-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Dhw/D78Wh9ZLtljFdRc9RB2ry4MrkM8qE290kTrHL3Z4eUwwTgIsk0kybGw7HPmo CKPv8h+RF/6TYxYMsWrrrw== 0001005477-01-002195.txt : 20010328 0001005477-01-002195.hdr.sgml : 20010328 ACCESSION NUMBER: 0001005477-01-002195 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW YORK COMMUNITY BANCORP INC CENTRAL INDEX KEY: 0000910073 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 061377322 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-22278 FILM NUMBER: 1580914 BUSINESS ADDRESS: STREET 1: 615 MERRICK AVE CITY: WESTBURY STATE: NY ZIP: 11590 BUSINESS PHONE: 7183596400 MAIL ADDRESS: STREET 1: 615 MERRICK AVE CITY: WESTBURY STATE: NY ZIP: 11590 FORMER COMPANY: FORMER CONFORMED NAME: QUEENS COUNTY BANCORP INC DATE OF NAME CHANGE: 19930802 10-K405 1 0001.txt FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended: December 31, 2000 Commission File Number 0-22278 ----------------- ------- NEW YORK COMMUNITY BANCORP, INC. -------------------------------- (Exact name of registrant as specified in its charter) Delaware 06-1377322 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 615 Merrick Avenue, Westbury, New York 11590 ----------------------------------------------- (Address of principal executive offices) (Zip code) (Registrant's telephone number, including area code) 516: 683-4100 ------------- Securities registered pursuant to Section 12(b) of the Act: None ---- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value ---------------------------- (Title of Class) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not considered herein, and will not be contained to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. |X| As of March 22, 2001, the aggregate market value of the shares of common stock of the registrant outstanding was $1,022,474,125, excluding 3,352,301 shares held by all directors and executive officers of the registrant. This figure is based on the closing price by The Nasdaq Stock Market(R) for a share of the registrant's common stock on March 22, 2001, which was $39.91 as reported in The Wall Street Journal on March 23, 2001. The number of shares of the registrant's common stock outstanding as of March 22, 2001 was 28,971,798 shares. Documents Incorporated by Reference Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 9, 2001 and the 2000 Annual Report to Shareholders are incorporated herein by reference - Parts I, II, and III. CROSS REFERENCE INDEX
PART I Page ---- Item 1. Business 1 Description of Business 1 Statistical Data: 19 Mortgage and Other Lending Activities 20 Loan Maturity and Repricing 21 Summary of Allowance for Loan Losses 22 Composition of Loan Portfolio 23 Securities, Money Market Investments, and Mortgage-backed Securities Portfolio 24 Item 2. Properties 24 Item 3. Legal Proceedings 30 Item 4. Submission of Matters to a Vote of Security Holders 30 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters 30 Item 6. Selected Financial Data 31 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 31 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 31 Item 8. Financial Statements and Supplementary Data New York Community Bancorp, Inc. and Subsidiaries: 31 Independent Auditors' Report 31 Consolidated Statements of Financial Condition 31 Consolidated Statements of Income 31 Consolidated Statements of Changes in Stockholders' Equity 31 Consolidated Statements of Cash Flows 31 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure PART III Item 10. Directors and Executive Officers of the Registrant 31 Item 11. Executive Compensation 31 Item 12. Security Ownership of Certain Beneficial Owners and Management 31 Item 13. Certain Relationships and Related Transactions 32 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 32 Signatures 34
PART I ITEM 1. BUSINESS New York Community Bancorp, Inc. (the "Company"), formerly known as Queens County Bancorp Inc., was incorporated in the State of Delaware on July 20, 1993 as the holding company for New York Community Bank (the ("Bank"), formerly known as Queens County Savings Bank, the first savings bank chartered by the State of New York in the Borough of Queens, on April 14, 1859. The Company acquired all of the stock of the Bank upon its conversion from a New York State-chartered mutual savings bank to a New York State-chartered stock form savings bank on November 23, 1993. On November 21, 2000, the Company changed its name from Queens County Bancorp, Inc. to New York Community Bancorp, Inc., in anticipation of its acquisition of Haven Bancorp, Inc., parent company of CFS Bank, which was founded as the Columbia Building and Loan Association, also in Queens, in 1889. The acquisition was announced on June 27, 2000 and was completed on November 30, 2000. Shareholders of Haven Bancorp received 1.04 shares of New York Community Bancorp, Inc. stock for each share of Haven Bancorp stock held at the closing date. On December 15, 2000, the name of the Company's primary subsidiary was changed from Queens County Savings Bank to New York Community Bank, and its headquarters was relocated from Flushing, in Queens County, New York to Westbury, in Nassau County, New York. CFS Bank merged with and into New York Community Bank on January 31, 2001. Two additional branches were opened in the first quarter of 2001. General Primarily reflecting the acquisition of Haven Bancorp on November 30, 2000 and the subsequent sale of assets totaling $620.0 million, the Company ended the year 2000 as a $4.7 billion institution with loans of $3.6 billion, deposits of $3.3 billion, and a network of 84 branch offices serving customers throughout the greater metropolitan New York area. The acquisition joined New York Community Bancorp's strength as a multi-family mortgage lender with Haven Bancorp's strength as a significant source of low-cost deposits and fee income derived from the sale of investment products and banking services. In addition to multi-family mortgage loans, the Company's assets include commercial real estate and construction loans and short-term securities, primarily in the form of U.S. Government agency obligations. While the Company adopted a policy of originating one-to-four family mortgage loans and consumer loans on a pass-through basis on December 1, 2000, the Company's balance sheet at December 31, 2000 also reflects one-to-four family mortgage loans and other loans originated prior to the adoption of said policy. The Company's revenues primarily stem from the interest earned on mortgage and other loans and securities investments, together with fee income derived from depository accounts and, to a greater extent since the acquisition of Haven, from the sale of investment products and banking services. The Bank's primary funding sources are deposits, amortization and prepayments of loans, and the amortization, prepayments, and maturities of mortgage-backed and investment securities. In addition, the Company has drawn extensively on its line of credit with the Federal Home Loan Bank of New York (the "FHLB-NY") to fund loan production. The increase in deposits stemming from the Haven acquisition is expected to reduce the Company's use of FHLB borrowings in the current year. Additionally, in 2000, the Company issued $25.0 million of trust preferred securities through two subsidiaries, the proceeds of which have been used for general operations. In addition to maintaining a high level of asset quality and a strong capital position through the generation of stable earnings, the Company has enhanced share value through a series of share repurchase programs and the payment of quarterly cash dividends. Reflecting share repurchases and the issuance of 9,827,744 shares of common stock from Treasury in connection with the acquisition, the number of shares outstanding at December 31, 2000 was 29,580,124; reflecting share repurchases, the number of outstanding shares at March 22, 2001 was 28,971,798. 1 Market Area and Competition The Bank is a community-oriented financial institution offering a wide variety of financial products and services to meet the needs of the communities it serves. As a result of the acquisition, the Bank has 86 locations serving the greater metropolitan New York region, including 19 traditional branch offices (17 in Queens and one each in Nassau and Suffolk counties) and 67 in-store branches throughout New York City, Nassau, Suffolk, Rockland and Westchester counties, New Jersey, and Connecticut. The Bank's deposit gathering base is concentrated in the communities surrounding its offices, while its primary lending area extends throughout the greater metropolitan New York area. Most of the Bank's mortgage loans are secured by properties located in the New York City Boroughs of Queens, Brooklyn, and Manhattan, and in Nassau County. The Bank faces significant competition both in making loans and in attracting deposits. Its market area has a high density of financial institutions, many of which have greater financial resources than the Bank, and all of which are competitors of the Bank to varying degrees. The Bank's competition for loans comes principally from commercial banks, savings banks, credit unions, savings and loan associations, mortgage banking companies, and insurance companies. Additionally, the Bank faces competition from non-traditional financial service companies and, on a nationwide basis, from companies that solicit loans and deposits over the Internet. Competition is likely to increase as a result of recent regulatory actions and legislative changes, most notably the enactment of the Gramm-Leach-Bliley Act of 1999. These changes have eased and likely will continue to ease restrictions on interstate banking and the entrance into the financial services market by non-traditional and non-depository financial services providers, including insurance companies and securities brokerage and underwriting firms. The Bank has recently faced increased competition for the origination of multi-family loans, which comprised 53.51% of the Bank's loan portfolio at year-end 2000. Management anticipates that competition for multi-family loans will continue to increase in the future. Thus, no assurances can be made that the Bank will be able to maintain its current level of lending activity. Lending Activities Loan and Mortgage-backed Securities Portfolio Composition. The Bank's loan portfolio consists primarily of multi-family mortgage loans on both rental and cooperative apartment buildings, and conventional first mortgage loans secured by one-to-four family homes. To a lesser extent, the Bank also originates commercial real estate loans, construction loans, and home equity and other consumer loans. At December 31, 2000, the Bank's gross loan portfolio totaled $3.6 billion, of which $1.9 billion, or 53.51%, were multi-family mortgage loans, and $1.3 billion, or 34.85%, were one-to-four family first mortgage loans. Of the total mortgage loan portfolio at year-end 2000, 69.14% were adjustable rate loans and 30.86% were fixed-rate loans. The Bank's mortgage loan portfolio also included $324.1 million in commercial real estate loans and $59.5 million in construction loans. In addition, the Bank had $3.7 million in cooperative apartment loans, $12.2 million in home equity loans generally secured by second liens on real property, and $23.8 million in other consumer loans at December 31, 2000. The types of loans originated by the Bank are subject to Federal and State laws and regulations. Interest rates charged by the Bank on loans are affected principally by the demand for such loans, the supply of money available for lending purposes, and the rates offered by its competitors. These factors are, in turn, affected by general economic conditions, the monetary policy of the Board of Governors of the Federal Reserve System ("Federal Reserve Board"), legislative tax policies, and governmental budgetary matters. The Bank has invested in a variety of mortgage-backed securities, some of which are directly or indirectly insured or guaranteed by the Federal Home Loan Mortgage Corporation ("FHLMC"), the Government National Mortgage Association ("GNMA") or the Federal National Mortgage Association ("FNMA"). At December 31, 2000, mortgage-backed securities totaled $161.6 million, or 3.43% of total assets. The market value of such securities was approximately $161.6 million at December 31, 2000. Of the $161.6 in million total mortgage-backed securities, $159.7 million were classified as available for sale and $1.9 million were classified as held to maturity. 2 Loan Originations, Purchases, Sales, and Servicing. The Bank originates both adjustable rate mortgage ("ARM") loans and fixed-rate loans, the amounts of which are dependent upon customer demand and market rates of interest. Generally, the Bank does not purchase whole mortgage loans or loan participations. Prior to the year 2000, the Bank held all adjustable rate one-to-four family mortgage loans that it originated, and generally sold any fixed-rate one-to-four family mortgage loans it originated to Savings Bank Life Insurance ("SBLI"). One-to-four family mortgage loans sold to SBLI during the year ended December 31, 1999 amounted to $2.0 million; no one-to-four family mortgage loans were sold to SBLI during 2000. In December 2000, the Bank sold one-to-four family mortgage loans totaling $1.7 million. On December 28, 2000, the Bank sold 458 fixed-rate one-to-four family mortgage loans totaling $105.7 million that it had acquired in the Haven transaction. Together with the proceeds from the sale of securities in December, the proceeds from the loan sales were used to reduce the balance of FHLB borrowings. For the fiscal years December 31, 2000 and 1999, originations of new ARM loans totaled $557.5 million and $563.9 million, respectively, or 90.51% and 92.32%, of all mortgage loan originations. Originations of fixed-rate loans totaled $58.4 million and $46.9 million, respectively, for the same periods, while sales of ARM loans and fixed-rate loans totaled $107.4 million and $213.6 million, respectively, for those periods. As of December 31, 2000, the Bank was servicing $1.1 billion in loans for others. The Bank is generally paid a fee up to 0.25% for servicing loans sold. Multi-Family Lending. The Bank originates multi-family loans (defined as loans on properties with five or more units), which are secured by rental or cooperative apartment buildings located primarily in the greater metropolitan New York area. At December 31, 2000, the Bank's portfolio of multi-family mortgage loans totaled $1.9 billion, representing 53.51% of the total loan portfolio. Of this total, $1.6 billion, or 81%, were secured by rental apartment buildings and $362.5 million, or 19%, were secured by underlying mortgages on cooperative apartment buildings. Such loans are generally originated for terms of 10 years at a rate of interest that adjusts to the prime rate of interest, as reported in The New York Times, plus a margin of 100 basis points, in each of years six through ten. In 2000, the majority of the Bank's multi-family mortgage loan originations featured a fixed-rate for the first five years of the credit; prepayment penalties range from five points to two over the first five years of the loan. At year-end 2000, 69% of the Bank's multi-family mortgage loans were adjustable rate credits, including $1.3 billion that are due to adjust in 2001. Properties securing multi-family mortgage loans are appraised by independent appraisers approved by the Bank. In originating such loans, the Bank bases its underwriting decisions primarily on the net operating income generated by the property in relation to the debt service. The Bank also considers the financial resources of the borrower, the borrower's experience in owning or managing similar property, the market value of the property, and the Bank's lending experience with the borrower. The Bank generally requires minimum debt service ratios of 120% on multi-family properties. In addition, the Bank requires a security interest in the personal property at the premises and an assignment of rents. The Bank's largest concentration of loans to one borrower at December 31, 2000 consisted of 24 loans secured by 24 multi-family properties located in the Bank's primary market area. These loans were made to several borrowers who are deemed to be related for regulatory purposes. As of December 31, 2000, the outstanding balance of these loans totaled $25.7 million and, as of such date, all such loans were performing in accordance with their terms. The Bank's concentration of such loans did not exceed its "loans-to-one-borrower" limitation. Loans secured by multi-family properties are generally larger and involve a greater degree of risk than one-to-four family residential mortgage loans. Payments on loans secured by multi-family buildings are generally dependent on the income produced by such properties, which, in turn, is dependent on the successful operation or management of the properties; accordingly, repayment of such loans may be subject to a greater extent to adverse conditions in the real estate market or the local economy. The Bank seeks to minimize these risks through its underwriting policies, which restrict new originations of such loans to the Bank's primary lending area and require such loans to be qualified on the basis of the property's net income and debt service ratio. Since 1987, one loan on a multi-family property located outside of the primary lending area was foreclosed upon and subsequently sold. 3 One-to-Four Family Mortgage Lending. At December 31, 2000, $1.3 billion, or 34.85%, of the Bank's loan portfolio, consisted of one-to-four family mortgage loans; however the concentration of one-to-four family mortgage loans is expected to decline in 2001. Effective December 1, 2000, the Bank adopted a policy of originating such loans on a pass-through basis. Applications are taken and processed by one of the nation's leading mortgage brokers; upon closing, the loans are sold to the broker, service-released. The Bank had non-performing loans of $9.1 million at December 31, 2000, primarily consisting of one-to-four family mortgage loans. Since 1990, the Bank has foreclosed on 51 one-to-four family residential properties; one property, with a carrying value of $12,000, remained in foreclosed real estate as of December 31, 2000. In the years ended December 31, 2000 and 1999, the Bank originated one-to-four family ARM loans of $724,000 and $1.4 million respectively. For the years ended December 31, 2000 and 1999, the Bank originated $1.8 million and $4.2 million, respectively, of fixed-rate one-to-four family mortgage loans. Prior to the year 2000, the Bank held all adjustable rate one-to-four family mortgage loans that it originated, and generally sold any fixed-rate one-to-four family mortgage loans it originated to Savings Bank Life Insurance ("SBLI"), while retaining the servicing rights. One-to-four family mortgage loans sold to SBLI during the year ended December 31, 1999 amounted to $2.0 million; no one-to-four family mortgage loans were sold to SBLI during 2000. On December 28, 2000, the Bank sold fixed-rate one-to-four family mortgage loans totaling $105.7 million that it had acquired in the Haven transaction, while retaining the servicing rights. As of December 31, 2000 the Bank's portfolio of loans serviced for others totaled $1.1 billion. In December 2000, the Bank sold one-to-four family mortgage loans totaling $1.7 million to Cendant Mortgage Corporation. The Bank intends to continue to sell all of its newly originated one-to-four family mortgage loans as a means of managing its interest rate risk; however, no assurances can be made that the Bank will be able to do so in the future. Commercial Real Estate Lending. The Bank offers commercial real estate loans that are typically secured by office buildings, retail stores, medical offices, warehouses, and other non-residential buildings. At December 31, 2000, the Bank had loans secured by commercial real estate of $324.1 million, comprising 8.9% of the Bank's total loan portfolio. Commercial real estate loans may be originated in amounts of up to 75% of the appraised value of the mortgaged property. Such loans are typically made for terms of ten years with interest rates charged in the same manner as the Company's multi-family loans. To originate commercial real estate loans, the Bank requires one or more of the following: personal guarantees of the principals, a security interest in the personal property, and an assignment of rents and/or leases. Properties securing the loan are appraised by independent appraisers approved by the Bank. Loans secured by commercial real estate properties, like multi-family loans, are generally larger and involve a greater degree of risk than one-to-four family residential mortgage loans. Because payments on loans secured by commercial real estate properties are often dependent on the successful operation and management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or the economy, to a greater extent than other types of loans. The Bank seeks to minimize these risks through its lending policies and underwriting standards, which restrict new originations of such loans to the Bank's primary lending area and qualify such loans on the basis of the property's net income and debt service ratio. Construction Lending. The Bank's construction loans primarily have been made to finance the construction of one-to-four family residential properties and, to a lesser extent, multi-family properties. The Bank's policies provide that construction loans may be made in amounts of up to 70% of the appraised value of the project. The Bank generally has provided construction loans only as an accommodation to existing customers and does not actively solicit such loans. The Bank generally requires personal guarantees and a permanent loan commitment. Construction loans are made with adjustable rate terms of up to 18 months. Loan proceeds are disbursed in increments as construction progresses and as inspections warrant. Construction loans are structured to be converted to permanent end loans originated by the Bank at the end of the construction period or upon the borrower receiving permanent financing from another financial institution. As of December 31, 2000, the Bank had $59.5 million, or 1.64%, of its total loan portfolio invested in construction loans. The Bank does not currently intend to increase the level or ratio of its construction loans to total loans. 4 Other Lending. Other loans outstanding at December 31, 2000 totaled $39.7 million, or 1.09% of the Bank's loan portfolio, and included cooperative apartment loans of $3.7 million, representing 9.37% of other loans. The Bank's home equity loans extend a line of credit ranging from a minimum of $10,000 to a maximum of $400,000. The credit line, when combined with the balance of the first mortgage lien, may not exceed 70% of the appraised value of the property at the time of the loan commitment. Home equity loans outstanding at December 31, 2000 totaled $12.2 million, against total available credit lines of $1.6 million. Effective December 1, 2000, the Company adopted a policy of originating other loans on a pass-through basis as a means of reducing credit and interest rate risk. Loan Approval Authority and Underwriting. The Board of Directors establishes lending authority for individual officers for its various loan products. For multi-family and commercial real estate loans, the Mortgage and Real Estate Committee must approve all loans. A loan in excess of $3.0 million must be approved by the Executive Committee; as of December 31, 2000, the Bank had 34 loans in excess of $3.0 million, with the highest amount being $31.5 million. Non-performing Loans and Foreclosed Assets. The Bank had $9.1 million in loans 90 days or more delinquent at December 31, 2000. Based on current market values, management does not currently expect to incur significant losses on its non-performing mortgage loans. Management reviews non-performing loans on a regular basis and reports monthly to both the Mortgage and Real Estate Committee and the Executive Committee regarding delinquent loans. The Bank hires outside counsel experienced in foreclosure and bankruptcy to institute foreclosure and other proceedings on the Bank's delinquent loans. With respect to one-to-four family mortgage loans, the Bank's collection procedures include sending a past due notice when the regular monthly payment is 17 days past due. In the event that payment is not received following notification, another notice is sent after the loan becomes 30 days delinquent. If payment is not received after the second notice is sent, personal contact with the borrower is attempted through additional letters and telephone calls. If a loan becomes 90 days delinquent, the Bank then issues a demand note and sends an inspector to the property. When contact is made with the borrower at any time prior to foreclosure, the Bank attempts to obtain full payment or to work out a repayment schedule with the borrower to avoid foreclosure. If a satisfactory repayment schedule is not worked out with the borrower, foreclosure actions are generally initiated prior to the loan becoming 120 days past due. With respect to multi-family and commercial real estate loans, any loans that become 20 days delinquent are reported to the Executive Vice President, Mortgages. The Bank then attempts to contact such borrowers by telephone. Before a loan becomes 30 days past due, the Bank conducts a physical inspection of the property. Once contact is made with the borrower, the Bank attempts to obtain full payment or to work out a repayment schedule. If the Bank determines that successful repayment is unlikely, the Bank initiates foreclosure proceedings, typically before the loan becomes 60 days delinquent. The Bank's policies provide that management report monthly to the Mortgage and Real Estate Committee and Executive Committee regarding classified assets. The Bank reviews the problem loans in its portfolio on a monthly basis to determine whether any loans require classification in accordance with applicable regulatory guidelines, and believes its classification policies are consistent with regulatory policies. All classified assets of the Bank are included in non-performing loans 90 days or more delinquent or foreclosed real estate. When loans are designated as "in foreclosure", the accrual of interest and amortization of origination fees continues up to net realizable value less the transaction cost of disposition. During the years ended December 31, 2000, 1999, and 1998, the amounts of additional interest income that would have been recorded on mortgage loans in foreclosure, had they been current, totaled $435,000, $641,000, and $1.1 million, respectively. These amounts were not included in the Bank's interest income for the respective periods. 5 The following table sets forth information regarding all mortgage loans in foreclosure, loans which are 90 days or more delinquent, and foreclosed real estate at the dates indicated. At December 31, 2000, the Bank had no restructured loans within the meaning of Statement of Financial Accounting Standards ("SFAS") No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings," as amended by SFAS No. 114.
At December 31, 2000 1999 1998 1997 1996 ------- ------- ------- ------- ------- (dollars in thousands) Mortgage loans in foreclosure $ 6,011 $ 2,886 $ 5,530 $ 6,121 $ 6,861 Loans 90 days or more delinquent and still accruing interest 3,081 222 663 1,571 2,798 ------- ------- ------- ------- ------- Total non-performing loans 9,092 3,108 6,193 7,692 9,659 ------- ------- ------- ------- ------- Foreclosed real estate 12 66 419 1,030 627 ------- ------- ------- ------- ------- Total non-performing assets $ 9,104 $ 3,174 $ 6,612 $ 8,722 $10,286 ======= ======= ======= ======= ======= Total non-performing loans to loans, net 0.25% 0.19% 0.42% 0.55% 0.84% Total non-performing assets to total assets 0.19 0.17 0.38 0.54 0.76
Management monitors non-performing loans and, when deemed appropriate, writes down such loans to their current appraised values, less transaction costs. There can be no assurances that further write-downs will not occur with respect to such loans. At December 31, 2000, foreclosed real estate consisted of one residential property with an aggregate carrying value of $12,000. The Bank generally conducts appraisals on all properties securing mortgage loans in foreclosure and foreclosed real estate as deemed appropriate and, if necessary, charges off any declines in value at such times. Based upon management's estimates as to the timing of, and expected proceeds from, the disposition of these loans, no material loss is currently expected to be incurred. Once a loan is placed in foreclosure, the Bank performs an appraisal of the property. In the event that the carrying balance of the loan exceeds the appraisal amount less transaction costs, a charge-off is recognized. It is the Bank's general policy to dispose of properties acquired through foreclosure or by deed in lieu thereof as quickly and as prudently as possible, in consideration of market conditions and the condition of such property. Foreclosed real estate is titled in the name of the Bank's wholly-owned subsidiary, Main Omni Realty Corp., which manages the property while it is offered for sale. Allowance for Loan Losses The allowance for loan losses is established through a provision for loan losses based on management's evaluation of the risks inherent in its loan portfolio and the regional and national economies. Such evaluation, which includes a review of all loans on which full collectibility may not be reasonably assured, considers, among other matters, the current market value of the underlying collateral, economic conditions, historical loan loss experience, and other factors that warrant recognition in providing for an adequate loan loss allowance. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses and the valuation of foreclosed real estate. While the Bank believes that the level of its loan loss allowance is adequate and utilizes a conservative approach when evaluating the adequacy of its loan loss allowance, such authorities may require the Bank to recognize additions to the allowance based on their judgment about information made available to them at the time of their examinations. The allowance for loan losses is composed of 5 separate categories corresponding to the various loan classifications listed in Statistical Data-D, "Composition of the Loan Portfolio." Within these categories, there is a further stratification allowing analysis of each loan based on its performing or non-performing status. 6 Non-performing loans have been assigned risk weightings (based on an aging schedule) ranging from 300 to 750 basis points. The performing portfolio is similarly reviewed, with risk weightings ranging from 23 to 200 basis points. The respective portfolio classifications and the corresponding risk weighting formulae resulted in the allocation of the allowance for loans losses as presented in Statistical Data-C, "Summary of the Allowance for Loan Losses." Each element of the allowance for loan losses corresponds to the various loan classifications. While each element as of December 31, 1999 and December 31, 2000 is summarized in Statistical Data-C, the overall risk weighting increased from 44 basis points of coverage (as of December 31, 1999) to 50 (as of December 31, 2000) basis points of coverage to the entire portfolio. The major category components that had risk weight changes involved the one-to-four residential loans (performing sub-category only) and the multi-family loans. The underlying credit analysis of the one-to-four family performing residential loans considered the average age and loan-to-value ratios which resulted in a modest risk weighting decrease from 22 basis points as of December 31, 1999 to 19 basis points as of December 31, 2000. The multi-family category was evaluated in similar fashion; however, additional consideration was given to the payment history experience, selected physical inspections of the collateral, and the lack (in totality) of any charge-offs in this category over several years. This resulted in a risk weighting increase from 37 basis points (as of December 31, 1999) to 40 basis points (as of December 31, 2000). Impaired loans were either one-to-four family residential loans that were 90 days or more delinquent and had an assigned risk weighting of 300 basis points, or were loans in foreclosure and had an overall assigned risk weighting of 750 basis points. These risk weightings for impaired loans remained constant at both measurement dates being discussed. The year-end balances of these two categories of impaired loans are presented in the table on page 6. The remaining categories, comprising approximately 12% of the entire loan portfolio, had the following risk weighted assessments: construction loans, which had outstanding balances ranging from $4.8 million to $59.5 million over the measurement dates, had an overall increase in risk weighting from 134 basis points to 150 basis points; outstanding balances on commercial real estate loans ranged from $96.0 million to $324.1 million and also experienced an increase from 125 basis points to 175 basis points over the measurement dates; other loans having outstanding balances increased from $8.7 million to $39.7 million and remained constant with a risk weighting assessment of 200 basis points at all measurement dates. In order to determine its overall adequacy, the allowance for loan losses is reviewed quarterly by both management (through its Classification of Assets Committee) and the Board of Directors' designated committee (the Mortgage and Real Estate Committee). Various factors are considered in determining the appropriate level of the allowance for loan losses. These factors include, but are not limited to: 1) End of period levels and observable trends in non-performing loans; 2) Charge-offs experienced over prior periods, including an analysis of the underlying factors leading to the delinquencies and subsequent charge-off (if any); 3) Analysis of the portfolio in the aggregate as well as on an individual loan basis, which analysis considers: i. payment history; ii. underwriting analysis based upon current financial information, and; iii. current inspections of the loan collateral by qualified in-house property appraisers/inspectors. 4) Bi-weekly meetings of executive management with the Mortgage and Real Estate Committee (which committee includes 4 outside directors, each possessing over 30 years of complementary real estate experience) during which observable trends in the local economy and their effect on the real estate market are discussed. 7 5) Discussions with and periodic review by the various governmental regulators (e.g., Federal Deposit Insurance Corporation, the New York State Banking Department); and 6) Full Board assessment of all of the above when making a business judgment regarding the impact of anticipated changes on the future level of the allowance for loan losses. When the Bank determines that an asset should be classified, it generally does not establish a specific allowance for such asset unless it determines that such asset may result in a loss. The Bank may, however, increase its general valuation allowance in an amount deemed prudent. General valuation allowances represent loss allowances, which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. The Bank's determination as to the classification of its assets and the amount of its valuation allowances are subject to review by the FDIC and the Banking Department, which can order the establishment of additional general or specific loss allowances. At December 31, 2000, the total allowance was $18.1 million, which amounted to 198.68% of non-performing loans and 198.42% of non-performing assets. The increase of $11.0 million from 1999 stemmed from the Haven acquisition. For the years ended December 31, 2000 and 1999, the Bank had no net charge-offs against this allowance. The Bank will continue to monitor and modify the level of its allowance for loan losses in order to maintain such allowance at a level which management considers adequate. See Statistical Data-A, B, C, and D for components of the Bank's mortgage loan portfolio, maturity and repricing, and for a summary of the allowance for loan losses. Mortgage-backed Securities Most of the Bank's mortgage-backed securities are directly or indirectly insured or guaranteed by the FNMA, FHLMC, or GNMA. At December 31, 2000, mortgage-backed securities totaled $161.6 million, representing 3.43% of total assets. Of the $161.6 million in total mortgage-backed securities, $1.9 million were classified by the Bank as held to maturity and $159.7 million were classified as available for sale. Because a majority of the Bank's mortgage-backed securities are either adjustable rate or are FHLMC five-year term securities, the Bank anticipates that all of its mortgage-backed securities will prepay or reprice within three years. At December 31, 2000, the mortgage-backed securities portfolio had a weighted average interest rate of 6.95% and a market value of approximately $161.6 million. See Statistical Data-E for components of the mortgage-backed securities portfolio. Investment Activities General. The investment policy of the Bank, which is established by the Board of Directors and implemented by the Mortgage and Real Estate Committee and the Investment Committee, together with certain executive officers of the Bank, is designed primarily to provide and maintain liquidity, to generate a favorable return on investments without incurring undue interest rate and credit risk, and to complement the Bank's lending activities. The Bank's current securities investment policy permits investments in various types of liquid assets, including U.S. Treasury securities, obligations of various Federal agencies, and bankers' acceptances of other Board-approved financial institutions, investment grade corporate securities, commercial paper, certificates of deposit, and Federal funds. The Bank currently does not participate in hedging programs or interest rate swaps and does not invest in non-investment grade bonds or high-risk mortgage derivatives. See Statistical Data-E, "Securities, Money Market Investments, and Mortgage-backed Securities". Sources of Funds General. Deposits, repayments of loans and mortgage-backed securities, and maturities and redemptions of investment securities are the Bank's traditional sources of funds for lending, investing, and other general purposes. In recent years, FHLB borrowings have been increasingly utilized to fund increasing loan demand; however, the increase in deposits stemming from the Haven acquisition is likely to reduce the Company's use of borrowings in the near term. Deposits. The Bank offers a variety of deposit accounts with a range of interest rates and terms. The Bank's deposits principally consist of certificates of deposit ("CDs") and money market accounts, together with savings accounts, demand deposits, and NOW accounts. The flow of deposits is influenced significantly by general economic conditions, the 8 restructuring of the banking industry changes in money market and prevailing interest rates, and competition with other financial institutions. The Bank's deposits are typically obtained from customers residing or working in the communities in which its offices are located. The Bank relies primarily on long-standing relationships with customers to retain these deposits. At December 31, 2000, $320.7 million, or 9.85% of the Bank's deposit balance, consisted of CDs with a balance of $100,000 or more. Borrowings. The Bank is a member of the FHLB-NY, and had a $1.9 billion line of credit at December 31, 2000. To supplement its funding in a year of increased lending and acquisition-related share repurchases, the Company drew on its line of credit with the FHLB in 2000. FHLB borrowings totaled $958.7 million at December 31, 2000. A $10.0 million line of credit with a correspondent financial institution is also available to the Bank. On June 28, 2000, the Company sponsored the creation of Queens Capital Trust I ("Trust" I), a Delaware statutory business trust. The Company is the owner of all of the common securities of the Trust I. On July 26, 2000, the Trust I issued $10.0 million of its 11.045% capital securities through a pooled trust preferred securities offering. The proceeds from this issuance, along with the Company's $309,000 capital contribution for the Trust I common securities, were used to acquire $10.3 million aggregate principal amount of the Company's 11.045% Junior Subordinated Notes due July 19, 2030, which constitute the sole asset of the Trust I. The Company has, through a trust agreement establishing the Trust I, a guarantee agreement, the notes and the related indenture, taken together, fully irrevocably and unconditionally guaranteed all of the Trust I's obligations under the capital securities. On August 23, 2000, the Company sponsored the creation of Queens County Statutory Trust I ("Trust II"), a Connecticut statutory trust. The Company is the owner of all of the common securities of the Trust II. On September 7, 2000, the Trust II issued $15.0 million of its 10.60% capital securities through a pooled trust preferred securities offering. The proceeds from this issuance, along with the Company's $464,000 capital contribution for the Trust II common securities, were used to acquire $15.5 million aggregate principal amount of the Company's 10.60% Junior Subordinated Deferrable Interest Debentures due September 7, 2030, which constitute the sole asset of the Trust II. The Company has, through a trust agreement establishing the Trust II, the guarantee agreement, the debentures and the related indenture, taken together, fully irrevocably and unconditionally guaranteed all of the Trust II's obligations under the capital securities. In addition, the Company assumed two trusts in connection with the acquisition of Haven Bancorp, Inc., Haven Capital Trust I, which issued $25.0 million of 10.46% capital securities scheduled to mature on February 1, 2027, and Haven Capital Trust II, which issued $25.3 million of 10.25% capital securities scheduled to mature on September 30, 2029. Subsidiary Activities Under its New York State leeway authority, the Bank has formed six wholly-owned subsidiary corporations: M.F.O. Holding Corp. ("MFO") holds title to banking premises; Main Omni Realty Corp.'s purpose is to hold, operate, and maintain real estate acquired by the Bank as a result of foreclosure or by deed in lieu; and Queens Realty Trust, Inc. which holds a pool of qualifying mortgage loans for investment purposes. Queens County Capital Management, Inc. ("QCCM") sells annuity products for the Bank; as a result of the acquisition, the Bank also now has CFS Investments, Inc., which sells non-deposit investment products and life insurance for the Bank; and CFS Investments New Jersey, Inc. which owns Columbia Preferred Capital Corporation ("CPCC") and holds various types of mortgage loans for investment purposes. The Bank is also an affiliate of CFS Insurance Agency, Inc., which sells property and casualty, auto and business insurance. Personnel At December 31, 2000, the number of full-time equivalent employees was 908. The Bank's employees are not represented by a collective bargaining unit, and the Bank considers its relationship with its employees to be good. FEDERAL, STATE, AND LOCAL TAXATION Federal Taxation General. The Company and the Bank report their income on a consolidated basis using a calendar year on the accrual method of accounting, and are subject to Federal income taxation in the same manner as other corporations with some exceptions, including, particularly, the Bank's addition to its reserve for bad debts, as discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Bank or the Company. Bad Debt Reserves. The Small Business Job Protection Act of 1996 (the "1996 Act"), which was enacted on August 20, 1996, made significant changes to provisions of the Internal Revenue Code of 1986 (the "Code") relating to a savings institution's use of bad debt reserves for Federal income tax purposes and requires such institutions to recapture (i.e. take into income) certain portions of their accumulated bad debt reserves. The effect of the 1996 Act on the Bank is discussed below. Prior to the enactment of the 1996 Act, the Bank was permitted to establish tax reserves for bad debts and to make annual additions thereto, which additions, within specified formula limits, were deducted in arriving at the Bank's taxable income. The Bank's deduction with respect to "qualifying loans," which are generally loans secured by certain interests in real property, could be computed using an amount based on a six-year moving average of the Bank's actual loss experience (the "Experience Method"), or a percentage equal to 8% of the Bank's taxable income (the "PTI Method"), computed without regard to this deduction and with additional modifications, and reduced by the amount of any permitted addition to the non-qualifying reserve. The 1996 Act. Under the 1996 Act, for its current and future taxable years, the Bank is not permitted to make additions to its tax bad debt reserves. In addition, the Bank is required to recapture (i.e. take into income) over a six-year period the excess of the balance of its tax bad debt reserves as of December 31, 1995 over the balance of such reserves as of December 31, 1987. The amount subject to recapture is approximately $7.4 million. 9 Distributions. To the extent that the Bank makes "non-dividend distributions" to shareholders that are considered to result in distributions from the excess bad debt reserve, i.e., that portion, if any, of the balance of the reserve for qualifying real property loans attributable to certain deductions under the percentage of taxable income method, or the supplemental reserve for losses on loans ("Excess Distributions"), then an amount based on the distribution will be included in the Bank's taxable income. Non-dividend distributions include distributions in excess of the Bank's current and accumulated earnings and profits, distributions in redemption of stock, and distributions in partial or complete liquidation. However, dividends paid out of the Bank's current or accumulated earnings and profits, as calculated for Federal income tax purposes, will not be considered to result in a distribution from the Bank's bad debt reserves. Thus, any dividends to the Company that would reduce amounts appropriated to the Bank's bad debt reserves and deducted for Federal income tax purposes would create a tax liability for the Bank. The amount of additional taxable income created from an Excess Distribution is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Thus, the additional taxable income would be an amount equal to approximately one and one-half times the amount of the Excess Distribution, assuming a 35% corporate income tax rate (exclusive of state taxes). See "Regulation and Supervision" for limits on the payment of dividends by the Bank. The Bank does not intend to pay dividends that would result in a recapture of any portion of its bad debt reserves. Corporate Alternative Minimum Tax. The Code imposes a tax on Alternative Minimum Taxable Income ("AMTI") at a rate of 20%. Only 90% of AMTI can be offset by net operating loss carryovers. The adjustment to AMTI based on adjusted current earnings is an amount equal to 75% of the amount by which a corporation's adjusted current earnings exceeds its AMTI (determined without regard to this preference and prior to reduction for net operating losses). In addition, for taxable years beginning after December 31, 1986 and before January 1, 1996, an environmental tax of 0.12% of the excess of AMTI (with certain modifications) over $2.0 million is imposed on corporations, including the Bank, whether or not an Alternative Minimum Tax ("AMT") is paid. The Bank does not expect to be subject to the AMT. The Bank was subject to an environmental tax liability for the year ended December 31, 1995 which was not material. Dividends Received Deduction and Other Matters. The Company may exclude from its income 100% of dividends received from the Bank as a member of the same affiliated group of corporations. The corporate dividends received deduction is generally 70% in the case of dividends received from unaffiliated corporations with which the Company and the Bank will not file a consolidated tax return, unless the Company and the Bank own more than 20% of the stock of the corporation distributing a dividend, in which case 80% of any dividends received may be deducted. State and Local Taxation The Bank is subject to the New York State Franchise Tax on Banking Corporations in an annual amount equal to the greater of (i) 9% of the Bank's "entire net income" allocable to New York State during the taxable year, or (ii) the applicable alternative minimum tax. The alternative minimum tax is generally the greatest of (a) 0.01% of the value of the Bank's assets allocable to New York State with certain modifications, (b) 3% of the Bank's "alternative entire net income" allocable to New York State, or (c) $250. Entire net income is similar to Federal taxable income, subject to certain modifications (including the fact that net operating losses cannot be carried back or carried forward) and alternative entire net income is equal to entire net income without certain deductions. The Bank is also subject to a similarly calculated New York City tax of 9% on income allocated to New York City and similar alternative taxes. A temporary Metropolitan Transportation Business Tax Surcharge on banking corporations doing business in the metropolitan district has been applied since 1982. The Bank does all of its business within this District (except for the branch offices in Connecticut and New Jersey), and is subject to this surcharge rate of 17.00%. Delaware State Taxation. As a Delaware business corporation, the Company is required to file annual returns and pay annual fees and an annual franchise tax to the State of Delaware. These taxes and fees were not material in 2000. 10 REGULATION AND SUPERVISION General The Bank is a New York State-chartered stock form savings bank and its deposit accounts are insured under the Bank Insurance Fund ("BIF"), up to applicable limits by the FDIC. The Bank is subject to extensive regulation and supervision by the New York State Banking Department ("Banking Department"), as its chartering agency, and by the FDIC, as its deposit insurer. The Bank must file reports with the Banking Department and the FDIC concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other depository institutions. There are periodic examinations by the Banking Department and the FDIC to assess the Bank's compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which a savings bank can engage and is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss allowances for regulatory purposes. Any change in such regulation, whether by the Banking Department, the FDIC, or through legislation, could have a material adverse impact on the Company and the Bank and their operations, and the Company's shareholders. The Company is required to file certain reports, and otherwise comply with the rules and regulations of the Federal Reserve Board and the Banking Department and of the Securities and Exchange Commission ("SEC") under Federal securities laws. Certain of the regulatory requirements applicable to the Bank and to the Company are referred to below or elsewhere herein. New York Law The Bank derives its lending, investment, and other authority primarily from the applicable provisions of Banking Law and the regulations of the Banking Department, as limited by FDIC regulations. See "Restrictions on Certain Activities." Under these laws and regulations, savings banks, including the Bank, may invest in real estate mortgages, consumer and commercial loans, certain types of debt securities (including certain corporate debt securities and obligations of Federal, state, and local governments and agencies), certain types of corporate equity securities and certain other assets. Under the statutory authority for investing in equity securities, a savings bank may directly invest up to 7.5% of its assets in certain corporate stock, and may also invest up to 7.5% of its assets in certain mutual fund securities. Investment in the stock of a single corporation is limited to the lesser of 2% of the outstanding stock of such corporation or 1% of the savings bank's assets, except as set forth below. Such equity securities must meet certain earnings ratios and other tests of financial performance. A savings bank's lending powers are not subject to percentage of asset limitations, although there are limits applicable to single borrowers. A savings bank may also, pursuant to the "leeway" power, make investments not otherwise permitted under the New York State Banking Law. This power permits investments in otherwise impermissible investments of up to 1% of assets in any single investment, subject to certain restrictions and to an aggregate limit for all such investments of up to 5% of assets. Additionally, savings banks are authorized to elect to invest under a "prudent person" standard in a wide range of debt and equity securities in lieu of investing in such securities in accordance with and reliance upon the specific investment authority set forth in the New York State Banking Law. Although the "prudent person" standard may expand a savings bank's authority, in the event a savings bank elects to utilize the "prudent person" standard, it will be unable to avail itself of the other provisions of the New York State Banking Law and regulations which set forth specific investment authority. A savings bank may also exercise trust powers upon approval of the Banking Department. New York savings banks may also invest in subsidiaries under a service corporation power. A savings bank may use this power to invest in corporations that engage in various activities authorized for savings banks, plus any additional activities, which may be authorized by the Banking Department. Investment by a savings bank in the stock, capital notes, and debentures of its service corporations is limited to 3% of the savings bank's assets, and such investments, together with the savings bank's loans to its service corporations, may not exceed 10% of the savings bank's assets. The exercise by an FDIC-insured savings bank of the lending and investment powers of a savings bank under the New York State Banking Law is limited by FDIC regulations and other Federal law and regulations. In particular, the 11 applicable provisions of New York State Banking Law and regulations governing the investment authority and activities of an FDIC-insured state-chartered savings bank have been effectively limited by the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") and the FDIC regulations issued pursuant thereto. With certain limited exceptions, a New York State chartered savings bank may not make loans or extend credit for commercial, corporate, or business purposes (including lease financing) to a single borrower, the aggregate amount of which would be in excess of 15% of the bank's net worth. The Bank currently complies with all applicable loans-to-one-borrower limitations. Under New York State Banking Law, a New York State chartered stock form savings bank may declare and pay dividends out of its net profits, unless there is an impairment of capital, but approval of the Superintendent is required if the total of all dividends declared in a calendar year would exceed the total of its net profits for that year combined with its retained net profits of the preceding two years, subject to certain adjustments. Under New York State Banking Law, the Superintendent of Banks may issue an order to a New York State chartered banking institution to appear and explain an apparent violation of law, to discontinue unauthorized or unsafe practices, and to keep prescribed books and accounts. Upon a finding by the Banking Department that any director, trustee, or officer of any banking organization has violated any law, or has continued unauthorized or unsafe practices in conducting the business of the banking organization after having been notified by the Superintendent to discontinue such practices, such director, trustee, or officer may be removed from office after notice and an opportunity to be heard. FDIC Regulations Capital Requirements. The FDIC has adopted risk-based capital guidelines to which the Bank is subject. The guidelines establish a systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk profiles among banking organizations. The Bank is required to maintain certain levels of regulatory capital in relation to regulatory risk-weighted assets. The ratio of such regulatory capital to regulatory risk-weighted assets is referred to as the Bank's "risk-based capital ratio." Risk-based capital ratios are determined by allocating assets and specified off-balance-sheet items to four risk-weighted categories ranging from 0% to 100%, with higher levels of capital being required for the categories perceived as representing greater risk. These guidelines divide a savings bank's capital into two tiers. The first tier ("Tier I") includes common equity, retained earnings, certain non-cumulative perpetual preferred stock (excluding auction rate issues) and minority interests in equity accounts of consolidated subsidiaries, less goodwill and other intangible assets (except mortgage servicing rights and purchased credit card relationships subject to certain limitations). Supplementary ("Tier II") capital includes, among other items, cumulative perpetual and long-term limited-life preferred stock, mandatory convertible securities, certain hybrid capital instruments, term subordinated debt and the allowance for loan and lease losses, subject to certain limitations, less required deductions. Savings banks are required to maintain a total risk-based capital ratio of 8%, of which at least 4% must be Tier I capital. In addition, the FDIC has established regulations prescribing a minimum Tier I leverage capital ratio (Tier I capital to adjusted average assets as specified in the regulations). These regulations provide for a minimum Tier I leverage capital ratio of 3% for banks that meet certain specified criteria, including that they have the highest examination rating and are not experiencing or anticipating significant growth. All other banks are required to maintain a Tier I leverage capital ratio of at least 4%. The FDIC may, however, set higher leverage and risk-based capital requirements on individual institutions when particular circumstances warrant. Savings banks experiencing or anticipating significant growth are expected to maintain capital ratios, including tangible capital positions, well above the minimum levels. As of December 31, 2000, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain a minimum Tier I Leverage Capital ratio of 5%, Total Capital ratio of 10% and Tier I Capital Ratio of 6%. The following is a summary of the Bank's regulatory capital at December 31, 2000: Tier 1 Leverage Capital to Average Assets 6.38% Total Capital to Risk-Weighted Assets 13.02% Tier I Capital to Risk-Weighted Assets 12.11% 12 In August 1995, the FDIC, along with the other Federal banking agencies, adopted a regulation providing that the agencies will take account of the exposure of a bank's capital and economic value to changes in interest rate risk in assessing a bank's capital adequacy. According to the agencies, applicable considerations include the quality of the bank's interest rate risk management process, the overall financial condition of the bank, and the level of other risks at the bank for which capital is needed. Institutions with significant interest rate risk may be required to hold additional capital. The agencies recently have issued a joint policy statement providing guidance on interest rate risk management, including a discussion of the critical factors affecting the agencies' evaluation of interest rate risk in connection with capital adequacy. The agencies have determined not to proceed with a previously issued proposal to develop a supervisory framework for measuring interest rate risk and an explicit capital component for interest rate risk. Standards for Safety and Soundness. Federal law requires each Federal banking agency to prescribe for depository institutions under its jurisdiction standards relating to, among other things, internal controls; information systems and audit systems; loan documentation; credit underwriting; interest rate risk exposure; asset growth; compensation; fees and benefits; and such other operational and managerial standards as the agency deems appropriate. The Federal banking agencies adopted final regulations and Interagency Guidelines Establishing Standards for Safety and Soundness (the "Guidelines") to implement these safety and soundness standards. The Guidelines set forth the safety and soundness standards that the Federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The Guidelines address internal controls and information systems; internal audit system; credit underwriting; loan documentation; interest rate risk exposure; asset growth; asset quality; earnings and compensation; fees and benefits. If the appropriate Federal banking agency determines that an institution fails to meet any standard prescribed by the Guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard, as required by the Federal Deposit Insurance Act, as amended, ("FDI Act"). The final regulation establishes deadlines for the submission and review of such safety and soundness compliance plans. Real Estate Lending Standards. The FDIC and the other Federal banking agencies have adopted regulations that prescribe standards for extensions of credit that (i) are secured by real estate or (ii) are made for the purpose of financing the construction or improvements on real estate. The FDIC regulations require each savings bank to establish and maintain written internal real estate lending standards that are consistent with safe and sound banking practices and appropriate to the size of the bank and the nature and scope of its real estate lending activities. The standards also must be consistent with accompanying FDIC Guidelines, which include loan-to-value limitations for the different types of real estate loans. Savings banks are also permitted to make a limited amount of loans that do not conform to the proposed loan-to-value limitations so long as such exceptions are reviewed and justified appropriately. The Guidelines also list a number of lending situations in which exceptions to the loan-to-value standard are justified. Dividend Limitations. The FDIC has authority to use its enforcement powers to prohibit a savings bank from paying dividends if, in its opinion, the payment of dividends would constitute an unsafe or unsound practice. Federal law prohibits the payment of dividends by a bank that will result in the bank failing to meet applicable capital requirements on a pro forma basis. The Bank is also subject to dividend declaration restrictions imposed by New York law. Investment Activities Since the enactment of FDICIA, all state-chartered financial institutions, including savings banks and their subsidiaries, have generally been limited to activities as principal and equity investments of the type and in the amount authorized for national banks. Notwithstanding state law, FDICIA and the FDIC regulations hereunder permit certain exceptions to these limitations. For example, certain state chartered banks, such as the Bank, may, with FDIC approval, continue to exercise state authority to invest in common or preferred stocks listed on a national securities exchange or the National Market System of Nasdaq(R) and in the shares of an investment company registered under the Investment Company Act of 1940, as amended. Such banks may also continue to sell Savings Bank Life Insurance. In addition, the FDIC is authorized to permit such institutions to engage in state authorized activities or investments that do not meet this standard (other than non-subsidiary equity investments) for institutions that meet all applicable capital requirements if it is determined that such activities or investments do not pose a significant risk to the BIF. The FDIC has adopted revisions to its regulations governing the procedures for institutions seeking approval to engage in such activities or investments. These 13 revisions, among other things, streamline certain application procedures for healthy banks and impose certain quantitative and qualitative restrictions on a bank's dealings with its subsidiaries engaged in activities not permitted for national bank subsidiaries. All non-subsidiary equity investments, unless otherwise authorized or approved by the FDIC, must have been divested by December 19, 1996, pursuant to an FDIC-approved divestiture plan unless such investments were grandfathered by the FDIC. The Bank received grandfathering authority from the FDIC in February 1993 to invest in listed stock and/or registered shares subject to the maximum permissible investments of 100% of Tier 1 Capital, as specified by the FDIC's regulations, or the maximum amount permitted by New York State Banking Law, whichever is less. Such grandfathering authority is subject to termination upon the FDIC's determination that such investments pose a safety and soundness risk to the Bank or in the event the Bank converts its charter or undergoes a change in control. As of December 31, 2000, the Bank had $23.3 million of such investments. Prompt Corrective Regulatory Action Federal law requires, among other things, that Federal bank regulatory authorities take "prompt corrective action" with respect to banks that do not meet minimum capital requirements. For these purposes, the law establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. The FDIC has adopted regulations to implement the prompt corrective action legislation. Among other things, the regulations define the relevant capital measures for the five capital categories. An institution is deemed to be "well capitalized" if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, and a leverage ratio of 5% or greater, and is not subject to a regulatory order, agreement, or directive to meet and maintain a specific capital level for any capital measure. An institution is deemed to be "adequately capitalized" if it has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater, and generally a leverage ratio of 4% or greater. An institution is deemed to be "undercapitalized" if it has a total risk-based capital ratio of less than 8%, a Tier 1 risk-based capital ratio of less than 4%, or generally a leverage capital ratio of less than 4%. An institution is deemed to be "significantly undercapitalized" if it has a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3%, or a leverage ratio of less than 3%. An institution is deemed to be "critically undercapitalized" if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2%. "Undercapitalized" banks are subject to growth, capital distribution (including dividend) and other limitations and are required to submit a capital restoration plan. A bank's compliance with such plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the bank's total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an "undercapitalized" bank fails to submit an acceptable plan, it is treated as if it is "significantly undercapitalized." "Significantly undercapitalized" banks are subject to one or more of a number of additional restrictions, including but not limited to an order by the FDIC to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cease receipt of deposits from correspondent banks or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers, and capital distributions by the parent holding company. "Critically undercapitalized" institutions also may not, beginning 60 days after becoming "critically undercapitalized," make any payment of principal or interest on certain subordinated debt or extend credit for a highly leveraged transaction or enter into any material transaction outside the ordinary course of business. In addition, "critically undercapitalized" institutions are subject to appointment of a receiver or conservator. Generally, subject to a narrow exception, the appointment of a receiver or conservator is required for a "critically undercapitalized" institution within 270 days after it obtains such status. Transactions with Affiliates Under current Federal law, transactions between depository institutions and their affiliates are governed by Section 23A and 23B of the Federal Reserve Act. An affiliate of a savings bank is any company or entity that controls, is controlled by, or is under common control with the savings bank, other than a subsidiary. In a holding company context, at a minimum, the parent holding company of a savings bank and any companies, which are controlled, by such parent holding company are affiliates of the savings bank. Generally, Section 23A limits the extent to which the savings bank or its subsidiaries may engage in "covered transactions" with any one affiliate to an amount equal to 10% of such savings bank's capital stock and surplus, and contains an aggregate limit on all such transactions with all affiliates to an amount equal to 14 20% of such capital stock and surplus. The term "covered transaction" includes the making of loans or other extensions of credit to an affiliate; the purchase of assets from an affiliate, the purchase of, or an investment in, the securities of an affiliate; the acceptance of securities of an affiliate as collateral for a loan or extension of credit to any person; or issuance of a guarantee, acceptance, or letter of credit on behalf of an affiliate. Section 23A also establishes specific collateral requirements for loans or extensions of credit to, or guarantees, acceptances on letters of credit issued on behalf of an affiliate. Section 23B requires that covered transactions and a broad list of other specified transactions be on terms substantially the same, or no less favorable, to the savings bank or its subsidiary as similar transactions with nonaffiliates. Further, Section 22(h) of the Federal Reserve Act restricts a savings bank with respect to loans to directors, executive officers, and principal shareholders. Under Section 22(h), loans to directors, executive officers, and shareholders who control, directly or indirectly, 10% or more of voting securities of a savings bank, and certain related interests of any of the foregoing, may not exceed, together with all other outstanding loans to such persons and affiliated entities, the savings bank's total capital and surplus. Section 22(h) also prohibits loans above amounts prescribed by the appropriate Federal-banking agency to directors, executive officers, and shareholders who control 10% or more of voting securities of a stock savings bank, and their respective related interests, unless such loan is approved in advance by a majority of the board of directors of the savings bank. Any "interested" director may not participate in the voting. The loan amount (which includes all other outstanding loans to such person) as to which such prior board of director approval is required, is the greater of $25,000 or 5% of capital and surplus or any loans over $500,000. Further, pursuant to Section 22(h), loans to directors, executive officers, and principal shareholders must be made on terms substantially the same as offered in comparable transactions to other persons. Recent legislation created an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to executive officers over other employees. Section 22(g) of the Federal Reserve Act places additional limitations on loans to executive officers. Enforcement The FDIC has extensive enforcement authority over insured savings banks, including the Bank. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease and desist orders, and to remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations and to unsafe or unsound practices. The FDIC has authority under Federal law to appoint a conservator or receiver for an insured savings bank under certain circumstances. The FDIC is required, with certain exceptions, to appoint a receiver or conservator for an insured state savings bank if that savings bank was "critically undercapitalized" on average during the calendar quarter beginning 270 days after the date on which the savings bank became "critically undercapitalized." For this purpose, "critically undercapitalized" means having a ratio of tangible equity to total assets of less than 2%. See "Prompt Corrective Regulatory Action." The FDIC may also appoint a conservator or receiver for a state savings bank on the basis of the institution's financial condition or upon the occurrence of certain events, including: (i) insolvency (whereby the assets of the savings bank are less than its liabilities to depositors and others); (ii) substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices; (iii) existence of an unsafe or unsound condition to transact business; (iv) likelihood that the savings bank will be unable to meet the demands of its depositors or to pay its obligations in the normal course of business; and (v) insufficient capital, or the incurring or likely incurring of losses that will deplete substantially all of the institution's capital with no reasonable prospect of replenishment of capital without Federal assistance. Insurance of Deposit Accounts The Bank is a member of Bank Insurance Fund ("BIF") and, through its merger with CFS Bank, also holds some deposits insured by the Savings Association Insurance Fund ("SAIF"). The FDIC has adopted a risk-based insurance assessment system. The FDIC assigns an institution to one of three capital categories based on the institution's financial information, as of the reporting period ending seven months before the assessment period, consisting of (1) well capitalized, (2) adequately capitalized, or (3) undercapitalized, and one of three supervisory subcategories within each capital group. The supervisory subgroup to which an institution is assigned is based on the supervisory evaluation provided to the FDIC by the institution's primary Federal regulator, and information which the FDIC determines to be relevant to the institution's financial condition and the risk posed to the deposit insurance funds. An institution's assessment rate depends on the capital category and supervisory category to which it is assigned. Assessment rates for both BIF and SAIF deposits are determined semiannually by the FDIC and currently range from 0 basis points to 27 basis points. 15 The FDIC is authorized to raise the assessment rates in certain circumstances, including maintaining or achieving the designated reserve ratio of 1.25%, which requirement the BIF and SAIF currently meet. On September 30, 1996, the President signed into law the Deposit Insurance Funds Act of 1996 (the "Funds Act"), which, among other things, spreads the obligations for payment of the financing Corporation ("FICO") bonds across all SAIF and BIF members. Prior to January 1, 2000, BIF members were assessed for FICO payments at approximately 20% of SAIF members. Full pro rata sharing of the FICO payments between BIF and SAIF members began on January 1, 2000. Under the FDI Act, insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC. The management of the Bank does not know of any practice, condition, or violation that might lead to the termination of deposit insurance. Community Reinvestment Act Federal Regulation. Under the Community Reinvestment Act ("CRA"), as implemented by FDIC regulations, a savings institution has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with CRA. CRA requires the FDIC, in connection with its examination of a savings institution; to assess the institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution. CRA requires public disclosure of an institution's CRA rating and further requires the FDIC to provide a written evaluation of an institution's CRA performance utilizing a four-tiered descriptive rating system. The Bank's latest CRA rating, received from the FDIC in September 1999, was "satisfactory." New York Regulation. The Bank is also subject to provisions of the New York Banking Law which impose continuing and affirmative obligations upon banking institutions organized in New York to serve the credit needs of its local community ("NYCRA"), which are substantially similar to those imposed by the CRA. Pursuant to the NYCRA, a bank must file an annual NYCRA report and copies of all Federal CRA reports with the Banking Department. The NYCRA requires the Banking Department to make an annual written assessment of a bank's compliance with the NYCRA, utilizing a four-tiered rating system, and make such assessment available to the public. The NYCRA also requires the Superintendent to consider a bank's NYCRA rating when reviewing a bank's application to engage in certain transactions, including mergers, asset purchases, and the establishment of branch offices or ATMs, and provides that such assessment may serve as a basis for the denial of any such application. The Banking Department has adopted, effective December 3, 1997, new regulations to implement the NYCRA. The Banking Department replaced its process-focused regulations with performance-focused regulations that are intended to parallel current CRA regulations of federal banking agencies and to promote consistency in CRA evaluations by considering more objective criteria. The new regulations require a biennial assessment of a bank's compliance with the NYCRA, utilizing a four-tiered rating system, and require the Banking Department to make available to the public such rating and a written summary of the results. The Bank's latest NYCRA rating, received from the Banking Department in June 1998, was a "2" or "satisfactory." Federal Reserve System Under Federal Reserve Board ("FRB") regulations, the Bank is required to maintain non-interest-earning reserves against its transaction accounts (primarily NOW and regular checking accounts). The Federal Reserve Board regulations generally require that reserves be maintained against aggregate transaction accounts as follows: for that portion of transaction accounts aggregating $42.8 million or less (subject to adjustment by the Federal Reserve Board), the reserve requirement is 3%; for accounts greater than $42.8 million, the reserve requirement is $1.284 million plus 10% (subject to adjustment by the Federal Reserve Board between 8% and 14% against that portion of total transaction accounts in excess of $42.8 million). The first $5.5 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board) are exempted from the reserve requirements. The Bank is in compliance with the foregoing requirements. Because required reserves must be maintained in the form of either vault cash, a non-interest-bearing account at a Federal Reserve 16 Bank, or a pass-through account as defined by the Federal Reserve Board, the effect of this reserve requirement is to reduce the Bank's interest-earning assets. FHLB System members are also authorized to borrow from the Federal Reserve "discount window," but Federal Reserve Board regulations require institutions to exhaust all FHLB sources before borrowing from a Federal Reserve Bank. Federal Home Loan Bank System The Bank is a member of the FHLB System, which consists of 12 regional FHLBs. The FHLB provides a central credit facility primarily for member institutions. The Bank, as a member of the FHLB-NY, is required to acquire and hold shares of capital stock in that FHLB in an amount at least equal to 1% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year, or 1/20 of its advances (borrowings) from the FHLB-NY, whichever is greater. The Bank was in compliance with this requirement, with an investment in FHLB-NY stock of $72.0 million at December 31, 2000. FHLB advances must be secured by specified types of collateral and may be obtained primarily for the purpose of providing funds for residential housing finance. The FHLBs are required to provide funds to cover certain obligations on bonds issued to fund the resolution of insolvent thrifts and to contribute funds for affordable housing programs. These requirements could reduce the amount of dividends that the FHLBs pay to their members and could also result in the FHLBs imposing a higher rate of interest on advances to their members. For the fiscal years ended December 31, 2000, and 1999, dividends from the FHLB-NY to the Bank, amounted to $4.1 million and $2.0 Million, respectively. If dividends were reduced, or interest on future FHLB advances increased, the Bank's net interest income might also be reduced. Holding Company Regulation Federal Regulation. The Company is currently subject to examination, regulation, and periodic reporting under the Bank Holding Company Act of 1956, as amended ("BHCA"), as administered by the FRB. The Company is required to obtain the prior approval of the FRB to acquire all, or substantially all, of the assets of any bank or bank holding company. Prior FRB approval would be required for the Company to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if, after giving effect to such acquisition, it would, directly or indirectly, own or control more than 5% of any class of voting shares of such bank or bank holding company. In addition to the approval of the FRB, before any bank acquisition can be completed, prior approval thereof may also be required to be obtained from other agencies having supervisory jurisdiction over the bank to be acquired, including the Banking Department. A bank holding company is generally prohibited from engaging in, or acquiring direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the FRB to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the FRB has determined by regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings and loan association. The FRB has adopted capital adequacy guidelines for bank holding companies (on a consolidated basis) substantially similar to those of the FDIC for the Bank. See "Capital Maintenance." At December 31, 2000, the Company's total and Tier 1 capital exceeded these requirements. Bank holding companies are generally required to give the FRB prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the 17 Company's consolidated net worth. The FRB may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, FRB order or directive, or any condition imposed by, or written agreement with, the FRB. The FRB has adopted an exception to this approval requirement for well-capitalized bank holding companies that meet certain other conditions. The FRB has issued a policy statement regarding the payment of dividends by bank holding companies. In general, the FRB's policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization's capital needs, asset quality, and overall financial condition. The FRB's policies also require that a bank holding company serve as a source of financial strength to its subsidiary banks by standing ready to use available resources to provide adequate capital funds to those banks during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. These regulatory policies could affect the ability of the Company to pay dividends or otherwise engage in capital distributions. The status of the Company as a registered bank holding company under the BHCA does not exempt it from certain Federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the Federal securities laws. Under the FDI Act, depository institutions are liable to the FDIC for losses suffered or anticipated by the FDIC in connection with the default of a commonly controlled depository institution or any assistance provided by the FDIC to such an institution in danger of default. This law would have potential applicability if the Company ever held as a separate subsidiary a depository institution in addition to the Bank. The Company and the Bank will be affected by the monetary and fiscal policies of various agencies of the United States Government, including the Federal Reserve System. In view of changing conditions in the national economy and in the money markets, it is impossible for management to accurately predict future changes in monetary policy or the effect of such changes on the business or financial condition of the Company or the Bank. Recent Legislation The Gramm-Leach-Bliley Act of 1999 authorizes a bank holding company that meets specified conditions, including being "well capitalized" and "well managed," to opt to become a "financial holding company" and thereby engage in a broader array of financial activities than previously permitted. Such activities can include insurance underwriting and investment banking. The Gramm-Leach-Bliley Act also authorizes banks to engage through "financial subsidiaries" in certain of the activities permitted for financial holding companies. Financial subsidiaries are generally treated as affiliates for purposes of restrictions on a bank's transactions with affiliates. Acquisition of the Holding Company Federal Restrictions. Under the Federal Change in Bank Control Act ("CIBCA"), a notice must be submitted to the FRB if any person (including a company), or group acting in concert, seeks to acquire 10% or more of the Company's shares of Common Stock outstanding, unless the FRB has found that the acquisition will not result in a change in control of 18 the Company. Under the CIBCA, the FRB has 60 days within which to act on such notices, taking into consideration certain factors, including the financial and managerial resources of the acquirer, the convenience and needs of the communities served by the Company and the Bank, and the anti-trust effects of the acquisition. Under the BHCA, any company would be required to obtain prior approval from the FRB before it may obtain "control" of the Company within the meaning of the BHCA. Control generally is defined to mean the ownership or power to vote 25% or more of any class of voting securities of the Company or the ability to control in any manner the election of a majority of the Company's directors. An existing bank holding company would be required to obtain the FRB's prior approval under the BHCA before acquiring more than 5% of the Company's voting stock. See "Holding Company Regulation." Approval of the Banking Department may also be required for acquisition of the Company. New York Change in Control Restrictions. In addition to the CIBCA and the BHCA, the New York State Banking Law generally requires prior approval of the New York Banking Board before any action is taken that causes any company to acquire direct or indirect control of a banking institution which is organized in New York. Federal Securities Laws The Company's common stock is registered with the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company is subject to the information and proxy solicitation requirements, insider trading restrictions, and other requirements under the Exchange Act. Registration of the shares of the Common Stock that were issued in the Bank's conversion from mutual to stock form under the Securities Act of 1933, as amended (the "Securities Act"), does not cover the resale of such shares. Shares of the common stock purchased by persons who are not affiliates of the Company may be resold without registration. Shares purchased by an affiliate of the Company will be subject to the resale restrictions of Rule 144 under the Securities Act. If the Company meets the current public information requirements of Rule 144 under the Securities Act, each affiliate of the Company who complies with the other conditions of Rule 144 (including those that require the affiliate's sale to be aggregated with those of certain other persons) would be able to sell in the public market, without registration, a number of shares not to exceed in any three-month period the greater of (i) 1% of the outstanding shares of the Company or (ii) the average weekly volume of trading in such shares during the preceding four calendar weeks. Provision may be made in the future by the Company to permit affiliates to have their shares registered for sale under the Securities Act under certain circumstances. STATISTICAL DATA The detailed statistical data that follows is being presented in accordance with Guide 3, prescribed by the Securities and Exchange Commission. This data should be read in conjunction with the consolidated financial statements and related notes and the discussion included in the Management's Discussion and Analysis of Financial Condition and Results of Operations that are indexed on the Form 10-K Cross Reference Index. 19 A. Mortgage and Other Lending Activities The following table sets forth the Bank's loan originations and mortgage-backed securities, including purchases, sales, and principal repayments, for the periods indicated:
For the Years Ended December 31, ------------------------ (dollars in thousands) 2000 1999 1998 ---------- ---------- ---------- Mortgage loans (gross): At beginning of period $1,601,796 $1,487,256 $1,394,939 Mortgage loans originated: One-to-four family 6,205 26,338 7,473 Multi-family 541,734 603,347 409,800 Commercial real estate 58,899 42,708 32,826 Construction 9,133 4,433 2,091 ---------- ---------- ---------- Total mortgage loans originated 615,971 676,826 452,190 Mortgage loans acquired from Haven 1,749,180 -- -- Principal repayments 185,539 348,036 349,952 Mortgage loans sold 185,137 213,597 8,647 Mortgage loans transferred to foreclosed real estate -- 651 1,274 ---------- ---------- ---------- At end of period 3,596,273 1,601,796 1,487,256 Other loans (gross): At beginning of period 8,742 9,750 10,795 Other loans originated and/or acquired from Haven 36,655 2,039 2,008 Principal repayments 5,649 3,047 3,053 ---------- ---------- ---------- At end of period 39,748 8,742 9,750 ---------- ---------- ---------- Total loans $3,636,021 $1,610,538 $1,497,006 ========== ========== ========== Mortgage-backed securities: At beginning of period $ 2,094 $ 19,680 $ 49,781 Principal repayments 171 17,586 30,101 ---------- ---------- ---------- At end of period $ 1,923 $ 2,094 $ 19,680 ========== ========== ==========
20 B. Loan Maturity and Repricing The following table shows the maturity or period to repricing of the Bank's loan portfolio at December 31, 2000. Loans that have adjustable rates are shown as being due in the period during which the interest rates are next subject to change. The table does not include prepayments or scheduled principal amortization. Prepayments and scheduled principal amortization on mortgage loans totaled $185.5 million for the twelve months ended December 31, 2000.
Mortgage and Other Loans at December 31, 2000 -------------------- 1-4 Multi- Commercial Home Total (dollars in thousands) Family Family Real Estate Construction Equity Other Loans ---------- ---------- ----------- ------------ ---------- ---------- ---------- Amount due: Within one year $ 181,995 $ 279,460 $ 46,547 $ 59,469 $ 12,240 $ 3,951 $ 583,662 After one year: One to three years 190,573 292,634 48,741 -- -- 4,137 536,085 Three to five years 601,234 923,220 153,771 -- -- 13,053 1,691,278 Five to ten years 270,782 415,798 69,255 -- -- 5,879 761,714 Ten years and over 22,496 34,544 5,754 -- -- 488 63,282 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total due or repricing after one year 1,085,085 1,666,196 277,521 -- -- 23,557 3,052,359 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total amounts due or repricing, gross $1,267,080 $1,945,656 $ 324,068 $ 59,469 $ 12,240 $ 27,508 $3,636,021 ========== ========== ========== ========== ========== ========== ==========
The following table sets forth, at December 31, 2000, the dollar amount of all loans due after December 31, 2001, and indicates whether such loans have fixed or adjustable rates of interest. Due after December 31, 2001 ------------------------------------------ (dollars in thousands) Fixed Adjustable Total ---------- ---------- ---------- Mortgage loans: One-to-four family $ 358,490 $ 726,595 $1,085,085 Multi-family 510,498 1,155,698 1,666,196 Commercial real estate 65,237 212,284 277,521 ---------- ---------- ---------- Total mortgage loans $ 934,225 $2,094,577 $3,028,802 Other loans 15,224 8,333 23,557 ---------- ---------- ---------- Total loans $ 949,449 $2,102,910 $3,052,359 ========== ========== ========== 21 C. Summary of the Allowance for Loan Losses The allowance for loan losses was allocated as follows at December 31,:
2000 1999 --------------------------------------------- Percent Percent of of Loans in Loans in Category Category to Total to Total (dollars in thousands) Amount Loans Amount Loans ------- ------ ------- ------ Mortgage loans: One-to-four family $ 2,923 16.18% $ 663 9.42% Multi-family 7,783 43.08 4,927 70.08 Construction 892 4.94 64 0.91 Commercial real estate 5,671 31.40 1,202 17.10 Other loans 795 4.40 175 2.49 ------- ------ ------- ------ Total loans $18,064 100.00% $ 7,031 100.00% ======= ====== ======= ====== 1998 1997 1996 ----------------------------------------------------------------- Percent Percent Percent of of of Loans in Loans in Loans in Category Category Category to Total to Total to Total (dollars in thousands) Amount Loans Amount Loans Amount Loans ------- ------ ------- ------ ------- ------ Mortgage loans: One-to-four family $ 1,341 14.22% $ 1,592 16.88% $ 1,812 19.36% Multi-family 6,686 70.89 6,521 69.14 6,168 65.90 Construction 28 0.30 23 0.24 24 0.26 Commercial real estate 1,181 12.52 1,080 11.45 1,110 11.86 Other loans 195 2.07 215 2.29 245 2.62 ------- ------ ------- ------ ------- ------ Total loans $ 9,431 100.00% $ 9,431 100.00% $ 9,359 100.00% ======= ====== ======= ====== ======= ======
The preceding allocation is based upon an estimate at a given point in time, based on various factors, including, but not limited to, local economic conditions. A different allocation methodology may be deemed to be more appropriate in the future. 22 D. Composition of Loan Portfolio The following table sets forth the composition of the Bank's portfolio of mortgage and other loans in dollar amounts and in percentages at December 31,:
2000 1999 1998 ----------------------- ------------------------ ------------------------ Percent Percent Percent of of of (dollars in thousands) Amount Total Amount Total Amount Total ---------- ------- ---------- ------- ---------- ------- Mortgage loans: One-to-four family $1,267,080 34.85% $ 152,644 9.48% $ 178,770 11.94% Multi-family 1,945,656 53.51 1,348,351 83.72 1,239,094 82.77 Commercial real estate 324,068 8.91 96,008 5.96 67,494 4.51 Construction 59,469 1.64 4,793 0.30 1,898 0.13 ---------- ------ ---------- ------ ---------- ------ Total mortgage loans 3,596,273 98.91 1,601,796 99.46 1,487,256 99.35 ---------- ------ ---------- ------ ---------- ------ Other loans: Cooperative apartment 3,726 0.10 4,856 0.30 4,802 0.32 Home equity 12,240 0.34 1,347 0.08 1,793 0.12 Student 683 0.02 8 0.00 8 0.00 Passbook savings 779 0.02 331 0.02 321 0.02 Other 22,320 0.61 2,200 0.14 2,826 0.19 ---------- ------ ---------- ------ ---------- ------ Total other loans 39,748 1.09 8,742 0.54 9,750 0.65 ---------- ------ ---------- ------ ---------- ------ Total loans 3,636,021 100.00% 1,610,538 100.00% 1,497,006 100.00% ---------- ====== ---------- ====== ---------- ====== Less: Unearned discounts 18 24 22 Net deferred loan Origination fees 1,553 2,404 1,034 Allowance for loan losses 18,064 7,031 9,431 ---------- ---------- ---------- Loans, net $3,616,386 $1,601,079 $1,486,519 ========== ========== ========== 1997 1996 ------------------------ ------------------------ Percent Percent of Of (dollars in thousands) Amount Total Amount Total ---------- ------- ---------- ------- Mortgage loans: One-to-four family $ 224,287 15.96% $ 256,904 22.21% Multi-family 1,107,343 78.78 822,364 71.10 Commercial real estate 61,740 4.39 63,452 5.49 Construction 1,538 0.10 1,598 0.14 ---------- ------ ---------- ------ Total mortgage loans 1,394,908 99.23 1,144,318 98.94 ---------- ------ ---------- ------ Other loans: Cooperative apartment 5,041 0.36 5,764 0.50 Home equity 2,386 0.17 2,819 0.24 Student 8 0.00 24 0.00 Passbook savings 312 0.02 375 0.03 Other 3,048 0.22 3,293 0.29 ---------- ------ ---------- ------ Total other loans 10,795 0.77 12,275 1.06 ---------- ------ ---------- ------ Total loans 1,405,734 100.00% 1,156,593 100.00% ---------- ====== --------- ====== Less: Unearned discounts 19 24 Net deferred loan Origination fees 1,281 1,058 Allowance for loan losses 9,431 9,359 ---------- ---------- Loans, net $1,395,003 $1,146,152 ========== ==========
23 E. Securities, Money Market Investments, and Mortgage-backed Securities The following table sets forth certain information regarding the carrying and market values of the Bank's securities, money market investments, and mortgage-backed securities portfolios at the dates indicated:
At December 31, 2000 1999 1998 --------------------- -------------------- --------------------- Carrying Market Carrying Market Carrying Market (dollars in thousands) Value Value Value Value Value Value -------- -------- -------- -------- -------- -------- Securities: U.S. Government and agency obligations $184,994 $184,161 $140,325 $135,797 $129,893 $129,586 Equity securities 95,286 95,492 55,690 55,762 26,978 27,125 Corporate bonds 61,140 61,140 -- -- -- -- Capital trust notes 25,191 23,892 -- -- -- -- -------- -------- -------- -------- -------- -------- Total securities $366,611 $364,685 $196,015 $191,559 $156,871 $156,711 ======== ======== ======== ======== ======== ======== Money market investments: Federal funds sold $124,622 $124,622 $ 6,000 $ 6,000 $ 19,000 $ 19,000 -------- -------- -------- -------- -------- -------- Total money market investments $124,622 $124,622 $ 6,000 $ 6,000 $ 19,000 $ 19,000 ======== ======== ======== ======== ======== ======== Mortgage-backed securities: GNMA $ 1,059 $ 1,067 $ 1,429 $ 1,429 $ 15,886 $ 16,403 FHLMC 6,886 6,942 2,094 2,135 3,794 3,929 FNMA Certificates 80,286 80,286 -- -- -- -- CMOs and REMICs 73,341 73,341 -- -- -- -- -------- -------- -------- -------- -------- -------- Total mortgage-backed securities $161,572 $161,636 $ 3,523 $ 3,564 $ 19,680 $ 20,332 ======== ======== ======== ======== ======== ========
ITEM 2. PROPERTIES The Bank has 86 locations serving the greater metropolitan New York region, including 19 traditional branch offices (17 in Queens and one each in Nassau and Suffolk counties) and 67 in-store branches throughout New York City, Nassau, Suffolk, Rockland and Westchester counties, New Jersey, and Connecticut. The Bank's main office is located at 136-65 Roosevelt Avenue, Flushing, New York. The Bank believes that its current facilities are adequate to meet the present and immediately foreseeable needs of the Bank and the Company.
Leased Date Lease Net Book Value or Leased or Expiration at Owned Acquired Date December 31, 2000 ------ --------- ---------- ----------------- Corporate Headquarters (1) Owned 1997 -- $11,377,204 615 Merrick Avenue Westbury, NY 11590 Flushing Branch Leased 2000 2015 44,626 136-65 Roosevelt Avenue Flushing, NY 11354 Corona Branch Owned 1923 -- 116,852 37-97 103rd Street Corona, NY 11368 Little Neck Branch Owned 1946 -- 42,126 251-31 Northern Blvd Little Neck, NY 11363
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Leased Date Lease Net Book Value or Leased or Expiration at Owned Acquired Date December 31, 2000 ------ --------- ---------- ----------------- Kew Gardens Hills Branch Owned 1948 -- 66,077 75-44 Main Street Kew Gardens Hills, NY 11367 Jackson Heights Branch Leased 1974 2023 424,232 76-02 Northern Blvd Jackson Heights, NY 11372 Astoria Branch (2) Leased 1993 2018 89,100 31-42 Steinway Street Astoria, NY 11103 Fresh Meadows Branch Leased 1995 2010 3,947 61-49 188th Street Fresh Meadows, NY 11365 College Point Branch Leased 1996 2021 1,164 15-01 College Point Blvd College Point, NY 11356 Murray Hill Branch Leased 1997 2007 60,377 156-18 Northern Blvd Flushing, NY 11354 Plainview Branch Owned 1974 -- 281,185 1092 Old Country Road Plainview, NY 11803 Woodside Branch Leased 1999 2009 42,253 60-10 Queens Boulevard Woodside, NY 11377 Mortgage Service Center (3) Owned 1991 -- 3,331,124 158-14 Northern Blvd Flushing, NY 11358 Auburndale Customer Service Center Leased 1996 2006 1,357 193-10 Northern Blvd Flushing, NY 11358 Ditmars Service Center Leased 1996 2005 4,398 31-09 Ditmars Blvd Astoria, NY 11105 Corona Service Center Leased 1999 2007 51,074 51-13 108th Street Corona, NY 11368 Bellerose Branch Leased 1973 2003 64,384 244-19 Braddock Avenue Bellerose, NY 11426 Forest Hills Branch Leased 1959 2013 -- 106-19 Continental Avenue Forest Hills, NY 11375 Woodhaven Branch Leased 1999 2014 3,845 93-22 Jamaica Avenue Woodhaven, NY 11421 Rockaway Branch Leased 1996 2008 27,299 104-08 Rockaway Beach Blvd. Rockaway Park, NY 11694 Snug Harbor Branch Leased 1977 2001 370,375 343 Merrick Road Amityville, NY 11701
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Leased Date Lease Net Book Value or Leased or Expiration at Owned Acquired Date December 31, 2000 ------ --------- ---------- ----------------- Ozone Park Branch Owned 1976 -- 546,556 98-16 101st Avenue Ozone Park, NY 11416 Howard Beach Branch Owned 1971 -- 801,438 82-10 153rd Avenue Howard Beach, NY 11414 Forest Parkway Branch Owned 1979 -- 269,012 80-35 Jamaica Avenue Woodhaven, NY 11421 Medford Branch Leased 1996 2001 125,453 700-60 Patchogue-Yaphank Road Medford, NY 11763 Uniondale Branch Leased 1996 2001 140,956 1121 Jerusalem Avenue Uniondale, NY 11553 W. Babylon Branch Leased 1997 2002 154,022 575 Montauk Highway W. Babylon, NY 11704 Hauppauge Branch Leased 1998 2003 229,795 335 Nesconset Highway Hauppauge, NY 11788 Farmingvillle Branch Leased 1999 2004 216,652 2350 North Ocean Avenue Farmingville, NY 11738 E. Islip Branch Leased 1998 2003 196,532 2650 Sunrise Highway E. Islip, NY 11730 Hylan Blvd. Branch Leased 1999 2004 170,586 2424 Hylan Blvd. Staten Island, NY 10306 Springfield Gardens Branch Leased 2000 2005 313,337 134-40 Springfield Blvd. Springfield Gardens, NY 11413 Atlantic Terminal Branch Leased 1996 2001 149,422 625 Atlantic Avenue & Ft. Greene Place Brooklyn, NY 11217 New Hyde Park Branch Leased 1996 2002 169,373 2335 New Hyde Park Road New Hyde Park, NY 11040 N. Babylon Branch Leased 1997 2002 161,005 1251 Deer Park Avenue N. Babylon, NY 11703 Brentwood Branch Leased 1997 2002 168,811 101 Wicks Road Brentwood, NY 11717 Levittown Branch Leased 1997 2002 173,341 3535 Hempstead Tpke. Levittown, NY 11756b
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Leased Date Lease Net Book Value or Leased or Expiration at Owned Acquired Date December 31, 2000 ------ --------- ---------- ----------------- Centereach Branch Leased 1997 2002 173,271 2150 Middle Country Road Centereach, NY 11720 East Meadow Branch Leased 1997 2002 178,237 1897 Front Street East Meadow, NY 11554 Woodbury Branch Leased 1997 2002 172,397 8101 Jericho Tpke. Woodbury, NY 11797 Patchogue Branch Leased 1997 2002 166,465 395 Rt. 112 Patchogue, NY 11772 Baldwin Branch Leased 1997 2002 174,694 1764 Grand Avenue Baldwin, NY 11510 Seaford Branch Leased 1999 2004 244,271 4055 Merrick Road Seaford, NY 11783 Port Jefferson Branch Leased 1997 2002 190,190 5145 Nesconset Hwy. Port Jefferson, NY 11776 Whitestone Branch Leased 1997 2002 172,401 31-06 Farrington Street Whitestone, NY 11357 Holbrook Branch Leased 1997 2002 166,305 5801 Sunrise Hwy. Holbrook, NY 11741 W. Babylon Branch Leased 1997 2002 175,312 531 Montauk Hwy. W. Babylon, NY 11704 Islip Branch Leased 1997 2002 177,000 155 Islip Avenue Islip, NY 11751 Shirley Branch Leased 1997 2002 180,016 800 Montauk Hwy. Shirley, NY 11967 Jericho Branch Leased 1998 2003 192,023 366 North Broadway Jericho, NY 11753 Franklin Square Branch Leased 1999 2004 217,647 460 Franklin Avenue Franklin Sq., NY 11010 Long Island City Branch Leased 1998 2003 184,716 42-02 Northern Blvd. Long Island City, NY 11100 Greenvale Branch Leased 1998 2003 201,483 130 Wheatley Plaza Greenvale, NY 11548 East Rockaway Branch Leased 1998 2003 191,777 492 E. Atlantic Avenue East Rockaway, NY 11518
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Leased Date Lease Net Book Value or Leased or Expiration at Owned Acquired Date December 31, 2000 ------ --------- ---------- ----------------- Boro Park Branch Leased 1998 2003 204,259 1245 61st Street Brooklyn, NY 11219 Starrett City Branch Leased 1997 2002 183,063 111-10 Flatlands Avenue Brooklyn, NY 11207 Gowanus Branch Leased 1998 2003 189,884 1-37 12th Street Brooklyn, NY 11215 Pike Slip Branch Leased 1997 2002 174,884 227 Cherry Street New York, NY 10002 Richmond Avenue Branch Leased 1997 2002 200,264 2875 Richmond Avenue Staten Island, NY 10314 Forest Avenue Branch Leased 1998 2003 219,299 1351 Forest Avenue Staten Island, NY 10302 Monsey Branch Leased 1997 2002 179,133 45 Route 59 Monsey, NY 10952 Nanuet Branch Leased 1997 2002 188,952 Route 59 E 195 Rockland Center Nanuet, NY 10954 Yonkers Branch Leased 1998 2003 232,766 1757 Central Park Avenue Yonkers, NY 10710 Port Chester Branch Leased 1998 2003 219,745 130 Midland Avenue Port Chester, NY 10573 N. Yonkers Branch Leased 1998 2003 173,356 2540 Central Park Avenue N. Yonkers, NY 10710 Mount Vernon Branch Leased 1997 2002 207,738 One Pathmark Plaza East 2nd & 3rd Avenues Mount Vernon, NY 10550 Bay Shore Branch Leased 1997 2002 185,459 1905 Sunrise Hwy. Bay Shore, NY 11706 Ozone Park Branch Leased 1997 2002 174,481 92-10 Atlantic Avenue Ozone Park, NY 11416 Massapequa Branch Leased 1997 2012 65,318 941 Carmans Road Massapequa, NY 11758 Flushing Branch Leased 1999 2004 194,198 155-15 Aguilar Avenue Flushing, NY 11367
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Leased Date Lease Net Book Value or Leased or Expiration at Owned Acquired Date December 31, 2000 ------ --------- ---------- ----------------- Castle Center Branch Leased 2000 2005 12,646 1720 Eastchester Road Bronx, NY 10461 Hillside Branch Leased 1998 2013 184,207 367 Highway 22W Hillside, NJ 07205 Hackensack Branch Leased 1997 2012 138,922 S. River St. & E. Main Moonachie Rd. Hackensack, NJ 07601 Wayne Branch Leased 1998 2013 147,185 625 Hamburg Tpke. Wayne, NJ 07470 Palisades Park Branch Leased 1998 2013 168,256 201 Roosevelt Place Palisades Park, NJ 07650 West Milford Branch Leased 1998 2013 194,996 23 Marshall Hill Road West Milford, NJ 07480 Bound Brook Branch Leased 1998 2013 176,535 611 West Union Avenue Bound Brook, NJ 08805 W. Long Branch Branch Leased 1999 2013 263,744 50 Highway 36 W. Long Branch, NJ 07764 Bricktown Branch Leased 1998 2013 169,438 Rt. 70 & Chambersbridge Rd. Bricktown, NJ 08723 Bridgeport Branch Leased 1998 2013 182,246 500 Sylvan Avenue Bridgeport, CT 06606 Ansonia Branch Leased 1998 2003 134,802 404 Main Street Ansonia, CT 06401 Newtown Branch Leased 1998 2003 159,765 6 Queen Street Newtown, CT 06470 Milford Branch Leased 1998 2003 137,994 157 Cherry Street Milford, CT 06460 West Haven Branch Leased 1998 2003 138,218 1131 Campbell Avenue West Haven, CT 06516 Waterbury Branch Leased 1998 2013 180,708 650 Wolcott Street Waterbury, CT 06705 Meriden Branch Leased 1998 2003 184,037 533 S. Broad Street Meriden, CT 06450 CFS Insurance Agency Leased 1998 2003 -- 2100 Middle Country Road, Suite 115A Centereach, NY 11720
29 (1) On December 15, 2000, the Company relocated its corporate headquarters to the former headquarters of Haven Bancorp, Inc. in Westbury, New York. (2) This branch office replaced another branch office, formerly located at 31-02 Steinway Street, Astoria, which was closed as of June 28, 1993. The vacated space, which is owned by the Bank, has a net book value of $1.0 million and has subsequently been leased. (3) The Bank currently leases a majority of the office space at this location to unrelated tenants. ITEM 3. LEGAL PROCEEDINGS The Bank is involved in various legal actions arising in the ordinary course of its business. All such actions, in the aggregate, involve amounts, which are believed by management to be immaterial to the financial condition and results of operations of the Bank. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held a Special Meeting of Shareholders on November 20, 2000. Proxies were solicited with respect to such meeting under Regulation 14A of the Securities Exchange Act of 1934, as amended, pursuant to a joint proxy statement/prospectus dated October 13, 2000. Of the 20,122,640 shares eligible to vote at the special meeting, 18,877,864 were represented in person or by proxy. Two proposals were submitted for a vote, with the following results:
No. of Votes No. of Votes No. of Votes Broker For Against Abstaining Non-Votes --- ------- ---------- --------- 1. Approval and adoption of the 16,525,437 32,252 37,633 2,282,549 Agreement and Plan of Merger, dated as of June 27, 2000 between Queens County Bancorp, Inc. and Haven Bancorp, Inc. 2. Approval and adoption of the 18,726,291 115,590 35,983 -0- amendment of Article FIRST of the Certificate of Incorporation of Queens County Bancorp, Inc., which amendment changes the name of Queens County Bancorp, Inc. to "New York Community Bancorp, Inc."
PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on The Nasdaq Stock Market(R)and quoted under the symbol "NYCB". Information regarding the Company's common stock and its price during fiscal year 2000 appears on page 30 of the 2000 Annual Report to Shareholders under the caption "Market Price of Common Stock and Dividends Paid per Common Share" and is incorporated herein by this reference. 30 As of March 23, 2001 the Company had approximately 960 shareholders of record, not including the number of persons or entities holding stock in nominee or street name through various brokers and banks. ITEM 6. SELECTED FINANCIAL DATA Information regarding selected financial data appears on page 8 of the 2000 Annual Report to Shareholders under the caption "Financial Summary" and is incorporated herein by this reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information regarding management's discussion and analysis of financial condition and results of operations appears on pages 11 through 30 of the 2000 Annual Report to Shareholders under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by this reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information regarding quantitative and qualitative disclosures about market risk appears on pages 17 through 19 of the 2000 Annual Report to Shareholders under the caption "Market Risk and Interest Rate Sensitivity" and is incorporated herein by this reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information regarding the consolidated financial statements and the Independent Auditors' Report appears on pages 31 through 55 of the 2000 Annual Report to Shareholders and is incorporated herein by this reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding the directors and executive officers of the Registrant appears on pages 5 through 8 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held May 9, 2001, under the caption "Information with Respect to Nominees and Continuing Directors," and is incorporated herein by this reference. ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation appears on pages 11 through 20 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held May 9, 2001, and is incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners appears on pages 3 and 4 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held May 9, 2001, under the caption "Security Ownership of Certain Beneficial Owners," and is incorporated herein by this reference. Information regarding security ownership of management appears on pages 5 through 8 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held May 9, 2001, under the caption "Information with Respect to the Nominees, Continuing Directors, and Executive Officers," and is incorporated herein by this reference. 31 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions appears on page 20 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 9, 2001 under the caption "Transactions with Certain Related Persons," and is incorporated herein by this reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following consolidated financial statements are included in the Company's Annual Report to Shareholders for the year ended December 31, 2000 and are incorporated by this reference herein: - Consolidated Statements of Condition at December 31, 2000 and 1999; - Consolidated Statements of Income and Comprehensive Income for each of the years in the three-year period ended December 31, 2000; - Consolidated Statements of Changes in Stockholders' Equity for each of the years in the three-year period ended December 31, 2000; - Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2000; - Notes to the Consolidated Financial Statements - Management's Responsibility for Financial Reporting - Independent Auditors' Report The remaining information appearing in the 2000 Annual Report to Shareholders is not deemed to be filed as a part of this report, except as expressly provided herein. 2. Financial Statement Schedules Financial Statement Schedules have been omitted because they are not applicable or because the required information is shown in the Consolidated Financial Statements or Notes thereto. (b) Reports on Form 8-K filed during the last quarter of 2000 On February 12, 2001, the Company filed a Current Report on Form 8-K regarding the Board of Directors' declaration of a three-for-two stock split in the form of a 50% stock dividend, payable on March 29, 2001 to shareholders of record on March 14, 2001. (c) Exhibits Required by Securities and Exchange Commission Regulation S-K
Exhibit Number ------ 3.1 Certificate of Incorporation of Queens County Bancorp, Inc. (1) 3.2 Bylaws of New York Community Bancorp, Inc. (attached hereto) 10.1 Form of Employment Agreement between Queens County Savings Bank and Certain Officers (1) 10.2 Form of Employment Agreement between Queens County Bancorp, Inc. and Certain Officers (1) 10.3 Form of Change in Control Agreements among the Company, the Bank, and Certain Officers (1) 10.4 Form of Queens County Savings Bank Recognition and Retention Plan for Outside Directors (1) 10.5 Form of Queens County Savings Bank Recognition and Retention Plan for Officers (1) 10.6 Form of Queens County Bancorp, Inc. 1993 Incentive Stock Option Plan (2) 10.7 Form of Queens County Bancorp, Inc. 1993 Incentive Stock Option Plan for Outside Directors (2) 10.8 Form of Queens County Savings Bank Employee Severance Compensation Plan (1) 10.9 Form of Queens County Savings Bank Outside Directors' Consultation and Retirement Plan (1) 10.10 Form of Queens County Bancorp, Inc. Employee Stock Ownership Plan and Trust (1) 10.11 ESOP Loan Documents (1)
32 10.12 Incentive Savings Plan of Queens County Savings Bank (3) 10.13 Retirement Plan of Queens County Savings Bank (1) 10.14 Supplemental Benefits Plan of Queens County Savings Bank (4) 10.15 Excess Retirement Benefits Plan of Queens County Savings Bank (1) 10.16 Queens County Savings Bank Directors' Deferred Fee Stock Unit Plan (1) 10.17 Queens County Bancorp, Inc. 1997 Stock Option Plan (5) 11.0 Statement Re: Computation of Per Share Earnings 13.0 2000 Annual Report to Shareholders 21.0 Subsidiaries information incorporated herein by reference to Part I, "Subsidiaries" 23.0 Consent of KPMG LLP, dated March 27, 2001 99.0 Proxy Statement for the Annual Meeting of Shareholders to be held on May 9, 2001
(1) Incorporated by reference to Exhibits filed with the Registration Statement on Form S-1, Registration No. 33-66852. (2) Incorporated herein by reference into this document from the Exhibits to Form S-8, Registration Statement filed on October 27, 1994, Registration No. 33-85684. (3) Incorporated herein by reference into this document from the Exhibits to Form S-8, Registration Statement filed on October 27, 1994, Registration No. 33-85682. (4) Incorporated by reference to Exhibits filed with the 1995 Proxy Statement for the Annual Meeting of Shareholders held on April 19, 1995. (5) Incorporated by reference to Exhibit filed with the 1997 Proxy Statement for the Annual Meeting of Shareholders held on April 16, 1997. 33 EX-11 2 0002.txt COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.0 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS Years Ended December 31, (in thousands, except per share amounts) 2000 1999 ------- ------- Net income $24,477 $31,664 ------- ------- Weighted average common shares outstanding 18,846 18,527 Earnings per common share $ 1.30 $ 1.71 ======= ======= Total weighted average common shares outstanding 18,846 18,527 Additional dilutive shares using ending period market value versus average market value for the period when utilizing the Treasury stock method regarding stock options 686 413 ------- ------- Total shares for fully diluted earnings per share 19,532 18,940 ------- ------- Fully diluted earnings per common share and common share equivalents $ 1.25 $ 1.67 ======= ======= 34 Signature Pursuant to the requirements of Section 13 or 15(d) 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) /s/ Joseph R. Ficalora 03/27/01 ---------------------- -------- Joseph R. Ficalora Chairman, President, and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
/s/ Joseph R. Ficalora 03/27/01 /s/ Robert Wann 03/27/01 - ---------------------- -------- --------------------------- -------- Joseph R. Ficalora Robert Wann Executive Vice President, Chairman, President, and Comptroller, and Chief Financial Chief Executive Officer Officer (Principal Financial and (Principal Executive Officer) Accounting Officer /s/ Harold E. Johnson 03/27/01 /s/ Donald M. Blake 03/27/01 - ---------------------- -------- --------------------------- -------- Harold E. Johnson Donald M. Blake Director Director /s/ Max L. Kupferberg 03/27/01 /s/ Henry E. Froebel 03/27/01 - ---------------------- -------- --------------------------- -------- Max L. Kupferberg Henry E. Froebel Director Director /s/ Howard C. Miller 03/27/01 /s/ Dominick Ciampa 03/27/01 - ---------------------- -------- --------------------------- -------- Howard C. Miller Dominick Ciampa Director Director /s/ Richard H. O'Neill 03/27/01 /s/ Msgr. Thomas J. Hartman 03/27/01 - ---------------------- -------- --------------------------- -------- Richard H. O'Neill Msgr. Thomas J. Hartman Director Director /s/ Michael J. Levine 03/27/01 /s/ Robert M. Sprotte 03/27/01 - ---------------------- -------- --------------------------- -------- Michael J. Levine Robert M. Sprotte Director Director
35 EX-3.1 3 0003.txt BY-LAWS NEW YORK COMMUNITY BANCORP, INC. BYLAWS ARTICLE I - STOCKHOLDERS Section 1. Annual Meeting. An annual meeting of the stockholders, for the election of Directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, on such date, and at such time as the Board of Directors shall each year fix, which date shall be within thirteen (13) months subsequent to the later of the date of incorporation or the last annual meeting of stockholders. Section 2. Special Meetings. Subject to the rights of the holders of any class or series of preferred stock of the Corporation, special meetings of stockholders of the Corporation may be called only by the Board of Directors pursuant to a resolution adopted by a majority of the Whole Board. The term "Whole Board" shall mean the total number of Directors, which the Corporation would have if there were no vacancies on the Board of Directors (hereinafter the "Whole Board"). Section 3. Notice of Meetings. Written notice of the place, date, and time of all meetings of the stockholders shall be given, not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law. When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date, and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 4. Quorum. At any meeting of the stockholders, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy (after giving effect to the provisions of Article FOURTH of the Corporation's Certificate of Incorporation), shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law. Where a separate vote by a class or classes is required, a majority of the shares of such class or classes present in person or represented by proxy (after giving effect to the provisions of Article FOURTH of the Corporation's Certificate of Incorporation) shall constitute a quorum entitled to take action with respect to that vote on that matter. If a quorum shall fail to attend any meeting, the Chief Executive Officer or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time. Section 5. Organization. The Chairman of the Board of the Corporation or, in his or her absence, the President of the Corporation, or, in his absence, such person as the Board of Directors may have designated or, in the absence of such a person, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and preside over the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the Chairman of the Board appoints. 1 Section 6. Conduct of Business. (a) The Chairman of any meeting of stockholders shall determine the order of business and the procedures at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him or her in order. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. (b) At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who is entitled to vote with respect thereto and who complies with the notice procedures set forth in this Section 6(b). For business to be properly brought before an annual meeting by a stockholder, the business must relate to a proper subject matter for stockholder action and the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered or mailed to and received at the principal executive office of the Corporation not less than ninety (90) days prior to the date of the annual meeting; provided, however, that in the event that less than one hundred (100) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (iii) the class and number of shares of the Corporation's capital stock that are beneficially owned by such stockholder, and (iv) any material interest of such stockholder in such business. Notwithstanding anything in these Bylaws to the contrary, no business shall be brought before or conducted at an annual meeting except in accordance with the provisions of this Section 6(b). The Chairman of the Board or other person presiding over the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 6(b) and, if he should so determine, he shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted. At any special meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of a majority of the Whole Board of Directors. (c) Only persons who are nominated in accordance with the procedures set forth in these Bylaws shall be eligible for election as Directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders at which directors are to be elected only (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section 6(c). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made by timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered or mailed to and received at the principal executive office of the Corporation not less than ninety (90) days prior to the date of the meeting; provided, however, that in the event that less than one hundred (100) days' notice or prior disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (i) as to each person whom such stockholder proposes to nominate for election or re-election as a Director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); and (ii) as to the stockholder giving the notice (x) the name and address, as they appear on the Corporation's books, of such stockholder and (y) the class and number of shares of the Corporation's capital stock that are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a Director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a Director of the Corporation unless nominated in accordance with the provisions of this Section 6(c). The Chairman of the Board of the Corporation or other person presiding at the meeting shall, if the facts so warrant, determine that a nomination was not made in accordance with such provisions and, if he or she shall so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded. 2 Section 7. Proxies and Voting. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing and filed in accordance with the procedure established for the meeting. Any facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication, or other reproduction shall be a complete reproduction of the entire original writing or transmission. All voting, including the election of Directors but excepting where otherwise required by law or by the governing documents of the Corporation, may be made by a voice vote; provided, however, that upon demand therefore by a stockholder entitled to vote or his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballot, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedures established for the meeting. The Board of Directors shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Board of Directors may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the Chairman of the Board or, in his absence, such person presiding at the meeting, shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. All elections for Directors shall be determined by a plurality of the votes cast and, except as otherwise required by law, the Certificate of Incorporation or these Bylaws, all other matters shall be determined by a majority of the votes cast affirmatively or negatively. Section 8. Stock List. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. Section 9. Consent of Stockholders in Lieu of Meeting. Subject to the rights of the holders of any class of series of preferred stock of the Corporation, any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders. ARTICLE II - BOARD OF DIRECTORS Section 1. General Powers, Number, and Term of Office. The business and affairs of the Corporation shall be under the direction of its Board of Directors. The number of Directors who shall constitute the Whole Board shall be such number as the majority of the Whole Board shall from time to time have designated, and except in the absence of such designation, shall be eleven (11). The Board of Directors shall annually elect a Chairman of the Board from among its members who shall, when present, preside at meetings of the Board of Directors. 3 The Directors, other than those who may be elected by the holders of any class or series of Preferred Stock, shall be divided, with respect to the time for which they severally hold office, into three classes, with the term of office of the first class to expire at the first annual meeting of stockholders; the term of office of the second class to expire at the annual meeting of stockholders one year thereafter; and the term of office of the third class to expire at the annual meeting of stockholders two years thereafter, with each Director to hold office until his or her successor shall have been duly elected and qualified. At each annual meeting of stockholders, Directors elected to succeed those Directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election, with each Director to hold office until his or her successor shall have been duly elected and qualified. Section 2. Vacancies and Newly Created Directorships. Subject to the rights of the holders of any class or series of Preferred Stock, and unless the Board of Directors otherwise determines, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office, or other cause may be filled only by a majority vote of the Directors then in office, though less than a quorum, and Directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until such Director's successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the Board shall shorten the term of any incumbent Director. Section 3. Regular Meetings. Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all Directors. A notice of each regular meeting shall not be required. Section 4. Special Meetings. Special meetings of the Board of Directors may be called by one-third (1/3) of the Directors then in office (rounded up to the nearest whole number), or by the Chairman of the Board, and shall be held at such place, on such date, and at such time as they, or he or she, shall fix. Notice of the place, date, and time of each such special meeting shall be given each Director by whom it is not waived by mailing written notice not less than five (5) days before the meeting, or by telegraphing or telexing or by facsimile transmission of the same, not less than twenty-four (24) hours before the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. Section 5. Quorum. At any meeting of the Board of Directors, a majority of the Whole Board shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof. Section 6. Participation in Meetings By Conference Telephone. Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting. Section 7. Conduct of Business. At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board or the Chairman of the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the Directors present, except as otherwise provided herein or required by law. The Board of Directors may take action without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors. 4 Section 8. Powers. The Board of Directors may, except as otherwise required by law, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, including, without limiting the generality of the foregoing, the unqualified power: (1) To declare dividends from time to time in accordance with law; (2) To purchase or otherwise acquire any property, rights, or privileges on such terms as it shall determine; (3) To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non-negotiable, secured or unsecured, and to do all things necessary in connection therewith; (4) To remove any Officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any Officer upon any other person for the time being; (5) To confer upon any Officer of the Corporation the power to appoint, remove, and suspend subordinate Officers, employees, and agents; (6) To adopt from time to time such stock option, stock purchase, bonus, or other compensation plans for Directors, Officers, employees, and agents of the Corporation and its subsidiaries as it may determine; (7) To adopt from time to time such insurance, retirement, and other benefit plans for Directors, Officers, employees, and agents of the Corporation and its subsidiaries as it may determine; and (8) To adopt from time to time regulations, not inconsistent with these Bylaws, for the management of the Corporation's business and affairs. Section 9. Compensation of Directors. Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as Directors, including, without limitation, their services as members of committees of the Board of Directors. Section 10. Retirement of Directors. No person may be elected, appointed, or nominated as a Director of the Corporation after December 31 of the year in which such person attains the age of 80. Vacancies on the Board of Directors created by operation of this provision may be filled in accordance with these Bylaws. However, such person may complete the term in which they attain the age of 80. ARTICLE III - COMMITTEES Section 1. Committees of the Board of Directors. The Board of Directors, by a vote of a majority of the Whole Board of Directors, may, from time to time, designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of a majority of the Whole Board, and shall, for these committees and any others provided for herein, elect a Director or Directors to serve as the member or members, designating, if it desires, other Directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. The Board of Directors, by a resolution adopted by a majority of the Whole Board, may terminate any committee previously established. Any committee so designated by resolution adopted by a majority of the Whole Board, may exercise the power and authority of the Board of Directors to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law if the resolution which designates the committee or a supplemental resolution of the Board of Directors shall so provide. In the absence or disqualification of any member of any committee and any alternate member in his or her place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. 5 Section 2. Conduct of Business. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law or the Board of Directors. Adequate provision shall be made for notice to members of all meetings; a majority of the members shall constitute a quorum unless the committee shall consist of one (1) or two (2) members, in which event one (1) member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee. Section 3. Nominating Committee. The Board of Directors, by resolution adopted by a majority of the Whole Board, shall appoint a Nominating Committee of the Board, consisting of not less than three (3) members of the Board of Directors, one of whom shall be the Chairman of the Board. The Nominating Committee shall have authority (a) to review any nominations for election to the Board of Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii) of Article I of these Bylaws in order to determine compliance with such Bylaw and (b) to recommend to the Whole Board nominees for election to the Board of Directors to replace those Directors whose terms expire at the annual meeting of stockholders next ensuing. ARTICLE IV - OFFICERS Section 1. Generally. (a) The Board of Directors, as soon as may be practicable after the annual meeting of stockholders, shall choose a Chairman of the Board, who shall be the Chief Executive Officer; and a President; one or more Vice Presidents; and a Secretary, and from time to time may choose such other officers as it may deem proper. The Chairman of the Board shall be chosen from among the directors. Any number of offices may be held by the same person. (b) The term of office of all Officers shall be until the next annual election of Officers and until their respective successors are chosen, but any Officer may be removed from office at any time by the affirmative vote of a majority of the authorized number of Directors then constituting the Board of Directors or the Chairman of the Board. (c) All Officers chosen by the Board of Directors or the Chairman of the Board shall each have such powers and duties as generally pertain to their respective Offices, subject to the specific provisions of this ARTICLE IV. Such officers shall also have such powers and duties as, from time to time, may be conferred by the Board of Directors or by any committee thereof. Section 2. Chief Executive Officer and President. The Chairman of the Board shall be the Chief Executive Officer and, subject to the provisions of these Bylaws and to the direction of the Board of Directors, shall serve in a general executive capacity and, when present, shall preside at all meetings of the stockholders of the Corporation. The Chairman of the Board shall perform all duties and have all powers, which are commonly incident to the office of the Chairman of the Board which are delegated to him or her by the Board of Directors. He or she shall have power to sign all stock certificates, contracts, and other instruments of the Corporation, which are authorized. As the Chief Executive Officer and President, he shall have general responsibility for the management and control of the business and affairs of the Corporation, shall perform all duties and have all powers which are commonly incident to the office of President and Chief Executive Officer or which are delegated to him or her by the Board of Directors, and shall preside over all meetings of the Board of Directors, if present. Subject to the direction of the Board of Directors, he shall have general supervision of all of the other Officers, employees, and agents of the Corporation. 6 Section 3. Vice President. The Vice Presidents shall perform the duties and exercise the powers usually incident to their respective offices and/or such other duties and powers as may be properly assigned to them by the Board of Directors. A Vice President or Vice Presidents may be designated as Executive Vice President or Senior Vice President. Section 4. Secretary. The Secretary or Assistant Secretary shall issue notices of meetings, shall keep their minutes, shall have charge of the seal and the corporate books, and shall perform such other duties and exercise such other powers as are usually incident to such office and/or such other duties and powers as are properly assigned thereto by the Board of Directors. Subject to the direction of the Board of Directors, the Secretary shall have the power to sign all stock certificates. Section 5. Chief Financial Officer. The Chief Financial Officer of the Corporation shall have the responsibility for maintaining the financial records of the Corporation. He or she shall make such disbursements of the funds of the Corporation as are authorized and shall render, from time to time, an account of all such transactions and of the financial condition of the Corporation. The Chief Financial Officer shall also perform such other duties as the Board of Directors may from time to time prescribe. Section 6. Assistant Secretaries and Other Officers. The Board of Directors or the Chairman of the Board may appoint one or more Assistant Secretaries and such other Officers who shall have such powers and shall perform such duties as are provided in these Bylaws or as may be assigned to them by the Board of Directors. Section 7. Action with Respect to Securities of Other Corporations. Unless otherwise directed by the Board of Directors, the Chairman of the Board or any Officer of the Corporation authorized by the Chief Executive Officer shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of, or with respect to any action of stockholders of, any other corporation in which this Corporation may hold securities, and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation. ARTICLE V - STOCK Section 1. Certificates of Stock. Each stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by, the Chairman of the Board, and by the Secretary or an Assistant Secretary, or any Treasurer or Assistant Treasurer, certifying the number of shares owned by him or her. Any or all of the signatures on the certificate may be by facsimile. Section 2. Transfers of Stock. Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 4 of Article V of these Bylaws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefore. Section 3. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of 7 any change, conversion, or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which record date shall not be more than sixty (60) days nor less than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for such other action as hereinbefore described; provided, however, that if no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the next day preceding the day on which the meeting is held, and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment or rights or to exercise any rights of change, conversion, or exchange of stock, or for any other purpose, the record date shall be at the close of business on the day on which the Board of Directors adopts a resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 4. Lost, Stolen, or Destroyed Certificates. In the event of the loss, theft, or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft, or destruction and concerning the giving of a satisfactory bond or bonds of indemnity. Section 5. Regulations. The issue, transfer, conversion, and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish. ARTICLE VI - NOTICES Section 1. Notices. Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, Director, Officer, employee, or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by prepaid telegram or mailgram or other courier. Any such notice shall be addressed to such stockholder, Director, Officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice is received, if hand delivered, or dispatched, if delivered through the mails or by telegram or Mailgram or other courier, shall be the time of the giving of the notice. Section 2. Waivers. A written waiver of any notice, signed by a stockholder, Director, Officer, employee, or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, Director, Officer, employee, or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver. ARTICLE VII - MISCELLANEOUS Section 1. Facsimile Signatures. In addition to the provisions for use of facsimile signatures specifically authorized elsewhere in these Bylaws, facsimile signatures of any Officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof designated by the Board. 8 Section 2. Corporate Seal. The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or a designated committee thereof, duplicates of the seal may be kept and used by the Chief Financial Officer or by an Assistant Secretary or an assistant to the Chief Financial Officer. Section 3. Reliance Upon Books, Reports, and Records. Each Director, each member of any committee designated by the Board of Directors, and each Officer of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports, or statements presented to the Corporation by any of its Officers or employees, or committees of the Board of Directors so designated, or by lawyers, accountants, agents, or any other person as to matters which such Director or committee member or officer reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. Section 4. Fiscal Year. The fiscal year of the Corporation shall be as fixed by the Board of Directors. Section 5. Time Periods. In applying any provision of these Bylaws which requires that an act be done or not be done a specified number of days prior to an event, or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included. ARTICLE VIII - AMENDMENTS The Board of Directors, by a resolution adopted by a majority of the Whole Board, may amend, alter, or repeal these Bylaws at any meeting of the Board, provided notice of the proposed change was given not less than two days prior to the meeting. The stockholder shall also have power to amend, alter, or repeal these Bylaws at any meeting of stockholders provided notice of the proposed change was given in the notice of the meeting; provided, however, that, notwithstanding any other provisions of the Bylaws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the voting stock required by law, the Certificate of Incorporation, any Preferred Stock Designation, or these Bylaws, the affirmative votes of the holders of at least 80% of the voting power (taking into account the provisions of Article FOURTH of the Certificate of Incorporation) of all the then-outstanding shares of the Voting Stock voting together as a single class, shall be required to alter, amend, or repeal any provisions of these Bylaws. The above Bylaws are effective as of July 16, 1993, the date of incorporation of New York Community Bancorp, Inc., formerly known as Queens County Bancorp, Inc. 9 EX-13 4 0004.txt ANNUAL REPORT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FINANCIAL SUMMARY
AT OR FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------------------------------------------------- (dollars in thousands) 2000(1) 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- EARNINGS SUMMARY Net interest income $ 73,081 $ 68,903 $ 68,522 $ 62,398 $ 57,520 Reversal of provision for loan losses -- (2,400) -- -- (2,000) Other operating income 21,645 2,523 2,554 2,305 2,445 Operating expense(2) 49,824 21,390 25,953 27,084 23,271 Income tax expense 20,425 20,772 18,179 14,355 17,755 Net income(3) 24,477 31,664 26,944 23,264 20,939 Earnings per share(3)(4) $ 1.30 $ 1.71 $ 1.41 $ 1.14 $ 0.90 Diluted earnings per share(3)(4) 1.25 1.67 1.34 1.07 0.85 SELECTED RATIOS Return on average assets 1.06% 1.69% 1.62% 1.61% 1.63% Return on average stockholders' equity 13.24 22.99 17.32 12.95 10.10 Operating expense to average assets 2.16 1.14 1.57 1.88 1.82 Efficiency ratio 52.60 29.95 36.51 41.86 38.81 Interest rate spread 3.00 3.41 3.76 3.84 3.88 Net interest margin 3.33 3.79 4.24 4.45 4.63 Dividend payout ratio 80.00 60.00 50.00 38.00 29.00 Stockholders' equity to total assets 6.53 7.19 8.55 10.64 15.56 Average interest-earning assets to average interest-bearing liabilities 1.07x 1.09x 1.12x 1.16x 1.21x CASH EARNINGS DATA(3) Earnings $ 58,001 $ 44,349 $ 43,758 $ 35,399 $ 27,458 Earnings per share(4) $ 3.08 $ 2.39 $ 2.29 $ 1.73 $ 1.18 Diluted earnings per share(4) 2.97 2.34 2.17 1.62 1.12 Return on average assets 2.52% 2.37% 2.64% 2.46% 2.14% Return on average stockholders' equity 31.38 32.21 28.13 19.71 13.24 Operating expense to average assets 2.16 1.01 1.16 1.37 1.39 Efficiency ratio 24.47 26.37 27.05 30.47 28.83 BALANCE SHEET SUMMARY Total assets $ 4,710,785 $ 1,906,835 $ 1,746,882 $ 1,603,269 $ 1,358,656 Loans, net 3,616,386 1,601,079 1,486,519 1,395,003 1,146,152 Allowance for loan losses 18,064 7,031 9,431 9,431 9,359 Securities held to maturity 222,534 184,637 152,280 94,936 86,495 Securities available for sale 303,734 12,806 4,656 2,617 -- Mortgage-backed securities held to maturity 1,923 2,094 19,680 49,781 73,732 Deposits 3,257,194 1,076,018 1,102,285 1,069,161 1,023,930 Borrowings 1,037,505 636,378 439,055 309,664 81,393 Stockholders' equity 307,410 137,141 149,406 170,515 211,429 Book value per share(4)(5) $ 11.11 $ 7.52 $ 8.13 $ 8.82 $ 9.43 Common shares outstanding(4) 29,580,124 21,010,127 21,250,897 22,369,187 25,751,598 ASSET QUALITY RATIOS Non-performing loans to loans, net 0.25% 0.19% 0.42% 0.55% 0.84% Non-performing assets to total assets 0.19 0.17 0.38 0.54 0.76 Allowance for loan losses to non-performing loans 198.68 226.22 152.28 122.61 96.90 Allowance for loan losses to loans, net 0.50 0.44 0.63 0.68 0.82 Allowance for loan losses to accumulated net charge-offs since 1987 1,290.29 493.06 661.36 661.36 625.00 =================================================================================================================================
(1) The Company acquired Haven Bancorp, Inc. on November 30, 2000 and treated the acquisition as a purchase transaction. Accordingly, the Company's 2000 earnings reflect one month of combined operations. (2) The 2000 amount includes $494,000 in goodwill amortization stemming from the Haven acquisition. (3) In connection with the Company's acquisition of Haven Bancorp, Inc., the 2000 amount includes a non-recurring net gain of $13.5 million recorded in other operating income and a non-recurring charge of $22.8 million recorded in operating expense. The 1999 amount includes a non-recurring curtailment gain of $1.6 million and a non-recurring charge of $735,000, both of which were recorded in operating expense. The 1996 amount includes a non-recurring tax charge of $1.8 million, of which $1.3 million was reversed in 1997. (4) Reflects shares issued as a result of a 4-for-3 stock split on August 22, 1996, and 3-for-2 stock splits on April 10 and October 1, 1997 and September 29, 1998. These amounts have not been adjusted to reflect a 3-for-2 stock split scheduled to occur on March 29, 2001. (5) Excludes unallocated ESOP shares. - -------------------------------------------------------------------------------- Eight - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company was incorporated as Queens County Bancorp, Inc. on July 20, 1993 to serve as the holding company for Queens County Savings Bank, the first savings bank chartered by the State of New York in the New York City borough of Queens, on April 14, 1859. On November 21, 2000, the Company changed its name to New York Community Bancorp, Inc., in anticipation of its acquisition of Haven Bancorp, Inc., parent company of CFS Bank, which was founded as the Columbia Building and Loan Association, in Queens, in 1889. The acquisition was announced on June 27, 2000 and was completed on November 30, 2000. Shareholders of Haven Bancorp received 1.04 shares of New York Community Bancorp stock for each share of Haven Bancorp stock held at the closing date. The acquisition joined New York Community Bancorp's strength as a multi-family mortgage lender with Haven Bancorp's strength as a significant source of low-cost deposits and fee income derived from the sale of investment products and banking services. On December 15, 2000, the name of the Company's primary subsidiary was changed from Queens County Savings Bank to New York Community Bank, and its headquarters were relocated from Flushing, in Queens County, New York to Westbury, in Nassau County, New York. CFS Bank was merged with and into New York Community Bank on January 31, 2001. The combined bank has 86 locations serving the greater metropolitan New York region, including 19 traditional branch offices (17 in Queens and one each in Nassau and Suffolk counties) and 67 in-store branches throughout New York City, Nassau, Suffolk, Rockland and Westchester counties, New Jersey, and Connecticut. Customers are also served through the Company's web site, which delivers 24-hour access to a full range of online banking services. Upon completion of the acquisition, the Company embarked on an aggressive plan to restructure the balance sheet of the combined institution. In December 2000, $620.0 million of the securities and one-to-four family mortgage loans acquired were sold, and a portion of the proceeds was utilized to reduce the balance of Federal Home Loan Bank ("FHLB") borrowings by $500.0 million. As a result, the Company recorded assets of $4.7 billion at December 31, 2000, as compared to $1.9 billion at December 31, 1999. As the acquisition was accounted for as a purchase transaction, the Company's 2000 earnings reflect the one-month benefit of the acquisition, as well as the additional shares issued pursuant to the stock-for-stock exchange. Excluding a non-recurring net charge of $11.4 million, or $0.59 per share, incurred in connection with the acquisition, the Company recorded core earnings of $35.9 million, or $1.84 per diluted share, in 2000, as compared to $30.1 million, or $1.59 per diluted share, in 1999. The full-year benefit of the acquisition and of management's subsequent actions are expected to contribute to significant earnings growth in 2001. Management anticipates that 2001 earnings will range between $69.0 million and $71.0 million, equivalent to diluted earnings per share of $2.54 to $2.60 (or $1.69 to $1.73, as adjusted for a 3-for-2 stock split scheduled to occur on March 29, 2001). Similarly, cash earnings are expected to range between $82.0 million and $85.0 million, equivalent to diluted cash earnings per share of $3.00 to $3.05 (or $2.00 to $2.03, as adjusted for the split). FORWARD-LOOKING STATEMENTS AND RISK FACTORS This report contains certain forward-looking statements with regard to the Company's 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. The Company intends for 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 is including this statement for purposes of these safe harbor provisions. The forward-looking statements made within this report are based on management's current expectations, but actual results may differ materially from anticipated future results. 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 "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company's ability to predict results or the actual effects of future plans or strategies is inherently uncertain. Factors that could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to: changes in market interest rates, general economic conditions, legislation, and regulation; changes in the monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board of Governors; changes in the quality or composition of the Company's loan or investment portfolios, demand for loan products, deposit flows, competition, and demand for financial services in the Company's market area; changes in accounting principles and guidelines; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company's operations, pricing, and services. Specific factors that could cause future results to vary from current management expectations are detailed from time to time in the Company's SEC filings, including this report. - -------------------------------------------------------------------------------- Eleven - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Forward-looking statements included in this report also include, without limitation, those statements relating to the anticipated effects of the Company's acquisition of Haven Bancorp. The following factors, among others, could cause the actual results of the acquisition to differ materially from the expectations stated in this report: the ability to successfully integrate the companies following the acquisition; the ability to fully realize the expected cost savings and revenues; the ability to realize the expected cost savings and revenues on a timely basis; and a materially adverse change in the financial condition of the Company. Readers are cautioned not to put undue reliance on these forward-looking statements, which speak only as of the date of this report. Except as required by applicable law or regulation, the Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements have been made. FINANCIAL CONDITION Balance Sheet Summary The Company recorded total assets of $4.7 billion at December 31, 2000, as compared to $1.9 billion at December 31, 1999. The increase stemmed from the Haven acquisition, and from the origination of $616.0 million in mortgage loans over the course of the year. Loan growth accounted for $2.0 billion of the $2.8 billion rise in total assets, with securities available for sale and money market investments accounting for $290.9 million and $118.6 million of the increase, respectively. In accordance with the post-acquisition restructuring plan announced on June 27, 2000, the Company sold securities available for sale and one-to-four family mortgage loans of $620.0 million upon completion of the acquisition, and utilized the proceeds to reduce the balance of FHLB borrowings by $500.0 million. The impact of these actions is reflected in the year-end figures for mortgage loans, securities available for sale, and borrowings. Specifically, mortgage loans outstanding rose to $3.6 billion from $1.6 billion, while securities available for sale rose to $303.7 million from $12.8 million. In addition, the portfolio of money market investments rose to $124.6 million from $6.0 million, while the portfolio of securities held to maturity rose $37.9 million to $222.5 million. Despite the significant portfolio growth resulting from the acquisition, the quality of the Company's assets was substantially maintained. At December 31, 2000, non-performing assets totaled $9.1 million, or 0.19% of total assets, and included foreclosed real estate of $12,000 and non-performing loans of $9.1 million, or 0.25% of loans, net. In addition, the Company extended its record to 25 consecutive quarters without any net charge-offs, reducing the average of net charge-offs recorded since 1987 to $100,000 per year. Reflecting the acquisition, the allowance for loan losses rose $11.0 million to $18.1 million, representing 198.68% of non-performing loans and 0.50% of loans, net. Because the acquisition was accounted for as a purchase transaction, the Company's assets also included goodwill of $118.1 million. Total deposits rose $2.2 billion to $3.3 billion, the result of a $965.6 million increase in core deposits to $1.4 billion and a $1.2 billion increase in CDs to $1.9 billion. At December 31, 2000, core deposits represented 42.5% of total deposits, an improvement from 38.8% at December 31, 1999. Borrowings totaled $1.0 billion at year-end 2000, reflecting the aforementioned reduction of $500.0 million. Supported by cash earnings of $58.0 million, stockholders' equity totaled $307.4 million at December 31, 2000, representing 6.53% of total assets and a book value of $11.11 per share, based on 27,678,204 shares. In addition to distributing cash dividends totaling $17.8 million, the Company allocated $41.5 million toward the repurchase of 1.7 million Company shares over the course of the year. The Company maintained a solid capital position, with regulatory ratios that continued to exceed the minimum requirements established under the Federal Deposit Insurance Corporation Improvement Act ("FDICIA"). In addition, the Bank continued to exceed the FDICIA requirements for classification as a "well capitalized institution." Loans Reinforcing its status as one of the nation's leading multi-family mortgage lenders, the Company originated $541.7 million in such loans over the course of 2000, far exceeding the level recorded in every year since 1993 but one: in 1999, the Company recorded originations of $676.8 million; the previous record was $453.1 million in 1997. The multi-family mortgage loan portfolio grew to $1.9 billion at December 31, 2000, representing 54.1% of mortgage loans outstanding, from $1.3 billion, representing 84.2%, at December 31, 1999. While the concentration of multi-family mortgage loans had grown to 86.1% at September 30, 2000, the acquisition triggered a point-in-time change in the mix of mortgage loans. Reflecting the acquisition, and total originations of $616.0 million, the Company recorded mortgage loans outstanding of $3.6 billion at December 31, 2000, up $2.0 billion from the balance recorded at December 31, 1999. As a result of the acquisition, the Company's portfolio of one-to-four family mortgage loans rose to $1.3 billion from - -------------------------------------------------------------------------------- Twelve - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- $152.6 million; the 2000 amount also reflects originations of $6.2 million and the sale of loans totaling $105.0 million in the last month of the year. In addition, the portfolio of commercial real estate loans rose to $324.1 million from $96.0 million, after originations of $59.0 million; the portfolio of construction loans rose to $59.5 million from $4.8 million, after originations of $9.1 million. One-to-four family mortgage loans thus represented 35.2% of mortgage loans outstanding at the close of 2000, while commercial real estate and construction loans represented 9.0% and 1.7%, respectively. The concentration of multi-family mortgage loans is expected to grow over the course of the next four quarters, together with the concentration of commercial real estate loans. At the same time, the concentration of one-to-four family mortgage loans is expected to decline. Effective December 1, 2000, the Company adopted a policy of originating one-to-four family mortgage loans on a pass-through basis. Applications are taken and processed by one of the nation's leading mortgage brokers; upon closing, the loans are sold to the broker, service-released. In addition to generating fee income, this arrangement enables the Company to offer its customers an extensive range of one-to-four family mortgage products, without incurring any of the attendant interest rate or asset quality risk. The concentration of multi-family and commercial real estate loans is also expected to reflect an increase in production, as the Company capitalizes on the greater availability of low-cost funds. As a result of the acquisition, the Company's deposits grew $2.2 billion to $3.3 billion; for more information about funding, see the discussion beginning on page 17 of this report. The Company's preference for multi-family and commercial real estate lending is based on the quality and efficiency of such assets as compared to one-to-four family loans. For example, the Company's emphasis on local-market multi-family loans has been substantially rewarded by the absence of any charge-offs since 1987. In addition, the approval process for these loans is highly efficient, typically taking a period of four to six weeks. Multi-family and commercial real estate loans are arranged through a select group of mortgage brokers who are familiar with the Company's underwriting procedures, as well as its reputation for responsiveness. As one of the few banks in the marketplace to make multi-family mortgage loans during the last recession, the Company has been rewarded by a steady supply of product, despite the entry of new competitors vying for borrowers. Multi-family and commercial real estate loans also share a different structure, with a term of ten years and occasionally less. Such loans generally feature a fixed rate of interest for the first five years of the mortgage, before converting to an adjustable rate of one percentage point over prime in each of years six through ten. Another feature of these loans is a stringent prepayment penalty schedule. Penalties range from five percentage points to two in years one through five of the mortgage, depending on the remaining term at the time the loan is prepaid. While discouraging prepayments, such penalties represent a potential source of fee income. More often, they assist the Company in negotiating terms when refinancing a loan. In 2000, the level of prepayments declined from the year-earlier level, a consequence of the rise in market interest rates. The Company's multi-family mortgage loans typically refinance within a period of three to five years. While the Company's one-to-four family mortgage loans were typically made to customers in Queens and Nassau counties prior to the acquisition, the market for its multi-family and commercial real estate loans extended throughout metropolitan New York. At December 31, 2000, 34.2% of the multi-family mortgage loan portfolio was secured by buildings in Queens County, with Manhattan and Brooklyn accounting for 32.6% and 18.0%, respectively. Commercial real estate loans were largely secured by properties in Manhattan, Queens, and Nassau County, which accounted for 32.2%, 25.0%, and 14.8% of the portfolio, respectively. As a result of the acquisition, the market for the Company's mortgage loans has been further expanded to encompass Suffolk, Westchester, and Rockland counties, New Jersey, and Connecticut. In addition to enlarging its niche in the multi-family and commercial real estate markets, the Company will continue to selectively originate construction loans. Like multi-family and commercial real estate loans, such loans are brought to the Bank by a select group of mortgage brokers, representing reputable builders of one-to-four family houses, multi-family buildings, and office complexes. As compared to one-to-four family mortgage loans, construction loans tend to yield a higher rate of interest; like multi-family and commercial real estate loans, they are more efficient to make. While other loans rose $31.0 million year-over-year to $39.7 million, the portfolio may be expected to decline in 2001 and beyond. The Company has adopted the same approach to consumer loan production as it has to one- to-four family lending, originating loans on a pass-through basis since December 1, 2000. Loans are sold, service-released, to a third-party provider within 24 hours of closing, generating fee income for the Company. The arrangement enables the Company to provide its customers with a choice of products, while avoiding the attendant asset quality risk. - -------------------------------------------------------------------------------- Thirteen - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- With its source of funds now greatly enhanced, it is management's expectation that loan production will rise substantially in 2001. At January 23rd, the Company had a pipeline of $267.3 million, primarily consisting of multi-family mortgage loans. However, the ability to close these loans and others in future quarters could be adversely impacted by an increase in competition, an economic downturn, or an unexpected rise in market interest rates. Loan Portfolio Analysis
AT DECEMBER 31, ---------------------------------------------------------------------------------------- 2000 1999 1998 ---------------------------------------------------------------------------------------- Percent Percent Percent (dollars in thousands) Amount of Total Amount of Total Amount of Total - ------------------------------------------------------------------------------------------------------------------------------------ MORTGAGE LOANS: 1-4 family $1,267,080 34.85% $ 152,644 9.48% $ 178,770 11.94% Multi-family 1,945,656 53.51 1,348,351 83.72 1,239,094 82.77 Commercial real estate 324,068 8.91 96,008 5.96 67,494 4.51 Construction 59,469 1.64 4,793 0.30 1,898 0.13 - ----------------------------------------------------------------------------------------------------------------------------------- Total mortgage loans 3,596,273 98.91 1,601,796 99.46 1,487,256 99.35 - ----------------------------------------------------------------------------------------------------------------------------------- OTHER LOANS: Cooperative apartment 3,726 0.10 4,856 0.30 4,802 0.32 Home equity 12,240 0.34 1,347 0.08 1,793 0.12 Passbook savings 779 0.02 331 0.02 321 0.02 Student 683 0.02 8 -- 8 -- Other 22,320 0.61 2,200 0.14 2,826 0.19 - ----------------------------------------------------------------------------------------------------------------------------------- Total other loans 39,748 1.09 8,742 0.54 9,750 0.65 - ----------------------------------------------------------------------------------------------------------------------------------- Total loans 3,636,021 100.00% 1,610,538 100.00% 1,497,006 100.00% - ----------------------------------------------------------------------------------------------------------------------------------- Less: Unearned discounts 18 24 22 Net deferred loan origination fees 1,553 2,404 1,034 Allowance for loan losses 18,064 7,031 9,431 - ----------------------------------------------------------------------------------------------------------------------------------- Loans, net $3,616,386 $1,601,079 $1,486,519 ===================================================================================================================================
Asset Quality The Company's performance has traditionally been distinguished by a stellar record of asset quality. At December 31, 2000, that record remained solid, despite the dramatic portfolio growth resulting from the acquisition of Haven Bancorp on November 30th. The Company extended its record to 25 consecutive quarters without any net charge-offs, a record unmatched by any other New York State-based thrift. At December 31, 2000, non-performing assets totaled $9.1 million, or 0.19% of total assets, as compared to $2.8 million, or 0.13%, at September 30, 2000, and to $3.2 million, or 0.17%, at December 31, 1999. Included in the year-end 2000 amount were non-performing loans of $9.1 million, as compared to $2.8 million and $3.1 million at the corresponding dates. Non-performing loans equaled 0.25% of loans, net, at December 31, 2000, and 0.15% and 0.19% of loans, net, respectively, at September 30, 2000 and December 31, 1999. Included in non-performing loans at the current year-end were mortgage loans in foreclosure totaling $6.0 million and loans 90 days or more delinquent totaling $3.1 million. Foreclosed real estate totaled $12,000 at December 31, 2000; by comparison, the Company had no foreclosed real estate at September 30, 2000, and $66,000 at December 31, 1999. From time to time, properties classified as "foreclosed real estate" are profitably rented by the Company. When this occurs, such properties are reclassified as "real estate held for investment" and included in "other assets" on the balance sheet. At December 31, 2000, the Company had eight such investments totaling $697,800, and providing an 11.0% return. At the prior year-end, the Company had 16 such properties totaling $1.6 million; the reduction reflects sales that occurred over the course of the year. While the quality of the Company's loans reflects the strength of the local real estate market, it also reflects the conservative credit standards maintained. In the case of multi-family mortgage loans, management looks at the appraised value of the property that collateralizes the credit, and, more importantly, at the consistency of the income stream produced. The condition of the property is another critical factor. Every multi-family building is inspected from rooftop to basement by one or more members of the Board - -------------------------------------------------------------------------------- Fourteen - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- of Directors' Mortgage and Real Estate Committee, together with the Bank's senior mortgage officer. Commercial real estate loans, which are typically secured by office buildings, warehouses, or shopping centers, are evaluated in the same way. All properties are appraised by independent appraisers whose reports are carefully reviewed by the Company's in-house appraisal staff. To further minimize credit risk, the Company limits the amount of credit granted to any one borrower and requires a minimum debt coverage ratio of 120%. While the Company will lend up to 75% of appraised value on multi-family buildings and commercial properties, the average loan-to-value ratio of such credits was 56.0% and 52.0% at year-end. While the largest multi-family and commercial real estate loans totaled $31.0 million and $31.5 million, respectively, at December 31, 2000, the average principal balance of such loans was $1.3 million and $933,900, respectively, at that date. In addition, the Company originates loans within a local market that parallels the marketplace served through its branch offices. While the market now extends as far as Connecticut and New Jersey, the majority of multi-family loans are secured by buildings in Queens, Manhattan, and Brooklyn, and the majority of commercial real estate loans by properties in Manhattan, Queens, and Nassau County. In addition, the Company's multi-family and commercial real estate loans are primarily made through mortgage brokers whose relationship with the Company extends back nearly 30 years. While the Company is no longer originating one-to-four family mortgage loans for portfolio (thus eliminating any risk to asset quality), such loans, when made at adjustable rates, were retained for portfolio in the past. Loans originated by Queens County Savings Bank were typically made on a limited documentation basis, with approval depending on a thorough property appraisal and the verification of financial assets, when furnished, in addition to a review of the borrower's credit history. With the Haven acquisition, the Company acquired a portfolio of one-to-four family mortgage loans that were made on a full or alternative documentation basis, underwritten to standards established by the Federal National Mortgage Association ("Fannie Mae"). Other dissimilarities have to do with the loan-to-value ratio required and the area where such loans were made. Whereas Queens County Savings Bank would lend up to 85% of a home's appraised value with private mortgage insurance, and up to 75% without PMI, CFS Bank would lend up to 90% and 80%, respectively. In addition, while the Company's one-to-four family loans were secured by properties in Queens and Nassau counties, the loans originated by CFS Bank were secured by properties in an expanded market encompassing the greater metropolitan New York region, including New Jersey and Connecticut. While delinquencies have been minimal, the Company maintains specific procedures to ensure that problems, when they occur, are rapidly identified and addressed. In the case of multi-family and commercial real estate loans, the borrower is personally contacted within 20 days of non-payment; in the case of one-to-four family mortgage loans, the borrower is notified by mail within 20 days. While every effort is consistently made to originate quality assets, the absence of problem loans cannot be guaranteed. The ability of a borrower to fulfill his or her obligations may be impacted by a change in personal circumstances, or by a decline in real estate values or in the local economy. To minimize the impact of credit risk, the Company maintains coverage through an allowance for loan losses that rose to $18.1 million at December 31, 2000 from $7.0 million at December 31, 1999. The 2000 amount is equivalent to 198.68% of non-performing loans and 0.50% of loans, net. In addition, the allowance represents 1,290.29% of total net charge-offs since 1987, when the last major downturn in the real estate market began. The allowance for loan losses is increased by the provision for loan losses charged to operations and reduced by reversals or by charge-offs, net of recoveries. The allowance is based on management's periodic evaluation of its adequacy, taking into consideration known and inherent risks in the portfolio, the Bank's past loan loss experience, adverse situations which may affect its borrowers' ability to pay, overall portfolio quality, and current and prospective economic conditions. The policy of the Company is to segment the allowance to correspond to the various types of loans in the loan portfolio. These loan categories are assessed with specific emphasis on the underlying collateral, which corresponds to the respective levels of quantified and inherent risk. The initial assessment takes into consideration non-performing loans and the valuation of the collateral supporting each loan. Non-performing loans are risk-weighted based upon an aging schedule that typically depicts either (1) delinquency, a situation in which repayment obligations are at least 90 days in arrears, or (2) serious delinquency, a situation in which legal foreclosure action has been initiated. Based upon this analysis, a quantified risk factor is assigned to each type of non-performing loan. This results in an allocation to the overall allowance for the corresponding type and severity of each non-performing loan category. Performing loans are also reviewed by collateral type, with similar risk factors being assigned. These risk factors take into consideration, among other matters, the borrower's ability to pay and the Bank's past loan loss experience with each type of loan. The performing loan categories are also assigned quantified risk factors, which result in allocations - -------------------------------------------------------------------------------- Fifteen to the allowance that correspond to the individual types of loans in the portfolio. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary, based on changes in economic conditions beyond management's control. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the loan loss allowance. Accordingly, the Company may be required to take certain charge-offs and/or recognize additions to the allowance based on the judgment of regulators with regard to information provided to them during their exams. Based upon all relevant and currently available information, management believes that the current allowance for loan losses is adequate. For more information regarding asset quality and the coverage provided by the loan loss allowance, see the asset quality analysis that follows and the discussion of the provision for loan losses on page 27 of this report. Asset Quality Analysis
----------------------------------------------------------- (dollars in thousands) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------- ALLOWANCE FOR LOAN LOSSES: Balance at beginning of year $ 7,031 $ 9,431 $9,431 $9,359 $ 11,359 Loan recoveries -- -- -- 72 -- Acquired allowance 11,033 -- -- -- -- Reversal of provision for loan losses -- (2,400) -- -- (2,000) - ------------------------------------------------------------------------------------------------------------------- Balance at end of year $18,064 $ 7,031 $9,431 $9,431 $ 9,359 =================================================================================================================== NON-PERFORMING ASSETS: Mortgage loans in foreclosure $ 6,011 $ 2,886 $5,530 $6,121 $ 6,861 Loans 90 days or more delinquent 3,081 222 663 1,571 2,798 - ------------------------------------------------------------------------------------------------------------------- Total non-performing loans 9,092 3,108 6,193 7,692 9,659 Foreclosed real estate 12 66 419 1,030 627 - ------------------------------------------------------------------------------------------------------------------- Total non-performing assets $ 9,104 $ 3,174 $6,612 $8,722 $ 10,286 =================================================================================================================== RATIOS: Non-performing loans to loans, net 0.25% 0.19% 0.42% 0.55% 0.84% Non-performing assets to total assets 0.19 0.17 0.38 0.54 0.76 Allowance for loan losses to non-performing loans 198.68 226.22 152.28 122.61 96.90 Allowance for loan losses to loans, net 0.50 0.44 0.63 0.68 0.82 Allowance for loan losses to accumulated net charge-offs since 1987 1,290.29 493.06 661.36 661.36 625.00 ===================================================================================================================
Securities and Money Market Investments The acquisition of Haven Bancorp triggered a significant year-over-year increase in the portfolios of securities held to maturity, securities available for sale, and money market investments. While the Company had begun to enrich its asset mix with an increase in securities held to maturity prior to the acquisition, the portfolio of such assets rose 20.2% to $222.5 million at December 31, 2000 from $184.6 million at December 31, 1999. The growth in the portfolio of securities held to maturity primarily stemmed from a $21.7 million rise in capital trust notes to $25.2 million and a $31.2 million rise in FHLB stock to $72.0 million, offsetting a $15.0 million reduction in U.S. Government and agency obligations to $125.3 million. At December 31, 2000, the market value of the portfolio was $220.6 million, or 99.1% of carrying value, as compared to $180.2 million, or 97.6% of carrying value, at the prior year-end. Reflecting the acquisition, and the sale of $515.0 million in securities available for sale in December, the balance of such assets totaled $303.7 million at December 31, 2000, as compared to $12.8 million at December 31, 1999. The 2000 amount consisted of mortgage-backed securities with an estimated market value of $161.0 million, and debt and equity securities with an estimated market value of $142.7 million. It is management's intention to sell approximately $40 million of such securities in the first quarter of 2001. At December 31, 2000, the balance of money market investments rose to $124.6 million from $6.0 million at December 31, 1999. The Company's money market investments consist entirely of federal funds sold. Mortgage-backed Securities Held to Maturity Reflecting principal prepayments, and the absence of any new investments since October 1994, the portfolio of mortgage-backed securities held to maturity declined to $1.9 million at December 31, 2000 from $2.1 million at - -------------------------------------------------------------------------------- Sixteen - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- December 31, 1999. The market value of the portfolio declined to $2.0 million, or 102.9% of carrying value, from $2.1 million, or 102.0% of carrying value, at the corresponding dates. Sources of Funds The demand for funding increased significantly during 2000, as the Company stepped up its share repurchase program in anticipation of the acquisition, and produced $616.0 million in mortgage loans. To supplement the funding provided by its deposits, the Company accessed its FHLB line of credit throughout 2000, and also issued $25.0 million in trust preferred securities. Borrowings thus rose to $1.0 billion at December 31, 2000, from $636.4 million, the December 31, 1999 level, after paying down $500.0 million of the balance in the last month of the year. While the Company would expect to re-leverage at some time in the future, the significant volume of low-cost funds acquired through the Haven transaction substantially reduces its reliance on the use of higher cost borrowings. The Company's funding also stems from more traditional sources, including deposits, interest payments on loans and other investments, loan prepayments, and the maturities of securities and mortgage-backed securities. Deposits totaled $3.3 billion at year-end 2000, a $2.2 billion increase from $1.1 billion at year-end 1999. Included in the 2000 amount were core deposits of $1.4 billion, representing 42.5% of the total, up $965.6 million from $417.8 million, representing 38.8%. Included in the increase were a $616.0 million rise in NOW and money market accounts to $719.4 million; a $218.1 million rise in savings accounts to $492.6 million; and a $131.5 million rise in non-interest-bearing accounts to $171.4 million. NOW and money market accounts thus represented 22.1% of total deposits, while savings accounts and non-interest-bearing accounts represented 15.1% and 5.3%, respectively. While the balance of CDs rose to $1.9 billion from $658.3 million, the concentration of CDs declined to 57.5% of total deposits from 61.2%. The level of deposits depends on a combination of factors, including market interest rates and competition with other banks. The Company vies for deposits by emphasizing convenience, and by offering an array of financial products consistent with those expected of a full-service bank. With a network of 86 offices and an expanded product menu, the Company is well positioned to attract and maintain a solid customer base. Market Risk and Interest Rate Sensitivity Given the influence of market interest rates on net interest income, interest rate volatility is the Company's primary market risk. In order to manage its interest rate risk, the Company strives to maintain an appropriate balance between the interest rate sensitivity of its interest-earning assets and the interest rate sensitivity of its interest-bearing liabilities. The Company also monitors its interest rate exposure by analyzing, under a variety of interest rate scenarios, estimated changes in the market value of its assets and liabilities. Interest rate sensitivity is determined by analyzing 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. This difference, or "gap," suggests the extent to which the Company's net interest income may be affected by future changes in market interest rates. A gap is considered "positive" when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities, and "negative" when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. In a rising rate environment, a company with a negative gap would generally be expected, absent the impact of other factors, to experience a greater increase in the cost of its liabilities relative to the yields on its assets, resulting in a reduction in the company's net interest income. A company with a positive gap would generally be expected to experience the opposite result in a rising rate environment. Conversely, during a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would have an opposite, adverse effect. At December 31, 2000, the cumulative gap between the Company's interest rate sensitive assets and interest rate sensitive liabilities repricing within a one-year period was $491.3 million, representing a negative gap of 10.43%. At the prior year-end, the cumulative one-year gap between the Company's interest rate sensitive assets and liabilities was $835.9 million, representing a negative gap of 43.84%. With the acquisition of Haven Bancorp, the Company has enhanced its ability to manage interest rate risk. The sale of securities and one-to-four family mortgage loans enabled the Bank to reduce its balance of FHLB borrowings and higher cost deposits in December 2000, and will facilitate further reductions in the first quarter of 2001. In addition, the Company now has access to a substantially larger pool of low-cost core deposits to fund the production of higher yielding multi-family and commercial real estate loans. The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at December 31, 2000 which, based on certain assumptions, are expected to reprice or mature in each of the time periods shown. Except as stated, the amount of assets and liabilities shown to reprice or mature within a particular time period was determined in accordance with the earlier of (a) the term to repricing or (b) the contractual terms of - -------------------------------------------------------------------------------- Seventeen - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- the asset or liability. The interest rate sensitivity analysis utilizes the format and assumptions for disclosure for an interest rate sensitivity gap table required by the FDIC and the New York State Banking Department and, based on the Bank's historical experience during the ten years ended December 31, 2000, reflects the following decay rates: 11.20% for savings accounts; 15.03% for money market accounts; and 22.24% for NOW and Super NOW accounts. No decay rate has been applied for CDs. In addition, management has assumed no prepayments of the Company's loans in the preparation of this table; therefore, the assumptions used may not be indicative of future withdrawals of deposits or prepayments of loans. Loan prepayments and scheduled principal amortization totaled $178.3 million in the twelve months ended December 31, 2000, as compared to $135.1 million in the twelve months ended December 31, 1999. As this analysis does not necessarily indicate the impact of changes in market interest rates on the Company's net interest income, certain assets and liabilities indicated as repricing within a stated period or at a stated rate of interest may, in fact, reprice at a different time or interest rate. Interest Rate Sensitivity Analysis
AT DECEMBER 31, 2000 ------------------------------------------------------- Three Four to More Than More Than Months Twelve One Year to Three Years (dollars in thousands) or Less Months Three Years to Five Years - --------------------------------------------------------------------------------------------------- INTEREST-EARNING ASSETS: Mortgage and other loans $180,832 $ 402,830 $ 536,085 $1,691,278 Securities 214,718 -- 125,327 -- Mortgage-backed securities(1) 161,032 450 1,473 -- Money market investments 124,622 -- -- -- - --------------------------------------------------------------------------------------------------- Total interest-earning assets 681,204 403,280 662,885 1,691,278 - --------------------------------------------------------------------------------------------------- Less: Unearned discounts and deferred fees 393 1,178 -- -- - --------------------------------------------------------------------------------------------------- Net interest-earning assets 680,811 402,102 662,885 1,691,278 - --------------------------------------------------------------------------------------------------- INTEREST-BEARING LIABILITIES: Savings accounts 13,793 40,220 49,122 43,621 NOW and Super NOW accounts 10,060 28,501 31,663 24,621 Money market accounts 20,234 77,894 66,187 56,239 Certificates of deposit 485,990 877,544 462,615 47,661 Borrowings -- 20,000 60,000 31,609 - --------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 530,077 1,044,159 669,587 203,751 - --------------------------------------------------------------------------------------------------- Interest sensitivity gap per period $150,734 $ (642,057) $ (6,702) $1,487,527 =================================================================================================== Cumulative interest sensitivity gap $150,734 $ (491,323) $(498,025) $ 789,502 =================================================================================================== Cumulative interest sensitivity gap as a percentage of total assets 3.20% (10.43)% (10.57)% 20.96% Cumulative net interest-earning assets as a percentage of net interest-bearing liabilities 128.44 68.79 77.80 140.43 =================================================================================================== AT DECEMBER 31, 2000 --------------------------------------- More than More Five Years than (dollars in thousands) to 10 Years 10 Years Total - ----------------------------------------------------------------------------------- INTEREST-EARNING ASSETS: Mortgage and other loans $ 761,714 $ 63,282 $3,636,021 Securities -- 25,191 365,236 Mortgage-backed securities(1) -- -- 162,955 Money market investments -- -- 124,622 - ----------------------------------------------------------------------------------- Total interest-earning assets 761,714 88,473 4,288,834 - ----------------------------------------------------------------------------------- Less: Unearned discounts and deferred fees -- -- 1,571 - ----------------------------------------------------------------------------------- Net interest-earning assets 761,714 88,473 4,287,263 - ----------------------------------------------------------------------------------- INTEREST-BEARING LIABILITIES: Savings accounts 38,735 307,113 492,604 NOW and Super NOW accounts 19,145 66,938 180,928 Money market accounts 47,786 270,152 538,492 Certificates of deposit -- -- 1,873,810 Borrowings 850,596 75,300 1,037,505 - ----------------------------------------------------------------------------------- Total interest-bearing liabilities 956,262 719,504 4,123,339 - ----------------------------------------------------------------------------------- Interest sensitivity gap per period $(194,548) $(631,031) $ 163,924 =================================================================================== Cumulative interest sensitivity gap $ 794,954 $ 163,924 =================================================================================== Cumulative interest sensitivity gap as a percentage of total assets 16.88% 3.48% Cumulative net interest-earning assets as a percentage of net interest-bearing liabilities 123.35 103.98 ===================================================================================
(1) Based on historical repayment experience. Management also monitors the Company's interest rate sensitivity through an analysis of the change in net portfolio value ("NPV"), which is defined as the net present value of the expected future cash flows of an entity's assets and liabilities. Hypothetically, NPV represents the market value of an institution's net worth. Increases in the market value of a company's assets will increase the NPV, whereas declines in the market value of its assets will reduce the NPV. Conversely, increases in the market value of a company's liabilities will reduce the NPV, whereas declines in the market value of its liabilities will increase the NPV. Changes in the market value of assets and liabilities due to changes in interest rates reflect the interest rate sensitivity of those assets and liabilities, since their values are derived from the rate characteristics (e.g., fixed or adjustable, cap or floor) of the asset or liability relative to the interest rate environment. For example, in a rising interest rate environment, the market value of a fixed rate asset will decline, whereas the market value of an adjustable rate asset, depending on its repricing characteristics, may not necessarily decline. - -------------------------------------------------------------------------------- Eightteen - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- The NPV ratio, under any interest rate scenario, is defined as the NPV in said scenario, divided by the market value of assets in the same scenario. This ratio, referred to in the following NPV analysis, initially measures percentage changes from the value of the projected NPV in a given rate scenario and then measures interest rate sensitivity by the change in the NPV ratio over a range of interest rate scenarios. For the purpose of the following NPV analysis, deposit decay rates similar to those employed in the Interest Rate Sensitivity Analysis were used. The NPV analysis is based on simulations that utilize institution-specific assumptions with regard to future cash flows, including customer options such as period and lifetime caps, and deposit withdrawal estimates. The NPV analysis uses discount rates derived from various sources, primarily including, but not limited to, Treasury yield curves. The discount rates used for mortgage loans were based on market rates for new loans of similar type and purpose, and adjusted, when necessary, for factors such as servicing cost, credit risk, and term. The discount rates used for CDs and FHLB borrowings were based on rates that approximate the rates offered by the Company for deposits and FHLB borrowings of similar remaining maturities. The analysis calculates the NPV at a flat rate scenario by computing the present value of the cash flows of interest-earning assets, less the present value of interest-bearing liabilities. Certain assets, including fixed assets and real estate held for investment, are assumed to remain at book value (net of a valuation allowance), regardless of the interest rate scenario. Other non-interest-earning assets and non-interest-bearing liabilities, such as deferred fees, unamortized premiums, and accrued expenses and other liabilities, are excluded from the NPV calculation. The following analysis sets forth the Company's NPV at December 31, 2000, as calculated by the Company, for instantaneous and sustained changes in interest rates relative to the NPV in a changing interest rate environment. Net Portfolio Value Analysis Market Value of Portfolio Change in Net Projected Interest Rates Portfolio Net % Change (in basis points) Value Change to Base - -------------------------------------------------------------------------------- +200 $302,679 $(16,353) (5.13)% +100 304,846 (14,186) (4.45) -- 319,032 -- -- -100 320,668 1,636 0.51 -200 327,883 8,851 2.77 ================================================================================ As with the Interest Rate Sensitivity Analysis, certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. In order to model changes in NPV, certain assumptions must 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 model assumes that the composition of the Company's interest rate sensitive assets and liabilities at the beginning of a period remain constant over the period being measured. In addition, the model assumes that a particular change in interest rates is immediate and is reflected uniformly across the yield curve, regardless of the duration to maturity or repricing schedule of specific assets and liabilities. Assumptions within the model are also subjective in nature and, therefore, cannot be determined with precision. Thus, while the NPV measurements, in theory, may provide an indication of the Company's exposure to interest rate risk 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 the Company's net portfolio value, and therefore may differ from actual results. Liquidity and Capital Position Liquidity As previously noted, the Company's primary funding sources have been borrowings and deposits. Additional funding has stemmed from interest and principal payments on loans, securities, and mortgage-backed securities, and the sale of loans and foreclosed real estate. While borrowings and the scheduled amortization of loans and securities are more predictable funding sources, deposit flows and mortgage prepayments are subject to such external factors as economic conditions, competition, and market interest rates. The Company primarily invests in mortgage loan originations and supplements such investments with the purchase of short-term securities. In 2000, the net cash used in investing activities totaled $2.2 billion, primarily reflecting a $2.0 billion net increase in loans, the purchase of securities available for sale totaling $738.4 million, and proceeds from the redemption and sales of securities available for sale totaling $447.5 million. In addition to loans, net, of $2.2 billion acquired through the Haven transaction, the net - -------------------------------------------------------------------------------- Nineteen - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- increase in loans reflects mortgage originations of $616.0 million, offset by repayments and prepayments totaling $185.5 million. The net cash used in operating activities totaled $103.1 million, including $118.1 million in goodwill stemming from the Haven acquisition and a $36.9 million increase in deferred income taxes. These expenses were partly offset by a $13.5 million net gain on the sale of the Company's former headquarters in Flushing, New York. The Company's investing and operating activities were funded by internal cash flows generated by financing activities. In 2000, the net cash provided by financing activities totaled $2.5 billion. Included in the latter amount was a $2.2 billion net increase in deposits, largely stemming from the Haven acquisition, and a $401.1 million net increase in borrowings. The Company monitors its liquidity position on a daily basis to ensure that sufficient funds are available to meet its financial obligations, including outstanding loan commitments and withdrawals from depository accounts. The Company's most liquid assets are cash and due from banks and money market investments, which collectively totaled $257.7 million and $37.2 million at December 31, 2000 and 1999, respectively. The Company also had securities available for sale of $303.7 million and $12.8 million at the corresponding dates. Additional liquidity is available through the Bank's FHLB line of credit, totaling $1.9 billion at year-end 2000, and a $10.0 million line of credit with a money center bank. At January 23, 2001, the Bank had mortgage loans totaling $267.3 million in the pipeline, which management anticipates having the ability to fund. In addition, CDs due to mature in one year or less from December 31, 2000 totaled $1.4 billion; based upon its historic retention rate, as well as current pricing, management believes that a significant portion of such deposits will remain with the Bank. Capital Position The Company took an aggressive approach to capital management throughout 2000 and has already demonstrated that it will do so again in 2001. In 2000, the Company distributed cash dividends totaling $17.8 million and allocated $41.5 million toward the repurchase of 1.7 million shares of Company stock. At December 31, 2000, 1.2 million shares remained available for repurchase under the authorization announced on June 27, 2000. Primarily reflecting shares repurchased pursuant to option exercises by former Haven officers and employees, all but 80,000 of the 1.2 million shares had been repurchased by February 6, 2001. Accordingly, on that date, the Board of Directors authorized an additional one-million share repurchase; on a post-split basis, the number of shares authorized will increase to 1.5 million, effective March 29, 2001. The timing of any repurchases will depend on market conditions, as well as the implementation of other corporate strategies. The magnitude of the Company's share repurchase program is a strong indication of management's confidence in the Company's capital strength. Reflecting cash earnings of $58.0 million and shares issued pursuant to the Haven acquisition in the amount of $174.3 million, stockholders' equity totaled $307.4 million at December 31, 2000, equivalent to 6.53% of total assets and a book value of $11.11 per share, based on 27,678,204 shares. At December 31, 1999, stockholders' equity totaled $137.1 million, representing 7.19% of total assets and a book value of $7.52 per share, based on 18,233,153 shares. To calculate book value, the Company subtracts the number of unallocated ESOP shares at the end of the period from the number of shares outstanding at the same date. At December 31, 2000, the number of unallocated ESOP shares totaled 1,901,920; at the prior year-end, the number of unallocated ESOP shares was 2,776,974. At December 31, 2000, the level of stockholders' equity was more than sufficient to exceed the minimum federal requirements for a bank holding company. The Company's leverage capital totaled $264.5 million, or 8.75% of adjusted average assets; its Tier 1 and total risk-based capital amounted to $264.5 million and $282.6 million, representing 9.70% and 10.37% of risk-weighted assets, respectively. At the prior year-end, the Company's leverage capital totaled $136.2 million, or 6.73% of adjusted average assets; its Tier 1 and total risk-based capital amounted to $136.2 million and $143.3 million, representing 10.75% and 11.30% of risk-weighted assets, respectively. RESULTS OF OPERATIONS Earnings Summary 2000 and 1999 Comparison: The Company acquired Haven Bancorp on November 30, 2000 in a purchase transaction calling for the exchange of 1.04 Company shares for each share of Haven Bancorp stock held at that date. Accordingly, the Company's 2000 earnings reflect one month of combined operations, and its earnings per share reflect the addition of 9,827,744 Company shares. In addition, the Company realized a non-recurring net charge of $11.4 million, or $0.59 per share, in connection with the acquisition. Excluding this charge, the Company recorded core earnings of $35.9 million in 2000, as compared to core earnings of $30.1 million in 1999. The 2000 amount was equivalent to diluted core earnings per share of $1.84, as compared to $1.59 in the year-earlier period, and provided a core ROA and ROE of 1.56% and 19.40%, respectively. Core earnings for 1999 exclude a non-recurring net benefit of $1.1 million, or $0.06 per share, stemming from - -------------------------------------------------------------------------------- Twenty - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- the reversal of $2.0 million from the allowance for loan losses in the first quarter, and a non-recurring net benefit of $472,000, or $0.02 per share, stemming from certain actions taken in the third and fourth quarters of the year to reduce operating expense. The non-recurring net charge in 2000 was comprised of two acquisition-related components: compensation and benefits expense of $22.8 million stemming from the distribution of ESOP shares, and other operating income of $13.5 million stemming from the sale of the Company's former headquarters in Flushing, New York. Reflecting the net impact of these non-recurring items, the Company recorded earnings of $24.5 million, or $1.25 per diluted share, in 2000, as compared to $31.7 million, or $1.67 per diluted share, in 1999. At the same time, the Company's cash earnings rose to $58.0 million, or $2.97 per diluted share, in 2000 from $44.3 million, or $2.34 per diluted share, in the prior year. The Company's cash earnings thus contributed $33.5 million, or 137.0%, more to capital than its reported earnings alone. The dramatic difference in capital creation is further demonstrated by comparing the returns on average assets and average stockholders' equity provided by the Company's reported earnings for 2000 and the returns provided by its cash earnings during the same twelve-month period. On the basis of reported earnings, the Company recorded an ROA and ROE of 1.06% and 13.24%, respectively; in contrast, the Company's cash ROA and ROE were 2.52% and 31.38%. Excluding the impact of the non-recurring items, the growth in core earnings was primarily driven by a $5.6 million increase in core other operating income to $8.1 million and a $4.2 million increase in net interest income to $73.1 million. Other operating income was fueled by a $2.7 million rise in fee income, primarily stemming from the sale of banking services and investment products, and by a $2.9 million rise in core other income, including $1.9 million stemming from the Company's investment in Bank-owned Life Insurance at December 30, 1999. The growth in net interest income was the net effect of a $31.7 million rise in interest income to $174.8 million and a $27.5 million rise in interest expense to $101.8 million. Pressured by a 100-basis point rise in market interest rates and the increased use of short-term borrowings, the Company's interest rate spread and net interest margin declined 41 and 46 basis points, respectively, to 3.00% and 3.33%. Earnings were further boosted by a $347,000 reduction in income tax expense to $20.4 million, notwithstanding a $7.5 million reduction in pre-tax income to $44.9 million. The growth in core earnings was partly offset by a $4.7 million rise in core operating expense to $27.0 million, or 1.17% of average assets, largely reflecting post-acquisition increases in compensation and benefits and occupancy and equipment expense. The $4.7 million includes $494,000 in goodwill amortization stemming from the Haven acquisition. Despite the higher levels of net interest income and other operating income, the core efficiency ratio rose to 35.72% from 28.70% in the year-earlier period; however, the cash efficiency ratio improved to 24.47% from 26.37%. In addition, while the Company suspended the provision for loan losses throughout 2000, the Company's 1999 results reflect the reversal of $2.0 million from the loan loss allowance in the first quarter, which had a net benefit of $1.1 million, or $0.06 per share. Recognizing the magnitude of the Haven acquisition, and of the subsequent balance sheet restructuring, it is currently management's expectation that the Company's 2001 earnings will range between $69.0 million and $71.0 million, equivalent to diluted earnings per share of $2.54 to $2.60 (or $1.69 to $1.73, as adjusted for the aforementioned 3-for-2 stock split on March 29, 2001). Cash earnings are currently expected to range between $82.0 million and $85.0 million, equivalent to diluted cash earnings per share of $3.00 to $3.05 (or $2.00 to $2.03, as adjusted for the split). These estimates are based on certain management expectations regarding the growth of net interest income, interest rate spread, and net interest margin in a favorable interest rate environment; the growth of other operating income from the sale of financial products and services in an expanded branch network; and the stabilization of operating expense and the effective tax rate. The earnings estimates also presume the continued suspension of the loan loss provision, based on assumptions made regarding the continuing quality of the loan portfolio and the current level of market interest rates. Estimates regarding cash earnings and diluted cash earnings per share are based on assumptions regarding a combination of factors, including share repurchases. Specific estimates for net interest income, other operating income, operating expense, and the effective tax rate are provided in the respective line-item discussions that appear on pages 26, 27, 28, and 29 of this report. As actual results may differ materially from current projections, please also see the discussion of forward-looking statements and risk factors that appears on page 11. 1999 and 1998 Comparison: The Company recorded core earnings of $30.1 million in the twelve months ended December 31, 1999, up $3.2 million, or 11.8%, from $26.9 million in 1998. On a diluted per share basis, the Company's core earnings rose to $1.59 from $1.34 in the year-earlier period, representing an increase of 18.7%. The 1999 amounts exclude the net benefit of certain non-recurring actions taken by management in the first, third, and fourth quarters of the year. In the first quarter - -------------------------------------------------------------------------------- Twenty-One of 1999, the Company reversed $2.0 million from the allowance for loan losses in recognition of the portfolio's strong performance and the level of coverage provided for its non-performing loans. The net benefit of the reversal was $1.1 million, equivalent to $0.06 per share. In the third quarter of the year, the Company froze its defined benefit pension plan, which resulted in a one-time gain of $1.6 million and offset a one-time charge of $735,000 following the implementation of an early retirement window in the fourth quarter of the year. The net benefit of these two actions was a $472,000 increase in 1999 earnings, equivalent to $0.02 per share. Reflecting these actions, the Company's 1999 earnings rose to $31.7 million, or $1.67 on a diluted per share basis, representing an ROA of 1.69% and an ROE of 22.99%. The Company also reported 1999 cash earnings of $44.3 million, or $2.34 on a diluted per share basis, representing a cash ROA of 2.37% and a cash ROE of 32.21%. The Company's 1999 cash earnings contributed $12.7 million, or 40.1%, more to capital than its 1999 GAAP earnings alone. The Company's 1999 earnings growth was driven by an increase in net interest income and a reduction in operating expense. Net interest income rose to $68.9 million in 1999 from the year-earlier $68.5 million, despite declines in the spread and margin to 3.41% and 3.79%, respectively. The higher level of net interest income was the net effect of an $8.8 million rise in interest income to $143.1 million and an $8.4 million rise in interest expense to $74.2 million. The Company's earnings also reflect a $4.6 million reduction in operating expense to $21.4 million, or 1.14% of average assets, stemming in part from the cost containment measures cited above. Reflecting the reduction in operating expense and the rise in net interest income, the Company's efficiency ratio improved to 29.95% from 36.51% on a GAAP earnings basis and, on a cash earnings basis, to 26.37% from 27.05%. The growth in 1999 earnings was tempered by a decline in other operating income, as well as by an increase in income tax expense. Other operating income totaled $2.5 million in 1999, down $31,000 from the year-earlier total, the net effect of a $248,000 drop in fee income to $1.9 million and a $217,000 increase in other income to $660,000. Reflecting a $7.3 million, or 16.2%, rise in pre-tax income to $52.4 million, income tax expense rose $2.6 million to $20.8 million in 1999. Cash Earnings Analysis(1)
FOR THE YEARS ENDED DECEMBER 31, --------------------------------- (in thousands, except per share data) 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- Net income $24,477 $31,664 $26,944 Additional contributions to tangible stockholders' equity: Amortization and appreciation of stock-related benefit plans 24,795 2,559 6,724 Associated tax benefits 5,953 7,269 8,071 Other 2,776 2,857 2,019 - ----------------------------------------------------------------------------------------------------- Cash earnings $58,001 $44,349 $43,758 - ----------------------------------------------------------------------------------------------------- Cash earnings per share $ 3.08 $ 2.39 $ 2.29 Diluted cash earnings per share 2.97 2.34 2.17 - -----------------------------------------------------------------------------------------------------
(1) Effective January 1, 2001, the calculation of cash earnings will include the amortization of goodwill stemming from the Haven acquisition. Interest Income In any given period, the level of interest income depends upon the average balance and mix of the Company's interest-earning assets, the yields on said assets, and the current level of market interest rates. These rates are influenced by the Federal Open Market Committee ("FOMC") of the Federal Reserve Board of Governors, which reduces, maintains, or increases the federal funds rate (the rate at which banks borrow funds from one another), as it deems necessary. The federal funds rate rose 100 basis points between February and May 2000, leveling off at 6.50% for the remainder of the year. 2000 and 1999 Comparison: The Company recorded interest income of $174.8 million in 2000, a 22.2% increase from $143.1 million in 1999. The $31.7 million increase reflects a $372.8 million, or 20.5%, rise in average interest-earning assets to $2.2 billion, coupled with an 11-basis point rise in the average yield to 7.97%. Fueled by mortgage originations of $616.0 million, mortgage and other loans generated $151.6 million of total interest income in 2000, up 15.2% from $131.6 million in 1999. The increase was the net effect of a $271.7 million, or 16.7%, rise in the average balance of loans to $1.9 billion, and a ten-basis point drop in the average yield to 7.97%. Loans represented 86.7% of average interest-earning assets and generated 86.7% of total interest income in 2000, as compared to 89.6% and 92.0%, respectively, in 1999. Additional interest income stemmed from the Company's portfolios of securities, mortgage-backed securities ("MBS"), and money market investments, which increased significantly - -------------------------------------------------------------------------------- Twenty-Two - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- with the acquisition of Haven Bancorp. In connection with the acquisition, each of these portfolios was marked to market, which contributed to the meaningful rise in average yields detailed below. Securities generated interest income of $18.0 million in 2000, up 76.8% from $10.2 million in 1999. The increase stemmed from a $58.2 million, or 34.9%, rise in the average balance of securities to $225.0 million, together with a 189-basis point rise in the average yield to 7.99%. In 2000, securities represented 10.3% of average interest-earning assets and generated 10.3% of total interest income, as compared to 9.2% and 7.1%, respectively, in the prior year. The interest income derived from MBS rose $2.9 million to $3.8 million, the result of a $27.9 million, or 213.0%, increase in the average balance of MBS to $40.9 million and a 244-basis point increase in the average yield to 9.27%. MBS represented 1.9% of average interest-earning assets and generated 2.2% of total interest income in 2000, up from 0.7% and 0.6% in the prior year. Money market investments contributed interest income of $1.4 million, up from $443,000 in 1999. The increase reflects a $15.1 million rise in the average balance of money market investments to $24.4 million and a 113-basis point rise in the average yield to 5.89%. In 2000 and 1999, money market investments represented 1.1% and 0.5% of interest-earning assets, respectively, and generated 0.8% and 0.3%, respectively, of total interest income. In 2001, the Company's interest income is expected to reflect a significant change in the mix of average interest-earning assets, as well as a reduction in market interest rates. This expectation is based on a combination of factors. First, the Company sold securities and one-to-four family loans of $620.0 million in December 2000, and anticipates selling an additional $500.0 million to $700.0 million of such interest-earning assets in the first quarter of 2001. At the same time, the Company intends to take advantage of the significant growth in deposits triggered by the Haven acquisition to increase its production of multi-family mortgage loans. These actions will be taken in an interest rate environment expected to favor loan production, as the FOMC reduced the federal funds rate a total of 100 basis points in January and February, bringing it to the year-earlier level, 5.50%. 1999 and 1998 Comparison: In 1999, the Company originated a record level of multi-family mortgage loans and increased its commercial real estate lending while, at the same time, increasing its investments in securities. These actions combined to produce a $205.8 million, or 12.7%, rise in the average balance of interest-earning assets to $1.8 billion, generating an $8.8 million rise in interest income year-over-year. Specifically, interest income rose to $143.1 million from $134.3 million, the net effect of the higher average balance and a 46-basis point decline in the average yield to 7.86%. The interest income produced by mortgage and other loans rose $7.8 million to $131.6 million from the year-earlier level, the net effect of a $186.1 million increase in the average balance to $1.6 billion and a 50-basis point decline in the average yield to 8.07%. The interest income derived from securities rose $2.7 million to $10.2 million, the net effect of a $48.2 million increase in the average balance to $166.7 million and a 19-basis point drop in the average yield to 6.10%. While the Company increased its securities portfolio during the year, the higher average balance also reflects the reclassification of certain mortgage-backed securities as securities available for sale, effective April 1, 1999. Reflecting the reclassification, as well as scheduled repayments, the average balance of mortgage-backed securities declined to $13.1 million from $36.8 million in 1998. The interest income produced by mortgage-backed securities fell to $893,000 from $2.3 million, the net effect of the lower average balance and a 47-basis point rise in the average yield to 6.83%. Money market investments generated interest income of $443,000, down from $691,000 in the year-earlier twelve months. Reflecting management's focus on mortgage lending, the average balance of money market investments declined to $9.3 million from $14.1 million, in tandem with a 13-basis point drop in the average yield to 4.76%. Interest Expense The level of interest expense is driven by the average balance and composition of the Company's interest-bearing liabilities and by the respective costs of the funding sources found within this mix. These factors are influenced, in turn, by competition for deposits and by the level of market interest rates. 2000 and 1999 Comparison: The Company recorded interest expense of $101.8 million in 2000, a 37.1% increase from $74.2 million in 1999. The increase stemmed from a $380.4 million rise in the average balance of interest-bearing liabilities to $2.0 billion and a 52-basis point rise in the average cost to 4.97%. Borrowings generated interest expense of $49.3 million in 2000, up from $30.3 million in 1999. The $19.0 million increase reflects a $247.7 million rise in the average balance of borrowings to $817.8 million and a 72-basis point rise in the average cost to 6.03%. The higher average balance reflects the Company's use of borrowings to originate loans - -------------------------------------------------------------------------------- Twenty-Three - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- and repurchase shares in anticipation of the acquisition; while not reflected in the average balance for 2000, the volume of borrowings for the combined company was reduced by $500.0 million at year-end. Although borrowings represented 39.9% of interest-bearing liabilities and generated 48.5% of total interest expense in 2000 (versus 34.2% and 40.8%, respectively, in the year-earlier period), they are expected to figure far less significantly in the calculation of interest expense in 2001. The interest expense produced by CDs rose $6.1 million year-over-year to $41.2 million, the result of a $33.6 million increase in the average balance to $748.1 million and a 58-basis point increase in the average cost to 5.50%. CDs represented 36.5% of average interest-bearing liabilities and generated 40.5% of total interest expense in 2000, as compared to 42.9% and 47.3%, respectively, in 1999. Other funding (NOW and money market accounts, savings accounts, mortgagor's escrow, and non-interest-bearing accounts) generated combined interest expense of $11.2 million in 2000, up $2.5 million from the 1999 amount. The increase was the net effect of a $122.2 million rise in the combined average balance to $541.8 million and a two-basis point drop in the average cost to 2.08%. NOW and money market accounts generated 2000 interest expense of $4.9 million, up $2.4 million, the result of a $78.1 million rise in the average balance to $161.9 million and a nine-basis point rise in the average cost to 3.02%. Savings accounts generated interest expense of $6.3 million, comparable to the year-earlier figure, the net effect of a $21.0 million rise in the average balance to $295.4 million and a 16-basis point reduction in the average cost to 2.15%. Mortgagors' escrow generated interest expense of $33,000, up $4,000, reflecting a $41,000 rise in the average balance to $23.8 million and a two-basis point rise in the average cost to 0.14%. In addition, the average balance of non-interest-bearing accounts rose $23.1 million year-over-year to $60.7 million. In addition to the aforementioned reduction in market interest rates, the Company's 2001 interest expense may be expected to reflect a greater concentration of lower cost core deposits and a lesser concentration of higher cost funds. While the growth in core deposits will stem from the expanded branch network, it is management's intention to pay down the balance of higher cost funds with the proceeds derived from the sale of certain interest-earning assets, as previously discussed. 1999 and 1998 Comparison: The Company's asset growth was primarily funded by an increase in FHLB borrowings, and supported by an increase in CDs and core deposits. Interest expense rose $8.4 million year-over-year to $74.2 million, the net effect of a $223.4 million increase in the average balance of interest-bearing liabilities to $1.7 billion and an 11-basis point drop in the average cost to 4.45%. On December 29, 1999, the Company sold a $211.6 million interest in its portfolio of multi-family mortgage loans to the Federal Home Loan Bank of New York ("FHLB-NY"). While the balance of FHLB borrowings was significantly reduced at year-end with the proceeds from this transaction, the reduction is not reflected in the average balance sheet for 1999. For the twelve months ended December 31, 1999, FHLB borrowings generated interest expense of $30.3 million, an increase of $9.0 million, the net effect of a $172.3 million rise in the average balance to $570.1 million and a four-basis point drop in the average cost to 5.31%. In 1999, CDs produced interest expense of $35.1 million, or 47.3% of the total, down $1.1 million from the level recorded in 1998. The reduction was the net effect of a 38-basis point decline in the average cost to 4.92% and a $30.1 million rise in the average balance to $714.5 million. Other funding generated interest expense of $8.8 million, as compared to $8.2 million in 1998. The $600,000 increase was entirely attributable to a $26.7 million rise in the average balance to $419.6 million, as the cost of such funds was maintained at 2.10%. NOW and money market accounts produced interest expense of $2.5 million, up $512,000, reflecting a $14.0 million rise in the average balance to $83.9 million and a 15-basis point rise in the average cost to 2.93%. Savings accounts generated interest expense of $6.3 million, up $105,000, the net effect of a $5.8 million increase in the average balance to $274.4 million and a one-basis point drop in the average cost to 2.31%. Mortgagors' escrow generated interest expense of $29,000, down $17,000, the net effect of an eight-basis point drop in the average cost to 0.12% and a $1.2 million rise in the average balance to $23.7 million. In addition, the average balance of non-interest-bearing deposits rose $5.7 million, or 17.8%, to $37.6 million. - -------------------------------------------------------------------------------- Twenty-Four - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- Net Interest Income Analysis
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------------------------------------------------- 2000 1999 Average Average Average Yield/ Average Yield/ (dollars in thousands) Balance Interest Cost Balance Interest Cost - ------------------------------------------------------------------------------------------------------------------------ ASSETS Interest-earning Assets: Mortgage and other loans, net $1,902,821 $151,626 7.97% $1,631,168 $131,618 8.07% Securities 224,969 17,974 7.99 166,761 10,169 6.10 Mortgage-backed securities 40,945 3,795 9.27 13,081 893 6.83 Money market investments 24,408 1,437 5.89 9,309 443 4.76 - ------------------------------------------------------------------------------------------------------------------------ Total interest-earning assets 2,193,143 174,832 7.97 1,820,319 143,123 7.86 Non-interest-earning assets 108,202 48,010 - ------------------------------------------------------------------------------------------------------------------------ Total assets $2,301,345 $1,868,329 ======================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing Liabilities: NOW and money market accounts $ 161,941 $ 4,892 3.02% $ 83,875 $ 2,456 2.93% Savings accounts 295,370 6,346 2.15 274,402 6,329 2.31 Certificates of deposit 748,138 41,178 5.50 714,546 35,123 4.92 Borrowings 817,775 49,302 6.03 570,077 30,283 5.31 Mortgagors' escrow 23,777 33 0.14 23,736 29 0.12 - ------------------------------------------------------------------------------------------------------------------------ Total interest-bearing liabilities 2,047,001 101,751 4.97 1,666,636 74,220 4.45 Non-interest-bearing deposits 60,716 37,596 Other liabilities 8,795 26,390 - ------------------------------------------------------------------------------------------------------------------------ Total liabilities 2,116,512 1,730,622 Stockholders' equity 184,833 137,707 - ------------------------------------------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $2,301,345 $1,868,329 ======================================================================================================================== Net interest income/interest rate spread $ 73,081 3.00% $ 68,903 3.41% Net interest-earning assets/ net interest margin $146,142 3.33% $153,683 3.79% Ratio of interest-earning assets to interest-bearing liabilities 1.07x 1.09x ======================================================================================================================== FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------ 1998 Average Average Yield/ (dollars in thousands) Balance Interest Cost - -------------------------------------------------------------------------------- ASSETS Interest-earning Assets: Mortgage and other loans, net $1,445,028 $123,784 8.57% Securities 118,594 7,464 6.29 Mortgage-backed securities 36,782 2,338 6.36 Money market investments 14,130 691 4.89 - -------------------------------------------------------------------------------- Total interest-earning assets 1,614,534 134,277 8.32 Non-interest-earning assets 43,727 - -------------------------------------------------------------------------------- Total assets $1,658,261 ================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing Liabilities: NOW and money market accounts $ 69,894 $ 1,944 2.78% Savings accounts 268,558 6,224 2.32 Certificates of deposit 684,434 36,251 5.30 Borrowings 397,815 21,290 5.35 Mortgagors' escrow 22,501 46 0.20 - -------------------------------------------------------------------------------- Total interest-bearing liabilities 1,443,202 65,755 4.56 Non-interest-bearing deposits 31,918 Other liabilities 27,559 - -------------------------------------------------------------------------------- Total liabilities 1,502,679 Stockholders' equity 155,582 - -------------------------------------------------------------------------------- Total liabilities and stockholders' equity $1,658,261 ================================================================================ Net interest income/interest rate spread $ 68,522 3.76% Net interest-earning assets/ net interest margin $171,332 4.24% Ratio of interest-earning assets to interest-bearing liabilities 1.12x ================================================================================
- -------------------------------------------------------------------------------- Twenty-Five - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Rate/Volume Analysis The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) the changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) the changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
Year Ended Year Ended December 31, 2000 December 31, 1999 Compared to Year Ended Compared to Year Ended December 31, 1999 December 31, 1998 Increase/(Decrease) Increase/(Decrease) ------------------------------------------------------------------ Due to Due to - --------------------------------------------------------------------------------------------------------------- (in thousands) Volume Rate Net Volume Rate Net - --------------------------------------------------------------------------------------------------------------- INTEREST-EARNING ASSETS: Mortgage and other loans, net $21,651 $(1,643) $20,008 $15,021 $(7,187) $ 7,834 Securities 4,651 3,154 7,805 2,938 (233) 2,705 Mortgage-backed securities 2,583 319 2,902 (1,619) 174 (1,445) Money market investments 889 105 994 (229) (19) (248) - --------------------------------------------------------------------------------------------------------------- Total 29,774 1,935 31,709 16,111 (7,265) 8,846 - --------------------------------------------------------------------------------------------------------------- INTEREST-BEARING LIABILITIES: NOW and money market accounts 2,358 78 2,436 410 102 512 Savings accounts 451 (434) 17 135 (30) 105 Certificates of deposit 1,848 4,207 6,055 1,482 (2,610) (1,128) Borrowings 14,936 4,083 19,019 9,147 (154) 8,993 Mortgagors' escrow -- 4 4 1 (18) (17) - --------------------------------------------------------------------------------------------------------------- Total 19,593 7,938 27,531 11,175 (2,710) 8,465 - --------------------------------------------------------------------------------------------------------------- Net change in interest income $10,181 $(6,003) $ 4,178 $ 4,936 $(4,555) $ 381 =============================================================================================================== Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Increase/(Decrease) -------------------------------- Due to - ----------------------------------------------------------------------- (in thousands) Volume Rate Net - ----------------------------------------------------------------------- INTEREST-EARNING ASSETS: Mortgage and other loans, net $16,060 $(1,144) $14,916 Securities 2,666 61 2,727 Mortgage-backed securities (1,620) 102 (1,518) Money market investments 433 (15) 418 - ----------------------------------------------------------------------- Total 17,539 (996) 16,543 - ----------------------------------------------------------------------- INTEREST-BEARING LIABILITIES: NOW and money market accounts 71 29 100 Savings accounts (81) (218) (299) Certificates of deposit 964 (890) 74 Borrowings 11,164 (625) 10,539 Mortgagors' escrow 10 (5) 5 - ----------------------------------------------------------------------- Total 12,129 (1,710) 10,419 - ----------------------------------------------------------------------- Net change in interest income $ 5,410 $ 714 $ 6,124 =======================================================================
Net Interest Income Net interest income is the Company's primary source of income. Its level is a function of the average balance of interest-earning assets, the average balance of interest-bearing liabilities, and the spread between the yield on said assets and the cost of said liabilities. These factors are influenced, in turn, by the pricing and mix of the Company's interest-earning assets, the pricing and mix of its funding sources, and such external factors as competition, economic conditions, and the monetary policy of the FOMC. 2000 and 1999 Comparison: Despite the steady rise in market interest rates over the course of 2000, net interest income rose to $73.1 million from $68.9 million in 1999. The 6.1% increase was driven by the significant growth of interest-earning assets, and tempered by a substantial rise in funding costs. At the same time, the Company's spread and margin declined to 3.00% and 3.33%, respectively, from 3.41% and 3.79%, respectively, in the prior year. Although the rise in market interest rates had some impact on the 2000 measures, the declines were primarily due to the use of higher cost funding for mortgage loan production and for the acquisition-related repurchase of Company shares. In 2001, the Company's net interest income is expected to benefit from a combination of external and internal factors. First, the FOMC reduced the federal funds rate 50 basis points in both December 2000 and January 2001, and expressed a bias toward further leveling of market interest rates over the course of the year. As a substantial portion of the deposit mix consists of core deposits, the Company's ability to reprice deposits in response to changes in market interest rates is significant. Additionally, the Company intends to sell certain interest-earning assets in the first quarter of 2001, and to utilize the proceeds to reduce the balance of higher cost CDs and borrowings. Furthermore, the Company expects to reduce the balance of lower yielding one-to-four family mortgage loans and to increase the balance of higher yielding multi-family and commercial real estate loans. Based - -------------------------------------------------------------------------------- Twenty-Six - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- on these expectations, management estimates that net interest income will rise from $73.1 million in 2000 to approximately $143.0 million to $144.0 million in 2001. Among the factors that could cause actual net interest income to be materially below the estimated levels are: a change in the direction of market interest rates; the inability of the Company to sell certain assets, as expected; a decline in multi-family mortgage loan demand in the local real estate market; a significant increase in refinancings at lower rates of interest; a decline in the quality of the Company's loan portfolio; significant competition for loans and deposits; and a significant change in the deposit mix. 1999 and 1998 Comparison: The Company recorded net interest income of $68.9 million in 1999, as compared to $68.5 million in 1998. The $381,000 increase was achieved despite declines in the Company's interest rate spread and net interest margin, to 3.41% and 3.79%, respectively, from 3.76% and 4.24%. Provision for Loan Losses The provision for loan losses is based on management's periodic assessment of the adequacy of the loan loss allowance which, in turn, is based on such interrelated factors as the composition of the loan portfolio and its inherent risk characteristics; the level of non-performing loans and charge-offs, both current and historic; local economic conditions; the direction of real estate values; and current trends in regulatory supervision. 2000 and 1999 Comparison: Despite the significant portfolio growth resulting from the Haven acquisition, the quality of the Company's assets was substantially maintained. While the balance of non- performing loans rose to $9.1 million at December 31, 2000 from $3.1 million at December 31, 1999, the ratio of non-performing loans to loans, net, rose a mere six basis points to 0.25% from 0.19%. In addition, the fourth quarter of 2000 was the Company's 25th consecutive quarter without any net charge-offs. Accordingly, the provision for loan losses was suspended for all four quarters of 2000, continuing a practice initiated in the third quarter of 1995. Reflecting the acquisition, the allowance for loan losses rose $11.0 million to $18.1 million at December 31, 2000, representing 198.68% of non-performing loans and 0.50% of loans, net. In addition to suspending the loan loss provision in 1999, the Company reversed $2.0 million from the allowance for loan losses in the first quarter, resulting in a net benefit of $1.1 million, or $0.06 per share. An additional $400,000 was reversed from the loan loss allowance in the fourth quarter to establish a recourse reserve for loans sold to the FHLB-NY on December 29, 1999. Based on assumptions about the continuing quality of the loan portfolio and the favorable nature of the current interest rate environment, management anticipates that the provision for loan losses will continue to be suspended throughout 2001. Among the factors that could cause management to reverse this position would be a significant downturn in the local real estate market and a significant deterioration in the quality of the loan portfolio. For a detailed explanation of the factors considered by management in determining the allowance for loan losses, please see the asset quality discussion beginning on page 14 of this report. 1999 and 1998 Comparison: In 1999, the Company recorded a 49.8% decline in non-performing loans to $3.1 million (or 0.19% of loans, net) from $6.2 million (or 0.42% of loans, net), at December 31, 1998. In addition, the Company extended its record to 21 consecutive quarters without any net charge-offs and maintained the fully performing status of its multi-family mortgage loan portfolio. Based on the consistent quality of the portfolio's performance, management extended the suspension of the loan loss provision throughout 1999 and reversed $2.0 million from the allowance for loan losses in the first quarter of the year. The impact of this reversal on the Company's 1999 earnings was an after-tax benefit of $1.1 million, or $0.06 per share. In the fourth quarter of the year, an additional $400,000 was reversed from the loan loss allowance and used to establish a recourse reserve for the $211.6 million in multi-family mortgage loans that were sold to the FHLB-NY. The $400,000 is included in "other expense" and had no impact on earnings in 1999. The allowance for loan losses thus declined to $7.0 million, or 0.44% of loans, net, and 226.22% of non-performing loans, at December 31, 1999. Reflecting the historic strength of the Company's assets, the $7.0 million also represented 493.06% of accumulated net charge-offs for the 13 years ended on that date. Other Operating Income The interest income generated by the Company's interest-earning assets is complemented by other operating income, traditionally derived from service fees and fees charged on loans and depository accounts. In 2000, the Company's other operating income was substantially - -------------------------------------------------------------------------------- Twenty-Seven augmented by income from its investment in Bank-owned Life Insurance ("BOLI") on December 30, 1999. With the Haven acquisition, the Company has significantly enhanced its ability to generate fee income. The Company is expected to benefit from the addition of 72 CFS Bank branches and the sale of investment products through its subsidiary, CFS Investments. In addition, the Company's original $30.0 million investment in BOLI increased to $60.0 million, as a result of Haven's having invested $30.0 million in BOLI on October 2, 2000. 2000 and 1999 Comparison: The Company recorded other operating income of $21.6 million in 2000, up $19.1 million from the year-earlier amount. While the increase primarily reflects the non-recurring gain of $13.5 million stemming from the sale of the Company's former headquarters on December 30th, core other operating income rose a solid $5.6 million to $8.1 million, excluding the gain. The $5.6 million increase reflects a $2.9 million rise in core other income to $3.6 million (including $1.9 million derived from the Company's BOLI investment) and a $2.7 million rise in fee income to $4.6 million (largely reflecting income generated by the sale of banking services and investment products). In 2001, the Company anticipates recording approximately $3.8 million in BOLI income, reflecting the combination of its original $30.0 million investment and the $30.0 million investment made by Haven. In addition, the Company expects to enjoy the full-year benefit of selling products and services in an 86-branch network and of introducing the sale of investment products in the fourteen branches of Queens County Savings Bank. Accordingly, management currently expects 2001 other operating income to range between $38.0 million and $39.0 million. Factors that could cause the level of other operating income to fall materially below the range expected include an increase in competition for financial products and services and a change in the current level of market interest rates. 1999 and 1998 Comparison: Other operating income totaled $2.5 million in 1999, down $31,000 from the level recorded in 1998. The reduction was the net effect of a $248,000 decline in fee income to $1.9 million and a $217,000 increase in other income to $660,000. In 1998, fee income was bolstered by penalties paid during an extended period of mortgage loan prepayment activity. Operating Expense and Amortization of Goodwill Among the Company's distinguishing characteristics is a demonstrated ability to contain operating expense. Traditionally consisting of compensation and benefits, occupancy and equipment, general and administrative ("G&A"), and other expenses, the Company's operating expense has typically represented a below-average percentage of average assets and contributed to an efficiency ratio that has ranked among the thrift industry's best. Included in compensation and benefits expense are expenses associated with the amortization and appreciation of shares held in the Company's stock-related benefit plans ("plan-related expenses") which are added back to stockholders' equity at the end of the period. Reflecting the acquisition of Haven Bancorp on November 30, 2000, the Company also recorded the amortization of goodwill as an expense. 2000 and 1999 Comparison: Excluding the $22.8 million impact of the aforementioned ESOP allocation, the Company recorded core operating expense of $27.0 million, or 1.17% of average assets, as compared to core operating expense of $22.3 million, or 1.19% of average assets, in 1999. The 1999 amount excludes a net gain of $865,000 pursuant to the freezing of the Company's defined benefit pension plan in the third quarter, and the implementation of an early retirement plan in the fourth quarter of the year. On a reported basis, operating expense totaled $49.8 million in 2000, as compared to $21.4 million in 1999. The 2000 amounts include $494,000 in goodwill amortization stemming from the Haven acquisition. There was no comparable expense in 1999. Core compensation and benefits expense totaled $16.2 million in 2000, as compared to $14.3 million in the prior year. Including the non-recurring items mentioned above, compensation and benefits expense totaled $39.6 million and $13.5 million, respectively, in the corresponding periods. Plan-related expenses represented $24.8 million of the 2000 total and $2.6 million of the total in 1999. The higher level of operating expense in 2000 also reflects a $1.7 million rise in occupancy and equipment expense to $4.0 million, a $642,000 rise in G&A expense to $5.4 million, and a $78,000 rise in other operating expense to $950,000. While the higher level of occupancy and equipment expense includes the operation of the CFS Bank branches for the month of December, the higher levels of G&A and other expense largely reflect other acquisition-related costs. The rise in operating expense was partly offset by the higher levels of net interest income and other operating income in 2000, producing a core efficiency ratio of 35.72%, as compared to 28.70% in 1999. On the basis of cash earnings, the efficiency ratio improved to 24.47% from the year-earlier measure of 26.37%. While operating expense may be expected to rise in 2001, reflecting the full-year effect of staffing and operating the CFS Bank branches, the efficiency ratio is expected to stabilize in the range of 35% to 40%. - -------------------------------------------------------------------------------- Twenty-Eight - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- Based on certain assumptions regarding improvements in internal controls and the implementation of operating efficiencies throughout the branch network, management would expect operating expense to range between $68.0 million and $69.0 million in 2001, reflecting post-acquisition cost savings of approximately $14.0 million. Factors that could cause actual operating expense to differ materially from the range expected include a delay in the integration of the Bank's computer systems and a delay in reducing overlapping resources, including employees. As the efficiency ratio is a function not only of operating expense but also of net interest income and other operating income, factors that could cause the efficiency ratio to differ materially from current expectations include those cited in the previous discussions of anticipated net interest income and other operating income. On an annualized basis, the Company's goodwill expense may be expected to approximate $6.0 million. However, the Financial Accounting Standards Board (the "FASB") is currently considering a proposal that, if adopted, would discontinue the amortization of goodwill created with respect to business combinations, effective July 1, 2001. The amortization of goodwill is included in the Company's earnings estimates for 2001. 1999 and 1998 Comparison: The Company's focus on cost containment was demonstrated by a series of actions taken in 1999. Operating expense declined 17.6% to $21.4 million, or 1.14% of average assets, from $26.0 million, or 1.57% of average assets, in 1998. The $4.6 million reduction primarily stemmed from a 27.4% decline in compensation and benefits expense to $13.5 million, from $18.5 million in the year-earlier twelve months. The $5.0 million savings included the one-time gain of $1.6 million pursuant to the freezing of the Bank's defined benefit pension plan at September 30, which more than offset the one-time charge of $735,000 pursuant to the implementation of an early retirement window in the fourth quarter of the year. The reduction in compensation and benefits also reflects a $4.1 million decline in plan-related expenses to $2.6 million, pursuant to a change in the amortization period for the Company's ESOP to sixty years from thirty at January 1, 1999. While recorded as a charge against earnings, the $2.6 million was added back to stockholders' equity at December 31, 1999. The Company's 1999 operating expense also reflects a $157,000 decline in occupancy and equipment expense to $2.3 million, despite the Company's successful Y2K preparations and the opening of two banking offices in the second half of the year. This decline combined with the decrease in compensation and benefits expense to substantially offset increases of $221,000 and $444,000 in G&A expense and other expense to $4.8 million and $872,000, respectively. The increase in other expense primarily stemmed from the establishment of the $400,000 recourse reserve in connection with the fourth quarter sale of $211.6 million in multi-family mortgage loans to the FHLB-NY. As the $400,000 was reversed from the allowance for loan losses, this action had no impact on the Company's 1999 results. Reflecting the reduction in operating expense and the growth in net interest income, the Company's efficiency ratio improved to 29.95% from 36.51% on the basis of GAAP earnings and, on the basis of cash earnings, to 26.37% from 27.05%. Income Tax Expense Income tax expense includes federal, New York State, and New York City income taxes. In addition, the Company's income tax expense reflects certain non-cash items stemming from the amortization and appreciation of shares held in its stock-related benefit plans. While these non-cash items are recorded as a charge against earnings, they are added back to stockholders' equity at the end of the period. 2000 and 1999 Comparison: The Company recorded income tax expense of $20.4 million in 2000, a year-over-year reduction of $347,000, despite a $7.5 million decline in pre-tax income to $44.9 million. As a result, the effective tax rate rose to 45.5% from 39.6%, the 1999 level; the higher rate was principally due to non-deductible expenses related to the acquisition-related allocation of ESOP shares. Included in 2000 income tax expense were plan-related expenses of $6.0 million (down from the year-earlier $7.3 million), all of which was added back to stockholders' equity at December 31, 2000. Management currently expects the effective tax rate to stabilize in the range of 39% to 40% in 2001. 1999 and 1998 Comparison: Reflecting a $7.3 million, or 16.2%, rise in pre-tax income to $52.4 million, the Company recorded 1999 income tax expense of $20.8 million, as compared to $18.2 million in 1998. The increase in pre-tax income was partly offset by a decline in the effective tax rate to 39.61% from 40.29% in the year-earlier period, and by a decline in non-cash items to $7.3 million from $8.1 million. IMPACT OF ACCOUNTING PRONOUNCEMENTS Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities On September 29, 2000, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting for Transfers and Servicing of Financial Assets - -------------------------------------------------------------------------------- Twenty-Nine and Extinguishments of Liabilities." SFAS No. 140 replaces SFAS No. 125, which was issued in June 1996, and addresses implementation issues that were identified in applying SFAS No. 125. SFAS No. 140 is effective for transfers of financial assets (including securitizations) occurring after March 31, 2001. However, the provisions of SFAS No. 140 related to the recognition and reclassification of collateral in financial statements and disclosures related to securities transactions and collateral are effective for fiscal years ending after December 15, 2000. The Company does not expect the adoption of SFAS No. 140 to have a material effect upon its financial statements. MARKET PRICE OF COMMON STOCK AND DIVIDENDS PAID PER COMMON SHARE Shares of New York Community Bancorp, Inc. are traded on the Nasdaq National Markett under the symbol "NYCB." At December 31, 2000, the number of outstanding shares was 29,580,124. The table below sets forth the intra-day high/low price range and closing prices for the Company stock, as reported by The Nasdaq Stock Markett, and the cash dividends paid per common share for each of the four quarters of 2000 and 1999. Market Price(1) Dividends Declared per Common Share(1) High Low Close - -------------------------------------------------------------------------------- 2000 1st Quarter $0.2500 $27.125 $17.325 $18.063 2nd Quarter 0.2500 21.188 17.250 18.438 3rd Quarter 0.2500 29.063 18.500 28.875 4th Quarter 0.2500 37.813 25.500 36.750 - -------------------------------------------------------------------------------- 1999 1st Quarter $0.2500 $31.938 $26.500 $27.000 2nd Quarter 0.2500 36.125 26.875 32.375 3rd Quarter 0.2500 33.125 26.000 27.625 4th Quarter 0.2500 32.875 25.750 27.125 ================================================================================ (1) Amounts shown have not been adjusted to reflect the 3-for-2 stock split scheduled to occur on March 29, 2001. - -------------------------------------------------------------------------------- Thirty - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, ---------------------------- (in thousands, except share data) 2000 1999 - --------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 133,093 $ 31,224 Money market investments 124,622 6,000 Securities held to maturity ($120,125 pledged at December 31, 2000) (note 4) 222,534 184,637 Mortgage-backed securities held to maturity (note 5) 1,923 2,094 Securities available for sale ($127,858 pledged at December 31, 2000) (note 6) 303,734 12,806 Mortgage loans, net (note 11) 3,594,720 1,599,392 Other loans, net 39,730 8,718 Less: Allowance for loan losses (18,064) (7,031) - --------------------------------------------------------------------------------------------------------------------------- Loans, net (notes 7 and 8) 3,616,386 1,601,079 Premises and equipment, net 39,191 10,060 Goodwill (note 2) 118,070 -- Deferred tax asset, net (note 12) 42,360 5,496 Other assets (notes 9 and 14) 108,872 53,439 - --------------------------------------------------------------------------------------------------------------------------- Total assets $4,710,785 $1,906,835 =========================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits (note 10): NOW and money market accounts $ 719,420 $ 103,422 Savings accounts 492,604 274,501 Certificates of deposit 1,873,810 658,238 Non-interest-bearing accounts 171,360 39,857 - --------------------------------------------------------------------------------------------------------------------------- Total deposits 3,257,194 1,076,018 - --------------------------------------------------------------------------------------------------------------------------- Official checks outstanding 41,239 31,189 Borrowings (note 11) 1,037,505 636,378 Mortgagors' escrow 11,291 10,288 Other liabilities (note 14) 56,146 15,821 - --------------------------------------------------------------------------------------------------------------------------- Total liabilities 4,403,375 1,769,694 - --------------------------------------------------------------------------------------------------------------------------- Stockholders' equity (note 3): Preferred stock at par $0.01 (5,000,000 shares authorized; none issued) -- -- Common stock at par $0.01 (60,000,000 shares authorized; 30,970,693 shares issued; 29,580,124 and 21,010,127 shares outstanding at December 31, 2000 and 1999, respectively) 310 310 Paid-in capital in excess of par 174,450 147,607 Retained earnings (substantially restricted) (note 17) 146,514 150,545 Less: Treasury stock (1,390,569 and 9,960,566 shares, respectively) (2,388) (145,122) Unallocated common stock held by ESOP (note 15) (8,485) (12,388) Common stock held by SERP and Deferred Compensation Plans (notes 14 and 15) (3,770) (3,770) Unearned common stock held by RRPs (note 15) (41) (41) Accumulated other comprehensive income, net of tax effect 820 -- - --------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 307,410 137,141 - --------------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (note 13) Total liabilities and stockholders' equity $4,710,785 $1,906,835 ===========================================================================================================================
See accompanying notes to the consolidated financial statements. - -------------------------------------------------------------------------------- Thirty-One - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, --------------------------------------------- (in thousands, except per share data) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME: Mortgage and other loans (note 7) $151,626 $131,618 $123,784 Securities 17,974 10,169 7,464 Mortgage-backed securities 3,795 893 2,338 Money market investments 1,437 443 691 - --------------------------------------------------------------------------------------------------------------------------- Total interest income 174,832 143,123 134,277 - --------------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE: NOW and money market accounts 4,892 2,456 1,944 Savings accounts 6,346 6,329 6,224 Certificates of deposit 41,178 35,123 36,251 Borrowings (note 11) 49,302 30,283 21,290 Mortgagors' escrow 33 29 46 - --------------------------------------------------------------------------------------------------------------------------- Total interest expense 101,751 74,220 65,755 - --------------------------------------------------------------------------------------------------------------------------- Net interest income 73,081 68,903 68,522 Reversal of provision for loan losses (note 8) -- 2,400 -- - --------------------------------------------------------------------------------------------------------------------------- Net interest income after reversal of provision for loan losses 73,081 71,303 68,522 - --------------------------------------------------------------------------------------------------------------------------- OTHER OPERATING INCOME: Fee income 4,595 1,863 2,111 Other (note 7) 17,050 660 443 - --------------------------------------------------------------------------------------------------------------------------- Total other operating income 21,645 2,523 2,554 - --------------------------------------------------------------------------------------------------------------------------- OPERATING EXPENSE: Compensation and benefits (notes 14 and 15) 39,014 13,458 18,529 Occupancy and equipment (note 13) 3,953 2,289 2,446 General and administrative 5,413 4,771 4,550 Other 950 872 428 - --------------------------------------------------------------------------------------------------------------------------- Total operating expense 49,330 21,390 25,953 Amortization of goodwill 494 -- -- - --------------------------------------------------------------------------------------------------------------------------- Total expense 49,824 21,390 25,953 Income before income taxes 44,902 52,436 45,123 Income tax expense (note 12) 20,425 20,772 18,179 - --------------------------------------------------------------------------------------------------------------------------- Net income $ 24,477 $ 31,664 $ 26,944 - --------------------------------------------------------------------------------------------------------------------------- Other comprehensive income, net of tax: Unrealized gain (loss) on securities 820 (34) (23) - --------------------------------------------------------------------------------------------------------------------------- Comprehensive income $ 25,297 $ 31,630 $ 26,921 - --------------------------------------------------------------------------------------------------------------------------- Earnings per share $1.30 $1.71 $1.41 Diluted earnings per share $1.25 $1.67 $1.34 ===========================================================================================================================
See accompanying notes to the consolidated financial statements. - -------------------------------------------------------------------------------- Thirty-Two - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, -------------------------------------------- (in thousands, except per share data) 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------- COMMON STOCK (Par Value: $0.01): Balance at beginning of year $ 310 $ 310 $ 206 Stock splits (0; 0; and 10,323,460 shares) -- -- 104 - -------------------------------------------------------------------------------------------------------------------------- Balance at end of year 310 310 310 - -------------------------------------------------------------------------------------------------------------------------- PAID-IN CAPITAL IN EXCESS OF PAR: Balance at beginning of year 147,607 138,180 125,000 Tax benefit on stock plans 5,953 7,269 8,071 Common stock acquired by SERP and Deferred Compensation Plans -- -- 1,278 Allocation of ESOP stock 20,890 2,158 3,938 Stock splits (0; 0; and 10,323,460 shares) -- -- (104) Cash paid in lieu of fractional shares -- -- (3) - -------------------------------------------------------------------------------------------------------------------------- Balance at end of year 174,450 147,607 138,180 - -------------------------------------------------------------------------------------------------------------------------- RETAINED EARNINGS: Balance at beginning of year 150,545 165,383 166,230 Net income 24,477 31,664 26,944 Dividends paid on common stock (17,847) (18,563) (12,636) Exercise of stock options (446,091; 1,045,223; and 784,740 shares) (10,661) (27,939) (15,155) - -------------------------------------------------------------------------------------------------------------------------- Balance at end of year 146,514 150,545 165,383 - -------------------------------------------------------------------------------------------------------------------------- TREASURY STOCK: Balance at beginning of year (145,122) (137,901) (104,148) Purchase of common stock (1,703,873; 1,285,992; and 1,957,530 shares) (41,483) (38,352) (52,533) Shares issued in the acquisition 174,283 -- -- Common stock acquired by SERP -- -- 1,278 Exercise of stock options (446,091; 1,045,223; and 784,740 shares) 9,934 31,131 17,502 - -------------------------------------------------------------------------------------------------------------------------- Balance at end of year (2,388) (145,122) (137,901) - -------------------------------------------------------------------------------------------------------------------------- EMPLOYEE STOCK OWNERSHIP PLAN: Balance at beginning of year (12,388) (12,767) (13,526) Allocation of ESOP stock 3,903 379 759 - -------------------------------------------------------------------------------------------------------------------------- Balance at end of year (8,485) (12,388) (12,767) - -------------------------------------------------------------------------------------------------------------------------- SERP AND DEFERRED COMPENSATION PLANS: Balance at beginning of year (3,770) (3,770) (2,492) Common stock acquired by SERP and Deferred Compensation Plans -- -- (1,278) - -------------------------------------------------------------------------------------------------------------------------- Balance at end of year (3,770) (3,770) (3,770) - -------------------------------------------------------------------------------------------------------------------------- RECOGNITION AND RETENTION PLANS: Balance at beginning of year (41) (63) (812) Earned portion of RRPs -- 22 749 - -------------------------------------------------------------------------------------------------------------------------- Balance at end of year (41) (41) (63) - -------------------------------------------------------------------------------------------------------------------------- ACCUMULATED COMPREHENSIVE INCOME, NET OF TAX: Balance at beginning of year -- 34 57 Net unrealized appreciation (depreciation) in securities, net of tax 820 (34) (23) - -------------------------------------------------------------------------------------------------------------------------- Balance at end of year 820 -- 34 - -------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity $ 307,410 $ 137,141 $ 149,406 ==========================================================================================================================
See accompanying notes to the consolidated financial statements. - -------------------------------------------------------------------------------- Thirty-Three - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ---------------------------------------------- (in thousands) 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 24,477 $ 31,664 $ 26,944 - -------------------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 1,461 923 921 Reversal of provision for loan losses -- (2,400) -- Acquired allowance 11,033 -- -- (Accretion of discounts) amortization of premiums, net (1,818) 2 106 Amortization of net deferred loan origination fees 4,808 1,372 244 Amortization of goodwill 494 -- -- Net gain on redemption and sales of securities and mortgage-backed securities (704) (91) (91) Net gain on sale of foreclosed real estate and loans (121) (126) (167) Net gain on sale of former headquarters (13,500) -- -- Tax benefit on stock plans 5,953 7,269 8,071 Earned portion of RRPs -- 22 749 Earned portion of ESOP 24,793 2,537 4,697 Changes in assets and liabilities: Goodwill recognized in acquisition of Haven Bancorp (118,070) -- -- (Increase) decrease in deferred income taxes (36,864) 421 (403) (Increase) decrease in other assets (55,433) (32,569) 1,033 Increase (decrease) in official checks outstanding 10,050 (3,298) 5,047 Increase (decrease) in other liabilities 40,325 7,256 (5,234) - -------------------------------------------------------------------------------------------------------------------------- Total adjustments (127,593) (18,682) 14,973 - -------------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by operating activities (103,116) 12,982 41,917 - -------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from redemption and sales of securities and mortgage-backed securities held to maturity 64,396 17,380 168,529 Proceeds from redemption and sales of securities available for sale 447,508 14,534 -- Purchase of securities held to maturity (24,754) (48,041) (195,788) Purchase of securities available for sale (738,436) (6,794) (2,081) Net increase in loans (2,021,624) (329,480) (101,934) Proceeds from sale of loans and foreclosed real estate 103,860 216,129 10,358 Acquisition or purchase of premises and equipment, net (30,592) (584) (538) - -------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (2,199,642) (136,856) (121,454) - -------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in mortgagors' escrow 1,003 (2,796) 2,394 Net increase (decrease) in deposits 2,181,176 (26,267) 33,124 Net increase in borrowings 401,127 197,323 129,391 Cash dividends and stock options exercised (28,508) (46,502) (27,791) Purchase of Treasury stock, net of stock options exercised (31,549) (7,221) (35,031) Shares acquired by SERP -- -- 1,278 - -------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 2,523,249 114,537 103,365 - -------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 220,491 (9,337) 23,828 Cash and cash equivalents at beginning of period 37,224 46,561 22,733 - -------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 257,715 $ 37,224 $ 46,561 ========================================================================================================================== Supplemental information: Cash paid for: Interest $101,759 $74,177 $65,767 Income taxes 11,754 14,582 10,489 - -------------------------------------------------------------------------------------------------------------------------- Transfers to foreclosed real estate from loans -- 223 772 - -------------------------------------------------------------------------------------------------------------------------- Transfers to real estate held for investment from foreclosed real estate -- 457 535 ==========================================================================================================================
See accompanying notes to the consolidated financial statements. - -------------------------------------------------------------------------------- Thirty-Four - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES As more fully described in Note 3, Queens County Savings Bank, now known as New York Community Bank (the "Bank"), converted from a mutual savings bank to the capital stock form of ownership on November 23, 1993. In anticipation of the conversion, Queens County Bancorp, Inc., now known as New York Community Bancorp, Inc. (the "Company" or the "Parent"), was formed on July 20, 1993. On June 27, 2000, the Company entered into an agreement and plan of merger with Haven Bancorp, Inc. ("Haven"), parent of CFS Bank, under which it would acquire Haven in a purchase transaction valued at $174.3 million. On November 30, 2000, Haven merged with and into the Company, and on January 31, 2001, CFS Bank merged with and into New York Community Bank. The Company therefore operated two subsidiaries during December 2000: New York Community Bank and CFS Bank (the "Subsidiaries"). 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 accounting principles generally accepted in the United States of America ("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. Actual results could differ from those estimates. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company accounts and transactions are eliminated in consolidation. Certain reclassifications have been made to prior-year financial statements to conform to the 2000 presentation. Securities and Mortgage-backed Securities Held to Maturity and Securities Available for Sale Securities and mortgage-backed securities that the Company has the positive intent and ability to hold until maturity are carried at cost, adjusted for amortization of premiums and accretion of discounts on a level-yield method over the remaining period to contractual maturity, and adjusted, in the case of mortgage-backed securities, for actual prepayments. Securities and mortgage-backed securities to be held for indefinite periods of time and not intended to be held to maturity are classified as "available for sale" securities and are recorded at fair value, with unrealized appreciation and depreciation, net of tax, reported as a separate component of stockholders' equity. Gains and losses on sales of securities and mortgage-backed securities are computed using the specific identification method. Loans Loans are carried at unpaid principal balances, less unearned discounts, net of deferred loan origination fees and the allowance for loan losses. The Company applies Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan/Income Recognition and Disclosures" to all loans except smaller balance homogenous consumer loans (including one-to-four family mortgage loans), loans carried at fair value or the lower of cost or fair value, debt securities, and leases. SFAS No. 114 requires the creation of a valuation allowance for impaired loans based on the present value of expected future cash flows, discounted at the loan's effective interest rate, the loan's observable market price, or the fair value of the collateral. Under SFAS No. 114, a loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the loan's contractual terms. SFAS No. 114 also provides that in-substance foreclosed loans should not be included in foreclosed real estate for financial reporting purposes but, rather, in the loan portfolio. The allowance for loan losses is increased by the provision for loan losses charged to operations and reduced by reversals or by charge-offs, net of recoveries. The allowance is based on management's periodic evaluation of the adequacy of the allowance, taking into consideration known and inherent risks in the portfolio, the Bank's past loan loss experience, adverse situations which may affect its borrowers' ability to repay, overall portfolio quality, and current and prospective economic conditions. While management uses available information to recognize losses on loans, future additions may be necessary, based on changes in economic conditions beyond management's control. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Accordingly, the Bank may be required to take certain charge-offs and/or recognize additions to the allowance based on regulators' judgments concerning information available to them during their examinations. Based upon all relevant and available information, management believes that the current allowance for loan losses is adequate. - -------------------------------------------------------------------------------- Thirty-Five - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Fees are charged for originating mortgage loans at the time of commitment. Loan origination fees, partially offset by certain expenses associated with loans originated, are amortized to interest on loans over the life of the loan, using the interest method. Adjustable rate mortgages that have a lower rate during the introductory period (usually one year) will reflect the amortization of a substantial portion of the net deferred fee as a yield adjustment during the introductory period. Loans are classified as "in foreclosure," and the accrual of interest and amortization of origination fees are discontinued, when management considers collection to be doubtful. Premises and Equipment Premises, furniture and fixtures, and equipment are carried at cost less the accumulated depreciation computed on a straight-line basis over the estimated useful lives of the respective assets. Leasehold improvements are carried at cost less the accumulated amortization computed on a straight-line basis over the shorter of the related lease term or the estimated useful life of the improvement. Depreciation and amortization included in occupancy and equipment expense for the years ended December 31, 2000, 1999, and 1998 amounted to $1,461,000, $923,000, and $921,000, respectively. Foreclosed Real Estate Real estate properties acquired through, or in lieu of, foreclosure are to be sold or rented, and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value, less the estimated selling costs. Revenue and expenses from operations and changes in the valuation allowance are included in other operating expense. Income Taxes Income tax expense consists of income taxes that are currently payable and deferred income taxes. Deferred income tax expense (benefit) is determined by recognizing deferred tax assets and liabilities for future tax consequences, attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The realization of deferred tax assets is assessed and a valuation allowance provided for that portion of the asset for which the allowance is more likely than not to be realized. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. Stock Option Plans In October 1995, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 123, "Accounting for Stock-based Compensation." SFAS No. 123 defines a fair value-based method of accounting for an employee stock option or similar equity instrument. It also allows an entity to continue to measure compensation cost for those plans using the intrinsic value-based method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Entities electing to remain with the accounting method prescribed by APB Opinion No. 25 must make pro forma disclosures of net income and earnings per share as if the fair value-based method of accounting had been applied. SFAS No. 123 is effective for transactions entered into in fiscal years beginning after December 31, 1995. Pro forma disclosures required for entities that elect to continue measuring compensation cost using APB Opinion No. 25 must include the effects of all awards granted in fiscal years beginning after December 15, 1994. The Company had four stock option plans at December 31, 2000, including two plans for directors and employees of the former CFS Bank and two plans for directors and employees of the former Queens County Savings Bank. The Company applies APB Opinion No. 25 and the related interpretations in accounting for its plans and, accordingly, no compensation cost has been recognized. Retirement Plans The Company maintains two pension plans, one for employees of the former Queens County Savings Bank, and one for employees of the former CFS Bank, covering substantially all employees who had attained minimum service requirements. The Queens County Savings Bank Retirement Plan was frozen at September 30, 1999, while the CFS Bank Retirement Plan was frozen at June 30, 1996. Post-retirement benefits were recorded on an accrual basis with an annual provision that recognized the expense over the service life of the employee, determined on an actuarial basis. Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents are defined to include cash and due from banks and federal funds sold. Earnings per Share (Basic and Diluted) Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted - -------------------------------------------------------------------------------- Thirty-Six - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the earnings of the entity. For the years ended December 31, 2000, 1999, and 1998, the weighted average number of common shares outstanding used in the computation of basic EPS was 18,845,676; 18,526,890; and 19,091,705, respectively. The weighted average number of common shares outstanding used in the computation of diluted EPS was 19,531,588; 18,939,867; and 20,181,013 for the corresponding periods. The differential in the weighted average number of common shares outstanding used in the computation of basic and diluted EPS represents the average common stock equivalents of stock options. NOTE 2: BUSINESS COMBINATIONS On November 30, 2000, the Company acquired Haven Bancorp, Inc., parent of CFS Bank, which operated 70 branch offices in New York City, Nassau, Suffolk, Westchester and Rockland counties, New Jersey, and Connecticut. At the date of acquisition, Haven had consolidated assets of $2.7 billion, including loans, net, of $2.2 billion, and consolidated liabilities of $2.6 billion, including deposits of $2.1 billion. In accordance with the plan and agreement of merger, holders of Haven's common stock received 1.04 shares of common stock of New York Community Bancorp for each share of Haven common stock held at the date of the acquisition. In connection therewith, the Company issued 9,827,744 shares of common stock from Treasury with a value of $174.3 million. The excess of cost over fair value of net assets acquired was $118.6 million, to be amortized on a straight-line basis over 20 years. NOTE 3: CONVERSION TO STOCK FORM OF OWNERSHIP On July 13, 1993, the Board of Trustees of the Bank (now the Board of Directors of the Company) adopted a Plan of Conversion to convert the Bank from a state-chartered mutual savings bank to a state-chartered capital stock form savings bank. In connection with the conversion, the Company was organized under Delaware law for the purpose of acquiring all of the capital stock of the Bank. On November 23, 1993, the Company became a public company and issued its initial offering of 4,588,500 shares of common stock (par value: $0.01 per share) at a price of $25.00 per share, resulting in net proceeds of $110.6 million. Concurrent with the issuance of the common stock, 50 percent of the net proceeds were used to purchase all of the outstanding capital stock of the Bank. Parent company-only financial information is presented in Note 18. As a result of five stock splits (a 3-for-2 stock split on September 30, 1994; a 4-for-3 stock split on August 22, 1996; and 3-for-2 stock splits on April 10 and October 1, 1997, and September 29, 1998), the initial offering price was adjusted to $3.71 per share. The number of shares outstanding at December 31, 2000 was 29,580,124. Reflecting a 3-for-2 stock split scheduled to occur on March 29, 2001, the initial offering price will adjust to $2.47 per share and the number of outstanding shares at December 31, 2000 will adjust to 44,370,186. - -------------------------------------------------------------------------------- Thirty-Seven - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOTE 4: SECURITIES HELD TO MATURITY Securities held to maturity at December 31, 2000 and 1999 are summarized as follows:
DECEMBER 31, 2000 -------------------------------------------------------------- Gross Gross Estimated (in thousands) Cost Unrealized Gain Unrealized Loss Market Value - -------------------------------------------------------------------------------------------------------------------------- U.S. Government and agency obligations $125,325 $ -- $ (833) $124,492 - -------------------------------------------------------------------------------------------------------------------------- Capital trust notes 25,191 -- (1,299) 23,892 - -------------------------------------------------------------------------------------------------------------------------- FHLB stock 72,016 -- -- 72,016 - -------------------------------------------------------------------------------------------------------------------------- FNMA stock 2 206 -- 208 - -------------------------------------------------------------------------------------------------------------------------- Total stock 72,018 206 -- 72,224 - -------------------------------------------------------------------------------------------------------------------------- Total securities held to maturity $222,534 $206 $(2,132) $220,608 ========================================================================================================================== DECEMBER 31, 1999 -------------------------------------------------------------- Gross Gross Estimated (in thousands) Cost Unrealized Gain Unrealized Loss Market Value - -------------------------------------------------------------------------------------------------------------------------- U.S. Government and agency obligations $140,325 $ -- $(4,528) $135,797 - -------------------------------------------------------------------------------------------------------------------------- Capital trust notes 3,500 -- -- 3,500 - -------------------------------------------------------------------------------------------------------------------------- FHLB stock 40,810 -- -- 40,810 - -------------------------------------------------------------------------------------------------------------------------- FNMA stock 2 72 -- 74 - -------------------------------------------------------------------------------------------------------------------------- Total stock 40,812 72 -- 40,884 - -------------------------------------------------------------------------------------------------------------------------- Total securities held to maturity $184,637 $ 72 $(4,528) $180,181 ==========================================================================================================================
The following is a summary of the amortized cost and estimated market value of securities held to maturity at December 31, 2000 by remaining term to maturity:
--------------------------------------------------- U.S. Government Capital Trust Estimated (in thousands) and Agencies Notes Market Value - --------------------------------------------------------------------------------------------------------------------------- 3 to 5 years $125,325 $ -- $124,492 - --------------------------------------------------------------------------------------------------------------------------- Up to 30 years -- 25,191 23,892 ===========================================================================================================================
Because the sale of Federal Home Loan Bank ("FHLB") and Federal National Mortgage Association ("FNMA") stock is restricted by the respective governmental agencies, these securities are not considered marketable equity securities. FHLB stock is carried at cost, which approximates value at redemption. NOTE 5: MORTGAGE-BACKED SECURITIES HELD TO MATURITY Mortgage-backed securities held to maturity at December 31, 2000 and 1999 are summarized as follows: ------------------------- DECEMBER 31, - ------------------------------------------------------------------------------- (in thousands) 2000 1999 - ------------------------------------------------------------------------------- Principal balance $ 1,926 $ 2,097 Unamortized discount (3) (3) - ------------------------------------------------------------------------------- Mortgage-backed securities, net 1,923 2,094 Gross unrealized gains 56 41 - ------------------------------------------------------------------------------- Estimated market value $ 1,979 $ 2,135 =============================================================================== - -------------------------------------------------------------------------------- Thirty-Eight - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- The amortized cost and estimated market value of mortgage-backed securities held to maturity, all of which have prepayment provisions, are distributed to a maturity category based on the estimated average life of said securities, as shown below. Principal prepayments are not scheduled over the life of the investment, but are reflected as adjustments to the final maturity distribution. The following is a summary of the amortized cost and estimated market value of mortgage-backed securities held to maturity at December 31, 2000 by remaining term to maturity: DECEMBER 31, 2000 -------------------------- Estimated (in thousands) Cost Basis Market Value - -------------------------------------------------------------------------------- Over 1 year to 5 years $1,923 $1,979 - -------------------------------------------------------------------------------- Mortgage-backed securities, net $1,923 $1,979 - -------------------------------------------------------------------------------- There were no sales of mortgage-backed securities held to maturity during the years ended December 31, 2000, 1999, or 1998. On April 1, 1999, the Company reclassified $14.1 million of mortgage-backed securities held to maturity as securities available for sale, pursuant to the adoption of SFAS No. 133. NOTE 6: SECURITIES AVAILABLE FOR SALE Securities available for sale at December 31, 2000 and 1999 are summarized as follows:
-------------------------------------------------------- DECEMBER 31, 2000 - --------------------------------------------------------------------------------------------------------------- Amortized Gross Gross Estimated (in thousands) Cost Unrealized Gain Unrealized Loss Market Value - --------------------------------------------------------------------------------------------------------------- Debt and equity securities available for sale: U.S. Government and agency obligations $ 59,669 $ -- $ -- $ 59,669 Corporate bonds 61,140 -- -- 61,140 Equity 23,268 -- -- 23,268 - --------------------------------------------------------------------------------------------------------------- Total $144,077 $ -- $ -- $144,077 - --------------------------------------------------------------------------------------------------------------- Mortgage-backed securities available for sale: GNMA certificates $ 1,059 $ 8 $ -- $ 1,067 FNMA certificates 80,286 -- -- 80,286 FHLMC certificates 4,963 -- -- 4,963 CMOs and REMICs 73,341 -- -- 73,341 - --------------------------------------------------------------------------------------------------------------- Total $159,649 $ 8 $ -- $159,657 - --------------------------------------------------------------------------------------------------------------- Total securities available for sale $303,726 $ 8 $ -- $303,734 =============================================================================================================== -------------------------------------------------------- DECEMBER 31, 1999 - --------------------------------------------------------------------------------------------------------------- Amortized Gross Gross Estimated (in thousands) Cost Unrealized Gain Unrealized Loss Market Value - --------------------------------------------------------------------------------------------------------------- Equity $ 12,805 $ 364 $ (363) $ 12,806 ===============================================================================================================
- -------------------------------------------------------------------------------- Thirty-Nine The following table summarizes securities available for sale at December 31, 2000, based on contractual maturity. The average yield was determined by dividing the actual income derived in 2000 from each type of security by the respective fair values.
------------------------------------------------------------------------------------ Due Due in Within Due One Year One to After Total Fair (dollars in thousands) or Less Five Years Five Years Cost Value Yield - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Government and agency obligations $ 9,954 $29,214 $ 20,501 $ 59,669 $ 59,669 6.26% Corporate bonds -- -- 61,140 61,140 61,140 9.20 Equity 23,268 -- -- 23,268 23,268 4.30 GNMA certificates -- -- 1,059 1,059 1,067 7.24 FNMA certificates -- -- 80,286 80,286 80,286 6.72 FHLMC certificates -- -- 4,963 4,963 4,963 8.13 CMOs and REMICs -- -- 73,341 73,341 73,341 7.09 - ------------------------------------------------------------------------------------------------------------------------------------ Total securities available for sale $33,222 $29,214 $241,290 $303,726 $303,734 7.21% ====================================================================================================================================
NOTE 7: LOANS The composition of the loan portfolio at December 31, 2000 and 1999 is summarized as follows: ------------------------- DECEMBER 31, - -------------------------------------------------------------------------------- (in thousands) 2000 1999 - -------------------------------------------------------------------------------- MORTGAGE LOANS: 1-4 family $1,267,080 $ 152,644 Multi-family 1,945,656 1,348,351 Commercial real estate 324,068 96,008 Construction 59,469 4,793 - -------------------------------------------------------------------------------- Total mortgage loans 3,596,273 1,601,796 - -------------------------------------------------------------------------------- Less: Net deferred loan origination fees 1,553 2,404 - -------------------------------------------------------------------------------- Mortgage loans, net 3,594,720 1,599,392 - -------------------------------------------------------------------------------- OTHER LOANS: Cooperative apartment 3,726 4,856 Home equity 12,240 1,347 Passbook savings 779 331 Student 683 8 Other 22,320 2,200 - -------------------------------------------------------------------------------- Total other loans 39,748 8,742 Less: Unearned discounts 18 24 - -------------------------------------------------------------------------------- Other loans, net 39,730 8,718 Less: Allowance for loan losses 18,064 7,031 - -------------------------------------------------------------------------------- Loans, net $3,616,386 $1,601,079 ================================================================================ The Bank has a diversified loan portfolio as to type and borrower concentration. At December 31, 2000 and 1999, approximately $3.1 billion and $1.6 billion, respectively, of the Bank's mortgage loans were secured by properties located in New York State. Accordingly, economic conditions in the State of New York may have a significant impact on the market value of the real estate collateralizing such loans and on the ability of the Company's borrowers to honor their contracts. Prior to 2000, the Bank held all adjustable rate one-to-four family mortgage loans that it originated, and generally sold any fixed rate one-to-four family mortgage loans it originated to Savings Bank Life Insurance ("SBLI"), while retaining the servicing rights. One-to-four family mortgage - -------------------------------------------------------------------------------- Forty - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- loans sold to SBLI during the years ended December 31, 1999 and 1998 amounted to $2.0 million and $1.6 million, respectively; no one-to-four family mortgage loans were sold to SBLI during 2000. On December 28, 2000, the Bank sold 458 fixed rate one-to-four family mortgage loans totaling $105.7 million that it had acquired in the Haven transaction, while retaining the servicing rights. The proceeds from the loan sales were used, together with the proceeds from the sale of securities in December, to reduce the balance of higher cost FHLB borrowings at year-end. In December 2000, the Bank sold one-to-four family mortgage loans totaling $1.7 million that were originated on a pass-through basis to Cendant Mortgage Corporation. On December 29, 1999, the Bank sold a $211.6 million interest in multi-family mortgage loans from its portfolio to the Federal Home Loan Bank of New York ("FHLB-NY"), while retaining the servicing rights. In connection with this transaction, the Bank provided additional collateral of $75.8 million in loans to the FHLB-NY. In 1998, the Bank originated and sold $7.1 million in multi-family mortgage loans to another financial institution, with the servicing rights retained. No multi-family loans were sold in 2000. The Bank services mortgage loans for various third parties, including the FHLB-NY, SBLI, FNMA, and the State of New York Mortgage Agency ("SONYMA"). The unpaid principal balance of serviced loans amounted to $1.1 billion, $224.8 million, and $18.8 million at December 31, 2000, 1999, and 1998, respectively. Custodial escrow balances maintained in connection with such loans amounted to $3.4 million, $1.9 million, and $60,000 at the corresponding dates. Commitments to originate first mortgage loans at December 31, 2000 and 1999 amounted to approximately $180.1 million and $72.9 million, respectively. Substantially all of the commitments at December 31, 2000 were expected to close within 90 days and were made at interest rates that are fixed for five years before adjusting to a point over prime in year six. NOTE 8: ALLOWANCE FOR LOAN LOSSES Activity in the allowance for loan losses for the years ended December 31, 2000, 1999, and 1998 is summarized as follows: --------------------------------- DECEMBER 31, - -------------------------------------------------------------------------------- (in thousands) 2000 1999 1998 - -------------------------------------------------------------------------------- Balance, beginning of year $ 7,031 $ 9,431 $ 9,431 Addition due to acquisition 11,033 -- -- Reversal of provision for loan losses -- (2,400) -- - -------------------------------------------------------------------------------- Balance, end of year $18,064 $ 7,031 $ 9,431 ================================================================================ The $11.0 million increase in the allowance for loan losses in 2000 stemmed from the Haven acquisition. In 1999, the Company reversed $2.0 million from the allowance for loan losses in the first quarter and, in the fourth quarter, reversed an additional $400,000 to establish a recourse reserve for the $211.6 million in loans sold to the FHLB-NY. Mortgage loans in foreclosure amounted to approximately $6.0 million, $2.9 million, and $5.5 million, at December 31, 2000, 1999, and 1998, respectively. The interest income that would have been recorded under the original terms of such loans and the interest income actually recognized for the years ended December 31, 2000, 1999, and 1998, are summarized below: ------------------------------ DECEMBER 31, - ------------------------------------------------------------------------------- (in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------- Interest income that would have been recorded $ 435 $ 641 $ 1,079 Interest income recognized (51) (70) (150) - ------------------------------------------------------------------------------- Interest income foregone $ 384 $ 571 $ 929 ================================================================================ - -------------------------------------------------------------------------------- Forty-One The Company defines impaired loans as those loans in foreclosure that are not one-to-four family mortgage loans. Impaired loans for which the discounted cash flows, collateral value, or market price equals or exceeds the carrying value of the loan do not require an allowance. The allowance for impaired loans for which the discounted cash flows, collateral value, or market price is less than the carrying value of the loan is included in the Bank's overall allowance for loan losses. The Bank generally recognizes interest income on these loans to the extent that it is received in cash. There were no impaired loans in 2000, 1999, or 1998. NOTE 9: FORECLOSED REAL ESTATE The following table summarizes transactions in foreclosed real estate, which is included in "other assets," for the years ended December 31, 2000 and 1999: ------------------- DECEMBER 31, - -------------------------------------------------------------------------------- (in thousands) 2000 1999 - ------------------------------------------------------------------------------- Balance, beginning of year $ 66 $ 419 Acquired from Haven Bancorp 12 -- Transfers in -- 520 Sales (66) (841) Transfers to real estate held for investment -- (32) - ------------------------------------------------------------------------------- Balance, end of year $ 12 $ 66 ================================================================================ Foreclosed real estate is carried at fair market value; there were no valuation allowances at December 31, 2000 or 1999, and no provisions for the years ended December 31, 2000, 1999, or 1998. NOTE 10: DEPOSITS The following is a summary of weighted average interest rates at December 31, 2000 and 1999 for each type of deposit:
--------------------------------------------------------------------------------- DECEMBER 31, - ---------------------------------------------------------------------------------------------------------------------------- 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- Percent Weighted Percent Weighted (in thousands) Amount of Total Average Rate Amount of Total Average Rate - ---------------------------------------------------------------------------------------------------------------------------- Non-interest-bearing demand accounts $ 171,360 5.26% 0.00% $ 39,857 3.70% 0.00% NOW and money market accounts 719,420 22.09 2.87 103,422 9.62 3.15 Savings accounts 492,604 15.12 1.87 274,501 25.51 2.30 Certificates of deposit 1,873,810 57.53 6.05 658,238 61.17 4.93 - ---------------------------------------------------------------------------------------------------------------------------- Total deposits $3,257,194 100.00% 4.40% $1,076,018 100.00% 3.91% ============================================================================================================================
The following is a summary of certificates of deposit in amounts of $100,000 or more at December 31, 2000 by remaining term to maturity:
CDs of $100,000 or More Maturing Within ------------------------------------------------------------------ 0-3 3-6 6-12 Over 12 (in thousands) Months Months Months Months Total - ------------------------------------------------------------------------------------ Total maturities $99,848 $62,240 $72,255 $86,389 $320,732 ====================================================================================
At December 31, 2000 and 1999, the aggregate amount of certificates of deposit of $100,000 or more was approximately $320.7 million and $161.2 million, respectively. - -------------------------------------------------------------------------------- Forty-Two - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- NOTE 11: BORROWINGS The Company maintains a line of credit with the FHLB that totaled $1.9 billion at December 31, 2000 and $762.7 million at December 31, 1999. The credit line is collateralized by stock in the FHLB and by certain securities and mortgage loans under a blanket pledge agreement in an amount equal to 110% of outstanding borrowings. At December 31, 2000, the outstanding balance of FHLB borrowings was $958.7 million, with a weighted average interest rate of 5.98%. At December 31, 1999 and 1998, the outstanding balances were $636.4 million and $439.1 million, with a weighted average interest rate of 5.27% and 5.22%, respectively. The Company's FHLB borrowings have scheduled maturities that fall within the next ten years. The Company also has four trusts formed under the State of Delaware for the purpose of issuing capital and common securities and investing the proceeds thereof in the junior subordinated deferrable interest debentures issued by the Company. On February 12, 1997, Haven Capital Trust I issued $25.0 million of 10.46% capital securities, which are scheduled to mature on February 1, 2027. The Company is the owner of all the beneficial interests represented by common securities of Haven Capital Trust I. Interest on the capital securities is payable in semi-annual installments, commencing on August 2, 1997. On May 26, 1999, Haven Capital Trust II completed the offering of $22.0 million of 10.25% capital securities. An additional $3.3 million of capital securities were issued on June 18, 1999. The capital securities pay interest quarterly and are scheduled to mature on September 30, 2029. On July 26, 2000, Queens Capital Trust I issued $10.0 million of 11.045% capital securities, which are scheduled to mature on July 19, 2030. Interest on the capital securities is payable semi-annually, commencing on January 19, 2000. On September 7, 2000, Queens Statutory Trust I issued $15.0 million of 10.60% capital securities, which are scheduled to mature on September 7, 2030. The securities pay interest semi-annually, commencing on March 7, 2001. For the twelve months ended December 31, 2000, the weighted average balance of total borrowings was approximately $817.8 million with a weighted average interest rate of 6.03%. In the year-earlier period, the weighted average balance was approximately $570.1 million, with a weighted average interest rate of 5.31%. The maximum amount of FHLB borrowings outstanding at any month-end during the year ended December 31, 2000 was $958.7 million; in 1999, the maximum month-end amount was $732.0 million. The Company also maintains a $10.0 million line of credit with a money center bank, which had not been drawn upon at December 31, 2000. NOTE 12: FEDERAL, STATE, AND LOCAL TAXES The components of the net deferred tax asset at December 31, 2000 and 1999 are summarized as follows: --------------------- DECEMBER 31, - ------------------------------------------------------------------------------- (in thousands) 2000 1999 - ------------------------------------------------------------------------------- DEFERRED TAX ASSETS: Financial statement loan loss allowance $ 7,699 $ 3,493 Accrual for post-retirement benefits 2,507 2,079 Mark to market on securities available for sale 18,413 -- Mark to market on loans 8,883 -- Mark to market on borrowings 3,178 -- Loan origination costs 2,831 -- SERP and Deferred Compensation Plans 2,623 2,867 Other 302 389 - ------------------------------------------------------------------------------- Total deferred tax assets 46,436 8,828 - ------------------------------------------------------------------------------- DEFERRED TAX LIABILITIES: Tax reserve in excess of base year reserve (1,296) (1,727) Pre-paid pension cost (2,008) (1,605) Other (772) -- - ------------------------------------------------------------------------------- Total deferred tax liabilities (4,076) (3,332) - ------------------------------------------------------------------------------- Net deferred tax asset $ 42,360 $ 5,496 ================================================================================ - -------------------------------------------------------------------------------- Forty-Three The net deferred tax asset at December 31, 2000 and 1999 represents the anticipated federal, state, and local tax benefits that are expected to be realized in future years upon the utilization of the underlying tax attributes comprising this balance. Based upon current facts, management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. However, there can be no assurances about the level of future earnings. Income tax expense for the years ended December 31, 2000, 1999, and 1998 is summarized as follows: ------------------------------------- DECEMBER 31, - ------------------------------------------------------------------------------- (in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------- Federal--current $ 15,362 $ 16,792 $ 15,465 State and local--current 1,913 3,559 3,117 - ------------------------------------------------------------------------------- Total current 17,275 20,351 18,582 - ------------------------------------------------------------------------------- Federal--deferred 3,040 518 92 State and local--deferred 110 (97) (495) - ------------------------------------------------------------------------------- Total deferred 3,150 421 (403) - ------------------------------------------------------------------------------- Total income tax expense $ 20,425 $ 20,772 $ 18,179 ================================================================================ The following is a reconciliation of statutory federal income tax expense to combined effective income tax expense for the years ended December 31, 2000, 1999, and 1998:
------------------------------- DECEMBER 31, - -------------------------------------------------------------------------------------------------- (in thousands) 2000 1999 1998 - -------------------------------------------------------------------------------------------------- Statutory federal income tax expense $ 15,716 $ 18,352 $ 15,793 State and local income taxes, net of federal income tax benefit 1,315 5,805 4,998 ESOP 5,865 84 1,926 BOLI (735) -- -- Other, net (1,736) (3,469) (4,538) - -------------------------------------------------------------------------------------------------- Total income tax expense $ 20,425 $ 20,772 $ 18,179 ==================================================================================================
Federal Income Taxes The Company and its subsidiaries file a consolidated federal income tax return on a calendar-year basis. Under federal tax law that existed prior to 1996, the Bank was generally allowed a bad debt deduction under the reserve method. The Small Business Job Protection Act of 1996 (the "Act"), enacted in August 1996, repealed the use of the reserve method for tax purposes. As a result, the Bank has computed its bad debt deduction using the direct charge-off method for tax years after 1995. The Act also required the Bank to recapture into taxable income over a six-year period the net additions to its tax bad debt reserves which occurred after 1987 (the "base year"). The Bank has previously provided for this deferred tax liability for post-1987 reserves in the financial statements. At December 31, 2000 and 1999, such deferred tax liability amounted to $1.3 million and $1.7 million, respectively. Pursuant to SFAS No. 109, "Accounting for Income Taxes," the Bank is generally not required to provide for deferred taxes for its pre-1988 tax bad debt reserve. Included in the Bank's retained earnings at December 31, 2000 and 1999 were $17.7 million (including $10.3 million from CFS Bank) and $7.4 million, respectively, which had been segregated for federal income tax purposes as a pre-1988 bad debt reserve, for which tax deductions were taken in prior years. Under the Act, this tax bad debt reserve could be recognized as taxable income if one of the following were to occur: (a) the Bank's retained earnings represented by this reserve were used for purposes other than to absorb losses from bad debts, including excess dividends or distributions in liquidation; (b) the Bank were to redeem its stock; (c) the Bank were to fail to meet the definition provided by the Internal Revenue Code for a bank; or (d) there was a change in the federal tax law. The Bank does not expect such reserves to be recaptured into taxable income. - -------------------------------------------------------------------------------- Forty-Four - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- State and Local Taxes The Company files New York State franchise tax and New York City financial corporation tax returns on a calendar-year basis. The Company's annual tax liability for each year is the greater of a tax on (i) allocated net income; (ii) allocated alternative net income; (iii) allocated assets; or (iv) a fixed minimum tax. Operating losses cannot be carried back or carried forward for New York State or New York City tax purposes. The Company has provided for New York State and New York City taxes based on allocated alternative net income for the years ended December 31, 2000, 1999, and 1998. Both New York State and New York City adopted legislation applicable to tax years after 1995 to permit the continued use of the reserve method for calculating bad debt deductions and to avoid the recapture of post-1987 tax bad debt reserves, except under certain limited circumstances. As a result, the New York State and New York City bad debt deduction is no longer predicated on the federal deduction. As a Delaware business corporation, the Company is required to file annual returns and to pay annual fees and an annual franchise tax to the State of Delaware. Such taxes and fees, which are not material, are included in income tax expense in the Consolidated Statements of Income and Comprehensive Income. NOTE 13: COMMITMENTS AND CONTINGENCIES Lease Commitments At December 31, 2000, the Company was obligated under eighty non-cancelable operating lease agreements with renewal options on properties used principally for branch operations. The Company expects to renew such agreements at expiration in the normal course of business. The leases contain escalation clauses commencing at various times during the lives of the leases. Such clauses provide for increases in the annual rental, based on increases in the consumer price index. At December 31, 2000, the Company had entered into several non-cancelable operating lease agreements for rental of Bank-owned properties. The leases contain escalation clauses that provide for periodic increases in the annual rental, again based on increases in the consumer price index. The projected minimum annual rental commitments under these leases, exclusive of taxes and other charges, are summarized as follows: (in thousands) Rental Income Rental Expense - -------------------------------------------------------------------------------- 2001 $1,245 $ 5,557 2002 1,138 4,532 2003 1,055 3,097 2004 820 2,534 2005 810 2,250 2006 and thereafter 1,371 14,425 - -------------------------------------------------------------------------------- Total minimum future rentals $6,439 $32,395 ================================================================================ Included in "occupancy and equipment expense," the rental expense under these leases was approximately $1,072,000, $485,000, and $446,000 for the years ended December 31, 2000, 1999, and 1998, respectively. Rental income on Bank-owned properties, netted in occupancy and equipment expense, was approximately $1.1 million, $1.3 million, and $1.2 million for the corresponding periods. On December 15, 2000, the Company relocated its corporate headquarters to the former headquarters of Haven Bancorp, in Westbury, New York. Haven had purchased the office building and land in December 1997 under a lease agreement and Payment-in-lieu-of-Tax ("PILOT") agreement with the Town of Hempstead Industrial Development Agency ("IDA") which has been assumed by the Company. Under the IDA and PILOT agreements, the Company assigned the building and land to the IDA, is subleasing it for $1.00 per year for a 10-year period, and will repurchase the building for $1.00 upon expiration of the lease term in exchange for IDA financial assistance. Legal Proceedings In the normal course of the Company's business, there are various outstanding legal proceedings. In the opinion of management, based on consultation with legal counsel, the financial position of the Company will not be affected materially as a result of the outcome of such legal proceedings. In February 1983, a burglary of the contents of safe deposit boxes occurred at a branch office of CFS Bank. At December 31, 2000, the Bank had a class action lawsuit pending, whereby the plaintiffs were seeking recovery of approximately $12.9 million in actual damages and an additional $12.9 million of unspecified damages. The ultimate liability, if any, that might arise from the disposition of these claims cannot presently be determined. Management believes it has meritorious defenses against these actions and will continue to defend its position. - -------------------------------------------------------------------------------- Forty-Five NOTE 14: EMPLOYEE BENEFITS Retirement Plan The Company maintains two pension plans, one for employees of the former Queens County Savings Bank and one for employees of the former CFS Bank, covering substantially all employees who had attained minimum service requirements. The Queens County Savings Bank Retirement Plan was frozen at September 30, 1999, while the CFS Bank Retirement Plan was frozen at June 30, 1996. The plans are subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended. Post-retirement benefits were recorded on an accrual basis with an annual provision that recognized the expense over the service life of the employee, determined on an actuarial basis. Since both plans were frozen prior to 2000, there was no service cost or employer contribution for the current year. Effective January 1, 1998, the Company adopted SFAS No. 132, "Employers' Disclosures about Pensions and Other Post-retirement Benefits." SFAS No. 132 standardized the disclosures for pension and other post-retirement benefits by requiring additional information that facilitates financial analysis, and by eliminating certain disclosures that were no longer considered useful. Accordingly, SFAS No. 132 superseded the disclosure requirements in SFAS Nos. 87, 88, and 106. The following tables set forth the disclosures required under SFAS No. 132 for the two benefit plans, combined, in 2000 and for the Queens County Savings Bank plan, alone, in 1999 and 1998: ----------------------- Pension Benefits - -------------------------------------------------------------------------------- (in thousands) 2000 1999 - -------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year $ 22,051 $ 15,231 Service cost -- 641 Interest cost 1,683 1,024 Actuarial loss (728) (889) Benefits paid (2,881) (2,345) - -------------------------------------------------------------------------------- Benefit obligation at end of year $ 20,125 $ 13,662 ================================================================================ CHANGE IN PLAN ASSETS: Fair value of assets at beginning of year $ 26,758 $ 15,128 Actual return on plan assets 1,943 1,760 Employer contribution -- 460 Benefits paid (2,881) (898) - -------------------------------------------------------------------------------- Fair value of assets at end of year $ 25,820 $ 16,450 ================================================================================ FUNDED STATUS: Funded status $ 5,695 $ 1,968 Unrecognized prior service cost -- 906 Unrecognized net actuarial (gain) loss (982) 542 - -------------------------------------------------------------------------------- Prepaid benefit cost $ 4,713 $ 3,416 ================================================================================ YEARS ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 - ------------------------------------------------------------------------------- WEIGHTED AVERAGE ASSUMPTIONS: Discount rate 8.00% 7.75% 6.75% Expected rate of return on plan assets 8.00 8.00 8.00 Rate of compensation increase 4.00 5.50 4.00 ================================================================================ YEARS ENDED DECEMBER 31, ------------------------------ (in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------- COMPONENTS OF NET PERIODIC BENEFIT COST: Service cost $ -- $ 641 $ 580 Interest cost 1,683 1,024 990 Expected return on plan assets (2,192) (1,203) (1,172) Amortization of prior service cost (56) (1,906) 19 - ------------------------------------------------------------------------------- Net periodic benefit cost $ (565) $ (1,444) $ 417 ================================================================================ - -------------------------------------------------------------------------------- Forty-Six - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- Thrift Incentive Plan The Company maintains two defined contribution Thrift Incentive Plans in which all regular salaried employees may participate after one year of service and having attained age 21. Pursuant to the Bank's conversion from mutual to stock form in 1993 and the adoption of the ESOP, all matching contributions to the Thrift Incentive Plan for Queens County Savings Bank employees were suspended, in order to comply with the limitations set forth by the Internal Revenue Code. In connection with the acquisition by New York Community Bancorp, all matching contributions to the CFS Bank Thrift Incentive Plan were suspended, effective January 1, 2001. Accordingly, there was one month of Company contributions for the year ended December 31, 2000, and no Company contributions for the years ended 1999 and 1998. Other Compensation Plans The Company maintains an unfunded non-qualified plan to provide retirement benefits to directors who are neither officers nor employees of the Bank, to ensure that the Bank will have their continued service and assistance in the conduct of its business in the future. These directors have provided, and will continue to provide, expertise that enables the Bank to experience successful growth. Deferred Compensation Plan The Company maintains a deferred compensation plan for directors who are neither officers nor employees of the Bank. The remaining balances of $1.4 million and $682,000 at December 31, 2000 and 1999, respectively, are unfunded and, as such, are reflected in "other liabilities" in the Company's Consolidated Statements of Financial Condition. Post-retirement Health Care Benefits The Company offers post-retirement benefits to its retired employees. The New York Community Bank plan provides comprehensive medical coverage through a major insurance company, subject to an annual deductible co-payment percentage and an offset against other insurance available to the retiree. The plan covers most medical expenses, including hospital services, doctors' visits, x-rays, and prescription drugs. Employees retiring after January 1, 1994 are required to share costs of the plan with the Bank, based upon a formula that takes into account age and years of service. The CFS Bank post-retirement plan provides life insurance coverage to retirees under an unfunded plan. Life insurance coverage in the first year of retirement is equal to three times annual pay at retirement, reduced by 10% (the "reduction amount"). For the next four years, life insurance coverage is reduced each year by the reduction amount. The maximum benefit is $50,000 on the earlier of (a) the fifth anniversary of retirement or (b) attaining age 70. The Company accrues the cost of such benefits during the years that an employee renders the necessary service. The following tables set forth the disclosures required under SFAS No. 132, as described on page 46 of this report, for the two benefit plans, combined, in 2000 and for the Queens County Savings Bank plan, alone, in 1999 and 1998: Post-retirement Benefits ------------------------ (in thousands) 2000 1999 - ------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year $ 4,535 $ 3,110 Service cost 226 89 Interest cost 347 205 Actuarial gain (98) (83) Benefits paid (122) (135) - ------------------------------------------------------------------------------- Benefit obligation at end of year $ 4,888 $ 3,186 =============================================================================== CHANGE IN PLAN ASSETS: Fair value of assets at beginning of year $ -- $ -- Actual return on plan assets -- -- Employer contribution 184 -- Benefits paid (184) (170) - ------------------------------------------------------------------------------- Fair value of assets at end of year $ -- $ (170) ================================================================================ FUNDED STATUS: Accrued post-retirement benefit cost $(6,181) $(4,252) Employer contribution 184 -- Total net periodic benefit cost 548 (170) - ------------------------------------------------------------------------------- Accrued post-retirement benefit cost $(5,449) $(4,422) =============================================================================== - -------------------------------------------------------------------------------- Forty-Seven - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- YEARS ENDED DECEMBER 31, ---------------------------- 2000 1999 1998 - ------------------------------------------------------------------------------ WEIGHTED AVERAGE ASSUMPTIONS: Discount rate 8.00% 7.75% 6.75% Current medical trend rate 6.50 6.50 6.50 Rate of compensation increase 5.50 5.50 4.00 ============================================================================== YEARS ENDED DECEMBER 31, ---------------------------- (in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------ COMPONENTS OF NET PERIODIC BENEFIT COST: Service cost $ 226 $ 89 $ 78 Interest cost 347 205 200 Expected return on plan assets -- (61) (86) Amortization of prior service cost (25) (63) (64) - ------------------------------------------------------------------------------ Net periodic benefit cost $ 548 $ 170 $ 128 ============================================================================== NOTE 15: STOCK-RELATED BENEFIT PLANS Stock Plans At the time of its conversion to stock form, the Bank established the following stock plans for eligible employees who have at least 12 consecutive months of credited service: Employee Stock Ownership Plan ("ESOP") and Supplemental Employee Retirement Plan ("SERP") In connection with the conversion, the Company lent $19.4 million to the ESOP to purchase 4,645,860 shares (as adjusted for the five stock splits discussed in Note 3). The loan will be repaid, principally from the Bank's discretionary contributions to the ESOP, over a period of time not to exceed 60 years. The Bank's obligation to make such contributions is reduced to the extent of any investment earnings realized on such contributions and any dividends paid on shares held in the unallocated stock account. At December 31, 2000, the loan had an outstanding balance of $7.0 million and a fixed interest rate of 6.0%. Interest expense for the obligation was $751,000 for the year ended December 31, 2000. Shares purchased with the loan proceeds are held in a suspense account for allocation among participants as the loan is paid. Contributions to the ESOP and shares released from the suspense account are allocated among participants on the basis of compensation, as described in the plan, in the year of allocation. Forfeitures are reallocated among participating employees in the same proportion as contributions. Contributions to the ESOP were approximately $4.6 million for the year ended December 31, 2000. Dividends and investment income received on ESOP shares used for debt service amounted to $1.0 million for the year. Benefits vest on a seven-year basis, starting with 20% in the third year of employment and continuing each year thereafter, and are payable upon death, retirement, disability, or separation from service, and may be payable in cash or stock. However, in the event of a change in control, as defined in the plan, any unvested portion of benefits shall vest immediately. In connection with the Haven acquisition, the Company allocated 875,053 ESOP shares to participants in 2000; in 1999, shares allocated to participants totaled 84,793. At December 31, 2000, there were 1,901,920 shares remaining for future allocation, with a market value of $71.3 million. The Bank recognizes compensation expense for the ESOP based on the average market price of the common stock during the year at the date of allocation. The Company recorded ESOP-related compensation expense of $21.1 million, $2.5 million, and $4.7 million for the years ended December 31, 2000, 1999, and 1998, respectively. In 1993, the Bank also established a Supplemental Employee Retirement Plan ("SERP"), which provided additional unfunded, non-qualified benefits to certain participants in the ESOP in the form of common stock. The SERP was frozen in 1999. The plan maintained $3.8 million of trust-held assets at both December 31, 2000 and 1999, based upon the cost of said assets at the time of purchase. Trust-held assets consist entirely of Company common stock and amounted to 258,690 shares at both December 31, 2000 and 1999. The cost of such shares is reflected as contra-equity and additional paid-in capital in the accompanying Consolidated Statements of Financial Condition. The Company recorded SERP-related compensation expense of $1.3 million in 1998; there was no SERP-related compensation expense in either 2000 or 1999. - -------------------------------------------------------------------------------- Forty-Eight - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- Recognition and Retention Plans and Trusts ("RRPs") The purpose of the RRPs is to provide employees, officers, and directors of the Bank with a proprietary interest in the Company in a manner designed to encourage such persons to remain with the Bank. The Bank contributed a total of $5.5 million to the RRPs to enable them to acquire an aggregate of 1,474,875 shares (split-adjusted) of the common stock in the conversion; substantially all of these shares have been awarded. The $5.5 million represents deferred compensation and has been accounted for as a reduction in stockholders' equity. Awards vest at a rate of 33-1/3% per year for directors, initially commencing on November 23, 1994, and vest at a rate of 20% per year for officers and employees, initially commencing on January 1, 1995. Awards become 100% vested upon termination of employment due to death, disability, or normal retirement, or following a change in control of the Bank or the Company. The Company recognizes expense based on the original cost of the common stock at the date of vesting. The Company recorded no compensation expense for the RRPs in 2000; in 1999 and 1998, the compensation expense recorded for the RRPs was $22,000 and $749,000, respectively. Stock Option Plans At December 31, 2000, the Company had four stock option plans: the 1993 and 1997 Queens County Bancorp, Inc. stock option plans and, pursuant to the acquisition, the 1993 and 1996 Haven Bancorp, Inc. stock option plans. As the Company applies APB Opinion No. 25 and related interpretations in accounting for these plans, no compensation cost has been recognized. Under these plans, each stock option granted entitles the holder to purchase one share of the Company's common stock at an exercise price equal to 100% of the fair market value of the stock on the date of grant. Options vest in whole or in part over three to five years from the date of issuance, and expire ten years from the date on which they were granted. However, all options become 100% exercisable in the event that employment is terminated due to death, disability, normal retirement, or in the event of a change in control of the Bank or the Company. The Company primarily utilizes common stock held in Treasury to satisfy the exercise of options. The difference between the average cost of Treasury shares and the exercise price is recorded as an adjustment to retained earnings on the date of exercise. At December 31, 2000, 1999, and 1998, the number of vested options that were exercisable under the 1993 Queens County Bancorp, Inc. plan was 245,531; 794,365; and 1,727,831, respectively; under the 1997 Queens County Bancorp, Inc. plan, the number of vested options that were exercisable at those dates was 1,422,250; 671,625; and 671,625, respectively. The number of vested options that were exercisable under the Haven Bancorp, Inc. 1993 and 1996 stock option plans at December 31, 2000 was 376,983 and 400,101, respectively. At December 31, 2000, there were 586,234 shares reserved for future issuance under the Company's four stock option plans. The status of the Company's stock options plans at December 31, 2000, 1999, and 1998, and changes during the years ending on those dates, are summarized below:
YEARS ENDED DECEMBER 31, -------------------------------------------------------------------------------- 2000 1999 1998 -------------------------------------------------------------------------------- Weighted Weighted Weighted Number Average Number Average Number Average of Stock Exercise of Stock Exercise of Stock Exercise Options Price Options Price Options Price - ----------------------------------------------------------------------------------------------------------------------------- Stock options outstanding, beginning of year 1,465,990 $15.91 2,395,456 $ 9.64 2,944,581 $ 6.53 Granted 777,625 20.06 671,625 30.34 671,625 24.85 Assumed in acquisition 777,084 8.98 -- -- -- -- Exercised (575,834) 3.71 (1,601,091) 12.58 (1,220,750) 10.27 - ----------------------------------------------------------------------------------------------------------------------------- Stock options outstanding, end of year 2,444,865 $17.90 1,465,990 $15.91 2,395,456 $ 9.64 ============================================================================================================================= Options exercisable at end of year 2,444,865 1,465,990 2,395,456 Weighted average grant-date fair value of options granted during the year $17.32 $2.17 $8.95 =============================================================================================================================
- -------------------------------------------------------------------------------- Forty-Nine The following table summarizes information about stock options outstanding at December 31, 2000:
Weighted Average Number Weighted Remaining Weighted Range of of Options Average Contractual Life Options Average Exercise Outstanding at Exercise of Options Exercisable at Exercise Prices December 31, 2000 Price Outstanding December 31, 2000 Price - ------------------------------------------------------------------------------------------------------------------------------------ $ 1-$ 4 245,531 $ 3.71 2.92 years 245,531 $ 3.71 $ 4-$10 376,983 4.81 2.50 376,983 4.81 $11-$20 400,101 12.91 8.00 400,101 12.91 $21-$29 777,625 20.06 9.50 -- 20.06 $30-$40 644,625 30.34 8.50 644,625 30.34 - ------------------------------------------------------------------------------------------------------------------------------------ 2,444,865 $16.47 7.25 years 1,667,240 $16.47 ====================================================================================================================================
Because stock options granted under the four plans have characteristics that are significantly different from those of traded options, and because changes in the subjective assumptions can materially affect the fair value estimates, the Company used a Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2000, 1999, and 1998: YEARS ENDED DECEMBER 31, -------------------------------------- 2000 1999 1998 - ------------------------------------------------------------------------------- Dividend yield 2.68% 3.69% 2.25% Expected volatility 10.02 9.24 9.69 Risk-free interest rate 4.00 4.83 5.14 Expected option lives 9.5 years 9.5 years 9.5 years =============================================================================== Had compensation cost for the Company's four stock option plans been determined based on the fair value at the date of grant for awards made under those plans, consistent with the method set forth in SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: YEARS ENDED DECEMBER 31, -------------------------------------- (in thousands, except per share data) 2000 1999 1998 - ------------------------------------------------------------------------------- Net income As reported $ 24,477 $ 31,664 $ 26,944 Pro forma 17,750 23,490 17,780 Diluted earnings per share As reported $ 1.25 $ 1.67 $ 1.34 Pro forma 0.91 1.24 0.89 =============================================================================== NOTE 16: FAIR VALUE OF FINANCIAL INSTRUMENTS The following table summarizes the carrying values and estimated fair values of the Company's on-balance-sheet financial instruments at December 31, 2000 and 1999:
DECEMBER 31, --------------------------------------------------------- 2000 1999 (in thousands) Value Fair Value Value Fair Value - ----------------------------------------------------------------------------------------------------------- FINANCIAL ASSETS: Cash and cash equivalents $ 257,715 $ 257,715 $ 37,224 $ 37,224 Securities held to maturity 222,534 220,608 184,637 180,181 Mortgage-backed securities held to maturity 1,923 1,979 2,094 2,135 Securities available for sale 303,734 303,734 12,806 12,806 Loans, net 3,616,386 3,702,138 1,601,079 1,603,483 FINANCIAL LIABILITIES: Deposits $3,257,194 $3,278,831 $1,076,018 $1,076,767 Borrowings 1,037,505 1,037,505 636,378 636,378 Mortgagors' escrow 11,291 11,291 10,288 10,288 ===========================================================================================================
- -------------------------------------------------------------------------------- Fifty - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- The methods and significant assumptions used to estimate fair values pertaining to the Company's financial instruments are as follows: Cash and Cash Equivalents Cash and cash equivalents include cash and due from banks and federal funds sold. The estimated fair values of cash and cash equivalents are assumed to equal their carrying values, as these financial instruments are either due on demand or mature overnight. Securities and Mortgage-backed Securities Held to Maturity and Securities Available for Sale Estimated fair values are based principally on market prices or dealer quotes. Certain fair values are estimated using market prices of similar securities. 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). Fair values are estimated for each component using a valuation method selected by management. The estimated fair values of performing residential mortgage loans, commercial real estate loans, 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 residential and commercial mortgage loans are based on recent collateral appraisals or management's analysis of estimated cash flows, discounted at rates commensurate with the credit risk involved. The above technique of estimating fair value is extremely sensitive to the assumptions and estimates used. While management has attempted to use assumptions and estimates that are the most reflective of the Company's loan portfolio and the current market, a greater degree of subjectivity is inherent in these values than in those determined in formal trading marketplaces. 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. Deposits The fair values of deposit liabilities with no stated maturity (NOW, money market, savings, and non-interest-bearing accounts) are equal to the carrying amounts payable on demand. The fair values of certificates of deposit 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 Bank's deposit base. Management believes that the Bank's core deposit relationships provide a relatively stable, low-cost funding source that has a substantial intangible value separate from the value of the deposit balances. Borrowings The carrying value of borrowings approximates fair value in the financial statements, as these instruments, being callable, are considered short-term. Other Receivables and Payables The fair values are estimated to equal the carrying values of short-term receivables and payables. 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 these off-balance-sheet financial instruments resulted in no unrealized gain or loss at December 31, 2000 or 1999. NOTE 17: RESTRICTIONS ON THE BANK Various legal restrictions limit the extent to which the Bank can supply funds to the parent company and its non-bank subsidiaries. As a converted stock form savings bank, the Bank is required to have the approval of the Superintendent of the New York State Banking Department if dividends declared in any calendar year exceed the total of its net profits for that year combined with its retained net profits for the preceding two calendar years, less any required transfer to paid-in capital. "Net profits" is defined as the remainder of all earnings from current operations plus actual recoveries on loans and investments and other assets, after deducting from the total thereof all current operating expenses, actual losses, if any, and all federal and local taxes. In 2000, the Bank declared dividends to its parent aggregating $88.8 million, which did not exceed net profits for 2000. - -------------------------------------------------------------------------------- Forty-One - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOTE 18: PARENT COMPANY-ONLY FINANCIAL INFORMATION During 1999 and the first eleven months of 2000, the Company operated one wholly-owned subsidiary, New York Community Bank. From December 1 through December 31, 2000, the Company operated an additional wholly-owned subsidiary, CFS Bank. As the earnings of the banks were recognized by the Company using the equity method of accounting, the earnings were recorded as an increase in the Company's investment in the banks in 2000. CFS Bank merged with and into New York Community Bank on January 31, 2001. Following are the condensed financial statements for New York Community Bancorp, Inc. (parent company-only): CONDENSED STATEMENTS OF CONDITION
---------------------- DECEMBER 31, - ------------------------------------------------------------------------------------------------------------- (in thousands) 2000 1999 - ------------------------------------------------------------------------------------------------------------- ASSETS Cash $ 7,422 $ 3,075 Money market investments 5,143 57 Securities available for sale 1,444 -- Investment in and advances to subsidiary banks, net 127,742 105,392 Goodwill 118,071 -- Deferred tax asset 26,762 -- - ------------------------------------------------------------------------------------------------------------- Total assets $ 286,584 $ 108,524 ============================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Other liabilities $ 18,639 $ -- Stockholders' equity 267,945 108,524 - ------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 286,584 $ 108,524 ============================================================================================================= CONDENSED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, ----------------------------------- (in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------- Interest income from subsidiary banks $ -- $ -- $ 340 Other interest income 56 78 39 Dividends from subsidiary banks 88,800 33,100 17,800 - ------------------------------------------------------------------------------------------------------------- Total income 88,856 33,178 18,179 Interest expense to subsidiary banks 1,808 1,683 -- Operating expense 275 301 229 - ------------------------------------------------------------------------------------------------------------- Income before income tax and equity in undistributed earnings 86,773 31,194 17,950 Income tax expense 150 150 150 - ------------------------------------------------------------------------------------------------------------- Income before equity in undistributed earnings of subsidiary banks 86,623 31,044 17,800 Equity in (excess dividends)/undistributed earnings of subsidiary banks (62,146) 620 9,144 - ------------------------------------------------------------------------------------------------------------- Net income $ 24,477 $ 31,664 $ 26,944 =============================================================================================================
- -------------------------------------------------------------------------------- Fifty-Two - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ----------------------------------- (in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 24,477 $ 31,664 $ 26,944 Equity in excess dividends/(undistributed earnings) of the banks not provided for 62,146 (620) (9,144) - ------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 86,623 31,044 17,800 ============================================================================================================= CASH FLOWS FROM INVESTING ACTIVITIES: Payments for investments in and advances to subsidiaries (105,933) (36,277) (17,021) Repayment from investments in and advances to subsidiaries 88,800 60,505 62,812 - ------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by investing activities (17,133) 24,228 45,791 ============================================================================================================= CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of Treasury stock (41,483) (38,352) (52,533) Dividends paid (17,847) (18,563) (12,636) Exercise of stock options (727) 3,192 2,347 - ------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (60,057) (53,723) (62,822) - ------------------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 9,433 1,549 769 - ------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of year 3,132 1,583 814 - ------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 12,565 $ 3,132 $ 1,583 =============================================================================================================
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOTE 19: REGULATORY MATTERS The Bank is subject to regulation, examination, and supervision by the New York State Banking Department and the Federal Deposit Insurance Corporation (the "Regulators"). The Bank is also governed by numerous federal and state laws and regulations, including the FDIC Improvement Act of 1991 ("FDICIA"), which established five capital categories ranging from well capitalized to critically undercapitalized. Such classifications are used by the FDIC to determine various matters, including prompt corrective action and each institution's semi-annual FDIC deposit insurance premium assessments. The Bank's capital amounts and classification are also subject to qualitative judgments by the Regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined). At December 31, 2000, the Bank met all capital adequacy requirements to which it was subject. As of December 31, 2000, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage capital ratios. In the opinion of management, no conditions or events have transpired since said notification that have changed the institution's category. - -------------------------------------------------------------------------------- Fifty-Three - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The following table presents the Bank's actual capital amounts and ratios as well as the minimum amounts and ratios required for capital adequacy purposes and for categorization as a well capitalized institution:
-------------------------------------------------------------------------- To Be Well Capitalized For Capital Under Prompt Corrective AS OF DECEMBER 31, 2000 Actual Adequacy Purposes Action Provisions - -------------------------------------------------------------------------------------------------------------------------- (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio - -------------------------------------------------------------------------------------------------------------------------- Total capital (to risk-weighted assets) $333,159 13.02% $204,642 >=8.0% $255,802 >=10.0% Tier 1 capital (to risk-weighted assets) 309,806 12.11 102,321 >=4.0 153,481 >= 6.0 Tier 1 leverage capital (to average assets) 309,806 6.38 145,637 >=3.0 242,729 >= 5.0 ========================================================================================================================== -------------------------------------------------------------------------- To Be Well Capitalized For Capital Under Prompt Corrective AS OF DECEMBER 31, 1999 Actual Adequacy Purposes Action Provisions - -------------------------------------------------------------------------------------------------------------------------- (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio - -------------------------------------------------------------------------------------------------------------------------- Total capital (to risk-weighted assets) $181,809 14.36% $101,321 >=8.0% $126,651 >=10.0% Tier 1 capital (to risk-weighted assets) 174,778 13.80 50,660 >=4.0 75,990 >= 6.0 Tier 1 leverage capital (to average assets) 174,778 8.63 60,734 >=3.0 101,233 >= 5.0 ==========================================================================================================================
Under this framework, and based upon the Bank's capital levels, no prior approval from the Regulators is necessary to accept brokered deposits. NOTE 20: QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data for the fiscal years ended December 31, 2000 and 1999 follows:
------------------------------------------------------------------------------------ 2000 1999 ------------------------------------------------------------------------------------ (in thousands, except per share data) 4th 3rd 2nd 1st 4th 3rd 2nd 1st - ---------------------------------------------------------------------------------------------------------------------------- Net interest income after loan loss provision $24,041 $16,278 $16,319 $16,443 $17,694 $17,557 $17,490 $18,564 Other operating income 18,021 1,264 1,249 1,111 798 581 513 630 Operating expense 32,486 5,684 5,520 5,638 6,420 3,554 5,840 5,586 - ---------------------------------------------------------------------------------------------------------------------------- Income before income tax expense 9,082 11,858 12,048 11,916 12,072 14,594 12,163 13,608 Income tax expense 7,753 4,073 4,278 4,322 4,868 5,819 4,714 5,371 - ---------------------------------------------------------------------------------------------------------------------------- Net income $ 1,329 $ 7,785 $ 7,770 $ 7,594 $ 7,204 $ 8,775 $ 7,449 $ 8,237 ============================================================================================================================ Diluted earnings per common share $ 0.06 $ 0.45 $ 0.44 $ 0.42 $ 0.39 $ 0.46 $ 0.39 $ 0.43 ============================================================================================================================ Cash dividends declared per common share $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25 ============================================================================================================================ Dividend payout ratio 417% 56% 57% 60% 64% 54% 64% 58% ============================================================================================================================ Average common shares and equivalents outstanding 21,496 17,494 17,796 18,145 18,715 18,982 19,212 19,108 ============================================================================================================================ Stock price per common share: High $ 37.50 $ 28.88 $ 20.69 $ 26.88 $ 32.44 $ 32.37 $ 35.69 $ 31.68 Low 26.31 18.69 17.94 17.75 25.75 26.94 27.00 27.00 Close 36.75 28.88 18.44 18.06 27.13 27.63 32.38 27.00 ============================================================================================================================
- -------------------------------------------------------------------------------- Fifty-Four - -------------------------------------------------------------------------------- NEW YORK COMMUNITY BANCORP, INC. - -------------------------------------------------------------------------------- MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING TO OUR SHAREHOLDERS: Management has prepared, and is responsible for, the consolidated financial statements and related financial information included in this annual report. The consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, and reflect management's judgments and estimates with respect to certain events and transactions. Financial information included elsewhere in this annual report is consistent with the consolidated financial statements. Management is responsible for maintaining a system of internal controls and has established such a system to provide reasonable assurance that transactions are recorded properly to permit preparation of financial statements; that they are executed in accordance with management's authorizations; and that assets are safeguarded from significant loss or unauthorized use. Management believes that during fiscal year 2000, this system of internal controls was adequate to accomplish the intended objectives. /s/ Joseph R. Ficalora Joseph R. Ficalora Chairman, President, and Chief Executive Officer January 24, 2001 INDEPENDENT AUDITORS' REPORT THE BOARD OF DIRECTORS NEW YORK COMMUNITY BANCORP, INC. We have audited the accompanying consolidated statements of condition of New York Community Bancorp, Inc. and subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of income and comprehensive income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly the financial position of New York Community Bancorp, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP New York, New York January 24, 2001 - -------------------------------------------------------------------------------- Fifty-Five -----END PRIVACY-ENHANCED MESSAGE-----