment		$	178,154		$	6,601		$	184,755
Loans collectively evaluated for impairment			27,144,038			709,458			27,853,496
Acquired loans with deteriorated credit quality			2,753,300			278,872			3,032,172

Total		$	30,075,492		$	994,931		$	31,070,423


(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

Allowance for Losses on Non-Covered Loans

The following table summarizes activity in the allowance for losses on non-covered loans, by segment, for the six months ended June 30, 2013 and 2012:


	For the Six Months Ended June 30,
	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		(6,024)		(7,019)		(13,043)		(28,982)		(2,813)		(31,795)
Recoveries		2,306		478		2,784		442		1,977		2,419
Provision for losses on non-covered loans		(301)		10,301		10,000		30,839		(839)		30,000

Balance, end of period		$123,915		$16,774		$140,689		$124,294		$13,620		$137,914

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 June 30, 2013:


(in thousands)	Recorded Investment			Unpaid Principal Balance			Related Allowance			Average Recorded Investment			Interest Income Recognized
Impaired loans with no related allowance:
Multi-family		$	131,457		$	138,190		$	--		$	165,906		$	1,768
Commercial real estate			41,811			44,096			--			60,658			1,062
Acquisition, development, and construction			4,886			6,030			--			7,399			--
One-to-four family			--			--			--			734			--
Commercial and industrial			6,601			34,033			--			8,246			54

Total impaired loans with no related allowance		$	184,755		$	222,349		$	--		$	242,943		$	2,884


Impaired loans with an allowance recorded:
Multi-family		$	--		$	--		$	--		$	9,008		$	--
Commercial real estate			--			--			--			2,171			--
Acquisition, development, and construction			--			--			--			406			--
One-to-four family			--			--			--			--			--
Commercial and industrial			--			--			--			2,379			--

Total impaired loans with an allowance recorded		$	--		$	--		$	--		$	13,964		$	--


Total impaired loans:
Multi-family		$	131,457		$	138,190		$	--		$	174,914		$	1,768
Commercial real estate			41,811			44,096			--			62,829			1,062
Acquisition, development, and construction			4,886			6,030			--			7,805			--
One-to-four family			--			--			--			734			--
Commercial and industrial			6,601			34,033			--			10,625			54

Total impaired loans		$	184,755		$	222,349		$	--		$	256,907		$	2,884

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

Allowance for Losses on 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 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 six months ended June 30, 2013 and 2012:


	For the Six Months Ended June 30,
(in thousands)	2013			2012
Balance, beginning of period		$	51,311		$	33,323
Provision for loan losses			9,120			18,448

Balance, end of period		$	60,431		$	51,771

Note 7. Borrowed Funds

The following table summarizes the Company’s borrowed funds at June 30, 2013 and December 31, 2012:


(in thousands)	June 30, 2013			December 31, 2012
Wholesale borrowings:
FHLB advances		$	9,104,698		$	8,842,974
Repurchase agreements			3,425,000			4,125,000
Fed funds purchased			100,000			100,000

Total wholesale borrowings		$	12,629,698		$	13,067,974
Junior subordinated debentures			358,019			357,917
Preferred stock of subsidiaries			4,300			4,300

Total borrowed funds		$	12,992,017		$	13,430,191

At June 30, 2013 and December 31, 2012, the Company had $358.0 million and $357.9 million, respectively, of junior subordinated deferrable interest debentures (“junior subordinated debentures”) held by wholly-owned statutory business trusts (the “Trusts”) that issued guaranteed capital securities.

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 June 30, 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

$144,093

$137,742

Nov. 4, 2002

Nov. 1, 2051

Nov. 4, 2007 ⁽¹⁾

New York Community Capital Trust X

1.873

123,712

120,000

Dec. 14, 2006

Dec. 15, 2036

Dec. 15, 2011⁽²⁾

PennFed Capital Trust III

3.523

30,928

30,000

June 2, 2003

June 15, 2033

June 15, 2008 ⁽²⁾

New York Community Capital Trust XI

1.924

59,286

57,500

April 16, 2007

June 30, 2037

June 30, 2012 ⁽²⁾

Total junior subordinated debentures

$358,019

$345,242

(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, a $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 $215.1 million and $144.7 million, respectively, at June 30, 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. The effects of changes in the fair value of the derivatives are recorded in non-interest income. 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 June 30, 2013						For the Three Months Ended June 30, 2012
(in thousands)	Residential			Securitized			Residential			Securitized
Carrying value, beginning of year		$	172,849		$	129		$	139,792		$	483
Additions			23,072			--			22,946			--
Increase (decrease) in fair value:
Due to changes in valuation assumptions			34,754			--			(11,790)			--
Due to other changes⁽¹⁾			(15,716)			--			(14,772)			--
Amortization			--			(33)			--			(97)

Carrying value, end of period		$	214,959		$	96		$	136,176		$	386

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


	For the Six Months Ended June 30, 2013						For the Six Months Ended June 30, 2012
(in thousands)	Residential			Securitized			Residential			Securitized
Carrying value, beginning of year		$	144,520		$	193		$	116,416		$	596
Additions			54,673			--			57,799			--
Increase (decrease) in fair value:
Due to changes in valuation assumptions			47,848			--			(7,534)			--
Due to other changes⁽¹⁾			(32,082)			--			(30,505)			--
Amortization			--			(97)			--			(210)

Carrying value, end of period		$	214,959		$	96		$	136,176		$	386

(1)	Includes net servicing cash flows, including loan payoffs, 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:


	June 30, 2013				December 31, 2012
Expected Weighted Average Life			88 months				64 months
Constant Prepayment Speed			9.6	%			15.4	%
Discount Rate			10.5				10.5
Primary Mortgage Rate to Refinance			4.3				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			553				553

As indicated in the preceding table, there were no changes in the servicing costs.

Note 9. Pension and Other Post-Retirement Benefits

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


	For the Three Months Ended June 30,
	2013								2012
(in thousands)	Pension Benefits				Post-Retirement Benefits				Pension Benefits				Post-Retirement Benefits
Components of net periodic expense (credit):
Interest cost		$	1,364			$	171			$	1,471			$	160
Service cost			--				1				--				2
Expected return on plan assets			(4,147	)			--				(3,314	)			--
Amortization of prior-service loss			--				(62	)			--				(62	)
Amortization of net actuarial loss			2,351				164				2,434				126

Net periodic (credit) expense		$	(432	)		$	274			$	591			$	226


	For the Six Months Ended June 30,
	2013								2012
(in thousands)	Pension Benefits				Post-Retirement Benefits				Pension Benefits				Post-Retirement Benefits
Components of net periodic expense (credit):
Interest cost		$	2,728			$	342			$	2,943			$	320
Service cost			--				2				--				3
Expected return on plan assets			(8,294	)			--				(6,628	)			--
Amortization of prior-service loss			--				(124	)			--				(124	)
Amortization of net actuarial loss			4,702				328				4,868				253

Net periodic (credit) expense		$	(864	)		$	548			$	1,183			$	452

As discussed in the notes to the consolidated financial statements presented in the Company’s 2012 Annual Report on Form 10-K, the Company expects to contribute $1.5 million to its post-retirement plan to pay premiums and claims for the fiscal year ending December 31, 2013. The Company does not expect to contribute to its pension plan in 2013.

Note 10. Stock-Based Compensation

At June 30, 2013, the Company had 16,782,051 shares available for grants as options, restricted stock, or other forms of related rights under the New York Community Bancorp, Inc. 2012 Stock Incentive Plan (the “2012 Stock Incentive Plan”), which was approved by the Company’s shareholders at its Annual Meeting on June 7, 2012. Included in this amount were 1,030,673 shares that were transferred from the New York Community Bancorp, Inc. 2006 Stock Incentive Plan (the “2006 Stock Incentive Plan”), which was approved by the Company’s shareholders at its Annual Meeting on June 7, 2006 and reapproved at its Annual Meeting on June 2, 2011. Under the 2012 Stock Incentive Plan, the Company granted 2,280,022 shares of restricted stock in the six months ended June 30, 2013, with an average fair value of $13.61 per share on the date of grant and a vesting period of five years. The six-month amount includes 94,800 shares that were granted in the second quarter with an average fair value of $13.31 per share on the date of grant. Compensation and benefits expense related to the restricted stock grants is recognized on a straight-line basis over the vesting period, and totaled $11.0 million and $10.3 million, respectively, in the six months ended June 30, 2013 and 2012, including $5.4 million and $5.3 million, respectively, in the three months ended at those dates.

A summary of activity with regard to restricted stock awards in the six months ended June 30, 2013 is presented in the following table:


	For the Six Months Ended June 30, 2013
	Number of Shares		Weighted Average Grant Date Fair Value
Unvested at beginning of year		4,386,245		$	14.73
Granted		2,280,022			13.61
Vested		(1,043,805)			15.23
Cancelled		(255,220)			14.08

Unvested at end of period		5,367,242			14.18

As of June 30, 2013, unrecognized compensation cost relating to unvested restricted stock totaled $66.5 million. This amount will be recognized over a remaining weighted average period of 3.5 years.

In addition, the Company had the following stock option plans at June 30, 2013: the 1993 and 1997 New York Community Bancorp, Inc. Stock Option Plans; the 1993 Haven Bancorp, Inc. Stock Option Plan; the 1998 Richmond County Financial Corp. Stock Compensation Plan; the 2001 Roslyn Bancorp, Inc. Stock-based Incentive Plan; the 1998 Long Island Financial Corp. Stock Option Plan; and the 2003 and 2004 Synergy Financial Group Stock Option Plans (all eight plans collectively referred to as the “Stock Option Plans”). All stock options granted under the Stock Option Plans expire ten years from the date of grant.

The Company uses the modified prospective approach to recognize compensation costs related to share-based payments at fair value on the date of grant, and recognizes such costs in the financial statements over the vesting period during which the employee provides service in exchange for the award. As there were no unvested options at any time during the three months ended June 30, 2013 or the year ended December 31, 2012, the Company did not record any compensation and benefits expense relating to stock options during those periods.

To satisfy the exercise of options, the Company either issues new shares of common stock or uses common stock held in Treasury. In the event that Treasury stock is used, the difference between the average cost of Treasury shares and the exercise price is recorded as an adjustment to retained earnings or paid-in capital on the date of exercise. At June 30, 2013, there were 341,128 stock options outstanding. The number of shares available for future issuance under the Stock Option Plans was 11,453 at that date.

The status of the Stock Option Plans at June 30, 2013, and changes that occurred during the six months ended at that date, are summarized below:


	For the Six Months Ended June 30, 2013
	Number of Stock Options		Weighted Average Exercise Price
Stock options outstanding, beginning of year		2,641,344		$	16.68
Granted		--			--
Exercised		(8,511)			6.98
Expired/forfeited		(2,291,705)			16.26

Stock options outstanding, end of period		341,128			19.71
Options exercisable, end of period		341,128			19.71

The intrinsic value of stock options outstanding and exercisable at June 30, 2013 was $112,000. The intrinsic value of options exercised during the six months ended June 30, 2013 was $60,000. There were no stock options exercised during the six months ended June 30, 2012.

Note 11. Fair Value Measurements

The FASB issued guidance that, among other things, defined fair value, established a consistent framework for measuring fair value, and expanded disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. The guidance clarified that fair value is an “exit” price, representing the amount that would be received when selling an asset, or paid when transferring a liability, in an orderly transaction between market participants. Fair value is thus a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the FASB established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

—

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

—

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

—

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

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

The following tables present assets and liabilities that were measured at fair value on a recurring basis as of June 30, 2013 and December 31, 2012, and that were included in the Company’s Consolidated Statements of Condition at those dates:


	Fair Value Measurements at June 30, 2013 Using
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Netting Adjustments⁽¹⁾		Total Fair Value
Assets:
Mortgage-Related Securities Available for Sale:
GSE certificates	$	--	$	29,389	$	--	$	--	$	29,389
GSE CMOs		--		63,130		--		--		63,130
Private label CMOs		--		13,370		--		--		13,370

Total mortgage-related securities	$	--	$	105,889	$	--	$	--	$	105,889

Other Securities Available for Sale:
GSE debentures	$	--	$	--	$	--	$	--	$
Municipal bonds		--		1,180		--		--		1,180
Capital trust notes		--		14,766		19,893		--		34,659
Preferred stock		94,133		27,580		--		--		121,713
Common stock		49,090		2,559		--		--		51,649

Total other securities	$	143,223	$	46,085	$	19,893	$	--	$	209,201

Total securities available for sale	$	143,223	$	151,974	$	19,893	$	--	$	315,090

Other Assets:
Loans held for sale	$	--	$	756,601	$	--	$	--	$	756,601
Mortgage servicing rights		--		--		214,959		--		214,959
Derivative assets-other⁽²⁾		1,475		50,581		--		(35,988)		16,068
Liabilities:
Interest rate lock commitments	$	--	$	--	$	(6,653)	$	--	$	(6,653)
Derivative liabilities		(767)		(25,324)		--		25,810		(281)

(1)	Includes cash collateral received and pledged.

(2)	Includes $1.3 million to purchase Treasury options.


	Fair Value Measurements at December 31, 2012 Using
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Netting Adjustments		Total Fair Value
Assets:
Mortgage-Related Securities Available for Sale:
GSE certificates	$	--	$	92,679	$	--	$	--	$	92,679
GSE CMOs		--		67,160		--		--		67,160
Private label CMOs		--		17,416		--		--		17,416

Total mortgage-related securities	$	--	$	177,255	$	--	$	--	$	177,255

Other Securities Available for Sale:
GSE debentures	$	--	$	--	$	--	$	--	$	--
Municipal bonds		--		46,296		--		--		46,296
Capital trust notes		--		19,866		18,569				38,435
Preferred stock		124,734		284		--				125,018
Common stock		39,682		2,580		--		--		42,262

Total other securities	$	164,416	$	69,026	$	18,569	$	--	$	252,011

Total securities available for sale	$	164,416	$	246,281	$	18,569	$	--	$	429,266

Other Assets:
Loans held for sale	$	--	$	1,204,370	$	--	$	--	$	1,204,370
Mortgage servicing rights		--		--		144,520		--		144,520
Interest rate lock commitments		--		--		21,446		--		21,446
Derivative assets-other⁽¹⁾		5,939		2,910		--		(4,730)		4,119
Liabilities:
Derivative liabilities	$	(2,303)	$	(5,808)	$	--	$	4,730	$	(3,381)

(1)	Includes $5.3 million to purchase Treasury options.

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

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

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

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

In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. In valuing capital trust notes, which may include pooled trust preferred securities, collateralized debt obligations (“CDOs”), and certain single-issue capital trust notes, the determination of fair value may require benchmarking to similar instruments or analyzing default and recovery rates. Therefore, capital trust notes are valued using a model based on the specific collateral composition and cash flow structure of the securities. Key inputs to the model consist of market spread data for each credit rating, collateral type, and other relevant contractual features. In instances where quoted price information is available, the price is considered when arriving at a security’s fair value. Where there is limited activity or less transparency around the inputs to the valuation of preferred stock, the valuation is based on a discounted cash flow model.

Periodically, the Company uses fair values supplied by independent pricing services to corroborate the fair values derived from the pricing models. In addition, the Company reviews the fair values supplied by independent pricing services, as well as their underlying pricing methodologies, for reasonableness. The Company challenges pricing services’ valuations that appear to be unusual or unexpected.

The Company carries loans held for sale originated by the Residential Mortgage Banking segment at fair value, in accordance with ASC 825, “Financial Instruments.” The fair value of held-for-sale loans is primarily based on quoted market prices for securities backed by similar types of loans. Changes in the fair value of these assets are largely driven by changes in interest rates subsequent to loan funding, and changes in the fair value of servicing associated with the mortgage loans held for sale. Loans held for sale are classified within Level 2 of the valuation hierarchy.

MSRs do not trade in an active open market with readily observable prices. 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. MSR fair value measurements use significant unobservable inputs and, accordingly, are classified within Level 3.

Exchange-traded derivatives that are valued using quoted prices are classified within Level 1 of the valuation hierarchy. The majority of the Company’s derivative positions are valued using internally developed models that use readily observable market parameters as their basis. These are parameters that are actively quoted and can be validated by external sources, including industry pricing services. Where the types of derivative products have been in existence for some time, the Company uses models that are widely accepted in the financial services industry. These models reflect the contractual terms of the derivatives, including the period to maturity, and market-based parameters such as interest rates, volatility, and the credit quality of the counterparty. Furthermore, many of these models do not contain a high level of subjectivity, as the methodologies used in the models do not require significant judgment, and inputs to the models are readily observable from actively quoted markets, as is the case for “plain vanilla” interest rate swaps and option contracts. Such instruments are generally classified within Level 2 of the valuation hierarchy. Derivatives that are valued based on models with significant unobservable market parameters, and that are normally traded less actively, have trade activity that is one-way, and/or are traded in less-developed markets, are classified within Level 3 of the valuation hierarchy.

The fair value of interest rate lock commitments (“IRLCs”) for residential mortgage loans that the Company intends to sell is based on internally developed models. The key model inputs primarily include the sum of the value of the forward commitment based on the loans’ expected settlement dates and the projected values of the MSRs, loan level price adjustment factors, and historical IRLC closing ratios. The closing ratio is computed by the Company’s mortgage banking operation and is periodically reviewed by management for reasonableness. Such derivatives are classified as Level 3.

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

Fair Value Option

Loans Held for Sale

The Company has elected the fair value option for its loans held for sale. The Company’s loans held for sale consist of one-to-four family mortgage loans, none of which were more than 90 days past due at that date. Management believes the mortgage banking business operates on a short-term cycle. Therefore, in order to reflect the most relevant valuations for the key components of this business, and to reduce timing differences in amounts recognized in earnings, the Company has elected to record loans held for sale at fair value to match the recognition of IRLCs, MSRs, and derivatives, all of which are recorded at fair value in earnings. Fair value is based on independent quoted market prices of mortgage-backed securities comprised of loans with similar features to those of loans held for sale, where available, for mortgage-backed securities comprised of loans with similar features to those of loans held for sale, and adjusted as necessary for such items as servicing value, guaranty fee premiums, and credit spread adjustments.

The following table reflects the difference between the fair value carrying amount of loans held for sale for which the Company has elected the fair value option, and the unpaid principal balance.

June 30, 2013

December 31, 2012

(in thousands)

Fair Value
Carrying
Amount

Aggregate
Unpaid
Principal

Fair Value
Carrying Amount
Less Aggregate
Unpaid Principal

Fair Value
Carrying
Amount

Aggregate
Unpaid Principal

Fair Value
Carrying Amount
Less Aggregate
Unpaid Principal

Loans held for sale

$756,601

$767,766

$(11,165)

$1,204,370

$1,159,071

$45,299

Gains and Losses Included in Income for Assets Where the Fair Value Option Has Been Elected

The assets accounted for under the fair value option are initially measured at fair value. Gains and losses from the initial measurement and subsequent changes in fair value are recognized in earnings. For loans held for sale and mortgage servicing rights, the changes in fair value related to initial measurement and the subsequent changes in fair value included in earnings are shown for the periods indicated, below.


	Gain (Loss) Included in Mortgage Banking Income from Changes in Fair Value⁽¹⁾
	For the Three Months Ended June 30,								For the Six Months Ended June 30,
(in thousands)	2013				2012				2013				2012
Loans held for sale		$	(24,437	)		$	28,727			$	(14,765	)		$	33,674
Mortgage servicing rights			19,038				(26,562	)			15,766				(38,039	)

Total (loss) gain		$	(5,399	)		$	2,165			$	1,001			$	(4,365	)

(1)	Does not include the effect of hedging activities.

The Company has determined there is no instrument-specific credit risk related to its loans held for sale, due to the short duration of such assets.

Changes in Level 3 Fair Value Measurements

The following tables include a roll-forward of the balance sheet amounts for the six months ended June 30, 2013 and 2012 (including changes in fair value) for financial instruments classified in Level 3 of the valuation hierarchy:


(in thousands)	Fair Value			Total Realized/Unrealized Gains/(Losses) Recorded in							Issuances			Settlements			Transfers				Fair Value				Change in Unrealized Gains/ (Losses) Related to
(in thousands)	January 1, 2013			Income/ Loss				Comprehensive (Loss) Income			Issuances			Settlements			to/(from) Level 3				at June 30, 2013				Instruments Held at June 30, 2013
Available-for-sale capital securities		$	18,569		$	--			$	1,324		$	--		$	--		$	--			$	19,893			$	1,324
Mortgage servicing rights			144,520			15,766				--			54,673			--			--				214,959				47,848
Interest rate lock commitments			21,446			(28,099	)			--			--			--			--				(6,653	)			(6,541	)

(in thousands)	Fair Value			Total Realized/Unrealized Gains/(Losses) Recorded in							Issuances			Settlements			Transfers				Fair Value				Change in Unrealized Gains/ (Losses) Related to
(in thousands)	January 1, 2012			Income/ Loss				Comprehensive (Loss) Income			Issuances			Settlements			to/(from) Level 3				at June 30, 2012				Instruments Held at June 30, 2012
Available-for-sale capital securities and preferred stock		$	18,078		$	--			$	949		$	--		$	--		$	(3,054	)		$	15,973			$	820
Mortgage servicing rights			116,416			(38,039	)			--			57,799			--			--				136,176				(38,039	)
Interest rate lock commitments			15,633			13,964				--			--			--			--				29,597				13,964

The Company’s policy is to recognize transfers in and out of Levels 1, 2, and 3 at the end of the reporting period. There were no transfers in or out of Level 3 during the six months ended June 30, 2013. During the six months ended June 30, 2013, the Company transferred certain preferred stock to Level 2 from Level 1 as a result of decreased observable market activity for these securities. During the six months ended June 30, 2012, the Company transferred certain trust preferred securities from Level 3 to Level 2 as a result of increased observable market activity for these securities. There were no gains or losses recognized as a result of the transfer of securities during the six months ended June 30, 2013 or 2012. There were no transfers of securities between Levels 1 and 2 for the six months ended June 30, 2012.

For Level 3 assets and liabilities measured at fair value on a recurring basis as of June 30, 2013, the significant unobservable inputs used in the fair value measurements were as follows:

(dollars in thousands)

Fair Value at
June 30, 2013

Valuation Technique

Significant Unobservable Inputs

Significant
Unobservable
Input Value

Capital trust notes

19,893

Discounted Cash Flow

Weighted Average Discount Rate ⁽¹⁾

5.01%

Mortgage Servicing Rights

214,959

Discounted Cash Flow

Weighted Average Constant Prepayment Rate ⁽²⁾

9.60

Weighted Average Discount Rate

10.50

Interest Rate Lock Commitments

(6,653

)

Pricing Model

Weighted Average Closing Ratio

88.04

(1)	Derived from multiple interest rate scenarios that incorporate a spread to the London Interbank Offered Rate swap curve and market volatility.

(2)	Represents annualized loan repayment rate assumptions.

The significant unobservable input used in the fair value measurement of the Company’s capital trust notes is the weighted average discount rate. The fair value of the capital trust notes will move in the opposite direction of the discount rate (i.e., if the discount rate decreases, the value of the capital trust notes will increase). The Company estimates the expected cash flows for such securities, and discounts them using the weighted average discount rates noted above, to arrive at the estimated fair value.

The significant unobservable inputs used in the fair value measurement of the Company’s MSRs are the weighted average constant prepayment rate and the weighted average discount rate. Significant increases (decreases) in any of those inputs in isolation could result in significantly lower or higher fair value measurements. Although the constant prepayment rate and the discount rate are not directly interrelated, they generally will move in opposite directions.

The significant unobservable input used in the fair value measurement of the Company’s IRLCs is the closing ratio, which represents the percentage of loans currently in a lock position that management estimates will ultimately close. Generally, the fair value of an IRLC is positive if the prevailing interest rate is lower than the IRLC rate, and the fair value of an IRLC is negative if the prevailing interest rate is higher than the IRLC rate. Therefore, an increase in the closing ratio (i.e., a higher percentage of loans estimated to close) will result in the fair value of the IRLC increasing if in a gain position, or decreasing if in a loss position. The closing ratio is largely dependent on the stage of processing that a loan is currently in, and the change in prevailing interest rates from the time of the rate lock.

Assets Measured at Fair Value on a Non-Recurring Basis

Certain assets are measured at fair value on a non-recurring basis. Such instruments are subject to fair value adjustments under certain circumstances (e.g., when there is evidence of impairment). The following tables present assets and liabilities that were measured at fair value on a non-recurring basis as of June 30, 2013 and December 31, 2012, and that were included in the Company’s Consolidated Statements of Condition at those dates:


	Fair Value Measurements at June 30, 2013 Using
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Certain impaired loans		$--		$ --		$14,887		$14,887
Other assets ⁽¹⁾		--		24,391		--		24,391

Total		$--		$24,391		$14,887		$39,278

(1)	Represents the fair value of OREO, based on the appraised value of the collateral subsequent to its initial classification as OREO.


	Fair Value Measurements at December 31, 2012 Using
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Certain impaired loans		$--		$ --		$76,704		$76,704
Other assets ⁽¹⁾		--		22,664		--		22,664

Total		$--		$22,664		$76,704		$99,368

(1)	Represents the fair value of OREO, based on the appraised value of the collateral subsequent to its initial classification as OREO.

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

Other Fair Value Disclosures

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

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

The following tables summarize the carrying values, estimated fair values, and the fair value measurement levels of financial instruments that were not carried at fair value on the Company’s Consolidated Statements of Condition at June 30, 2013 and December 31, 2012:


	June 30, 2013
							Fair Value Measurement Using
(in thousands)	Carrying Value			Estimated Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash and cash equivalents		$	1,319,710		$	1,319,710		$	1,319,710			$	--			$	--
Securities held to maturity			5,626,605			5,540,835			--				5,535,659				5,177
FHLB stock⁽¹⁾			482,173			482,173			--				482,173				--
Loans, net			31,638,995			31,653,074			--				--				31,653,074
Mortgage servicing rights			96			96			--				--				96
Financial Liabilities:
Deposits			25,287,862			25,337,711			17,381,704	⁽²⁾			7,956,007	⁽³⁾			--
Borrowed funds			12,992,017			14,151,085			--				14,151,085				--

(1)	Carrying value and estimated fair value are at cost.

(2)	Includes NOW and money market accounts, savings accounts, and non-interest-bearing accounts.

(3)	Certificates of deposit.


	December 31, 2012
							Fair Value Measurement Using
(in thousands)	Carrying Value			Estimated Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash and cash equivalents		$	2,427,258		$	2,427,258		$	2,427,258			$	--			$	--
Securities held to maturity			4,484,262			4,705,960			--				4,648,766				57,194
FHLB stock⁽¹⁾			469,145			469,145			--				469,145				--
Loans, net			31,580,636			31,977,472			--				--				31,977,472
Mortgage servicing rights			193			193			--				--				193
Financial Liabilities:
Deposits		$	24,877,521		$	24,909,496		$	15,756,607	⁽²⁾		$	9,152,889	⁽³⁾		$	--
Borrowed funds			13,430,191			14,935,580			--				14,935,580				--

(1)	Carrying value and estimated fair value are at cost.

(2)	Includes NOW and money market accounts, savings accounts, and non-interest-bearing accounts.

(3)	Certificates of deposit.

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

Cash and Cash Equivalents

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

Securities

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

Federal Home Loan Bank Stock

Ownership in equity securities of the FHLB is restricted and there is no established market for their resale. The carrying amount approximates the fair value.

Loans

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

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

In addition, these methods of estimating fair value do not incorporate the exit-price concept of fair value described in ASC Sub-topic 820-10, “Fair Value Measurements.”

Mortgage Servicing Rights

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

Derivative Financial Instruments

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

Deposits

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

Borrowed Funds

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

Off-Balance-Sheet Financial Instruments

The fair values of commitments to extend credit and unadvanced lines of credit are estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining terms of the commitments and the creditworthiness of the potential borrowers. The estimated fair values of such off-balance sheet financial instruments were insignificant at June 30, 2013 and December 31, 2012.

Note 12. Derivative Financial Instruments

The Company’s derivative financial instruments consist of financial forward and futures contracts, IRLCs, and options. These derivatives relate to mortgage banking operations, MSRs, and other risk management activities, and seek to mitigate or reduce the Company’s exposure to losses from adverse changes in interest rates. These activities will vary in scope based on the level and volatility of interest rates, the type of assets held, and other changing market conditions.

In accordance with the applicable accounting guidance, the Company takes into account the impact of collateral and master netting agreements that allow it to settle all derivative contracts held with a single counterparty on a net basis, and to offset the net derivative position with the related collateral when recognizing derivative assets and liabilities. As a result, the Company’s Statements of Financial Condition could reflect derivative contracts with negative fair values included in derivative assets, and contracts with positive fair values included in derivative liabilities.

The Company held derivatives with a notional amount of $3.0 billion at June 30, 2013. Changes in the fair value of these derivatives are reflected in current-period earnings. None of these derivatives are designated as hedges for accounting purposes.

The following table sets forth information regarding the Company’s derivative financial instruments at June 30, 2013:


	June 30, 2013
	Notional		Unrealized ⁽¹⁾
(in thousands)	Amount		Gain		Loss
Treasury options	$	225,000	$	131	$	767
Forward commitments to sell loans/mortgage-backed securities		1,406,940		50,581		702
Forward commitments to buy loans/mortgage-backed securities		630,000		--		24,622
Interest rate lock commitments		716,110		--		6,653

Total derivatives	$	2,978,050	$	50,712	$	32,744

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

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

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

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

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

In addition, the Company mitigates a portion of the risk associated with changes in the value of MSRs. The general strategy for mitigating this risk is to purchase derivative instruments, the value of which changes in the opposite direction of interest rates, thus partially offsetting changes in the value of our servicing assets, which tends to move in the same direction as interest rates. Accordingly, the Company purchases Eurodollar futures and call options on Treasury securities, and enters into forward contracts to purchase mortgage-backed securities.

The following table sets forth the effect of derivative instruments on the Consolidated Statements of Income and Comprehensive Income for the periods indicated:


	Gain (Loss) Included in Mortgage Banking Income
	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2013		2012		2013		2012
Treasury options		$(3,368)		$11,601		$(6,956)		$4,798
Eurodollar futures		(11)		(1,158)		4		(1,233)
Forward commitments to buy/sell loans/mortgage-backed securities		21,905		(9,733)		30,884		(2,177)

Total gain		$ 18,526		$ 710		$ 23,932		$1,388

The Company has in place an enforceable master netting arrangement with every counterparty. All master netting arrangements include rights to offset associated with the Company’s recognized derivative assets, derivative liabilities, and cash collateral received and pledged. Accordingly, the Company, where appropriate, offsets all derivative asset and liability positions with the cash collateral received and pledged.

The following tables present the effect the master netting arrangements have on the presentation of the derivative assets in the Consolidated Statements of Financial Condition as of the dates indicated:

June 30, 2013

Gross Amounts Not
Offset in the
Consolidated Statement
of Condition

(in thousands)

Gross
Amounts of
Recognized
Assets

Gross Amounts
Offset in the
Statement of
Financial
Condition

Net Amounts of
Assets Presented
in the Statement
of Financial
Condition

Financial
Instruments

Cash
Collateral
Received

Net
Amount

Derivatives

$52,056

$35,988

$16,068

$--

$16,068

December 31, 2012

Gross Amounts Not
Offset in the
Consolidated Statement
of Condition

(in thousands)

Gross
Amounts of
Recognized
Assets

Gross Amounts
Offset in the
Statement of
Financial
Condition

Net Amounts of
Assets Presented
in the Statement
of Financial
Condition

Financial
Instruments

Cash
Collateral
Received

Net
Amount

Derivatives

$30,295

$4,730

$25,565

$--

$41

$25,524

The following tables present the effect the master netting arrangements have on the presentation of the derivative liabilities in the Consolidated Statements of Financial Condition as of the dates indicated:


	June 30, 2013
										Gross Amounts Not Offset in the Consolidated Statement of Condition
(in thousands)	Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Statement of Financial Condition			Net Amounts of Liabilities Presented in the Statement of Financial Condition			Financial Instruments			Cash Collateral Pledged			Net Amount
Derivatives		$	32,744		$	25,810			$6,934		$	--		$	--		$	6,934


	December 31, 2012
										Gross Amounts Not Offset in the Consolidated Statement of Condition
(in thousands)	Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Statement of Financial Condition			Net Amounts of Liabilities Presented in the Statement of Financial Condition			Financial Instruments			Cash Collateral Pledged			Net Amount
Derivatives		$	8,111		$	4,730		$	3,381		$	--		$	2,795		$	586

Note 13. Segment Reporting

The Company’s operations are divided into two reportable business segments: Banking Operations and Residential Mortgage Banking. These operating segments have been identified based on the Company’s organizational structure. The segments require unique technology and marketing strategies, and offer different products and services. While the Company is managed as an integrated organization, individual executive managers are held accountable for the operations of these business segments.

The Company measures and presents information for internal reporting purposes in a variety of ways. The internal reporting system presently used by management in the planning and measurement of operating activities, and to which most managers are held accountable, is based on organizational structure.

The management accounting process uses various estimates and allocation methodologies to measure the performance of the operating segments. To determine financial performance for each segment, the Company allocates capital, funding charges and credits, certain non-interest expenses, and income tax provisions to each segment, as applicable. Allocation methodologies are subject to periodic adjustment as the internal management accounting system is revised and/or as business or product lines within the segments change. In addition, because the development and application of these methodologies is a dynamic process, the financial results presented may be periodically revised.

The Company’s overall objective is to maximize shareholder value by, among other means, optimizing return on equity and managing risk. Capital is assigned to each segment, the total of which is equivalent to the Company’s consolidated total, on an economic basis, using management’s assessment of the inherent risks associated with the segment. Capital allocations are made to cover the following risk categories: credit risk, liquidity risk, interest rate risk, option risk, basis risk, market risk, and operational risk.

The Company allocates expenses to the reportable segments based on various factors, including the volume and amount of loans produced and the number of full-time equivalent employees. Income taxes are allocated to the various segments based on taxable income and statutory rates applicable to the segment.

Banking Operations Segment

The Banking Operations Segment serves individual and business customers by offering and servicing a variety of loan and deposit products and other financial services.

Residential Mortgage Banking Segment

The Residential Mortgage Banking segment originates, sells, aggregates, and services one-to-four family mortgage loans. Mortgage loan products include conventional and jumbo fixed- and adjustable-rate loans for the purpose of purchasing or refinancing one-to-four family residential properties. The Residential Mortgage Banking segment earns interest on loans held in the warehouse and non-interest income from the origination and servicing of loans. It also recognizes gains or losses from the sale of such loans.

The following table provides a summary of the Company’s segment results for the three months ended June 30, 2013, on an internally managed accounting basis:


	For the Three Months Ended June 30, 2013
(in thousands)	Banking Operations			Residential Mortgage Banking			Total Company
Non-interest income – third party⁽¹⁾		$	29,835		$	23,910		$	53,745
Non-interest income – inter-segment			(4,058)			4,058			--

Total non-interest income			25,777			27,968			53,745

Net interest income			293,678			6,206			299,884

Total net revenues			319,455			34,174			353,629
Provisions for loan losses			9,618			--			9,618
Non-interest expense⁽²⁾			131,201			20,464			151,665

Income before income tax expense			178,636			13,710			192,346
Income tax expense			64,633			5,196			69,829

Net income		$	114,003		$	8,514		$	122,517

Identifiable segment assets (period-end)		$	43,127,156		$	1,058,682		$	44,185,838

(1)	Includes ancillary fee income.

(2)	Includes both direct and indirect expenses.

The following table provides a summary of the Company’s segment results for the six months ended June 30, 2013, on an internally managed accounting basis:


	For the Six Months Ended June 30, 2013
(in thousands)	Banking Operations			Residential Mortgage Banking			Total Company
Non-interest income – third party⁽¹⁾		$	78,557		$	50,739		$	129,296
Non-interest income – inter-segment			(8,217)			8,217			--

Total non-interest income			70,340			58,956			129,296

Net interest income			561,741			13,319			575,060

Total net revenues			632,081			72,275			704,356
Provisions for loan losses			19,120			--			19,120
Non-interest expense⁽²⁾			266,127			41,634			307,761

Income before income tax expense			346,834			30,641			377,475
Income tax expense			124,667			11,616			136,283

Net income		$	222,167		$	19,025		$	241,192

Identifiable segment assets (period-end)		$	43,127,156		$	1,058,682		$	44,185,838

(1)	Includes ancillary fee income.

(2)	Includes both direct and indirect expenses.

The following table provides a summary of the Company’s segment results for the three months ended June 30, 2012, on an internally managed accounting basis:


	For the Three Months Ended June 30, 2012
(in thousands)	Banking Operations			Residential Mortgage Banking			Total Company
Non-interest income – third party⁽¹⁾		$	39,247		$	58,958		$	98,205
Non-interest income – inter-segment			(3,638)			3,638			--

Total non-interest income			35,609			62,596			98,205

Net interest income			289,355			7,301			296,656

Total net revenues			324,964			69,897			394,861
Provisions for loan losses			33,448			--			33,448
Non-interest expense⁽²⁾			135,614			19,815			155,429

Income before income tax expense			155,902			50,082			205,984
Income tax expense			55,688			19,084			74,772

Net income		$	100,214		$	30,998		$	131,212

Identifiable segment assets (period-end)		$	42,164,164		$	1,323,183		$	43,487,347

(1)	Includes ancillary fee income.

(2)	Includes both direct and indirect expenses.

The following table provides a summary of the Company’s segment results for the six months ended June 30, 2012, on an internally managed accounting basis:


	For the Six Months Ended June 30, 2012
(in thousands)	Banking Operations			Residential Mortgage Banking			Total Company
Non-interest income – third party⁽¹⁾		$	65,388		$	94,813		$	160,201
Non-interest income – inter-segment			(7,224)			7,224			--

Total non-interest income			58,164			102,037			160,201

Net interest income			570,455			14,615			585,070

Total net revenues			628,619			116,652			745,271
Provisions for loan losses			48,448			--			48,448
Non-interest expense⁽²⁾			267,098			38,508			305,606

Income before income tax expense			313,073			78,144			391,217
Income tax expense			111,979			29,773			141,752

Net income		$	201,094		$	48,371		$	249,465

Identifiable segment assets (period-end)		$	42,164,164		$	1,323,183		$	43,487,347

(1)	Includes ancillary fee income.

(2)	Includes both direct and indirect expenses.

Note 14. Impact of Recent Accounting Pronouncements

In February 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” (“ASU No. 2013-02”). ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in financial statements; however, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes thereto, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income—but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. ASU No. 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted ASU 2013-02 on January 1, 2013. Please see Note 3, “Reclassifications out of Accumulated Other Comprehensive Loss,” for the presentation of such disclosures.

In January 2013, the FASB issued ASU No. 2013-01, “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities,” (“ASU No. 2013-01”). ASU No. 2013-01 clarifies that ordinary trade receivables and receivables are not in the scope of ASU No. 2011-11, “Disclosures about Offsetting Assets and Liabilities,” and that ASU 2011-11 applies only to derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in the ASC or subject to a master netting arrangement or similar agreement. ASU 2013-01 is effective for fiscal years beginning on or after January 1, 2013 and for interim periods within those annual periods. An entity should provide the required disclosures retrospectively for all comparative periods presented. The Company adopted ASU 2013-01 on January 1, 2013. Please see Note 12, “Derivative Financial Instruments,” for the presentation of such disclosures.

In October 2012, the FASB issued ASU No. 2012-06, “Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution (a consensus of the FASB Emerging Issues Task Force),” (“ASU No. 2012-06”). ASU No. 2012-06 amends FASB ASC 805-20, “Business Combinations—Identifiable Assets and Liabilities, and Any Non-controlling Interest, formerly, SFAS No. 141(R),” by adding guidance specifically related to accounting for the support the Federal Deposit Insurance Corp. or the National Credit Union Administration provide to buyers of failed banks. When a reporting entity recognizes an indemnification asset (in accordance with Subtopic 805-20) as a result of a government-assisted acquisition of a financial institution, and a change in the cash flows expected to be collected on the indemnification asset subsequently occurs (as a result of a change in cash flows expected to be collected on the assets subject to indemnification), the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement (that is, the lesser of the term of the indemnification agreement or the remaining life of the indemnified assets).

The amendments in ASU No. 2012-06 are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2012. The amendments should be applied prospectively to any new indemnification assets acquired after the date of adoption and to indemnification assets existing as of the date of adoption arising from a government-assisted acquisition of a financial institution. The adoption of ASU 2013-02 on January 1, 2013 did not have an effect on the Company’s consolidated statement of condition or results of operations.

NEW YORK COMMUNITY BANCORP, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK FACTORS

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

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

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

—

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

—

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

—

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

—

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

—

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

—

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

—

our use of derivatives to mitigate our interest rate exposure;

—

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

—

changes in deposit flows and wholesale borrowing facilities;

—

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

—

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

—

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

—

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

—

our ability to retain key personnel;

—

potential exposure to unknown or contingent liabilities of companies we have acquired or may acquire in the future;

—

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

—

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

—

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

—

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

—

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

—

changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative action, including, but not limited to, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and other changes pertaining to banking, securities, taxation, rent regulation and housing, financial accounting and reporting, environmental protection, and insurance, and the ability to comply with such changes in a timely manner;

—

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

—

changes in accounting principles, policies, practices, or guidelines;

—

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

—

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

—

changes in regulatory expectations relating to predictive models we use in connection with stress testing and other forecasting or in the assumptions on which such modeling and forecasting are predicated;

—

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

—

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

—

war or terrorist activities; and

—

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

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

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

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

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

RECONCILIATIONS OF STOCKHOLDERS’ EQUITY AND TANGIBLE STOCKHOLDERS’ EQUITY, TOTAL ASSETS AND TANGIBLE ASSETS, AND THE RELATED MEASURES

Although tangible stockholders’ equity, adjusted tangible stockholders’ equity, tangible assets, and adjusted tangible assets are not measures that are calculated in accordance with generally accepted accounting principles in the U.S. (“GAAP”), management uses these non-GAAP measures in their analysis of our performance. We believe that these non-GAAP measures are important indications of our ability to grow both organically and through business combinations and, with respect to tangible stockholders’ equity and adjusted tangible stockholders’ equity, our ability to pay dividends and to engage in various capital management strategies.

We calculate tangible stockholders’ equity by subtracting from stockholders’ equity the sum of our goodwill and core deposit intangibles (“CDI”), and calculate tangible assets by subtracting the same sum from our total assets. To calculate our ratio of tangible stockholders’ equity to tangible assets, we divide our tangible stockholders’ equity by our tangible assets, both of which include accumulated other comprehensive loss (“AOCL”). AOCL consists of after-tax net unrealized gains (losses) on securities and losses on pension and post-retirement obligations, and is recorded in our Consolidated Statements of Condition. We also calculate our ratio of tangible stockholders’ equity to tangible assets excluding AOCL, as its components are impacted by changes in market conditions, including interest rates, which fluctuate. This ratio is referred to earlier in this report and below as the ratio of “adjusted tangible stockholders’ equity to adjusted tangible assets.”

Tangible stockholders’ equity, adjusted tangible stockholders’ equity, tangible assets, adjusted tangible assets, and the related tangible capital measures, should not be considered in isolation or as a substitute for stockholders’ equity or any other capital measure prepared in accordance with GAAP. Moreover, the manner in which we calculate these non-GAAP capital measures may differ from that of other companies reporting measures of capital with similar names.

Reconciliations of our stockholders’ equity, tangible stockholders’ equity, and adjusted tangible stockholders’ equity; our total assets, tangible assets, and adjusted tangible assets; and the related capital measures at June 30, 2013 and December 31, 2012 follow:


	June 30, 2013		December 31, 2012
(in thousands)
Stockholders’ Equity		$ 5,688,461		$ 5,656,264
Less: Goodwill		(2,436,131)		(2,436,131)
Core deposit intangibles		(23,422)		(32,024)

Tangible stockholders’ equity		$ 3,228,908		$ 3,188,109

Total Assets		$44,185,838		$44,145,100
Less: Goodwill		(2,436,131)		(2,436,131)
Core deposit intangibles		(23,422)		(32,024)

Tangible assets		$41,726,285		$41,676,945

Stockholders’ equity to total assets		12.87%		12.81%
Tangible stockholders’ equity to tangible assets		7.74%		7.65%

Tangible Stockholders’ Equity		$3,228,908		$3,188,109
Add back: Accumulated other comprehensive loss, net of tax		57,805		61,705

Adjusted tangible stockholders’ equity		$3,286,713		$3,249,814

Tangible Assets		$41,726,285		$41,676,945
Add back: Accumulated other comprehensive loss, net of tax		57,805		61,705

Adjusted tangible assets		$41,784,090		$41,738,650


Adjusted stockholders’ equity to adjusted tangible assets		7.87%		7.79%

Executive Summary

New York Community Bancorp, Inc. is the holding company for New York Community Bank, a thrift, with 239 branches in Metro New York, New Jersey, Ohio, Florida, and Arizona; and New York Commercial Bank, with 35 branches in Metro New York. With assets of $44.2 billion at June 30, 2013, we rank among the 20 largest bank holding companies in the nation and, with deposits of $25.3 billion at that date, we rank among its 25 largest depositories.

Both of our banks are New York State-chartered and both are subject to regulation by the FDIC, the Consumer Financial Protection Bureau, and the New York State Department of Financial Services. In addition, the holding company is subject to regulation by the Federal Reserve Board, and to the requirements of the New York Stock Exchange, where shares of our common stock are traded under the symbol “NYCB”. With the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in 2010 and its subsequent implementation, the Company and the Banks have been subject to heightened regulation and scrutiny.

As a publicly traded company, our mission is to provide our shareholders with a solid return on their investment by producing a strong financial performance, maintaining a solid capital position, and engaging in corporate strategies that enhance the value of their shares. In furtherance of this mission, we maintain a business model that has been consistent over the course of decades, as described below:

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We originate multi-family loans on non-luxury apartment buildings in New York City that are subject to rent regulation and therefore feature below-market rents;

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We underwrite our loans in accordance with conservative credit standards in order to maintain a high level of asset quality;

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We grow through accretive acquisitions of other financial institutions, branches, and/or deposits; and

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We operate at a high level of efficiency.

In 2010, we added a fifth component to our business model, which has contributed in a meaningful way to our earnings and revenue stream:

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We originate one-to-four family mortgage loans throughout the U.S. through our mortgage banking business, and sell the vast majority of those loans, servicing retained, to government-sponsored enterprises.

The merits of this business model are reflected in the following achievements:

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We are the leading producer of multi-family loans for portfolio in New York City;

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We have produced a consistent record of above-average asset quality;

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We rank among the 15 largest aggregators of one-to-four family mortgage loans in the nation;

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We consistently rank among the nation’s most efficient bank holding companies; and

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We have generated solid earnings and maintained a consistent position of capital strength.

Among the external factors that tend to influence our performance, the interest rate environment is key. Just as short-term interest rates affect the cost of our deposits and that of the funds we borrow, market interest rates affect the yields on the loans we produce and the securities in which we invest.

For example, when residential mortgage interest rates are low, refinancing activity will likely increase; as residential mortgage interest rates begin to rise, the refinancing of one-to-four family loans will typically decline. In the second quarter of 2013, residential mortgage interest rates were higher than they were in the trailing and year-earlier quarters and, as a result, our mortgage banking income declined, as fewer homeowners refinanced.

In our multi-family market niche, refinancing activity may be likely to rise as market interest rates move lower, but may also grow when market interest rates begin to rise. Because the multi-family and commercial real estate loans we produce generate prepayment penalty income when they refinance, the impact of such activity can be especially meaningful. This proved to be the case in the current second quarter, as prepayment penalty income contributed $44.4 million to interest income, a record level, in contrast to $19.9 million in the trailing quarter and $32.0 million in the year-earlier three-months. In the second quarter of 2013, the average 5-year Constant Maturity Treasury rate (the “CMT”) rose to 0.91% from 0.82% and 0.79%, respectively, in the earlier periods. The highs in the respective quarters were 1.49%, 0.92%, and 1.10%.

Economic factors also can influence a bank’s financial performance, and particularly its asset quality. Because of our unique lending niche and our conservative underwriting standards, the losses we experienced in the years of and since the Great Recession were small in comparison to those of most other banks. In the current second quarter, for example, net charge-offs declined to $4.7 million, representing 0.01% (non-annualized) of average loans.

While the markets we serve have experienced economic improvement, the pace of that improvement continues to be slow. The following table shows the primarily downward trend in unemployment rates, as reported by the U.S. Department of Labor, both nationally and in the various markets that comprise our footprint, for the months indicated:


	For the Month Ended
	June 30, 2013		December 31, 2012		June 30, 2012
Unemployment rate:
United States		7.6%		7.8%		8.2%
New York City		8.7		8.8		9.6
Arizona		8.5		7.9		8.5
Florida		7.4		7.9		9.0
New Jersey		9.0		9.3		10.1
New York		7.6		8.2		9.1
Ohio		7.5		6.6		7.4

As depicted in the following two tables, the changes in certain other local economic indices were mixed in their direction. For example, home prices have been steadily increasing in the U.S., and more specifically, in our local markets, according to the S&P/Case-Shiller Home Price Index. As reported by Jones Lang LaSalle, the level of office vacancy rates in Manhattan (where 36.3% of our multi-family loans and 54.0% of our commercial real estate credits are located) has been moving upward. However, residential vacancy rates, as reported by the U.S. Department of Commerce, have, in general, been decreasing within the majority of states we serve.


	For the Twelve Months Ended
	May 2013		December 2012		June 2012
Change in home prices:
U.S.*		12.2%		6.8%		0.5%
Greater Cleveland		3.4		2.9		0.9
Greater Miami		14.2		10.6		4.4
Metro New York		3.3		(0.5)		(2.1)
Greater Phoenix		20.6		23.0		13.9

* 20-City Composite


	For the Three Months Ended
	June 30, 2013	December 31, 2012	June 30, 2012
Manhattan office vacancy rate:	12.1%	11.2%	10.5%

Residential rental vacancy rates:
Arizona	9.2	10.8	11.2
Florida	10.5	11.9	14.2
New Jersey	8.1	11.7	10.5
New York	6.3	5.2	5.6
Ohio	7.2	9.8	9.1

Meanwhile, the volume of new home sales nationwide was at a seasonally adjusted annual rate of 497,000 in June 2013, more than 38% higher than the June 2012 level, according to the estimates set forth in a U.S. Commerce Department report.

In addition, the Consumer Confidence Index^® was higher in June 2013 than it was in June 2012. An index level of 90 or more is considered indicative of a strong economy; the Consumer Confidence Index^® was 81.4 in June 2013 compared to 62.0 in June 2012.

Against this backdrop, we generated earnings of $122.5 million, or $0.28 per diluted share, in the current second quarter, as compared to $118.7 million, or $0.27 per diluted share, in the trailing quarter and $131.2 million, or $0.30 per diluted share, in the second quarter of 2012. A detailed discussion and analysis of our second quarter 2013 performance follows.

Recent Events

On July 23, 2013, the Board of Directors declared a quarterly cash dividend of $0.25 per share, payable on August 16, 2013 to shareholders of record at the close of business on August 7, 2013.

Critical Accounting Policies

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

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

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

Allowances for Loan Losses

Allowance for Losses on Non-Covered Loans

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

The allowance for losses on non-covered loans is established based on our evaluation of the probable inherent losses in our portfolio in accordance with GAAP, and are comprised of both specific valuation allowances and general valuation allowances.

Specific valuation allowances are established based on management’s analyses of individual loans that are considered impaired. If a non-covered loan is deemed to be impaired, management measures the extent of the impairment and establishes a specific valuation allowance for that amount. A non-covered loan is classified as “impaired” when, based on current information and events, it is probable that we will be unable to collect both the principal and interest due under the contractual terms of the loan agreement. We apply this classification as necessary to non-covered loans individually evaluated for impairment in our portfolios of multi-family; commercial real estate; acquisition, development, and construction; and commercial and industrial loans. Smaller balance homogenous loans and loans carried at the lower of cost or fair value are evaluated for impairment on a collective, rather than individual, basis.

We generally measure impairment on an individual loan and determine the extent to which a specific valuation allowance is necessary by comparing the loan’s outstanding balance to either the fair value of the collateral, less the estimated cost to sell, or the present value of expected cash flows, discounted at the loan’s effective interest rate. A specific valuation allowance is established when the fair value of the collateral, net of the estimated costs to sell, or the present value of the expected cash flows is less than the recorded investment in the loan.

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

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

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

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

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

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Changes in the quality of our loan review system;

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

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

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

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

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

In recognition of prevailing macroeconomic and real estate market conditions, the time periods considered for historical loss experience continue to be the last three years and the current period. We also evaluate the sufficiency of the overall allocations used for the allowance for losses on non-covered loans by considering the loss experience in the current and prior calendar year.

The process of establishing the allowance for losses on non-covered loans also involves:

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

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

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

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

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

We charge off loans, or portions of loans, in the period that such loans, or portions thereof, are deemed uncollectible. The collectability of individual loans is determined through an assessment of the financial condition and repayment capacity of the borrower and/or through an estimate of the fair value of any underlying collateral. Generally, the time period in which this assessment is made is within the same quarter that the loan is considered impaired and quarterly thereafter. For non-real estate-related consumer credits, the following past-due time periods determine when charge-offs are typically recorded: (1) closed-end credits are charged off in the quarter that the loan becomes 120 days past due; (2) open-end credits are charged off in the quarter that the loan becomes 180 days past due; and (3) both closed-end and open-end credits are typically charged off in the quarter that the credit is 60 days past the date we received notification that the borrower has filed for bankruptcy.

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

Allowance for Losses on Covered Loans

We have elected to account for the loans acquired in the AmTrust Bank (“AmTrust”) and Desert Hills Bank (“Desert Hills”) acquisitions (i.e., our covered loans) based on expected cash flows. This election is in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”). In accordance with ASC 310-30, we will maintain the integrity of a pool of multiple loans accounted for as a single asset and with a single composite interest rate and an aggregate expectation of cash flows.

Under our 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, we periodically perform an analysis to estimate the expected cash flows for each of the loan pools. We record a provision for losses on covered loans to the extent that the expected cash flows from a loan pool have decreased for credit-related items since the acquisition date. Accordingly, if there is a decrease in expected cash flows due to an increase in estimated credit losses compared to the estimates made at the respective acquisition dates, the decrease in the present value of expected cash flows will be recorded as a provision for covered loan losses charged to earnings, and the allowance for covered loan losses will be increased. A related credit to non-interest income and an increase in the FDIC loss share receivable will be recognized at the same time, and will be measured based on the loss sharing agreement percentages.

Please see Note 5, “Allowances for Loan Losses” for a further discussion of our allowance for losses on covered loans as well as additional information about our allowances for losses on non-covered loans.

Loans Held for Sale

We carry at fair value the one-to-four family mortgage loans we originate for sale to investors. The fair value of such loans is primarily based on quoted market prices for securities backed by similar types of loans. Changes in fair value, which are recorded as a component of mortgage banking income, are largely driven by changes in interest rates subsequent to loan funding and changes in the fair value of servicing associated with mortgage loans held for sale. In addition, we use various derivative instruments to mitigate the economic effect of changes in the fair value of the underlying loans.

Investment Securities

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

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

In accordance with OTTI accounting guidance, unless we have the intent to sell, or it is more likely than not that we may be required to sell a security before recovery, OTTI is recognized as a realized loss in earnings to the extent that the decline in fair value is credit-related. If there is a decline in fair value of a security below its carrying amount and we have the intent to sell it, or it is more likely than not that we may be required to sell the security before recovery, the entire amount of the decline in fair value is charged to earnings.

Goodwill Impairment

Goodwill is presumed to have an indefinite useful life and is tested for impairment, rather than amortized, at the reporting unit level, at least once a year. In addition to being tested annually, goodwill would be tested if there were a “triggering event.” During the six months ended June 30, 2013, no triggering events were identified. The goodwill impairment analysis is a two-step test. However, a company can, under Accounting Standards Update (“ASU”) No. 2011-08, “Testing

Goodwill for Impairment,” first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under this amendment, an entity would not be required to calculate the fair value of a reporting unit unless the entity determined, based on a qualitative assessment, that it was more likely than not that its fair value was less than its carrying amount. The Company did not elect to perform a qualitative assessment in 2012. The first step (“Step 1”) is used to identify potential impairment, and involves comparing each reporting segment’s estimated fair value to its carrying amount, including goodwill. If the estimated fair value of a reporting segment exceeds its carrying amount, goodwill is considered not to be impaired. If the carrying amount exceeds the estimated fair value, there is an indication of potential impairment and the second step (“Step 2”) is performed to measure the amount.

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

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

For the purpose of goodwill impairment testing, management has determined that the Company has two reporting segments: Banking Operations and Residential Mortgage Banking. All of our recorded goodwill has resulted from prior acquisitions and, accordingly, is attributed to Banking Operations. There is no goodwill associated with Residential Mortgage Banking, as this segment was acquired in our FDIC-assisted AmTrust acquisition, which resulted in a bargain purchase gain. In order to perform our annual goodwill impairment test, we determined the carrying value of the Banking Operations segment to be the carrying value of the Company and compared it to the fair value of the Company.

We performed our annual goodwill impairment test as of December 31, 2012 and found no indication of goodwill impairment at that date.

Income Taxes

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

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

Balance Sheet Summary

At June 30, 2013, we recorded total assets of $44.2 billion, which was $40.7 million higher than the balance at December 31, 2012. Loans represented $31.8 billion, or 72.1%, of the June 30th balance, and securities represented $5.9 billion, or 13.4%. The June 30th balance of loans was $67.2 million higher than the year-end 2012 balance, while the June 30th balance of securities was $1.0 billion higher than the balance at December 31, 2012.

While borrowed funds fell $438.2 million from the end of last year to $13.0 billion at the end of the second quarter, deposits rose $410.3 million to $25.3 billion during this time. The decline in borrowed funds was primarily due to the maturity of certain wholesale funds over the course of the second quarter, while the increase in deposits was largely due to the success of a liquid CD campaign. Borrowed funds represented 29.4% of total assets at the end of the second quarter, while deposits represented 57.2%.

Stockholders’ equity totaled $5.7 billion at the end of the second quarter, exceeding the year-end 2012 balance by $32.2 million, and representing 12.87% of total assets and a book value of $12.90 per share. Tangible stockholders’ equity rose $40.8 million in the first six months of this year, to $3.2 billion, representing 7.74% of tangible assets and a tangible book value of $7.32 per share at June 30, 2013. (Please see the discussion and reconciliations of stockholders’ equity and tangible stockholders’ equity, total assets and tangible assets, and the related capital measures that appear earlier in this report.)

Loans

Loans represented $31.8 billion, or 72.1%, of total assets at the close of the second quarter, a $67.2 million increase from the balance at December 31, 2012. Included in the balance at June 30, 2013 were covered loans of $3.0 billion; non-covered loans held for investment of $28.1 billion, and non-covered loans held for sale of $756.6 million, as more fully described below.

Covered Loans

“Covered loans” refers to the loans we acquired in our FDIC-assisted AmTrust Bank (“AmTrust”) and Desert Hills Bank (“Desert Hills”) acquisitions, and are referred to as such because they are covered by loss sharing agreements with the FDIC. At June 30, 2013, covered loans represented $3.0 billion, or 9.5%, of the total loan balance, a $251.9 million reduction from the balance at December 31, 2012. The reduction was primarily due to repayments.

One-to-four family loans represented $2.8 billion of total covered loans at the end of the second quarter, with all other loan types representing $278.9 million, combined. Covered one-to-four family loans include both fixed and adjustable rate loans. Covered other loans consist of commercial real estate (“CRE”) loans; acquisition, development, and construction (“ADC”) loans; multi-family loans; commercial and industrial (“C&I”) loans; home equity lines of credit (“HELOCs”); and consumer loans.

At June 30, 2013, $2.2 billion, or 72.0%, of the loans in our covered loan portfolio were variable rate loans, with a weighted average interest rate of 3.70%. The remainder of the covered loan portfolio consisted of fixed rate loans. The interest rates on the variable rate loans in the covered loan portfolio are indexed to either the one-year LIBOR or the one-year Treasury rate, plus a spread in the range of 2% to 5%, subject to certain caps.

The AmTrust and Desert Hills loss sharing agreements each require the FDIC to reimburse us for 80% of losses up to a specified threshold, and for 95% of losses beyond that threshold, with respect to covered loans and covered other real estate owned (“OREO”).

In the six months ended June 30, 2013, we recorded a provision for losses on covered loans of $9.1 million, in contrast to $18.4 million in the six months ended June 30, 2012. Included in the current six-month amount was a second quarter provision of $4.6 million, comparable to $4.5 million in the trailing quarter and well below the $18.4 million recorded in the year-earlier three months. The respective six-month provisions were largely offset by FDIC indemnification income of $7.3 million and $14.8 million, including $3.7 million and $14.8 million, respectively, in the second quarters of 2013 and 2012. FDIC indemnification income is recorded in non-interest income in the same quarter as the provision for covered loan losses to which it relates.

Geographical Analysis of the Covered Loan Portfolio

The following table presents a geographical analysis of our covered loan portfolio at June 30, 2013:


(in thousands)
California			$ 536,077
Florida			531,264
Arizona			243,073
Ohio			195,171
Massachusetts			138,193
Michigan			136,417
Illinois			106,856
New York			100,093
Maryland			76,569
Nevada			75,506
Texas			69,890
New Jersey			69,566
Washington			65,419
Minnesota			64,681
All other states			623,397

Total covered loans			$3,032,172

Non-Covered Loans Held for Investment

At June 30, 2013, non-covered loans held for investment totaled $28.0 billion, representing 88.1% of total loans, 63.5% of total assets, and a $764.5 million increase from the balance at December 31, 2012. In addition to multi-family loans and CRE loans, the held-for-investment portfolio included substantially smaller balances of ADC loans, one-to-four family loans, and other loans, with C&I loans comprising the bulk of the “other” loan portfolio. The vast majority of our non-covered loans held for investment consist of loans that we ourselves originated or, in some cases, acquired in business combinations prior to 2009. In the first six months of 2013, originations of held-for-investment loans rose to $4.7 billion, from $4.1 billion in the first six months of 2012.

Multi-Family Loans

Multi-family loans are our principal asset, and non-luxury residential apartment buildings with below-market rents in New York City constitute our primary lending niche. Consistent with our emphasis on multi-family lending, multi-family loan originations represented $2.9 billion, or 62.9%, of the loans we produced for investment in the current six-month period, exceeding the year-earlier volume of $2.3 billion. Included in the current six-month amount were second-quarter originations of $1.4 billion, reflecting a $151.7 million decrease from the trailing-quarter volume and a $112.9 million increase from the year-earlier amount.

At June 30, 2013, the balance of multi-family loans represented $19.2 billion, or 68.5%, of total non-covered loans held for investment, reflecting a $622.7 million increase from the balance at December 31, 2012. The average multi-family loan had a principal balance at that date of $4.3 million, as compared to $4.1 million at December 31, 2012.

The vast majority of our multi-family loans are made to long-term owners of buildings with apartments that are subject to rent regulation, and therefore feature below-market rents. Our borrowers typically use the funds we provide to make improvements to certain apartments, as a result of which they are able to increase the rents their tenants pay. In doing so, the borrower creates more cash flows to borrow against in future years. We also make loans to building owners seeking to expand their real estate holdings with the purchase of additional properties.

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

Our multi-family loans typically feature a term of ten or twelve years, with a fixed rate of interest for the first five or seven years of the loan, and an alternative rate of interest in years six through ten or eight through twelve. The rate charged in the first five or seven years is generally based on intermediate-term interest rates plus a spread. During the remaining years, the

loan resets to an annually adjustable rate that is tied to the prime rate of interest, as reported in The New York Times, plus a spread. Alternately, the borrower may opt for a fixed rate that is tied to the five-year fixed advance rate of the Federal Home Loan Bank (“FHLB”) of New York (the “FHLB-NY”), plus a spread. The fixed-rate option also requires the payment of an amount equal to one percentage point of the then-outstanding loan balance. In either case, the minimum rate at repricing is equivalent to the rate in the initial five- or seven-year term.

As the rent roll increases, the typical property owner seeks to refinance the mortgage, and generally does so before the loan reprices in year six or eight. At June 30, 2013 and December 31, 2012, the expected weighted average lives of the multi-family loan portfolio were 3.0 years and 2.9 years, respectively.

Multi-family loans that refinance within the first five or seven years are typically subject to an established prepayment penalty schedule. Depending on the remaining term of the loan at the time of prepayment, the penalties normally range from five percentage points to one percentage point of the then-current loan balance. If a loan extends past the fifth or seventh year and the borrower selects the fixed rate option, the prepayment penalties typically reset to a range of five points to one point over years six through ten or eight through twelve. For example, a ten-year multi-family loan that prepays in year three would generally be expected to pay a prepayment penalty equal to three percentage points of the remaining principal balance. A twelve-year multi-family loan that prepays in year one or two would generally be expected to pay a penalty equal to five percentage points.

Prepayment penalties are recorded as interest income and are therefore reflected in the average yields on our loans and interest-earning assets, our interest rate spread and net interest margin, and the level of net interest income we record. No assumptions are involved in the recognition of prepayment penalty income, as such income is only recorded when cash is received.

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

At June 30, 2013, the vast majority of our multi-family loans were secured by rental apartment buildings. In addition, 79.0% of our multi-family loans were secured by buildings in New York City, with Manhattan accounting for the largest share. Of the loans secured by buildings outside New York City, the State of New York was home to 3.0%, with New Jersey and Pennsylvania accounting for 7.3% and 3.8%, respectively. The remaining 4.8% of multi-family loans were secured by buildings outside these markets, including the three other states served by our retail branch offices.

Our emphasis on multi-family loans is driven by several factors, including their structure, which reduces our exposure to interest rate volatility to some degree. Another factor driving our focus on multi-family lending has been the comparative quality of the loans we produce. Reflecting the nature of the buildings securing our loans, our underwriting standards, and the generally conservative loan-to-value (“LTV”) ratios our multi-family loans feature at origination, a relatively small percentage of the multi-family loans that have transitioned to non-performing status have actually resulted in losses, regardless of economic and market conditions over many, many years.

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

Accordingly, while our multi-family lending niche has not been immune to downturns in the credit cycle, we continue to believe that the multi-family loans we produce involve less credit risk than certain other types of loans. In general, buildings that are subject to rent regulation have tended to be stable, with occupancy levels remaining more or less constant over time. Because the rents are typically below market and the buildings securing our loans are generally maintained in good condition, we believe that they are reasonably likely to retain their tenants in adverse economic times. In addition, we underwrite our multi-family loans on the basis of the current cash flows generated by the underlying properties, and exclude any partial property tax exemptions and abatement benefits the property owners receive.

Commercial Real Estate Loans

In the first six months of 2013, CRE loans represented $1.1 billion, or 22.6%, of loans originated for investment, down $387.9 million from the volume originated in the year-earlier six months. Included in the current six-month amount were second quarter originations of $670.3 million, reflecting a linked-quarter increase of $283.8 million and a year-over-year increase of $141.9 million.

Notwithstanding the rise in CRE loan production, the balance of CRE loans fell $126.5 million from the balance at the end of December to $7.3 billion at June 30, 2013. The latter amount represented 26.1% of loans held for investment, down from 27.3% at December 31, 2012. The decline in the balance of CRE loans was attributable to the prepayment of a single loan in the amount of $500.0 million, as well as an increase in refinancing activity driven by the rise in market interest rates.

The average CRE loan had a principal balance of $4.6 million at the end of the second quarter, modestly higher than the average principal balance at December 31st.

The CRE loans we produce are secured by income-producing properties such as office buildings, retail centers, mixed-use buildings, and multi-tenanted light industrial properties. At June 30, 2013, 73.5% of our CRE loans were secured by properties in New York City, primarily in Manhattan, while properties on Long Island and in New Jersey accounted for 12.8% and 6.1%, respectively. Another 2.7% of CRE properties were located in Pennsylvania, while properties outside New York, New Jersey, and Pennsylvania accounted for 2.3%.

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

Prepayment penalties also apply to CRE loans, as they do our multi-family credits. Depending on the remaining term of the loan at the time of prepayment, the penalties normally range from five percentage points to one percentage point of the then-current loan balance. If a loan extends past the fifth or seventh year and the borrower selects the fixed rate option, the prepayment penalties typically reset to a range of five points to one point over years six through ten or eight through twelve. Our CRE loans tend to refinance within three to four years of origination; the expected weighted average lives of the CRE portfolio were 3.3 years and 3.4 years, respectively, at June 30, 2013 and December 31, 2012.

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

Acquisition, Development, and Construction Loans

In the interest of reducing our exposure to credit risk, we limit our production of ADC loans to loans that have limited market risk and low LTV ratios, and that are made to reputable borrowers with significant development experience. Reflecting the year-over-year improvement in real estate market conditions, we increased our production of ADC loans to $82.4 million in the current six-month period from $48.1 million in the first six months of 2012. Included in the current six-month amount were second quarter originations of $49.0 million, reflecting a linked-quarter increase of $15.5 million and a year-over-year increase of $37.4 million. Reflecting the increased volume of originations, the balance of ADC loans rose $20.0 million to $417.9 million from the December 31st balance, representing 1.5% of total held-for-investment loans at June 30, 2013.

At June 30, 2013, 62.2% of the loans in our ADC portfolio were for land acquisition and development; the remaining 37.8% consisted of loans that were provided for the construction of owner-occupied homes and commercial properties. Such loans are typically originated for terms of 18 to 24 months, and feature a floating rate of interest tied to prime, with a floor. They also generate origination fees that are recorded as interest income and amortized over the lives of the loans.

In addition, 83.8% of the loans in the ADC portfolio were for properties in New York City, with Manhattan accounting for more than half of New York City’s share. Long Island accounted for 9.4% of our ADC loans, with New Jersey accounting for 5.0%. Reflecting the limited extent to which ADC loans have been originated beyond this primary market, 1.8% of our ADC loans are secured by properties beyond New Jersey and New York.

Because ADC loans are generally considered to have a higher degree of credit risk, especially during a downturn in the credit cycle, borrowers are required to provide a guarantee of repayment and completion. In the six months ended June 30, 2013, we recovered losses against guarantees of $729,000, as compared to $2.0 million in the year-earlier six months. The risk of loss on an ADC loan is largely dependent upon the accuracy of the initial appraisal of the property’s value upon completion of construction; the estimated cost of construction, including interest; and the estimated time to complete and/or sell or lease such property. If the appraised value proves to be inaccurate, the cost of completion is greater than expected, or the length of time to complete and/or sell or lease the collateral property is greater than anticipated, the property could have a value upon completion that is insufficient to assure full repayment of the loan. At June 30, 2013, 1.6% of the loans in our ADC loan portfolio were non-performing, as compared to 3.0% at December 31, 2012.

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

One-to-Four Family Loans

To meet the needs of our customers, we originate agency-conforming one-to-four family loans through our mortgage banking business in Cleveland or, in some states, directly through the Community Bank. The vast majority of the one-to-four family loans we produce are aggregated for sale with others produced by our mortgage banking clients throughout the country. These loans are generally sold, servicing retained, to government-sponsored enterprises (“GSEs”). (For more detailed information about our production of one-to-four family loans for sale, please see “Non-Covered Loans Held for Sale” later in this section.)

Until 2012, the vast majority of the one-to-four family loans we held for investment were loans that we acquired in our merger transactions prior to 2009. However, we began last year to originate hybrid one-to-four family loans for our own portfolio. As a result, the balance of one-to-four family loans held for investment rose $172.2 million from the end of December to $375.6 million, representing 1.4% of total held-for-investment loans, at June 30, 2013.

Other Loans

In the first six months of 2013, we originated other loans for investment of $398.1 million, as compared to $241.8 million in the first six months of 2012. Included in the current six-month amount were C&I loans of $237.4 million, a $79.9 million increase from the trailing quarter’s volume and a $123.6 million increase from the year-earlier amount.

Reflecting the increase in originations, the balance of other loans rose to $716.1 million at the end of the second quarter from $639.9 million at December 31, 2012. The respective amounts represented 2.6% and 2.3% of total loans held for investment, and included C&I loans of $671.1 million and $590.0 million, respectively.

While we traditionally have focused our C&I lending on small and mid-size businesses in New York City and on Long Island (hereafter referred to as “in-market C&I lending”), we expanded that focus in the second quarter of this year. In May, we established a new subsidiary, NYCB Specialty Finance Company, LLC, headquartered in Foxboro, Massachusetts, and staffed by a group of industry veterans with expertise in originating and underwriting senior secured debt and equipment lease financing. The subsidiary participates in broadly syndicated loans that are brought to us by a select group of nationally recognized sources and are made to large corporate obligors, the majority of which are publicly traded, carry investment grade or near-investment grade ratings, participate in stable industries, and are located nationwide. The loans we fund will fall into three distinct categories (asset-based lending, equipment loans and leases, and dealer floor plan financing) and each of our credits will be secured with a perfected first security interest in the underlying collateral and structured as senior debt. The pricing of our asset-based and dealer floor plan loans will be at floating rates tied to LIBOR, while our equipment financing loans will be made at fixed rates at a spread over treasuries. At June 30, 2013, we had total specialty finance loan commitments of $70.0 million; of this amount, $35.8 million was outstanding at quarter-end.

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

The interest rates on in-market C&I loans can be fixed or floating, with floating rate loans being tied to prime or some other market index, plus an applicable spread. Our floating rate loans may or may not feature a floor rate of interest. The decision to require a floor on such C&I loans depends on the level of competition we face for such loans from other institutions, the direction of market interest rates, and the profitability of our relationship with the borrower.

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

The remainder of the portfolio of other loans consists primarily of home equity loans and lines of credit, as well as a variety of consumer loans, most of which were originated by our pre-2009 merger partners prior to their joining the Company. We currently do not offer home equity loans or lines of credit.

Lending Authority

The loans we originate for investment are subject to federal and state laws and regulations, and are underwritten in accordance with loan underwriting policies and procedures approved by the Mortgage Committee, the Credit Committee, and the respective Boards of Directors.

In accordance with the Banks’ policies, all loans are presented to the Mortgage Committee or the Credit Committee, as applicable, for approval, and all loans of $10.0 million or more are reported to the respective Boards of Directors. At June 30, 2013, the largest amount of credit extended to a single borrower was $262.5 million. The loan was originated by the Community Bank on June 28, 2013 to the owner of a commercial property located in Manhattan. The interest rate on the loan was 3.7%.

Geographical Analysis of the Portfolio of Non-Covered Loans Held for Investment ⁽¹⁾

The following table presents a geographical analysis of the multi-family, CRE, and ADC loans in our held-for-investment portfolio at June 30, 2013:


	At June 30, 2013
	Multi-Family Loans				Commercial Real Estate Loans				Acquisition, Development, and Construction Loans
(dollars in thousands)	Amount		Percent of Total		Amount		Percent of Total		Amount		Percent of Total
New York City:
Manhattan		$ 6,967,679		36.26%		$3,945,055		53.97%		$208,931		49.99%
Brooklyn		3,684,398		19.17		505,949		6.92		80,750		19.32
Bronx		2,295,408		11.94		192,124		2.63		3,407		0.82
Queens		2,116,168		11.01		655,871		8.97		50,662		12.12
Staten Island		124,744		0.65		69,994		0.96		6,440		1.54

Total New York City		$15,188,397		79.03%		$5,368,993		73.45%		$350,190		83.79%

Long Island		397,616		2.07		932,549		12.76		39,335		9.41
Other New York State		578,904		3.01		200,619		2.74		--		--
New Jersey		1,404,295		7.31		446,989		6.11		20,823		4.98
Pennsylvania		724,884		3.77		196,002		2.68		--		--
All other states		924,444		4.81		164,967		2.26		7,600		1.82

Total		$19,218,540		100.00%		$7,310,119		100.00%		$417,948		100.00%

(1)	The vast majority of other loans held for investment are secured by properties and/or businesses in the Metro New York region.

Non-Covered Loans Held for Sale

Although one-to-four family loans represented 1.4% of our total loans held for investment at the end of the second quarter, we are actively engaged in the origination of one-to-four family loans for sale. Our mortgage banking business serves approximately 900 clients—community banks, credit unions, mortgage companies, and mortgage brokers—who utilize our proprietary web-accessible mortgage banking platform to originate full-documentation, prime credit one-to-four family loans in all 50 states.

In the first six months of 2013, we originated one-to-four family loans for sale of $4.4 billion, down from $5.0 billion in the year-earlier six months. Included in the current six-month amount were second quarter originations of $2.1 billion, down $295.8 million from the trailing-quarter volume and $542.0 million from the volume produced in the second quarter of 2012.

The linked-quarter and year-over-year declines are indicative of the decline in refinancing activity in the current second quarter, as residential mortgage interest rates rose from the record lows that had previously prevailed.

The vast majority of the held-for-sale loans we produced for sale were agency-conforming loans sold to GSEs. To a much lesser extent, we utilized our mortgage banking platform to originate fixed-rate jumbo loans under contract for sale to other financial institutions. Of the loans we originated for sale in the first six months of this year, all but $19.0 million, or 0.43%, were agency-conforming. The latter amount consisted of non-conforming jumbo loans.

At June 30, 2013 and December 31, 2012, the respective balances of one-to-four family loans held for sale were $756.6 million and $1.2 billion, representing 2.4% and 3.8%, respectively, of total loans at the corresponding dates.

To mitigate the risks inherent in originating and reselling residential mortgage loans, we utilize processes, proprietary technologies, and third-party software application tools that seek to ensure that the loans meet investors’ program eligibility, underwriting, and collateral requirements. In addition, compliance verification and fraud detection tools are utilized throughout the processing, underwriting, and loan closing stages to assist in the determination that the loans we originate and acquire are in compliance with applicable local, state, and federal laws and regulations. Controlling, auditing, and validating the data upon which the credit decision is made (and the loan documents created) substantially mitigates the risk of our originating or acquiring a loan that subsequently is deemed to be in breach of loan sale representations and warranties made by us to loan investors.

We require the use of our proprietary processes, origination systems, and technologies for all loans we close. Collectively, these tools and processes are known internally as our proprietary “Gemstone” system. By mandating usage of Gemstone for all table-funded loan originations, we are able to tightly control key risk aspects across the spectrum of loan origination activities. Our clients access Gemstone via secure Internet protocols, and initiate the process by submitting required loan application data and other required income, asset, debt, and credit documents to us electronically. Key data is then verified by a combination of trusted third-party validations and internal reviews conducted by our loan underwriters and quality control specialists. Once key data is independently verified, it is “locked down” within the Gemstone system to further ensure the integrity of the transaction.

In addition, all “trusted source” third-party vendors are directly connected to the Gemstone system via secure electronic data interfaces. Within the Gemstone system, these trusted sources provide key risk and control services throughout the origination process, including ordering and receipt of credit report information, independent collateral appraisals, and private mortgage insurance, automated underwriting and program eligibility determinations, flood insurance determination, fraud detection, local/state/federal regulatory compliance, predatory or “high cost” loan reviews, and legal document preparation services. Our employees augment the automated system controls by performing audits during the process, which include the final underwriting of the loan file (the credit decision), and various other pre-funding and post-funding quality control reviews.

Both the agency-conforming and non-conforming (i.e., jumbo) one-to-four family loans we originate for sale require that we make certain representations and warranties with regard to underwriting, documentation, and legal/regulatory compliance, and we may be required to repurchase a loan or loans if it is found that a breach of the representations and warranties has occurred. In such case, we would be exposed to any subsequent credit loss on the mortgage loans that might or might not be realized in the future.

As governed by our agreements with the GSEs and other third parties to whom we sell loans, the representations and warranties we make relate to several factors, including, but not limited to, the ownership of the loan; the validity of the lien securing the loan; the absence of delinquent taxes or liens against the property securing the loan as of its closing date; the process used to select the loan for inclusion in a transaction; and the loan’s compliance with any applicable criteria, including underwriting standards, loan program guidelines, and compliance with applicable federal, state, and local laws.

We record a liability for estimated losses relating to these representations and warranties, which is included in “other liabilities” in the accompanying Consolidated Statements of Condition. The related expense is recorded in “mortgage banking income” in the accompanying Consolidated Statements of Income and Comprehensive Income. At June 30, 2013 and 2012, the respective liabilities for estimated possible future losses relating to these representations and warranties were $8.8 million and $6.8 million. The methodology used to estimate the liability for representations and warranties is a function of the representations and warranties given and considers a variety of factors, including, but not limited to, actual default experience, estimated future defaults, historical loan repurchase rates and the frequency and potential severity of defaults, probability that a repurchase request will be received, and the probability that a loan will be required to be repurchased.

Representation and Warranty Reserve

The following table sets forth the activity in our representation and warranty reserve during the periods indicated:


	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
(in thousands)
Balance, beginning of period		$8,862		$6,163		$8,272		$5,320
Repurchase losses		(37)		--		(37)		--
Provision for repurchase losses:
Loan sales		--		653		590		1,496
Change in estimates		--		--		--		--

Balance, end of period		$8,825		$6,816		$8,825		$6,816

Because the level of mortgage loan repurchase losses is dependent on economic factors, investor demand strategies, and other external conditions that may change over the lives of the underlying loans, the level of the liability for mortgage loan repurchase losses is difficult to estimate and requires considerable management judgment. However, we believe the amount and range of reasonably possible losses in excess of our reserve is not material to our operations or to our financial condition or results of operations.

GSE Repurchase and Indemnification Requests Outstanding

The following table sets forth our GSE indemnification and repurchase requests outstanding during the periods indicated:


	For the Three Months Ended June 30,
	2013					2012
(dollars in thousands)	Number of Loans		Amount ⁽¹⁾			Number of Loans		Amount ⁽¹⁾
Balance, beginning of period		16		$	3,549		10		$	2,257
New repurchase requests ⁽²⁾		18			4,476		22			5,026
Successful rebuttal/rescission		(16)			(2,952)		(21)			(4,913)
Indemnifications ⁽³⁾		(1)			(184)		--			--
Loan repurchases		(1)			(340)		--			--

Balance, end of period ⁽⁴⁾		16		$	4,549		11		$	2,370


	For the Six Months Ended June 30,
	2013					2012
(dollars in thousands)	Number of Loans		Amount ⁽¹⁾			Number of Loans		Amount ⁽¹⁾
Balance, beginning of period		20		$	5,073		8		$	1,583
New repurchase requests ⁽²⁾		47			10,946		51			11,746
Successful rebuttal/rescission		(45)			(10,305)		(44)			(10,196)
Indemnifications ⁽³⁾		(2)			(324)		(3)			(585)
Loan repurchases		(4)			(841)		(1)			(178)

Balance, end of period ⁽⁴⁾		16		$	4,549		11		$	2,370

(1)	Represents the loan balance as of the repurchase request date.

(2)	All requests relate to one-to-four family loans originated for sale.

(3)	An indemnification agreement is an arrangement whereby the Company protects the GSEs against future losses.

(4)

Of the sixteen period-end requests as of June 30, 2013, fifteen were from Fannie Mae and one was from Freddie Mac. Effective January 1, 2013, both Fannie Mae and Freddie Mac allow 60 days to respond to a repurchase request. Failure to respond in a timely manner could result in the Company having an obligation to repurchase a loan.

Indemnified and Repurchased Loans Outstanding

The following table sets forth the activity of our indemnified and repurchased loans outstanding during the periods indicated:


	For the Three Months Ended June 30,
	2013				2012
(dollars in thousands)	Number of Loans		Amount ⁽¹⁾		Number of Loans		Amount
Balance, beginning of period		15		$2,799		9		$1,831
Indemnifications		1		184		--		--
Repurchases		1		340		--		--
Principal payoffs		(1)		(2)		--		--
Principal payments		--		(17)		--		(147)
Modifications/other		--		79		--		--

Balance, end of period ⁽¹⁾		16		$3,383		9		$1,684


	For the Six Months Ended June 30,
	2013				2012
(dollars in thousands)	Number of Loans		Amount ⁽¹⁾		Number of Loans		Amount
Balance, beginning of period		12		$2,286		5		$1,084
Indemnifications		2		324		3		585
Repurchases		4		841		1		178
Principal payoffs		(2)		(108)		--		--
Principal payments		--		(39)		--		(163)
Modifications/other		--		79		--		--

Balance, end of period ⁽¹⁾		16		$3,383		9		$1,684

(1)	Of the sixteen period-end loans, eleven were repurchased and are now held for investment. The five loans we indemnified are all currently performing.

Please see “Asset and Liability Management and the Management of Interest Rate Risk” later in this report for a discussion of the strategies we employ to mitigate the interest rate risk associated with our production of one-to-four family loans for sale.

Outstanding Loan Commitments

At June 30, 2013, we had outstanding loan commitments of $2.4 billion, down $214.4 million from the balance at the end of the trailing quarter and $520.4 million from the balance at December 31, 2012. Commitments to originate loans for investment represented 66.4% of the June 30th total, and commitments to originate loans for sale represented the remaining 33.6%. At December 31, 2012, commitments to originate loans for investment and loans held for sale were $815.6 million and $1.6 billion, respectively.

Multi-family and CRE loans together represented $961.7 million of held-for-investment loan commitments at the end of the second quarter, while ADC and other loans represented $235.5 million and $418.1 million, respectively.

In addition to loan commitments, we had commitments to issue financial stand-by, performance, and commercial letters of credit totaling $145.8 million at June 30, 2013, as compared to $188.9 million at December 31, 2012.

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

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

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

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

Asset Quality

Non-Covered Loans Held for Investment and Non-Covered Other Real Estate Owned

In the first six months of 2013, we continued to see improvement in our asset quality measures, as the balance of non-performing non-covered loans declined from the year-end 2012 balance, and the volume of net charge-offs declined year-over-year.

Specifically, non-performing non-covered loans declined 36.1% to $167.1 million at the end of the second quarter, from $261.3 million at December 31, 2012. The June 30th balance represented 0.60% of total non-covered loans, an improvement from 0.96% at December 31st.

Non-performing multi-family loans accounted for $50.6 million of the $94.2 million improvement, having declined to $112.9 million at the end of June 2013 from $163.5 million at the end of December 2012. However, most of the reduction was attributable to the first-quarter migration of a $41.6 million multi-family loan to OREO. The six-month reduction in non-performing non-covered loans also was due to a $26.5 million decline in non-performing non-covered CRE loans to $30.3 million, together with smaller declines in the balances of non-performing non-covered ADC, one-to-four family, and other loans. The decline in non-performing CRE loans was primarily due to the pay-off of a $22.0 million loan relationship.

The following table sets forth the changes in non-performing loans over the six months ended June 30, 2013:


(in thousands)
Balance at December 31, 2012			$261,330
New non-accrual			28,203
Charge-offs			(11,220)
Transferred from accruing troubled debt restructuring			49,594
Transferred to other real estate owned			(64,689)
Loan payoffs, including dispositions and principal pay-downs			(88,164)
Restored to performing status			(7,961)

Balance at June 30, 2013			$167,093

A loan generally is classified as a “non-accrual” loan when it is over 90 days past due. When a loan is placed on non-accrual status, we cease the accrual of interest owed, and previously accrued interest is reversed and charged against interest income. At June 30, 2013 and December 31, 2012, all of our non-performing non-covered loans were non-accrual loans. A loan is generally returned to accrual status when the loan is less than 90 days past due and we have reasonable assurance that the loan will be fully collectible.

We monitor non-accrual loans both within and beyond our primary lending area in the same manner. Monitoring loans generally involves inspecting and re-appraising the collateral properties; holding discussions with the principals and managing agents of the borrowing entities and/or retained legal counsel, as applicable; requesting financial, operating, and rent roll information; confirming that hazard insurance is in place or force-placing such insurance; monitoring tax payment status and advancing funds as needed; and appointing a receiver, whenever possible, to collect rents, manage the operations, provide information, and maintain the collateral properties.

It is our policy to order updated appraisals for all non-performing loans, irrespective of loan type, that are collateralized by multi-family buildings, CRE properties, or land, in the event that such a loan is more than 90 days past due, and if the most recent appraisal on file for the property is more than one year old. Appraisals are ordered annually until such time as the loan becomes performing and is returned to accrual status. It is not our policy to obtain updated appraisals for performing loans. However, appraisals may be ordered for performing loans when a borrower requests an increase in the loan amount or an extension of a maturing loan. We do not analyze current LTV ratios on a portfolio-wide basis.

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

Properties that are acquired through foreclosure are classified as OREO, and are recorded at the lower of the unpaid principal balance or fair value at the date of acquisition, less the estimated cost of selling the property. It is our policy to require an appraisal and environmental assessment of properties classified as OREO before foreclosure, and to re-appraise the properties on an as-needed basis until they are sold. We dispose of such properties as quickly and prudently as possible, given current market conditions and the property’s condition.

At June 30, 2013, OREO totaled $84.5 million, reflecting a six-month increase of $55.2 million. The increase was largely attributable to the $41.6 million multi-family loan that migrated to OREO from non-accrual status in the first quarter of this year.

The net effect of the rise in OREO and the decline in non-performing non-covered loans was a $39.1 million decline in non-performing non-covered assets to $251.6 million, and a ten-basis point improvement in the ratio of non-performing non-covered assets to total non-covered assets to 0.61%.

While non-performing non-covered loans and assets declined in the first six months of this year, the balance of non-covered loans 30 to 89 days past due rose during such time. At June 30, 2013, non-covered loans 30 to 89 days past due rose to $39.7 million from $27.6 million at December 31, 2012. The six-month increase was primarily due to a $10.8 million rise in past-due CRE loans to $12.4 million, and a $3.3 million increase in past-due multi-family loans to $23.2 million.

Total delinquencies declined $26.9 million, or 8.5%, from the December 31st balance to $291.3 million at June 30, 2013. The reduction was the net effect of the reduction in non-performing non-covered assets and the increase in non-covered loans 30 to 89 days past due.

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

The condition of the collateral property is another critical factor. Multi-family buildings and CRE properties are inspected from rooftop to basement as a prerequisite to approval by management and the Mortgage or Credit Committee, as applicable. A member of the Mortgage or Credit Committee participates in inspections on multi-family loans to be originated in excess of $4.0 million. Similarly, a member of the Mortgage or Credit Committee participates in inspections on CRE loans to be originated in excess of $2.5 million. Furthermore, independent appraisers, whose appraisals are carefully reviewed by our experienced in-house appraisal officers, perform appraisals on collateral properties. When the amount of the loan exceeds $5.0 million, a second independent appraisal review is performed.

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

To further manage our credit risk, our lending policies limit the amount of credit granted to any one borrower, and typically require a minimum debt service coverage ratio of 120% for multi-family loans and 130% for CRE loans. Although we typically will lend up to 75% of the appraised value on multi-family buildings and up to 65% on commercial properties, the average LTV ratios of such credits at origination were below those amounts at June 30, 2013. Exceptions to these LTV limitations are reviewed on a case-by-case basis, and require the approval of the Mortgage or Credit Committee, as applicable.

Although the reasons for a loan to default will vary from credit to credit, our multi-family and CRE loans, in particular, typically have not resulted in significant losses. Such loans are generally originated at conservative LTV ratios, as previously stated. Furthermore, in the case of multi-family loans, the cash flows generated by the properties generally have significant value.

The Boards of Directors also take part in the ADC lending process, with all ADC loans requiring the approval of the Mortgage or Credit Committee, as applicable. In addition, a member of the pertinent committee participates in inspecting the proposed collateral property when the loan amount exceeds $2.5 million. ADC loans primarily have been made to well-established builders who have borrowed from us in the past. We typically lend up to 75% of the estimated as-completed market value of multi-family and residential tract projects; however, in the case of home construction loans to individuals, the limit is 80%. With respect to commercial construction loans, which are not our primary focus, we typically lend up to 65% of the estimated as-completed market value of the property. Credit risk is also managed through the loan disbursement process. Loan proceeds are disbursed periodically in increments as construction progresses, and as warranted by inspection reports provided to us by our own lending officers and/or consulting engineers.

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

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

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

Fair values for all multi-family buildings, CRE properties, and land are determined based on the appraised value. If an appraisal is more than one year old and the loan is classified as either non-performing or as an accruing troubled debt restructuring (“TDR”), then an updated appraisal is required to determine fair value. Estimated disposition costs are deducted from the fair value of the property to determine estimated net realizable value. In the instance of an outdated appraisal on an impaired loan, we adjust the original appraisal by using a third-party index value to determine the extent of impairment until an updated appraisal is received.

While we strive to originate loans that will perform fully, changes in the economy and market conditions, among other factors, can adversely impact a borrower’s ability to repay. Charge-offs totaled $13.0 million in the first six months of this year, reflecting a $33.2 million reduction from the volume in the first six months of 2012. Included in the current six-month amount were second-quarter charge-offs of $5.4 million, down from $14.8 million in the second quarter of last year. Reflecting six-month recoveries of $2.8 million and $2.4 million, net charge-offs totaled $10.3 million and $29.4 million, respectively, in the six months ended June 30, 2013 and 2012. In connection with the year-over-year improvements, net charge-offs represented 0.03% (non-annualized) of average loans in the six months ended June 30, 2013 versus 0.10% (non-annualized) in the first six months of 2012.

Other loans represented $7.0 million of charge-offs recorded in the first six months of this year, with multi-family, CRE, ADC, and one-to-four family loans representing far more modest amounts.

Reflecting the difference between our current six-month net charge-offs and provision for non-covered loan losses, the allowance for losses on non-covered loans fell $259,000 to $140.7 million at the end of the second quarter, representing 84.20% of non-performing non-covered loans and 0.50% of total non-covered loans. Based upon all relevant and available information as of June 30, 2013, management believes that the allowance for losses on non-covered loans was appropriate at that date.

Historically, our level of charge-offs has been relatively low in adverse credit cycles, even when the volume of non-performing loans has increased. We largely attribute this distinction to the nature of our primary lending niche (multi-family loans collateralized by non-luxury apartment buildings in New York City that feature below-market rents), and to our conservative underwriting practices that require, among other things, low LTV ratios.

Reflecting the strength of the underlying collateral for these loans and the collateral structure, a relatively small percentage of our non-performing multi-family loans have resulted in losses over time. Low LTV ratios provide a greater likelihood of full recovery and reduce the possibility of incurring a severe loss on a credit. Furthermore, in many cases, low LTV ratios result in our having fewer loans with a potential for the borrower to “walk away” from the property. Although borrowers may default on loan payments, they have a greater incentive to protect their equity in the collateral property and to return their loans to performing status.

Given that our CRE loans are underwritten in accordance with underwriting standards that are similar to those that apply to our multi-family credits, an increase in non-performing CRE loans historically has not resulted in a corresponding increase in losses on such loans.

In addition, at June 30, 2013, ADC loans, one-to-four family loans, and other loans represented 1.49%, 1.35%, and 2.55%, respectively, of total non-covered loans held for investment, as compared to 1.46%, 0.75%, and 2.34%, respectively, at December 31, 2012. In addition, at June 30, 2013, 1.61%, 2.90%, and 0.87% of ADC loans, one-to-four family loans, and other loans, respectively, were non-performing loans.

In view of these factors, we do not believe that the level of our non-performing non-covered loans will result in a comparable level of loan losses and will not necessarily require a significant increase in our loan loss provision or allowance for non-covered loans in any given period. As indicated, non-performing non-covered loans represented 0.60% of total non-covered loans at the end of the second quarter; the ratios of net charge-offs to average loans for the three and six months ended at that date were 0.01% and 0.03% (non-annualized), respectively.

The following tables present the number and amount of non-performing CRE and multi-family loans by originating bank at June 30, 2013 and December 31, 2012:


As of June 30, 2013 (dollars in thousands)	Non-Performing Multi-Family Loans				Non-Performing Commercial Real Estate Loans
As of June 30, 2013 (dollars in thousands)	Number		Amount		Number		Amount
New York Community Bank		40		$111,959		29		$20,857
New York Commercial Bank		2		945		6		9,472

Total for New York Community Bancorp		42		$112,904		35		$30,329


As of December 31, 2012 (dollars in thousands)	Non-Performing Multi-Family Loans				Non-Performing Commercial Real Estate Loans
As of December 31, 2012 (dollars in thousands)	Number		Amount		Number		Amount
New York Community Bank		73		$162,513		37		$45,418
New York Commercial Bank		2		947		8		11,445

Total for New York Community Bancorp		75		$163,460		45		$56,863

The following table presents information about our five largest non-performing loans at June 30, 2013, all of which are non-covered held-for-investment loans:


	Loan No. 1	Loan No. 2	Loan No. 3	Loan No. 4	Loan No. 5
Type of Loan	Multi-Family	CRE	Multi-Family	Multi-Family	Multi-Family
Origination Date	5/23/11	Various ⁽¹⁾	6/14/07	5/01/08	11/29/07
Origination Balance	$50,708,107	$6,121,180	$4,320,000	$3,990,000	$4,268,000
Full Commitment Balance	$50,708,107	$6,121,180	$4,320,000	$3,990,000	$4,268,000
Balance at June 30, 2013	$49,593,874	$6,121,180	$4,009,812	$3,976,838	$3,900,688
Associated Allowance	None	None	None	None	None
Non-Accrual Date	May 2013	December 2010	December 2012	January 2011	January 2011
Origination LTV Ratio	85%	78%	80%	76%	78%
Current LTV Ratio	89%	69%	87%	87%	85%
Last Appraisal	February 2013	October 2012	December 2012	September 2012	October 2012

(1)	Loan No. 2 includes three loans: one with an origination date of September 20, 2000 and two with an origination date of September 10, 2003. These loans were restructured into a non-accrual TDR on December 1, 2010.

The following is a description of the five loans identified in the preceding table:

No. 1 - The borrower is an owner of real estate and is based in Connecticut. This loan is collateralized by 32 multi-family complexes with 1,120 residential units in Hartford and New Britain, Connecticut. No allocation for the allowance for losses on non-covered loans was deemed necessary, as determined by using the fair value of collateral method in accordance with ASC 310-10/40.

No. 2 - The borrower is an owner of real estate and is based in New York. This loan is collateralized by a 114,000-square foot commercial building in Plainview, New York. No allocation for the allowance for losses on non-covered loans was deemed necessary, as determined by using the fair value of collateral method in accordance with ASC 310-10/40.

No. 3 - The borrower is an owner of real estate and is based in Connecticut. This loan is collateralized by a multi-family building with 71 residential units in New Haven, Connecticut. No allocation for the allowance for losses on non-covered loans was deemed necessary, as determined by using the fair value of collateral method in accordance with ASC 310-10/40.

No. 4 - The borrower is an owner of real estate and is based in New York. This loan is collateralized by a multi-family building with 58 residential units and one retail unit in the Bronx, New York. No allocation for the allowance for losses on non-covered loans was deemed necessary, as determined by using the fair value of collateral method in accordance with ASC 310-10/40.

No. 5 - The borrower is an owner of real estate and is based in New York. The loan is collateralized by a multi-family building with 57 residential units and one retail unit in the Bronx, New York. No allocation for the allowance for losses on non-covered loans was deemed necessary, as determined by using the fair value of collateral method in accordance with ASC 310-10/40.

Troubled Debt Restructurings

In an effort to proactively manage delinquent loans, we have selectively extended to certain borrowers concessions such as rate reductions and extension of maturity dates, as well as forbearance agreements. As of June 30, 2013, loans on which concessions were made with respect to rate reductions and/or extension of maturity dates amounted to $114.2 million; loans in connection with which forbearance agreements were reached amounted to $10.2 million. Based on the number of loans performing in accordance with their revised terms, our success rates for restructured multi-family and CRE loans were 93% and 100%, respectively, at the end of the second quarter; in addition, our success rate was 100% for all other loans (including ADC loans) at that date.

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 regarding the likelihood that the concession will result in the maximum recovery for the Company.

In accordance with GAAP, we are required to account for such loan modifications or restructurings as TDRs. In general, a modification or restructuring of a loan constitutes a TDR if we grant a concession to a borrower experiencing financial difficulty. Loans modified as TDRs are placed on non-accrual status until we determine that future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate performance according to the restructured terms for at least six consecutive months.

Loans modified as TDRs totaled $124.4 million at June 30, 2013, including accruing loans of $14.2 million and non-accrual loans of $110.2 million. At December 31, 2012, the balance of loans modified as TDRs was $260.3 million, including accruing loans and non-accrual loans of $105.0 million and $155.3 million, respectively.

Analysis of Troubled Debt Restructurings

The following table presents information regarding our TDRs as of June 30, 2013:


(in thousands)	Accruing		Non-Accrual		Total
Multi-family		$10,608		$ 93,604		$104,212
Commercial real estate		2,232		16,625		18,857
Acquisition, development, and construction		--		--		--
Commercial and industrial		1,329		--		1,329
One-to-four family		--		--		--

Total		$14,169		$110,229		$124,398

The following table presents information regarding our TDRs as of December 31, 2012:


(in thousands)	Accruing		Non-Accrual		Total
Multi-family		$ 66,092		$114,556		$180,648
Commercial real estate		37,457		39,127		76,584
Acquisition, development, and construction		--		510		510
Commercial and industrial		1,463		--		1,463
One-to-four family		--		1,101		1,101

Total		$105,012		$155,294		$260,306

The following table sets forth the changes in TDRs over the six months ended June 30, 2013:


(in thousands)	Accruing		Non-Accrual		Total
Balance at December 31, 2012		$105,012		$155,294		$260,306
New loans		--		7,245		7,245
Charge-offs		--		(1,604)		(1,604)
Transferred from accruing to non-accrual		(49,594)		49,594		--
Transferred to other real estate owned		--		(42,842)		(42,842)
Loan payoffs, including dispositions and principal pay-downs		(41,249)		(57,458)		(98,707)

Balance at June 30, 2013		$ 14,169		$110,229		$124,398

The six-month decline in accruing loans reflected in the preceding table was attributable to the pay-off of a single $35.2 million CRE loan in this year’s first quarter, while the decline in non-accrual loans reflects the aforementioned transfer of a $41.6 million multi-family loan to OREO and the aforementioned pay-off of a $22.0 million CRE loan relationship.

On a limited basis, we may lend additional credit to a borrower after the loan has been placed on non-accrual status or modified as a TDR if, in management’s judgment, the value of the property after the additional loan funding is greater than the initial value of the property plus the additional loan funding amount. During the six months ended June 30, 2013, no such additions were made. In addition, the terms of our restructured loans typically would not restrict us from cancelling outstanding commitments for other credit facilities in the event of non-payment of the restructured loan.

Except for the non-accrual loans, loans over 90 days past due and still accruing interest, and TDRs disclosed in this filing, we did not have any potential problem loans at June 30, 2013 that would have caused management to have serious doubts as to the ability of a borrower to comply with present loan repayment terms and that would have resulted in such disclosure if that were the case.

Asset Quality Analysis (Excluding Covered Loans, Covered OREO, and Non-Covered Loans Held for Sale)

The following table presents information regarding our consolidated allowance for losses on non-covered loans, our non-performing non-covered assets, and our non-covered loans 30 to 89 days past due at June 30, 2013 and December 31, 2012. Covered loans are considered to be performing due to the application of the yield accretion method, as discussed elsewhere in this report. Therefore, covered loans are not reflected in the amounts or ratios provided in this table.


(dollars in thousands)	At or For the Six Months Ended June 30, 2013		At or For the Year Ended December 31, 2012
Allowance for Losses on Non-Covered Loans:
Balance at beginning of period		$140,948		$137,290
Provision for losses on non-covered loans		10,000		45,000
Charge-offs:
Multi-family		(2,783)		(27,939)
Commercial real estate		(1,668)		(5,046)
Acquisition, development, and construction		(1,503)		(5,974)
One-to-four family		(70)		(574)
Other loans		(7,019)		(6,685)

Total charge-offs		(13,043)		(46,218)
Recoveries		2,784		4,876

Net charge-offs		(10,259)		(41,342)

Balance at end of period		$140,689		$140,948


Non-Performing Non-Covered Assets:
Non-accrual non-covered mortgage loans:
Multi-family		$112,904		$163,460
Commercial real estate		30,329		56,863
Acquisition, development, and construction		6,737		12,091
One-to-four family		10,881		10,945

Total non-accrual non-covered mortgage loans		160,851		243,359
Other non-accrual non-covered loans		6,242		17,971

Total non-performing non-covered loans ⁽¹⁾		167,093		261,330
Other real estate owned ⁽²⁾		84,478		29,300

Total non-performing non-covered assets		$251,571		$290,630


Asset Quality Measures:
Non-performing non-covered loans to total non-covered loans		0.60%		0.96%
Non-performing non-covered assets to total non-covered assets		0.61		0.71
Allowance for losses on non-covered loans to non-performing non-covered loans		84.20		53.93
Allowance for losses on non-covered loans to total non-covered loans		0.50		0.52
Net charge-offs during the period to average loans outstanding during during the period		0.03⁽³⁾		0.13


Loans 30-89 Days Past Due:
Multi-family		$23,195		$19,945
Commercial real estate		12,432		1,679
Acquisition, development, and construction		--		1,178
One-to-four family		2,738		2,645
Other loans		1,360		2,138

Total loans 30-89 days past due⁽⁴⁾		$39,725		$27,585

(1)	The June 30, 2013 and December 31, 2012 amounts exclude loans 90 days or more past due of $267.8 million and $312.6 million, respectively, that are covered by FDIC loss sharing agreements.

(2)	The June 30, 2013 and December 31, 2012 amounts exclude OREO totaling $39.1 million and $45.1 million, respectively, that is covered by FDIC loss sharing agreements.

(3)	Presented on a non-annualized basis.

(4)	The June 30, 2013 and December 31, 2012 amounts exclude loans 30 to 89 days past due of $65.4 million and $81.2 million, respectively, that are covered by FDIC loss sharing agreements.

Covered Loans and Covered Other Real Estate Owned

The credit risk associated with the assets acquired in our AmTrust and Desert Hills transactions has been substantially mitigated by our loss sharing agreements with the FDIC. Under the terms of the loss sharing agreements, the FDIC agreed to reimburse us for 80% of losses (and share in 80% of any recoveries) up to a specified threshold with respect to the loans and OREO acquired in the transactions, and to reimburse us for 95% of any losses (and share in 95% of any recoveries) with respect to the acquired assets beyond that threshold. The loss sharing (and reimbursement) agreements applicable to one-to-four family mortgage loans and HELOCs are effective for a ten-year period from the date of acquisition. Under the loss sharing agreements applicable to other loans and OREO, the FDIC will reimburse us for losses for a five-year period from the date of acquisition; the period for sharing in recoveries on other loans and OREO extends for a period of eight years.

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

In connection with the AmTrust and Desert Hills loss sharing agreements, we established FDIC loss share receivables of $740.0 million and $69.6 million, which were the acquisition date fair values of the respective loss sharing agreements (i.e., the expected reimbursements from the FDIC over the terms of the agreements). The loss share receivables may increase if the losses increase, and may decrease if the losses fall short of the expected amounts. Increases in estimated reimbursements will be recognized in income in the same period that they are identified and that the allowance for losses on the related covered loans is recognized. In the first six months of 2013, indemnification income of $7.3 million was recorded in “non-interest income” as a result of an increase in expected reimbursements from the FDIC under our loss sharing agreements. This benefit partially offset a provision for losses on covered loans of $9.1 million.

Decreases in estimated reimbursements from the FDIC, if any, will be recognized in income prospectively over the lives of the related covered loans (or, if shorter, over the remaining term of the loss sharing agreement). Related additions to the accretable yield on the covered loans will be recognized in income prospectively over the lives of the loans. Gains and recoveries on covered assets will offset losses, or be paid to the FDIC at the applicable loss share percentage at the time of recovery.

The loss share receivables may also increase due to accretion, or decrease due to amortization. In the first six months of 2013, we recorded net amortization of $7.7 million; in the year-earlier six months, we recorded accretion of $1.5 million. Accretion of the FDIC loss share receivable relates to the difference between the discounted, versus the undiscounted, expected cash flows of covered loans subject to the FDIC loss sharing agreements. Amortization occurs when the expected cash flows from the covered loan portfolio improve, thus reducing the amounts receivable from the FDIC. These cash flows were discounted to reflect the uncertainty of the timing and receipt of the loss sharing reimbursements from the FDIC. In the six months ended June 30, 2013, we received FDIC reimbursements of $34.3 million, as compared to $80.3 million in the first six months of 2012.

Asset Quality Analysis (Including Covered Loans and Covered OREO)

The following table presents information regarding our non-performing assets and loans past due at June 30, 2013 and December 31, 2012, including covered loans and covered OREO (collectively, “covered assets”):


(dollars in thousands)	At or For the Six Months Ended June 30, 2013		At or For the Year Ended December 31, 2012
Covered Loans 90 Days or More Past Due:
Multi-family		$ --		$ --
Commercial real estate		1,586		2,501
Acquisition, development, and construction		155		1,249
One-to-four family		255,260		297,265
Other		10,820		11,558

Total covered loans 90 days or more past due		267,821		312,573
Covered other real estate owned		39,108		45,115

Total covered non-performing assets		$306,929		$357,688


Total Non-Performing Assets (including covered assets):
Non-performing loans:
Multi-family		$112,904		$163,460
Commercial real estate		31,915		59,364
Acquisition, development, and construction		6,892		13,340
One-to-four family		266,141		308,210
Other non-performing loans		17,062		29,529

Total non-performing loans		434,914		573,903
Other real estate owned		123,586		74,415

Total non-performing assets (including covered assets)		$558,500		$648,318


Asset Quality Ratios (including covered loans and the allowance for losses on covered loans):
Total non-performing loans to total loans		1.40%		1.88%
Total non-performing assets to total assets		1.26		1.47
Allowance for loan losses to non-performing loans		46.24		33.50
Allowance for loan losses to total loans		0.65		0.63


Covered Loans 30-89 Days Past Due:
Multi-family		$ --		$ 517
Commercial real estate		502		137
Acquisition, development, and construction		--		463
One-to-four family		61,213		75,129
Other loans		3,676		4,940

Total covered loans 30-89 days past due		$ 65,391		$ 81,186


Total Loans 30-89 Days Past Due (including covered loans):
Multi-family		$ 23,195		$ 20,462
Commercial real estate		12,934		1,816
Acquisition, development, and construction		--		1,641
One-to-four family		63,951		77,774
Other loans		5,036		7,078

Total loans 30-89 days past due (including covered loans)		$105,116		$108,771

Geographical Analysis of Total Non-Performing Loans (Covered and Non-Covered)

The following table presents a geographical analysis of our non-performing loans at June 30, 2013:


	Non-Performing Loans
	Covered Loan Portfolio			Non-Covered Loan Portfolio		Total
(in thousands)
New York		$	17,948		$ 79,035		$ 96,983
Florida			90,873		—		90,873
Connecticut			5,072		63,144		68,216
New Jersey			16,574		22,986		39,560
California			23,757		—		23,757
Ohio			14,882		—		14,882
Arizona			12,758		—		12,758
Illinois			10,251		1,823		12,074
Massachusetts			11,839		—		11,839
Nevada			11,135		—		11,135
All other states			52,732		105		52,837

Total non-performing loans		$	267,821		$167,093		$434,914

Securities

Largely reflecting an increase in cash flows deployed into GSE obligations (defined as GSE certificates; GSE collateralized mortgage obligations, or “CMOs”; and GSE debentures), securities rose $1.0 billion from the balance at the end of December to $5.9 billion at June 30, 2013. The latter amount was equivalent to 13.4% of total assets, an increase from the year-end measure, 11.1%.

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

Our general investment strategy is to purchase liquid investments with various maturities to ensure that our overall interest rate risk position stays within the required limits of our investment policies. We generally invest in GSE obligations (defined as GSE certificates; GSE collateralized mortgage obligations, or “CMOs”; and GSE debentures). At June 30, 2013 and December 31, 2012, GSE obligations represented 93.4% and 91.3%, respectively, of total securities. The remainder of the portfolio was comprised of private label CMOs, corporate bonds, trust preferred securities, corporate equities, and municipal obligations. We have no investment securities that are backed by subprime or Alt-A loans.

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

Securities that management intends to hold for an indefinite period of time are classified as available for sale. A decision to purchase or sell these securities is based on economic conditions, including changes in interest rates, liquidity, and our asset and liability management strategy. At June 30, 2013, available-for-sale securities represented $315.1 million, or 5.3%, of total securities, down from $429.3 million, or 8.7%, at December 31, 2012. Included in the respective period-end amounts were mortgage-related securities of $105.9 million and $177.3 million, and other securities of $209.2 million and $252.0 million, respectively. Primarily reflecting our expectation of certain securities being called, the estimated weighted average life of the available-for-sale securities portfolio was 8.5 years at the close of the second quarter, as compared to 9.4 years at December 31, 2012.

Held-to-maturity securities, which are securities that management has the positive intent to hold to maturity, represented $5.6 billion, or 94.7%, of total securities at the close of the second quarter, up from $4.5 billion, or 91.3%, at December 31, 2012. At the end of June, the fair value of securities held to maturity represented 98.5% of their carrying value, as compared to 104.94% at year-end. Mortgage-related securities accounted for $3.1 billion and $3.2 billion of securities held to maturity at the

end of June and December, while other securities represented $2.5 billion and $1.3 billion at the respective period-ends. Included in the June 30, 2013 and December 31, 2012 amounts were GSE obligations of $5.5 billion and $4.3 billion; capital trust notes of $75.7 million and $109.9 million; and corporate bonds of $72.7 million and $72.5 million, respectively. The estimated weighted average lives of the held-to-maturity securities portfolio were 7.9 years and 4.6 years at the corresponding dates.

Federal Home Loan Bank Stock

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

As members of the FHLB-NY, the Community Bank and the Commercial Bank are required to acquire and hold shares of its capital stock. In addition, the Community Bank acquired shares of the capital stock of the FHLB-Cincinnati and the FHLB-San Francisco in connection with the AmTrust and Desert Hills acquisitions, respectively.

At June 30, 2013, the Community Bank held $471.8 million of FHLB stock, including $447.0 million of stock in the FHLB-NY, $23.1 million of stock in the FHLB-Cincinnati, and $1.7 million of stock in the FHLB-San Francisco. The Commercial Bank had $10.4 million of FHLB stock at June 30, 2013, all of which was with the FHLB-NY. All FHLB stock continued to be valued at par, with no impairment required at June 30, 2013.

In the six months ended June 30, 2013 and 2012, dividends from the FHLB to the Community Bank totaled $8.8 million and $10.4 million, respectively. Dividends from the FHLB-NY to the Commercial Bank were $176,000 and $187,000, respectively, in the corresponding periods.

Bank-Owned Life Insurance

Bank-owned life insurance (“BOLI”) is recorded at the total cash surrender value of the policies in the Consolidated Statements of Condition, and the income generated by the increase in the cash surrender value of the policies is recorded in “non-interest income” in the Consolidated Statements of Income and Comprehensive Income.

At June 30, 2013, our investment in BOLI was $880.4 million, as compared to $867.3 million at December 31, 2012. The increase reflects the rise in the cash surrender value of the underlying policies over the course of the year.

FDIC Loss Share Receivable

In connection with our loss sharing agreements with the FDIC with respect to the loans and OREO acquired in the AmTrust and Desert Hills acquisitions, FDIC loss share receivables were $531.8 million and $566.5 million, respectively, at June 30, 2013 and December 31, 2012. The loss share receivables represent the present values of the reimbursements we expected to receive under the combined loss sharing agreements at those dates.

Goodwill and Core Deposit Intangibles

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

Goodwill totaled $2.4 billion at June 30, 2013, consistent with the year-end 2012 balance. Reflecting amortization, CDI declined $8.6 million from the December 31st balance to $23.4 million at the end of June.

Sources of Funds

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

On a consolidated basis, our funding primarily stems from a combination of the following sources: the deposits we gather through our branch network or acquire in business combinations, as well as brokered deposits; borrowed funds, primarily in the form of wholesale borrowings; the cash flows generated through the repayment and sale of loans; and the cash flows generated through the repayment and sale of securities.

Loan repayments and sales totaled $9.0 billion in the first six months of 2013, as compared to $8.4 billion in the first six months of 2012. Repayments and sales accounted for $4.2 billion and $4.8 billion, respectively, of the current six-month total and for $3.3 billion and $5.1 billion, respectively, of the total in the year-earlier six months.

In the six months ended June 30, 2013, cash flows from the repayment and sale of securities respectively totaled $557.2 million and $605.3 million, while purchases of securities totaled $2.2 billion. In the first six months of 2012, cash flows from the repayment and sale of securities totaled $1.7 billion and $330.9 million, respectively, and were partially offset by purchases of securities totaling $1.8 billion.

In the second quarter of 2013, and consistent with our business model, the cash flows from loans and securities were primarily deployed into loan production and, to a lesser extent, the purchase of GSE obligations and other securities.

Deposits

Our ability to retain and attract deposits depends on several factors, including customer satisfaction, the rates of interest we pay, the types of products we offer, and the attractiveness of their terms. There are times we may choose not to compete aggressively for deposits, depending on our access to deposits through acquisitions, the availability of lower-cost funding sources, the competitiveness of the market and its impact on pricing, and our need for such deposits to fund our loan demand.

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

Deposits rose $410.3 million from the balance at the end of December to $25.3 billion, representing 57.2% of total assets, at June 30, 2013. The six-month increase was largely organic in nature, as savings accounts and NOW and money market accounts rose in response to a retail deposit campaign. Specifically, savings accounts rose $1.2 billion in the first six months of this year, to $5.4 billion, while NOW and money market accounts rose $654.1 million to $9.4 billion. Included in the June 30th balance of NOW and money market accounts were brokered money market accounts of $3.8 billion, reflecting a $119.7 million increase from the balance at December 31, 2012.

The growth in savings and NOW and money market accounts was partly offset by a $238.7 million decline in non-interest-bearing accounts, to $2.5 billion, and by a $1.2 billion reduction in CDs to $7.9 billion. The decline in non-interest bearing accounts was primarily due to an $82.6 million drop in brokered non-interest-bearing accounts to $106.6 million, while the decline in CDs was partly attributable to a $320.1 million decline in brokered CDs to $473.8 million. The remainder of the decline in CDs was largely attributable to the transfer of funds from maturing CDs into savings and NOW and money market accounts with the Banks.

Reflecting the decline in brokered non-interest-bearing accounts and brokered CDs, brokered deposits represented $4.4 billion of total deposits at the end of the current second quarter, down $283.0 million from the balance at December 31, 2012. The majority of the decline was attributable to the roll-off of brokered deposits that had been assumed in the transaction with Aurora Bank FSB in June 2012.

Borrowed Funds

Borrowed funds consist primarily of wholesale borrowings (i.e., FHLB advances, repurchase agreements, and fed funds purchased); junior subordinated debentures; and other borrowings (consisting of preferred stock of subsidiaries). At June 30, 2013, borrowed funds totaled $13.0 billion, down $438.2 million from the balance at December 31, 2012.

Wholesale Borrowings

Wholesale borrowings totaled $12.6 billion and $13.1 billion, respectively, at the ends of June and December, representing 28.6% and 29.6% of total assets at the corresponding dates. FHLB advances and repurchase agreements accounted for $9.1 billion and $3.4 billion, respectively, of the June 30th total, as FHLB advances rose $261.7 million from the year-end balance and repurchase agreements fell $700.0 million from the balance at that date. The latter decline reflects the maturity of certain repurchase agreements in the second quarter of this year.

Both the Community Bank and the Commercial Bank are members of, and have lines of credit with, the FHLB-NY. Pursuant to blanket collateral agreements with the Banks, our FHLB advances and overnight advances are secured by pledges of certain eligible collateral in the form of loans and securities. In addition to $8.5 billion of FHLB-NY advances, the June 30th balance includes $599.1 million of FHLB-Cincinnati advances that were acquired in the AmTrust acquisition in December 2009.

Repurchase agreements are contracts for the sale of securities owned or borrowed by the Banks with an agreement to repurchase those securities at agreed-upon prices and dates. Our repurchase agreements are primarily collateralized by GSE obligations, and may be entered into with the FHLB-NY or certain brokerage firms. The brokerage firms we utilize are subject to an ongoing internal financial review to ensure that we borrow funds only from those dealers whose financial strength will minimize the risk of loss due to default. In addition, a master repurchase agreement must be executed and on file for each of the brokerage firms we use.

In the first six months of 2013, we repositioned $3.1 billion of wholesale borrowings as part of an effort to reduce our funding costs that began in December 2012. All told, borrowed funds of $6.6 billion were repositioned, reducing the weighted average cost of such funds by 113 basis points, and extending the weighted average call and maturity dates by approximately five years. Included in the current six-month amount were wholesale borrowings of $580.0 million that were repositioned in the second quarter of this year.

At June 30, 2013, $4.0 billion of our wholesale borrowings were callable in the next 12 months. Given the current interest rate environment, we do not expect our callable wholesale borrowings to be called.

Junior Subordinated Debentures

Junior subordinated debentures totaled $358.0 million at the close of the current second quarter, consistent with the balance at December 31, 2012.

Other Borrowings

At June 30, 2013, other borrowings totaled $4.3 million, consistent with the balance at December 31, 2012.

Asset and Liability Management and the Management of Interest Rate Risk

We manage our assets and liabilities to reduce our exposure to changes in market interest rates. The asset and liability management process has three primary objectives: to evaluate the interest rate risk inherent in certain balance sheet accounts; to determine the appropriate level of risk, given our business strategy, operating environment, capital and liquidity requirements, and performance objectives; and to manage that risk in a manner consistent with guidelines approved by the Boards of Directors of the Company, the Community Bank, and the Commercial Bank.

Market Risk

As a financial institution, we are focused on reducing our exposure to interest rate volatility, which represents our primary market risk. Changes in market interest rates represent the greatest challenge to our financial performance, as such changes can have a significant impact on the level of income and expense recorded on a large portion of our interest-earning assets and interest-bearing liabilities, and on the market value of all interest-earning assets, other than those possessing a short term to maturity. To reduce our exposure to changing rates, the Boards of Directors and management monitor interest rate sensitivity on a regular or as needed basis so that adjustments to the asset and liability mix can be made when deemed appropriate.

The actual duration of held-for-investment mortgage loans and mortgage-related securities can be significantly impacted by changes in prepayment levels and market interest rates. The level of prepayments may be impacted by a variety of factors, including the economy in the region where the underlying mortgages were originated; seasonal factors; demographic variables; and the assumability of the underlying mortgages. However, the largest determinants of prepayments are market interest rates and the availability of refinancing opportunities.

In the second quarter of 2013, we took the following actions to reduce our interest rate risk: (1) We continued to emphasize the origination and retention of intermediate-term assets, primarily in the form of multi-family and CRE loans; (2) We continued to deploy the cash flows from loan and securities repayments and sales into the production of loans held for investment and increased our investment in GSE securities; and (3) We continued to reposition certain wholesale borrowings in order to reduce the cost of such funding, and extended the weighted average call and maturity dates.

In connection with the activities of our mortgage banking operation, we enter into contingent commitments to fund residential mortgage loans by a specified future date at a stated interest rate and corresponding price. Such commitments, which are generally known as interest rate lock commitments (“IRLCs”), are considered to be financial derivatives and, as such, are carried at fair value.

To mitigate the interest rate risk associated with our IRLCs, we enter into forward commitments to sell mortgage loans or mortgage-backed securities (“MBS”) by a specified future date and at a specified price. These forward sale agreements are also carried at fair value. Such forward commitments to sell generally obligate us to complete the transaction as agreed, and therefore pose a risk to us if we are not able to deliver the loans or MBS pursuant to the terms of the applicable forward-sale agreement. For example, if we are unable to meet our obligation, we may be required to pay a fee to the counterparty.

When we retain the servicing on the loans we sell, we capitalize a mortgage servicing right (“MSR”) asset. MSRs are recorded at fair value, with changes in fair value recorded as a component of non-interest income. We estimate the fair value of the MSR asset based upon a number of factors, including current and expected loan prepayment rates, economic conditions, and market forecasts, as well as relevant characteristics of the associated underlying loans. Generally, when market interest rates decline, loan prepayments increase as customers refinance their existing mortgages to take advantage of more favorable interest rate terms. When a mortgage prepays, or when loans are expected to prepay earlier than originally expected, a portion of the anticipated cash flows associated with servicing these loans is terminated or reduced, which can result in a reduction in the fair value of the capitalized MSRs and a corresponding reduction in earnings.

To mitigate the prepayment risk inherent in MSRs, we could sell the servicing of the loans we produce, and thus minimize the potential for earnings volatility. Instead, we have opted to mitigate such risk by investing in exchange-traded derivative financial instruments that are expected to experience opposite and offsetting changes in fair value as related to the value of our MSRs.

Interest Rate Sensitivity Analysis

The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring a bank’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time frame if it will mature or reprice within that period of time. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time frame and the amount of interest-bearing liabilities maturing or repricing within that same period of time.

In a rising interest rate environment, an institution with a negative gap would generally be expected, absent the effects of other factors, to experience a greater increase in the cost of its interest-bearing liabilities than it would in the yield on its interest-earning assets, thus producing a decline in its net interest income. Conversely, in a declining rate environment, an institution with a negative gap would generally be expected to experience a lesser reduction in the yield on its interest-earning assets than it would in the cost of its interest-bearing liabilities, thus producing an increase in its net interest income.

In a rising interest rate environment, an institution with a positive gap would generally be expected to experience a greater increase in the yield on its interest-earning assets than it would in the cost of its interest-bearing liabilities, thus producing an increase in its net interest income. Conversely, in a declining rate environment, an institution with a positive gap would generally be expected to experience a lesser reduction in the cost of its interest-bearing liabilities than it would in the yield on its interest-earning assets, thus producing a decline in its net interest income.

At June 30, 2013, our one-year gap was a negative 7.53%, as compared to a negative 3.69% at December 31, 2012. The difference in our one-year gap was attributable to a combination of factors, primarily including a decrease in the amount of securities expected to be called as of the end of the second quarter, and an increase in savings accounts. These factors were partially offset by a decline in the balance of CDs maturing in one year, and by the repositioning of certain wholesale borrowings, as previously discussed.

The table on the following page sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at June 30, 2013, which, based on certain assumptions stemming from our historical experience, are expected to reprice or mature in each of the future time periods shown. Except as stated below, the amounts of assets and liabilities shown as repricing or maturing during a particular time period were determined in accordance with the earlier of (1) the term to repricing, or (2) the contractual terms of the asset or liability.

The table provides an approximation of the projected repricing of assets and liabilities at June 30, 2013 on the basis of contractual maturities, anticipated prepayments, and scheduled rate adjustments within a three-month period and subsequent selected time intervals. For residential mortgage-related securities, prepayment rates are forecasted at a weighted average constant prepayment rate (“CPR”) of 22% per annum; for multi-family and CRE loans, prepayment rates are forecasted at weighted average CPRs of 21% and 17% per annum, respectively. Borrowed funds were not assumed to prepay. Savings, NOW, and money market accounts were assumed to decay based on a comprehensive statistical analysis that incorporated our historical deposit experience. Based on the results of this analysis, savings accounts were assumed to decay at 40% for the first five years, 8% for years five through ten, and 52% for the years thereafter. NOW accounts were assumed to decay at 35% for the first five years, 28% for years five through ten, and 37% for the years thereafter. Including those accounts having specified repricing dates, money market accounts were assumed to decay at 95% for the first five years and at 5% for years five through ten.

Interest Rate Sensitivity Analysis


	At June 30, 2013
(dollars in thousands)	Three Months or Less		Four to Twelve Months		More Than One Year to Three Years		More Than Three Years to Five Years		More Than Five Years to 10 Years		More Than 10 Years		Total
INTEREST-EARNING ASSETS:
Mortgage and other loans ⁽¹⁾		$ 4,020,031		$5,391,049		$10,152,189		$7,568,083		$4,047,448		$ 494,222		$31,673,022
Mortgage-related securities ⁽²⁾⁽³⁾		103,747		307,943		392,476		135,416		2,068,307		210,131		3,218,020
Other securities and money market investments ⁽²⁾		635,377		125		25,245		62,277		894,797		1,597,128		3,214,949

Total interest-earning assets		4,759,155		5,699,117		10,569,910		7,765,776		7,010,552		2,301,481		38,105,991

INTEREST-BEARING LIABILITIES:
NOW and money market accounts		4,268,952		973,812		971,570		1,348,298		987,308		887,951		9,437,891
Savings accounts		737,843		623,466		628,786		190,494		414,596		2,828,443		5,423,628
Certificates of deposit		1,752,110		2,877,827		2,613,935		604,026		52,043		6,217		7,906,158
Borrowed funds		2,350,538		200,767		300,876		3,495,398		6,500,305		144,133		12,992,017

Total interest-bearing liabilities		9,109,443		4,675,872		4,515,167		5,638,216		7,954,252		3,866,744		35,759,694

Interest rate sensitivity gap per period ⁽⁴⁾		$(4,350,288)		$1,023,245		$ 6,054,743		$2,127,560		$ (943,700)		$(1,565,263)		$ 2,346,297

Cumulative interest rate sensitivity gap		$(4,350,288)		$(3,327,043)		$2,727,700		$4,855,260		$3,911,560		$2,346,297

Cumulative interest rate sensitivity gap as a percentage of total assets		(9.85)%		(7.53)%		6.17%		10.99%		8.85%		5.31%
Cumulative net interest-earning assets as a percentage of net interest-bearing liabilities		52.24 %		75.87 %		114.91%		120.28%		112.26%		106.56%

(1)	For the purpose of the gap analysis, non-performing non-covered loans and the allowances for loan losses have been excluded.

(2)	Mortgage-related and other securities, including FHLB stock, are shown at their respective carrying amounts.

(3)	Expected amount based, in part, on historical experience.

(4)	The interest rate sensitivity gap per period represents the difference between interest-earning assets and interest-bearing liabilities.

Prepayment and deposit decay rates can have a significant impact on our estimated gap. While we believe our assumptions to be reasonable, there can be no assurance that the assumed prepayment and decay rates will approximate actual future loan and securities prepayments and deposit withdrawal activity.

To validate our prepayment assumptions for our multi-family and CRE loan portfolios, we perform a monthly analysis, during which we review our historical prepayment rates and compare them to our projected prepayment rates. We continually review the actual prepayment rates to ensure that our projections are as accurate as possible, since prepayments on these types of loans are not as closely correlated to changes in interest rates as prepayments on one-to-four family loans would be. In addition, we review the call provisions in our borrowings and investment portfolios and, on a monthly basis, compare the actual calls to our projected calls to ensure that our projections are reasonable.

As of June 30, 2013, the impact of a 100-basis point decline in market interest rates would have increased our projected prepayment rates by a constant prepayment rate of 2.08% per annum. Conversely, the impact of a 100-basis point increase in market interest rates would have reduced our projected prepayment rates by a constant prepayment rate of 2.44% per annum.

Certain shortcomings are inherent in the method of analysis presented in the preceding Interest Rate Sensitivity Analysis. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of the market, while interest rates on other types may lag behind changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates both on a short-term basis and over the life of the asset. Furthermore, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate from those assumed in calculating the table. Also, the ability of some borrowers to repay their adjustable-rate loans may be adversely impacted by an increase in market interest rates.

Interest rate sensitivity is also monitored through the use of a model that generates estimates of the change in our net portfolio value (“NPV”) over a range of interest rate scenarios. NPV is defined as the net present value of expected cash flows from assets, liabilities, and off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The model assumes estimated loan prepayment rates, reinvestment rates, and deposit decay rates similar to those utilized in formulating the preceding Interest Rate Sensitivity Analysis.

Based on the information and assumptions in effect at June 30, 2013, the following table reflects the estimated percentage change in our NPV, assuming the changes in interest rates noted:


Change in Interest Rates (in basis points)⁽¹⁾				Estimated Percentage Change in Net Portfolio Value
+100				(1.67)%
+200				(4.34)

(1)	The impact of 100- and 200-basis point reductions in interest rates is not presented in view of the current level of the fed funds rate and other short-term interest rates.

The net changes in NPV presented in the preceding table are within the parameters approved by the Boards of Directors of the Company and the Banks.

As with the Interest Rate Sensitivity Analysis, certain shortcomings are inherent in the methodology used in the preceding interest rate risk measurements. Modeling changes in NPV requires that certain assumptions be made which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the NPV Analysis presented above assumes that the composition of our interest rate sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured, and also assumes that a particular change in interest rates is reflected uniformly across the yield curve, regardless of the duration to maturity or repricing of specific assets and liabilities. Furthermore, the model does not take into account the benefit of any strategic actions we may take to further reduce our exposure to interest rate risk. Accordingly, while the NPV Analysis provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on our net interest income, and may very well differ from actual results.

We also utilize an internal net interest income simulation to manage our sensitivity to interest rate risk. The simulation incorporates various market-based assumptions regarding the impact of changing interest rates on future levels of our financial assets and liabilities. The assumptions used in the net interest income simulation are inherently uncertain. Actual results may differ significantly from those presented in the following table, due to the frequency, timing, and magnitude of changes in interest rates; changes in spreads between maturity and repricing categories; and prepayments, among other factors, coupled with any actions taken to counter the effects of any such changes.

Based on the information and assumptions in effect at June 30, 2013, the following table reflects the estimated percentage change in future net interest income for the next twelve months, assuming the changes in interest rates noted:


Change in Interest Rates (in basis points) ⁽¹⁾⁽²⁾				Estimated Percentage Change in Future Net Interest Income
+100 over one year				(1.94)%
+200 over one year				(3.72)

(1)	In general, short- and long-term rates are assumed to increase in parallel fashion across all four quarters and then remain unchanged.

(2)	The impact of 100- and 200-basis point reductions in interest rates is not presented in view of the current level of the federal funds rate and other short-term interest rates.

Future changes in our mix of assets and liabilities may result in greater changes to our gap, NPV, and/or net interest income simulation.

In the event that our interest rate sensitivity gap analysis or net interest income simulation were to indicate a variance in our NPV in excess of our internal policy limits, we would undertake the following actions to ensure that appropriate remedial measures were put in place:

—

Our Management Asset/Liability Committee (the “ALCO Committee”) would inform the Board of Directors of the variance, and present recommendations to the Board regarding proposed courses of action to restore conditions to within-policy tolerances.

—

In formulating appropriate strategies, the ALCO Committee would ascertain the primary causes of the variance from policy tolerances, the expected term of such conditions, and the projected effect on capital and earnings.

Where temporary changes in market conditions or volume levels result in significant increases in risk, strategies may involve reducing open positions or employing synthetic hedging techniques to more immediately reduce risk exposure. Where variance from policy tolerances is triggered by more fundamental imbalances in the risk profiles of core loan and deposit products, a remedial strategy may involve restoring balance through natural hedges to the extent possible before employing synthetic hedging techniques. Other strategies might include:

—

Asset restructuring, involving sales of assets having higher risk profiles, or a gradual restructuring of the asset mix over time to affect the maturity or repricing schedule of assets;

—

Liability restructuring, whereby product offerings and pricing are altered or wholesale borrowings are employed to affect the maturity structure or repricing of liabilities;

—

Expansion or shrinkage of the balance sheet to correct imbalances in the repricing or maturity periods between assets and liabilities; and/or

—

Use or alteration of off-balance sheet positions, including interest rate swaps, caps, floors, options, and forward purchase or sales commitments.

In connection with our net interest income simulation modeling, we also evaluate the impact of changes in the slope of the yield curve. At June 30, 2013, our analysis indicated that an immediate inversion of the yield curve would be expected to result in a 6.32% decrease in net interest income over the next four quarters; conversely, an immediate steepening of the yield curve would be expected to result in a 4.60% increase over such time.

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

Liquidity

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

We monitor our liquidity daily to ensure that sufficient funds are available to meet our financial obligations. Our most liquid assets are cash and cash equivalents, which totaled $1.3 billion and $2.4 billion, respectively, at June 30, 2013 and December 31, 2012. As in the past, our portfolios of loans and securities were meaningful sources of liquidity in the current six-month period, with cash flows from the repayment and sale of loans totaling $9.0 billion and cash flows from the repayment and sale of securities totaling $1.2 billion. Included in the latter amounts were second quarter cash flows from the repayment and sale of loans totaling $4.7 billion, and $274.0 million from the repayment and sale of securities.

Additional liquidity stems from the deposits we gather through our branches or acquire in business combinations, and from our use of wholesale funding sources, including brokered deposits and wholesale borrowings. We also have access to the Banks’ approved lines of credit with various counterparties, including the FHLB-NY. The availability of these wholesale funding sources is generally based on the amount of mortgage loan collateral available under a blanket lien we have pledged to the respective institutions and, to a lesser extent, the amount of available securities that may be pledged to collateralize our borrowings. At June 30, 2013, our available borrowing capacity with the FHLB-NY was $6.7 billion. In addition, the Community Bank and the Commercial Bank had $312.5 million in available-for-sale securities, combined, at that date.

Furthermore, the Community Bank has an agreement with the Federal Reserve Bank of New York (the “FRB-NY”) that enables it to access the discount window as a further means of enhancing its liquidity if need be. In connection with this agreement, the Community Bank has pledged certain loans and securities to collateralize any funds it may borrow, up to a maximum limit of $211.3 million.

Our primary investing activity is loan production and, in the first six months of 2013, the volume of loans originated for sale and for investment totaled $9.1 billion. During this time, the net cash used in investing activities totaled $1.5 billion. In addition, our financing activities used net cash of $251.7 million and our operating activities provided net cash of $658.8 million in the first six months of this year.

CDs due to mature in one year or less from June 30, 2013 totaled $4.6 billion, representing 58.6% of total CDs at that date. Our ability to retain these CDs and to attract new deposits depends on numerous factors, including customer satisfaction, the rates of interest we pay on our deposits, the types of products we offer, and the attractiveness of their terms. However, there are times when we may choose not to compete for such deposits, depending on the availability of lower-cost funding, the competitiveness of the market and its impact on pricing, and our need for such deposits to fund loan demand.

On a stand-alone basis, the Company (the “Parent Company”) is a separate legal entity from each of the Banks and must provide for its own liquidity. In addition to operating expenses and any share repurchases, the Parent Company is responsible for paying any dividends declared to our shareholders. As a Delaware corporation, the Parent Company is able to pay dividends either from surplus or, in case there is no surplus, from net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. In addition, the Parent Company is not required to obtain prior Federal Reserve approval to pay a dividend unless the declaration and payment of a dividend could raise supervisory concerns about the safe and sound operation of the Company and the Banks, where the dividend declared for a period is not supported by earnings for that period, or where the Company plans to declare an increase in its dividend.

The Parent Company’s ability to pay dividends may depend, in part, upon dividends it receives from the Banks. The ability of the Community Bank and the Commercial Bank to pay dividends and other capital distributions to the Parent Company is generally limited by New York State banking law and regulations, and by certain regulations of the FDIC. In addition, the Superintendent of the New York State Department of Financial Services (the “Superintendent”), the FDIC, and the Federal Reserve, for reasons of safety and soundness, may prohibit the payment of dividends that are otherwise permissible by regulations.

Under New York State Banking Law, a New York State-chartered stock-form savings bank or commercial bank may declare and pay dividends out of its net profits, unless there is an impairment of capital. However, the approval of the Superintendent is required if the total of all dividends declared in a calendar year would exceed the total of a bank’s net profits for that year, combined with its retained net profits for the preceding two years. In the six months ended June 30, 2013, the Banks paid dividends totaling $220.0 million to the Parent Company, leaving $112.0 million that they could dividend to the Parent Company without regulatory approval at that date. Additional sources of liquidity available to the Parent Company at June 30, 2013 included $113.4 million in cash and cash equivalents and $2.5 million of available-for-sale securities. If either of the Banks were to apply to the Superintendent for approval to make a dividend or capital distribution in excess of the dividend amounts permitted under the regulations, there can be no assurance that such application would be approved.

Derivative Financial Instruments

We use various financial instruments, including derivatives, in connection with our strategies to reduce market risk resulting from changes in interest rates. Our derivative financial instruments consist of financial forward and futures contracts, IRLCs, swaps, and options. These derivatives relate to our mortgage banking operation, MSRs, and other risk management activities, and seek to mitigate or reduce our exposure to losses from adverse changes in interest rates. These activities will vary in scope based on the level and volatility of interest rates, the types of assets held, and other changing market conditions. At June 30, 2013, we held derivative financial instruments with a notional value of $3.0 billion. (Please see Note 12, “Derivative Financial Instruments,” for a further discussion of our use of such financial instruments.)

Capital Position

In the first six months of 2013, stockholders’ equity rose $32.2 million to $5.7 billion, representing 12.87% of total assets and a book value of $12.90 per share at June 30, 2013. At December 31, 2012, stockholders’ equity represented 12.81% of total assets and a book value of $12.88 per share.

We calculate book value per share by dividing stockholders’ equity at the end of a period by the number of shares outstanding at the same date. At June 30, 2013, we had 440,858,405 shares outstanding; at December 31, 2012, the number of outstanding shares was 439,050,966.

Tangible stockholders’ equity rose $40.8 million in the first six months of this year, to $3.2 billion, after the distribution of two quarterly cash dividends totaling $220.0 million. Tangible stockholders’ equity represented 7.74% and 7.65% of tangible assets, respectively, at the end of June and December, while tangible book value per share was $7.32 and $7.26 at the respective period-ends.

We calculate tangible stockholders’ equity by subtracting the amount of goodwill and CDI recorded at the end of a period from the amount of stockholders’ equity recorded at the same date. At June 30, 2013 and December 31, 2012, we recorded goodwill of $2.4 billion; CDI totaled $23.4 million and $32.0 million, respectively, at the corresponding dates.

Excluding AOCL from the calculations of tangible stockholders’ equity and tangible assets, the ratio of adjusted tangible stockholders’ equity to adjusted tangible assets was 7.87% at June 30, 2013, up from 7.79% at December 31, 2012. (Please see the discussion and reconciliations of stockholders’ equity and tangible stockholders’ equity, total assets and tangible assets, and the related capital measures that appear earlier in this report.)

AOCL fell $3.9 million in the first six months of this year, to $57.8 million at June 30, 2013. While the net unrealized gain on available-for-sale securities fell $6.6 million during this time, to $6.0 million, the impact was exceeded by a $3.0 million decline in the loss on pension and post-retirement obligations, together with a $7.5 million decline in the net unrealized loss on the non-credit portion of OTTI, all net of tax.

At June 30, 2013, our capital measures continued to exceed the minimum federal requirements for a bank holding company. The following table sets forth our total risk-based, Tier 1 risk-based, and leverage capital amounts and ratios on a consolidated basis, as well as the respective minimum regulatory capital requirements, at that date:

Regulatory Capital Analysis (the Company)


	At June 30, 2013
					Risk-Based Capital
	Leverage Capital				Tier 1				Total
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total capital		$3,635,187		8.78%		$3,635,187		13.38%		$3,838,799		14.13%
Regulatory capital requirement		1,656,561		4.00		1,086,989		4.00		2,173,979		8.00

Excess		$1,978,626		4.78%		$2,548,198		9.38%		$1,664,820		6.13%

In addition, the capital ratios for the Community Bank and the Commercial Bank continued to exceed the minimum levels required for classification as “well capitalized” institutions at June 30, 2013, as defined under the Federal Deposit Insurance Corporation Improvement Act of 1991, and as reflected in the following tables:

Regulatory Capital Analysis (New York Community Bank)


	At June 30, 2013
					Risk-Based Capital
	Leverage Capital				Tier 1				Total
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total capital		$3,185,995		8.25%		$3,185,995		12.58%		$3,377,798		13.33%
Regulatory capital requirement		1,544,320		4.00		1,013,243		4.00		2,026,486		8.00

Excess		$1,641,675		4.25%		$2,172,752		8.58%		$1,351,312		5.33%

Regulatory Capital Analysis (New York Commercial Bank)


	At June 30, 2013
					Risk-Based Capital
	Leverage Capital				Tier 1				Total
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total capital		$348,087		10.95%		$348,087		16.44%		$359,795		16.99%
Regulatory capital requirement		127,114		4.00		84,691		4.00		169,381		8.00

Excess		$220,973		6.95%		$263,396		12.44%		$190,414		8.99%

Basel III Capital Rules

In July 2013, the Company’s primary federal regulator, the Federal Reserve, and the Banks’ primary federal regulator, the FDIC, published final rules (the “Basel III Capital Rules”) establishing a new comprehensive capital framework for U.S. banking organizations. The rules implement the Basel Committee’s December 2010 framework, known as “Basel III,” for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act. The Basel III Capital Rules substantially revise the current U.S. risk-based capital rules and requirements applicable to bank holding companies and depository institutions, including the Company and the Banks. The Basel III Capital Rules define the components of capital and address other issues affecting the numerator in banking institutions’ regulatory capital ratios. The Basel III Capital Rules also address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios, and replace the existing risk-weighting approach, which was derived from the Basel I capital accords of the Basel Committee, with a more risk-sensitive approach based, in part, on the standardized approach in the Basel Committee’s 2004 “Basel II” capital accords. The Basel III Capital Rules also implement the requirements of Section 939A of the Dodd-Frank Act to remove references to credit ratings from the federal banking agencies’ rules. The Basel III Capital Rules will be effective for the Company and the Banks on January 1, 2015 (subject to a phase-in period).

Among other things, the Basel III Capital Rules (i) introduce a new capital measure called “Common Equity Tier 1” (“CET1”); (ii) specify that Tier 1 capital consist of CET1 and “Additional Tier 1 Capital” instruments meeting specified requirements; (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital; and (iv) expand the scope of the deductions/adjustments from capital as compared to existing regulations.

The Basel III Capital Rules provide for a number of deductions from, and adjustments to, CET1. These include, for example, the requirement that mortgage servicing rights, certain deferred tax assets dependent upon future taxable income, and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1. Under current capital standards, the effects of accumulated other comprehensive income items included in capital are excluded for the purposes of determining regulatory capital ratios. Under the Basel III Capital Rules, the effects of certain accumulated other comprehensive income items are not excluded; however, “non-advanced approach” banking organizations, including the Company and the Banks, may make a one-time permanent election to continue to exclude these items. We expect to make this election in order to avoid significant variations in the level of capital depending upon the impact of interest rate fluctuations on the fair value of our securities portfolio. The Basel III Capital Rules also exclude the inclusion of certain hybrid securities, such as trust preferred securities, as Tier 1 capital of bank holding companies, subject to phase-out. As a result, beginning in 2015, only 25% of the Company’s trust preferred securities will be included in Tier 1 capital and in 2016, none of the Company’s trust preferred securities will be included in Tier 1 capital. Trust preferred securities no longer included in the Company’s Tier 1 capital may nonetheless be included as a component of Tier 2 capital on a permanent basis without phase-out.

Implementation of the deductions and other adjustments to CET1 will begin on January 1, 2015 and will be phased in over a four-year period, beginning at 40% on January 1, 2015 and continuing thereafter with an additional 20% per calendar year. The implementation of the capital conservation buffer will begin on January 1, 2016 at the 0.625% level and be phased in over a four-year period (increasing by that amount on each subsequent January 1st, until it reaches 2.5% on January 1, 2019).

Under the Basel III Capital Rules, the initial minimum capital ratios as of January 1, 2015 will be as follows:

—

4.5% CET1 to risk-weighted assets;

—

6.0% Tier 1 capital to risk-weighted assets; and

—

8.0% Total capital to risk-weighted assets.

When fully phased in on January 1, 2019, the Basel III Capital Rules will require the Company and the Banks to maintain (i) a minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” designed to absorb losses during periods of economic stress (which is added to the 4.5% CET1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7% upon full implementation); (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio as that buffer is phased in, effectively resulting in a minimum Tier 1 capital ratio of 8.5% upon full implementation); (iii) a minimum ratio of Total capital (that is, Tier 1 plus Tier 2) to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital ratio of 10.5% upon full implementation); and (iv) a minimum leverage capital ratio of 4%, calculated as the ratio of Tier 1 capital to average assets (as compared to a current minimum leverage capital ratio of 3% for banking organizations that either have the highest supervisory rating or have implemented the appropriate federal regulatory authority’s risk-adjusted measure for market risk).

Management believes that, as of June 30, 2013, the Company and the Banks would meet all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis if such requirements were effective as of that date.

Earnings Summary for the Three Months Ended June 30, 2013

In the second quarter of 2013, we generated earnings of $122.5 million, a $3.8 million increase from the trailing-quarter level and an $8.7 million decrease from the level recorded in the second quarter of 2012. The current second quarter amount was equivalent to $0.28 per diluted share; the trailing-quarter and year-earlier amounts were equivalent to $0.27 and $0.30, respectively.

Net interest income rose $24.7 million sequentially, and $3.2 million year-over-year, to $299.9 million in the three months ended June 30, 2013. The respective increases were largely due to an increase in prepayment penalty income, which contributed $44.4 million to the interest income on loans and interest-earning assets in the current second quarter, as compared to $19.9 million and $32.0 million, respectively, in the trailing and year-earlier three months. The increase in prepayment penalty income was driven by a surge in the refinancing of multi-family and CRE loans.

In addition, the provision for losses on non-covered loans was $5.0 million in the current second quarter, consistent with the level recorded in the trailing quarter and $10.0 million lower than the year-earlier amount. In addition, we recorded a $4.6 million provision for covered loan losses in the current second quarter, as compared to $4.5 million and $18.4 million, respectively, in the earlier periods.

Non-interest income fell $21.8 million and $44.5 million, respectively, to $53.7 million, from the levels recorded in the three months ended March 31, 2013 and June 30, 2012. While the linked-quarter decline was largely due to a reduction in securities gains to $123,000 from $16.6 million, the year-over-year decline was largely due to a drop in mortgage banking income to $23.2 million from $58.3 million. Refinancing activity declined in the current second quarter as residential mortgage interest rates rose dramatically from the prior four quarters’ lows.

Non-interest expense fell $4.4 million and $3.8 million, respectively, to $151.7 million from the levels recorded in the three months ended March 31, 2013 and June 30, 2012. Operating expenses accounted for $147.5 million of the current second-quarter total, and was down $4.2 million and $3.0 million, respectively, over the corresponding periods. While the linked-quarter decline was primarily due to a $6.1 million decrease in compensation and benefits expense, to $77.4 million, the year-over-year decrease was driven by a $7.7 million decline in general and administrative (“G&A”) expense to $45.9 million. In the first quarter of 2013, we recorded retirement and severance expenses of $6.0 million; no comparable expenses were recorded in the second quarter of this year.

Income tax expense totaled $69.8 million in the current second quarter, $3.4 million higher than the trailing-quarter level and $4.9 million lower than the year-earlier amount.

Net Interest Income

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

The cost of our deposits and borrowed funds is largely based on short-term rates of interest, the level of which is partially impacted by the actions of the FOMC. The FOMC reduces, maintains, or increases the target fed funds rate (the rate at which banks borrow funds overnight from one another) as it deems necessary. The target fed funds rate has been maintained at a range of zero to 0.25% since the fourth quarter of 2008.

While the target fed funds rate generally impacts the cost of our short-term borrowings and deposits, the yields on our held-for-investment loans and other interest-earning assets are typically impacted by intermediate-term market interest rates. In the second quarter of 2013, the five- and ten-year Constant Maturity Treasury (“CMT”) rates averaged 0.91% and 1.99%, respectively, as compared to 0.82% and 1.95%, respectively, in the trailing quarter and 0.79% and 1.83%, respectively, in the second quarter of 2012.

Net interest income is also influenced by the level of prepayment penalty income generated, primarily in connection with the prepayment of our multi-family and CRE loans. Since prepayment penalty income is recorded as interest income, an increase or decrease in its level will also be reflected in the average yields on our loans and other interest-earning assets, and therefore, in our interest rate spread and net interest margin.

In the three months ended June 30, 2013, we recorded net interest income of $299.9 million, up $24.7 million from the trailing-quarter level and $3.2 million from the year-earlier amount. The linked-quarter increase was driven by a $23.8 million rise in interest income, to $436.6 million, together with a $941,000 decline in interest expense to $136.7 million. While interest income fell $18.4 million year-over-year, the impact was more than offset by a $21.6 million reduction in interest expense. In addition, our net interest margin rose 20 basis points, to 3.15%, on a linked-quarter basis; year-over-year, our margin declined by 15 basis points.

The following factors contributed to the linked-quarter increases in our net interest income and margin:

—

Prepayment penalty income rose $24.6 million on a linked-quarter basis, adding $44.4 million to the interest income on loans and interest-earning assets in the three months ended June 30, 2013. The increase in prepayment penalty income was driven by refinancing activity, as an increasing number of multi-family and CRE property owners opted to refinance their loans as market interest rates rose.

—

In addition, prepayment penalty income added 55 basis points to the average yield on loans, and 47 basis points to the average yield on interest-earning assets, in contrast to 26 and 22 basis points, respectively, in the three months ended March 31, 2013.

—

Reflecting the benefit of increased prepayment penalty income, the average yields on loans and interest-earning assets rose 21 and 14 basis points, respectively, from the trailing-quarter measures, to 4.86% and 4.60% in the three months ended June 30, 2013.

—

The linked-quarter increases in net interest income and margin also reflect the benefit of a $936.4 million increase in the average balance of interest-earning assets to $38.0 billion, as the average balance of loans rose $326.0 million to $31.9 billion, and the average balance of securities rose $610.4 million to $6.1 billion.

—

While the average balance of interest-bearing liabilities also rose linked-quarter, the impact was exceeded by the benefit of a decline in our average funding costs. Specifically, interest-bearing liabilities rose $498.2 million sequentially, to $35.2 billion, while the average cost of funds fell five basis points to 1.56%. Although the average cost of interest-bearing deposits rose one basis point, to 0.65% linked-quarter, the average cost of borrowed funds fell 13 basis points during this time, to 3.22%.

The following factors contributed to the year-over-year increase in our net interest income and the simultaneous decline in our net interest margin:

—

In the three months ended June 30, 2013, the interest income on interest-earning assets and loans fell $18.4 million and $18.3 million, respectively, to $436.6 million and $388.2 million, from the levels recorded in the year-earlier three months. While the average balance of interest-earning assets rose $2.1 billion year-over-year, including a $1.2 billion rise in the average loan balance, the benefit of the increase was exceeded by the impact of a 47-basis point decline in the average yield on such assets, driven by a 42-basis point decline in the average yield on loans.

—

The reductions in the interest income on interest-earning assets and loans were somewhat tempered by a year-over-year increase of $12.5 million in the level of prepayment penalty income recorded in the current three-month period. In addition, prepayment penalty income contributed 14 and 12 more basis points to the average yields on loans and interest-earning assets in the current second quarter than it did in the second quarter of 2012.

—

The year-over-year increase in net interest income was supported, and the decline in our margin tempered, by a year-over-year reduction in the average cost of funds. In connection with the repositioning of wholesale borrowings that began in late December, the average cost of borrowed funds fell 56 basis points from the year-earlier measure, contributing to a 34-basis point drop in the average cost of interest-bearing liabilities, even as the average balance of such funds rose $1.7 billion.

It should be noted that the level of prepayment penalty income recorded in any given period depends on the volume of loans that refinance or prepay during that time. Such activity is largely dependent on such external factors as current market conditions, including real estate values, and the perceived or actual direction of market interest rates. In addition, while a decline in market interest rates may trigger an increase in refinancing and, therefore, prepayment penalty income, so too may an increase in market interest rates. It is not unusual for borrowers to lock in lower interest rates when they expect, or see, that market interest rates are rising rather than risk refinancing later at a still higher interest rate.

Furthermore, the level of prepayment penalty income recorded when a loan prepays is a function of the remaining principal balance, as well as the number of years remaining on the loan. The number of years dictates the number of prepayment penalty points that are charged on the remaining principal balance, based on a sliding scale of five percentage points to one, as discussed under “Multi-Family Loans” and “Commercial Real Estate Loans” earlier in this report.

Net Interest Income Analysis (Linked-Quarter Comparison)


	For the Three Months Ended
	June 30, 2013						March 31, 2013
					Average						Average
	Average				Yield/		Average				Yield/
(dollars in thousands)	Balance		Interest		Cost		Balance		Interest		Cost
Assets:
Interest-earning assets:
Mortgage and other loans, net ⁽¹⁾	$	31,941,012	$	388,156		4.86%	$	31,615,006	$	366,999		4.65%
Securities and money market investments ⁽²⁾⁽³⁾		6,051,650		48,418		3.19		5,441,285		45,808		3.37

Total interest-earning assets		37,992,662		436,574		4.60		37,056,291		412,807		4.46
Non-interest-earning assets		5,867,505						6,186,968

Total assets	$	43,860,167					$	43,243,259

Liabilities and Stockholders’ Equity:
Interest-bearing deposits:
NOW and money market accounts	$	9,299,177	$	9,777		0.42%	$	8,969,149	$	9,175		0.41%
Savings accounts		5,045,908		5,206		0.41		4,509,093		4,021		0.36
Certificates of deposit		8,416,283		21,782		1.04		8,860,679		22,235		1.02

Total interest-bearing deposits		22,761,368		36,765		0.65		22,338,921		35,431		0.64
Borrowed funds		12,456,990		99,925		3.22		12,381,287		102,200		3.35

Total interest-bearing liabilities		35,218,358		136,690		1.56		34,720,208		137,631		1.61
Non-interest-bearing deposits		2,793,703						2,673,879
Other liabilities		240,490						218,295

Total liabilities		38,252,551						37,612,382
Stockholders’ equity		5,607,616						5,630,877

Total liabilities and stockholders’ equity	$	43,860,167					$	43,243,259

Net interest income/interest rate spread			$	299,884		3.04%			$	275,176		2.85%

Net interest margin						3.15%						2.95%

Ratio of interest-earning assets to interest-bearing liabilities						1.08x						1.07x

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

(2)	Amounts are at amortized cost.

(3)	Includes FHLB stock.

Net Interest Income Analysis (Year-Over-Year Comparison)


	For the Three Months Ended June 30,
	2013						2012
					Average						Average
	Average				Yield/		Average				Yield/
(dollars in thousands)	Balance		Interest		Cost		Balance		Interest		Cost
Assets:
Interest-earning assets:
Mortgage and other loans, net ⁽¹⁾	$	31,941,012	$	388,156		4.86%	$	30,780,471	$	406,481		5.28%
Securities and money market investments ⁽²⁾⁽³⁾		6,051,650		48,418		3.19		5,112,683		48,499		3.79

Total interest-earning assets		37,992,662		436,574		4.60		35,893,154		454,980		5.07
Non-interest-earning assets		5,867,505						6,023,700

Total assets	$	43,860,167					$	41,916,854

Liabilities and Stockholders’ Equity:
Interest-bearing deposits:
NOW and money market accounts	$	9,299,177	$	9,777		0.42%	$	8,805,432	$	9,357		0.43%
Savings accounts		5,045,908		5,206		0.41		4,080,984		3,565		0.35
Certificates of deposit		8,416,283		21,782		1.04		7,641,613		23,489		1.24

Total interest-bearing deposits		22,761,368		36,765		0.65		20,528,029		36,411		0.71
Borrowed funds		12,456,990		99,925		3.22		12,983,063		121,913		3.78

Total interest-bearing liabilities		35,218,358		136,690		1.56		33,511,092		158,324		1.90
Non-interest-bearing deposits		2,793,703						2,552,172
Other liabilities		240,490						288,009

Total liabilities		38,252,551						36,351,273
Stockholders’ equity		5,607,616						5,565,581

Total liabilities and stockholders’ equity	$	43,860,167					$	41,916,854

Net interest income/interest rate spread			$	299,884		3.04%			$	296,656		3.17%

Net interest margin						3.15%						3.30%

Ratio of interest-earning assets to interest-bearing liabilities						1.08x						1.07x

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

(2)	Amounts are at amortized cost.

(3)	Includes FHLB stock.

Provisions for Loan Losses

Provision for Losses on Non-Covered Loans

The provision for losses on non-covered loans is based on management’s periodic assessment of the adequacy of the allowance for losses on such loans which, in turn, is based on its evaluation of inherent losses in the held-for-investment loan portfolio in accordance with GAAP. This evaluation considers several factors, including the current and historical performance of the portfolio; its inherent risk characteristics; the level of non-performing non-covered loans and charge-offs; delinquency levels and trends; local economic and market conditions; declines in real estate values; and the levels of unemployment and vacancy rates.

As a result of management’s assessment of these factors, including the aforementioned declines in non-performing non-covered loans and assets, our provision for losses on non-covered loans was $5.0 million in the current second quarter, consistent with the trailing-quarter level and $10.0 million below the level recorded in the second quarter of 2012. Reflecting the $5.0 million provision and net charge-offs of $4.7 million, the allowance for losses on non-covered loans rose $302,000 over the course of the quarter, to $140.7 million at June 30, 2013.

Provision for Losses on Covered Loans

A provision for losses on covered loans is recorded when the cash flows from certain loan portfolios acquired in our FDIC-assisted acquisitions are expected to be less than the cash flows we expected at the time of acquisition, as a result of a deterioration in credit quality. If we had reason to believe that the cash flows from acquired loans would exceed our original expectations, we would reverse the previously established covered loan loss allowance and increase our interest income as a prospective yield adjustment over the remaining life of the loan or pool of loans.

In the second quarter of 2013, we recorded a provision for losses on covered loans of $4.6 million, comparable to the $4.5 million provision recorded in the trailing quarter and $13.8 million lower than the provision recorded in the second quarter of 2012. Because losses on covered loans are largely reimbursable under our FDIC loss sharing agreements, the respective loan loss provisions were partly offset by FDIC indemnification income of $3.7 million, $3.6 million, and $14.8 million, respectively, in the corresponding quarters; these amounts were recorded in non-interest income, as further discussed below.

For additional information about our provisions for loan losses, please see the discussion of the respective loan loss allowances under “Critical Accounting Policies” and the discussion of “Asset Quality” that appear earlier in this report.

Non-Interest Income

We have four recurring sources of non-interest income: mortgage banking income, which consists of income from originations and servicing income; fee income (in the form of retail deposit fees and charges on loans); income from our investment in BOLI; and other income, which is derived from various sources, including the sale of third-party investment products in our branches, and the revenues from our wholly-owned subsidiary, Peter B. Cannell & Co., Inc., an investment advisory firm. From time to time, these recurring sources of non-interest income are supplemented by FDIC indemnification income (in any quarter when a provision for losses on covered loans is recorded) and gains on the sale of securities, which depend on market conditions and our corporate strategies.

In the second quarter of 2013, non-interest income totaled $53.7 million, down $21.8 million and $44.5 million, respectively, from the levels recorded in the three months ended March 31, 2013 and June 30, 2012. The reductions were primarily due to the following factors:

—

Mortgage banking income totaled $23.2 million in the current second quarter, down $2.9 million from the trailing-quarter level and $35.1 million year-over-year. The latter decline was largely due to the aforementioned drop in residential mortgage loan production, as the rise in mortgage interest rates from the lows of the past four quarters inhibited refinancing activity. Accordingly, income from originations totaled $17.1 million in the current second quarter, down $8.8 million sequentially and $35.9 million year-over-year. Servicing income accounted for $6.1 million of the mortgage banking income recorded in the current second quarter, as compared to $226,000 and $5.4 million, respectively, in the earlier periods.

—

While the year-over-year decline in non-interest income was largely due to the drop in mortgage banking income, the linked-quarter decline was largely due to a drop in securities gains. Securities gains totaled $123,000 in the current second quarter, in contrast to $16.6 million in the first quarter of this year. While securities gains were also down from the year-earlier level, the difference between the two amounts was nominal.

—

Fee income and BOLI income rose sequentially and year-over-year to $10.0 million and $7.3 million, respectively, while other income fell sequentially but rose year-over-year. Other income declined to $9.4 million from $13.2 million in the trailing quarter; the latter amount included the recovery of $3.9 million on a security that had previously been classified as other-than-temporarily impaired.

—

As noted in the discussion of the provision for covered loan losses, FDIC indemnification income rose modestly linked-quarter, but declined $11.1 million year-over-year.

The following table summarizes the components of non-interest income for the three months ended June 30, 2013, March 31, 2013, and June 30, 2012:

Non-Interest Income Analysis


	For the Three Months Ended
	June 30,		March 31,		June 30,
(in thousands)	2013		2013		2012
Mortgage banking income		$23,216		$26,109		$58,323
Fee income		9,961		8,772		9,433
BOLI income		7,337		7,253		6,802
Net gain on sale of securities		123		16,622		141
FDIC indemnification income		3,694		3,602		14,759
Other income:
Peter B. Cannell & Co., Inc.		3,912		3,907		3,638
Third-party investment product sales		4,203		3,773		3,886
Other		1,299		5,513		1,223

Total other income		9,414		13,193		8,747

Total non-interest income		$53,745		$75,551		$98,205

While we expect mortgage banking income to remain our single largest source of non-interest income, it should be noted that the amount of mortgage banking income we produce is likely to vary from one year or quarter to the next. Mortgage banking income in large part depends on the volume of loans originated which, in turn, depends on a variety of factors, including changes in market interest rates and economic conditions, competition, refinancing activity, and loan demand.

Non-Interest Expense

Non-interest expense has two primary components: operating expenses, which include compensation and benefits, occupancy and equipment, and G&A expenses; and the amortization of the CDI stemming from certain of our business combinations prior to 2009.

In the second quarter of 2013, non-interest expense totaled $151.7 million, reflecting a linked-quarter reduction of $4.4 million and a year-over-year reduction of $3.8 million. Operating expenses accounted for $147.5 million of the current second quarter total, having fallen $4.2 million from the trailing-quarter level and $3.0 million from the year-earlier amount. The remainder of the decrease in non-interest expense was attributable to CDI amortization, which totaled $4.2 million in the second quarter of 2013.

The following factors contributed to the sequential and year-over-year reductions in operating expenses:

—

Compensation and benefits expense totaled $77.4 million in the current second quarter, down $6.1 million on a linked-quarter basis and up $3.8 million from the year-earlier amount. In the first quarter of 2013, we recorded retirement and severance costs of $6.0 million; no comparable expenses were recorded in the three months ended June 30, 2013 or 2012. The year-over-year rise in compensation and benefits expense was primarily attributable to normal salary increases that took effect earlier in the current year.

—

G&A expense totaled $45.9 million in the current second quarter, up $1.4 million from the trailing-quarter level and down $7.7 million from the year-earlier amount. The year-over-year decline was largely attributable to a reduction in expenses associated with the management and disposition of OREO.

—

Occupancy and equipment expense totaled $24.2 million in the current second quarter, modestly exceeding the trailing-quarter and year-earlier amounts.

Income Tax Expense

Income tax expense includes federal, New York State, and New York City income taxes, as well as non-material income taxes from other jurisdictions where we have branch operations and/or conduct our mortgage banking business.

In the three months ended June 30, 2013, income tax expense totaled $69.8 million, $3.4 million higher than the trailing-quarter level and $4.9 million lower than the year-earlier amount. Pre-tax income totaled $192.3 million, reflecting a $7.2 million increase from the trailing-quarter level and a $13.6 million reduction from the level recorded in the second quarter of 2012. While the effective tax rate was 36.30% in the current and year-earlier second quarters, the rate was 35.90% in the first quarter of this year.

Earnings Summary for the Six Months Ended June 30, 2013

Net Income

In the first six months of 2013, we generated earnings of $241.2 million, or $0.55 per diluted share, as compared to $249.5 million, or $0.56 per diluted share, in the first six months of 2012.

While net interest income fell $10.0 million year-over-year, and non-interest expense rose $2.2 million, the decline in earnings was largely driven by a $30.9 million reduction in non-interest income, as a rise in residential mortgage interest rates discouraged refinancing, resulting in a $44.2 million decline in income from mortgage banking activities.

The impact of these factors was largely tempered by reductions of $20.0 million and $9.3 million in the provisions for non-covered loans and covered loans, respectively. Primarily reflecting a $13.7 million decline in pre-tax income, income tax expense fell $5.5 million year-over-year.

Net Interest Income

Net interest income fell $10.0 million year-over-year, to $575.1 million, as a $42.2 million decline in interest expense to $274.3 million was exceeded by a $52.2 million decline in interest income to $849.4 million. In addition, our net interest margin declined to 3.05% in the current six-month period from 3.27% in the first six months of 2012.

The following factors contributed to the net interest income and margin we recorded in the current six-month period:

—

The average balance of interest-earning assets rose $1.8 billion year-over-year, to $37.5 billion, the result of a $1.1 billion increase in the average balance of loans to $31.8 billion and a $724.5 million increase in the average balance of securities and money market investments to $5.7 billion.

—

While prepayment penalty income rose $14.8 million year-over-year to $64.3 million, adding 40 basis points to the average yield on loans and 35 basis points to the average yield on interest-earning assets, the benefits were exceeded by the impact of the low level of market interest rates in the first five months of the year. At 4.75%, the average yield on loans was 50 basis points below the year-earlier measure and at 4.53%, the average yield on interest-earning assets was down 52 basis points.

—

The average balance of interest-bearing liabilities rose $1.4 billion year-over-year, to $35.0 billion, as the average balance of borrowed funds fell $782.0 million to $12.4 billion, tempering the impact of a $2.2 billion rise in average interest-bearing deposits to $22.6 billion.

—

The impact of the increase in the average balance of interest-bearing liabilities was largely offset by a 32-basis point reduction in the average cost of funds to 1.58%. The latter decline was driven by a 44-basis point decline in the average cost of borrowed funds to 3.28%, together with a six-basis point decline in the average cost of interest-bearing deposits to 0.65%. The substantial drop in the average cost of borrowed funds was attributable to the strategic repositioning of wholesale borrowings that began at the end of December and continued into the second quarter of 2013.

Net Interest Income Analysis (Year-Over-Year Comparison)

(dollars in thousands)


	Six Months Ended June 30,
	2013						2012
					Average						Average
	Average				Yield/		Average				Yield/
	Balance		Interest		Cost		Balance		Interest		Cost
Assets:
Interest-earning assets:
Mortgage and other loans, net ⁽¹⁾		$31,778,910		$755,155		4.75%		$30,688,000		$804,665		5.25%
Securities and money market investments⁽²⁾⁽³⁾		5,748,153		94,226		3.27		5,023,638		96,953		3.86

Total interest-earning assets		37,527,063		849,381		4.53		35,711,638		901,618		5.05
Non-interest-earning assets		6,026,354						6,121,634

Total assets		$43,553,417						$41,833,272

Liabilities and Stockholders’ Equity:
Interest-bearing deposits:
NOW and money market accounts		$ 9,135,075		$ 18,952		0.42%		$ 8,803,109		$ 18,090		0.41%
Savings accounts		4,778,983		9,227		0.39		4,032,109		7,061		0.35
Certificates of deposit		8,637,253		44,017		1.03		7,531,191		47,209		1.26

Total interest-bearing deposits		22,551,311		72,196		0.65		20,366,409		72,360		0.71
Borrowed funds		12,419,348		202,125		3.28		13,201,307		244,188		3.72

Total interest-bearing liabilities		34,970,659		274,321		1.58		33,567,716		316,548		1.90
Non-interest-bearing deposits		2,734,122						2,464,853
Other liabilities		229,454						266,426

Total liabilities		37,934,235						36,298,995
Stockholders’ equity		5,619,182						5,534,277

Total liabilities and stockholders’ equity		$43,553,417						$41,833,272

Net interest income/interest rate spread				$575,060		2.95%				$585,070		3.15%

Net interest margin						3.05%						3.27%

Ratio of interest-earning assets to interest-bearing liabilities						1.07x						1.06x

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

(2)	Amounts are at amortized cost.

(3)	Includes FHLB stock.

Provisions for Loan Losses

Provision for Losses on Non-Covered Loans

In the first six months of 2013, we recorded a $10.0 million provision for non-covered loan losses, down $20.0 million from the provision recorded in the year-earlier six months. Reflecting the current six-month provision and year-to-date net charge-offs of $10.3 million, the allowance for losses on non-covered loans was $140.7 million at June 30, 2013, as compared to $140.9 million at December 31, 2012.

Provision for Losses on Covered Loans

The provision for losses on covered loans was $9.1 million in the current six-month period and $18.4 million in the year-earlier six months. The respective amounts were largely offset by FDIC indemnification income of $7.3 million and $14.8 million, which was recorded in non-interest income in the respective six-month periods.

For additional information about the provisions for loan losses recorded in the current and year-earlier six-month periods, please see “Allowances for Loan Losses” within the discussion of Critical Accounting Policies and “Asset Quality” within the Balance Sheet Summary.

Non-Interest Income

Non-interest income fell $30.9 million year-over-year to $129.3 million in the six months ended June 30, 2013. The reduction was primarily due to a decline in mortgage banking income, as the year-over-year rise in residential mortgage interest rates in the second quarter discouraged homeowners from refinancing.

While mortgage banking income contributed $49.3 million to total revenues in the current six-month period, the year-earlier contribution was $93.5 million. The $44.2 million decline was the net effect of a $50.0 million drop in income from originations to $43.0 million and a $5.8 million increase in income from servicing to $6.4 million. To a far lesser extent, the decline in non-interest income was attributable to the aforementioned reduction in FDIC indemnification income, together with more modest declines in fee income and BOLI income.

In the first six months of 2013, the impact of these reductions was partly offset by a $15.9 million increase in securities gains to $16.7 million, and by a $7.1 million increase in other income to $22.6 million. Included in the latter amount was the recovery of $4.3 million on securities that had been classified as other-than-temporarily impaired. The remainder of the increase in other income was primarily attributable to a year-over-year decline in net losses on the sale of OREO properties.

The following table summarizes the sources and amounts of non-interest income for the six months ended June 30, 2013 and 2012:

Non-Interest Income Analysis


	For the Six Months Ended June 30,
(in thousands)	2013		2012
Mortgage banking income		$ 49,325		$ 93,488
Fee income		18,733		19,191
BOLI		14,590		16,387
Gain on sale of securities		16,745		859
FDIC indemnification income		7,296		14,759
Other income:
Peter B. Cannell & Co., Inc.		7,819		7,397
Third-party investment product sales		7,976		7,757
Other		6,812		363

Total other income		22,607		15,517

Total non-interest income		$129,296		$160,201

Non-Interest Expense

In the first six months of 2013, we recorded non-interest expense of $307.8 million, $2.2 million higher than the year-earlier amount. While operating expenses rose $3.6 million year-over-year, to $299.2 million, the impact was tempered by a $1.5 million decline in CDI amortization to $8.6 million during the same time.

The increase in operating expenses was driven by a $13.7 million rise in compensation and benefits expense to $160.9 million, which included $6.0 billion of retirement and severance charges in the first quarter of this year. The remainder of the increase in compensation and benefits expense was attributable to normal salary increases, higher payroll taxes, and the granting of incentive stock awards.

While occupancy and equipment expense rose $2.6 million year-over-year, to $47.8 million, the impact was far exceeded by a $12.7 million reduction in G&A expense to $90.5 million. The latter decline was largely due to a reduction in expenses associated with the management and disposition of foreclosed properties. In addition, FDIC deposit insurance premiums fell $662,000 year-over-year, to $28.8 million, in the six months ended June 30, 2013.

Income Tax Expense

Income tax expense fell $5.5 million year-over-year, to $136.3 million, in the first six months of 2013. The reduction was the result of a $13.7 million decline in pre-tax income to $377.5 million and a reduction in the effective tax rate to 36.10% from 36.23%.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and qualitative disclosures about the Company’s market risk were presented on pages 90-95 of our 2012 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 1, 2013. Subsequent changes in the Company’s market risk profile and interest rate sensitivity are detailed in the discussion entitled “Asset and Liability Management and the Management of Interest Rate Risk” earlier in this quarterly report.

ITEM 4. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b), as adopted by the SEC under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report in ensuring that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.

(b) Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in various legal actions arising in the ordinary course of its business. All such actions, in the aggregate, involve amounts that are believed by management to be immaterial to the financial condition and results of operations of the Company.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, as such factors could materially affect the Company’s business, financial condition, or future results. There have been no material changes to the risk factors disclosed in the Company’s 2012 Annual Report on Form 10-K. The risks described in the 2012 Annual Report on Form 10-K are not the only risks that the Company faces. Additional risks and uncertainties not currently known to the Company, or that the Company currently deems to be immaterial, also may have a material adverse impact on the Company’s business, financial condition, or results of operations.

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

Share Repurchase Program

During the three months ended June 30, 2013, the Company allocated $118,000 toward the repurchase of shares of its common stock, as outlined in the following table:


Period	(a) Total Number of Shares (or Units) Purchased⁽¹⁾		(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs⁽²⁾
Month #1: April 1, 2013 through April 30, 2013		8,663		$13.60		8,663	171,409
Month #2: May 1, 2013 through May 31, 2013		--		--		--	171,409
Month #3: June 1, 2013 through June 30, 2013		--		--		--	171,409
Total		8,663		$13.60		8,663

(1)	All shares were purchased in privately negotiated transactions.

(2)	On April 20, 2004, the Board authorized the repurchase of up to an additional five million shares. Of this amount, 171,409 shares were still available for repurchase at June 30, 2013. Under said authorization, shares may be repurchased on the open market or in privately negotiated transactions.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits


Exhibit 3.1:		Amended and Restated Certificate of Incorporation ⁽¹⁾

Exhibit 3.2:		Certificates of Amendment of Amended and Restated Certificate of Incorporation ⁽²⁾

Exhibit 3.3:		Bylaws, as amended and restated ⁽³⁾

Exhibit 4.1:		Specimen Stock Certificate ⁽⁴⁾

Exhibit 4.2:		Registrant will furnish, upon request, copies of all instruments defining the rights of holders of long-term debt instruments of the registrant and its consolidated subsidiaries.

Exhibit 31.1:		Certification pursuant to Rule 13a-14(a)/15d-14(a)

Exhibit 31.2:		Certification pursuant to Rule 13a-14(a)/15d-14(a)

Exhibit 32:		Certifications pursuant to 18 U.S.C. 1350

Exhibit 101:		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Income and Comprehensive Income, (iii) the Consolidated Statement of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements.

(1)	Incorporated by reference to Exhibits filed with the Company’s Form 10-Q filed with the Securities and Exchange Commission on May 11, 2001 (File No. 000-22278).

(2)	Incorporated by reference to Exhibits filed with the Company’s Form 10-K for the year ended December 31, 2003 (File No. 001-31565).

(3)	Incorporated by reference to Exhibits filed with the Company’s Form 8-K filed with the Securities and Exchange Commission on August 27, 2012 (File No. 001-31565).

(4)	Incorporated by reference to Exhibits filed with the Company’s Registration Statement on Form S-1 (Registration No. 333-66852).

NEW YORK COMMUNITY BANCORP, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		New York Community Bancorp, Inc.
		(Registrant)

DATE: August 9, 2013	BY:	/s/ Joseph R. Ficalora
		Joseph R. Ficalora President, Chief Executive Officer, and Director

DATE: August 9, 2013	BY:	/s/ Thomas R. Cangemi
		Thomas R. Cangemi Senior Executive Vice President and Chief Financial Officer