-----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, TwZkl5U9y6qh3ujExYErJRVHFLQ2CxRfNjTplEb4OD8X9BAtEi3R3JhyWngKu+yx 3LMNrTJhDurT+lb+fgl+cA== 0001005477-02-001494.txt : 20020415 0001005477-02-001494.hdr.sgml : 20020415 ACCESSION NUMBER: 0001005477-02-001494 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020401 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: 1934 Act SEC FILE NUMBER: 000-22278 FILM NUMBER: 02598161 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 d02-36888.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, 2001 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, $0.01 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 26, 2002, the aggregate market value of the shares of common stock outstanding of the registrant was $2.556 billion, excluding 7,422,899 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 26, 2002, which was $26.98 as reported in The Wall Street Journal on March 27, 2002. The number of shares of the registrant's common stock outstanding as of March 26, 2002 was 102,175,430 shares. Documents Incorporated by Reference Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 15, 2002 and the 2001 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 the Allowance for Loan Losses 22 Composition of the Loan Portfolio 23 Portfolio of Securities, Money Market Investments, and Mortgage-backed Securities 24 Item 2. Properties 25 Item 3. Legal Proceedings 25 Item 4. Submission of Matters to a Vote of Security Holders 25 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters 25 Item 6. Selected Financial Data 25 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 25 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 25 Item 8. Financial Statements and Supplementary Data New York Community Bancorp, Inc. and Subsidiaries: 26 Independent Auditors' Report 26 Consolidated Statements of Condition 26 Consolidated Statements of Income and Comprehensive Income 26 Consolidated Statements of Changes in Stockholders' Equity 26 Consolidated Statements of Cash Flows 26 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 26 PART III Item 10. Directors and Executive Officers of the Registrant 26 Item 11. Executive Compensation 26 Item 12. Security Ownership of Certain Beneficial Owners and Management 26 Item 13. Certain Relationships and Related Transactions 26 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 26 Signatures 28
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. ("Haven"), parent company of CFS Bank. On November 30, 2000, Haven was merged with and into the Company, and on January 31, 2001, CFS Bank merged with and into New York Community Bank. On July 31, 2001, the Company completed a merger-of-equals with Richmond County Financial Corp. ("Richmond County"), parent company of Richmond County Savings Bank. At the same time, Richmond County Savings Bank merged with and into the Bank. The Bank currently serves its customers through 119 banking offices spanning Company all five boroughs of New York City, Long Island, Westchester and Rockland counties, New Jersey, and Connecticut. Reflecting the opening of three new branches in the first quarter of 2002 and the anticipated divestiture of 14 in-store branches in Connecticut, northern New Jersey, and Rockland County in the second quarter, the Company's franchise will consist of 108 locations, including 53 traditional branches, 54 in-store branches, and a customer convenience center. The Bank operates its branches through six community divisions: Queens County Savings Bank, Richmond County Savings Bank, CFS Bank, First Savings Bank of New Jersey, Ironbound Bank, and South Jersey Bank. In addition to operating the largest supermarket banking franchise in the metro New York region, the Bank is the second largest producer of multi-family mortgage loans in the City of New York. General The Company recorded total assets of $9.2 billion at December 31, 2001, including total loans of $5.4 billion, and total deposits of $5.5 billion, including core deposits of $3.0 billion. Reflected in the year-end amounts were assets and liabilities acquired in the Richmond County merger on July 31, 2001. At the date of merger, Richmond County had $3.7 billion assets, including net loans of $1.9 billion; and total deposits of $2.5 billion, including core deposits of $1.4 billion. The merger also added 34 banking offices to the Company's branch network, including 17 in Staten Island, one in Brooklyn, and 16 in New Jersey, the neighboring state. Included in the balance of loans acquired in the merger was a $784.0 million portfolio of multi-family mortgage loans. Reflecting the multi-family mortgage loans acquired, and $791.3 million in twelve-month originations, the multi-family mortgage loan portfolio totaled $3.3 billion at year-end 2001. In addition to multi-family mortgage loans, the Company's primary assets consist of commercial real estate and construction loans, together with a portfolio of securities available for sale primarily consisting of mortgage-backed securities. Although the Company has had a policy of originating one-to-four family mortgage loans on a conduit basis since December 1, 2000, the outstanding balance of such loans was $1.3 billion at December 31, 2001. The balance reflects loans acquired in the Richmond County merger and to, a lesser extent, seasoned one-to-four family mortgage loans from the Company's pre-transaction loan portfolio. Reflecting the Company's preference for multi-family mortgage lending, $610.6 million of one-to-four family mortgage loans acquired in the Haven and Richmond County transactions were sold over the course of 2001. Despite the significant portfolio growth stemming from its transactions, the Company's record of asset quality was essentially sustained. At December 31, 2001, the ratio of non-performing assets to total assets was 0.19%, consistent with the year-earlier measure, while the ratio of non-performing loans to loans, net, rose a modest eight basis points year-over-year to 0.33%. Reflecting a $22.4 million addition to the allowance for loan losses pursuant to the merger, the allowance 1 for loan losses totaled $40.5 million, representing 231.46% of non-performing loans at December 31, 2001. The Company's primary funding sources are deposits and borrowings. To supplement the funding provided by its deposits, the Company increased its borrowings in the second half of 2001. At December 31, 2001, borrowings totaled $2.5 billion, including Federal Home Loan Bank ("FHLB") advances of $1.8 billion, reverse repurchase agreements of $596.7 million, and trust preferred securities of $121.3 million that were issued by the Company in the final month of the year. Additional funding stems from the amortization and prepayments of loans and mortgage-backed securities, maturities of investment and mortgage-backed securities, and the sale of securities and loans. The Company's revenues primarily stem from the interest earned on mortgage and other loans and securities investments, together with fee income derived from operations and the sale of third-party financial products and services. In addition to providing a full-service menu of banking and lending products, the Company offers a range of third-party investment products, including annuities, insurance, and mutual funds. In addition to maintaining a high level of asset quality and a strong capital position, the Company has enhanced share value through the implementation of various capital management strategies. In addition to 3-for-2 stock splits in March and September, the Company increased its quarterly cash dividend 20% in each of the second and fourth quarters, and allocated $121.0 million toward the repurchase of 6,254,437 shares. Reflecting share repurchases, the stock splits, and the shares issued in the merger, the number of shares outstanding at December 31, 2001 was 101,845,276. Reflecting share repurchases in the first quarter of 2002, the number of outstanding shares at March 26, 2002 was 102,175,430. Market Area and Competition The Company enjoys a significant presence in the metro New York region and New Jersey, and ranks as the fifth largest thrift depository in the City of New York. In Queens and Staten Island, where the Company has, respectively, 25 and 23 locations, the Bank ranks as the second largest thrift depository, with a 7% and 23% market share. The remainder of the franchise consists of 29 branches on Long Island, 19 in New Jersey, eight more in New York City, and four in Westchester County, New York. The majority of the Company's loans are secured by multi-family buildings in the five boroughs of New York City with Manhattan and Queens accounting for 29.2% and 24.8%, respectively. Reflecting the addition of multi-family loans through the Richmond County merger, approximately 15% of the portfolio is now secured by buildings in New Jersey and in the vicinity of Philadelphia, Pennsylvania. 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 60.23% of the Bank's loan portfolio at year-end 2001. 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 Company's loan portfolio consists primarily of multi-family mortgage loans on rental and cooperative apartment buildings and, to a lesser extent, of one-to-four family, commercial real estate, construction, and other loans. At December 31, 2001, loans outstanding totaled $5.4 billion, of which $3.3 billion, or 60.23%, were multi-family mortgage loans. Included in the latter amount were $783.8 million in loans acquired through the Richmond County merger and $791.3 million in loans produced during the year. 2 One-to-four family mortgage loans totaled $1.3 billion at December 31, 2001, representing 24.40% of total loans outstanding. The year-end balance reflects the sale of $526.9 million and $83.7 million of one-to-four family mortgage loans acquired in the Haven and Richmond County transactions, respectively. The remainder of the mortgage loan portfolio at year-end 2001 consisted of $561.9 million in commercial real estate loans and $152.4 million in construction loans. In addition, the Company had other loans totaling $116.9 million, including $87.3 million in home equity loans generally secured by second liens on real property and $29.6 million in other consumer loans. At December 31, 2001, 77.15% of outstanding mortgage loans had been made at adjustable rates of interest and 22.85% had been made at fixed rates. 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, 2001, mortgage- backed securities totaled $2.2 billion, or 23.61% of total assets, of which $2.1 billion were classified as available for sale and $50.9 million were classified as held to maturity. The market value of such securities was approximately $2.2 billion at December 31, 2001. 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. One-to-four family mortgage loans are originated on a conduit basis and sold without recourse. For the years ending December 31, 2001 and 2000, sales of ARM loans and fixed-rate loans totaled $610.6 million and $107.4 million, respectively. As of December 31, 2001, the Bank was servicing $1.7 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 primarily located in the greater metropolitan New York area. At December 31, 2001, the Bank's portfolio of multi-family mortgage loans totaled $3.3 billion, representing 60.23% of the total loan portfolio. Of this total, $3.1 billion, or 95.37%, were secured by rental apartment buildings and $150.8 million, or 4.63%, were secured by underlying mortgages on cooperative apartment buildings. Multi-family loans are generally originated for terms of 10 years at a fixed rate of interest in years one through five and a rate that adjusts annually with the prime rate of interest, as reported in The New York Times, in each of years six through ten. The minimum rate is equivalent to that of the initial five year term. Prepayment penalties range from five points to two over the first five years of the loan. At year-end 2001, 86.0% of the Bank's multi-family mortgage loans were adjustable rate credits, including $359.4 million that are due to adjust in 2002. 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 cash flow 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, 2001 consisted of 19 loans secured by 19 multi-family properties located in the Bank's primary market area. These loans were made to several borrowers who are 3 deemed to be related for regulatory purposes. As of December 31, 2001, the outstanding balance of these loans totaled $85.5 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 tend to be larger and are generally believed to 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. The portfolio has otherwise been fully performing for 15 years. One-to-Four Family Mortgage Lending. At December 31, 2001, $1.3 billion, or 24.40%, of the Bank's loan portfolio, consisted of one-to-four family mortgage loans. On December 1, 2000, the Bank adopted a policy of originating such loans on a conduit basis in order to minimize its credit and interest rate risk. Since then, applications have been taken and processed by a third party and the loans sold to said party, service-released. Under this program, the Bank sold one-to-four family mortgage loans totaling $67.0 million and $1.7 million in 2001 and 2000, respectively. In the years ended December 31, 2001 and 2000, the Bank originated $137.0 million and $2.5 million, respectively, of one-to-four family loans. The Bank had non-performing loans of $17.5 million at December 31, 2001, consisting of loans secured by one-to-four family homes. Foreclosed real estate; which is included in "other assets" in the Consolidated Statements of Condition, consisted of 5 properties with a total carrying value of approximately $249,000 as of December 31, 2001. During the year ended 2001, the Bank sold $610.6 million in one-to-four family mortgage loans that were primarily acquired in the Haven transaction. Of the $875.1 million in one-to-four family mortgage loans acquired in the Richmond County merger, $83.7 million were immediately sold. During the year ended 2000, the Bank sold one-to-four family mortgage loans totaling $105.7 million that it had acquired in the Haven transaction, while retaining the servicing rights. During 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 2002, the balance of one-to-four family mortgage loans is expected to decline through repayments and securitization. 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, 2001, the Bank had loans secured by commercial real estate of $561.9 million, comprising 10.4% of the Bank's total loan portfolio. Commercial real estate loans may be originated in amounts of up to 65% 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. While the Bank originated construction loans prior to the Richmond County merger, its focus on this type of lending has expanded since the merger took place. The Bank primarily originates construction loans to a select group of experienced builders with whom it has had a successful lending relationship in the past. Building loans are primarily made for the construction of owner-occupied one-to-four family homes under contract and, to a far lesser extent, 4 for the acquisition and development of commercial real estate 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 requires personal guarantees and a permanent loan commitment. Construction loans are made for terms of up to two years and feature a daily floating prime-based rate of interest, with a floor of the original rate. Loan proceeds are disbursed in increments as construction progresses and as inspections warrant. As of December 31, 2001, the Bank had $152.4 million, or 2.82% of its total loan portfolio, invested in construction loans. Other Lending. Other loans outstanding at December 31, 2001 totaled $116.9 million, representing 2.15% of the Bank's total loan portfolio. Home equity loans which include closed-end loans and open-end lines of credit, represented the largest component. Home equity loans outstanding at December 31, 2001 totaled $87.3 million, against total available credit lines of $11.2 million. In order to reduce credit and interest rate risk, the Bank no longer originates home equity and other loans for portfolio. 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 $5.0 million must be approved by the Board of Directors; during the year ended December 31, 2001, the Bank originated 31 loans in excess of $5.0 million, with the highest amount being $36.5 million. Non-performing Loans and Foreclosed Assets. The Bank had $17.5 million in loans 90 days or more delinquent at December 31, 2001. 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 Board of Directors 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 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 the Board of Directors 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 mortgage loans in foreclosure, 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, 2001, 2000, and 1999, the amounts of additional interest income that would have been recorded on mortgage loans in foreclosure, had they been current, totaled approximately $651,000, $435,000 and $641,000, 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 that are 90 days or more delinquent, and foreclosed real estate at the dates indicated. At December 31, 2001, 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, 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- (dollars in thousands) Mortgage loans in foreclosure $10,604 $ 6,011 $ 2,886 $ 5,530 $ 6,121 Loans 90 days or more delinquent and still accruing interest 6,894 3,081 222 663 1,571 ------- ------- ------- ------- ------- Total non-performing loans 17,498 9,092 3,108 6,193 7,692 ------- ------- ------- ------- ------- Foreclosed real estate 249 12 66 419 1,030 ------- ------- ------- ------- ------- Total non-performing assets $17,747 $ 9,104 $ 3,174 $ 6,612 $ 8,722 ======= ======= ======= ======= ======= Total non-performing loans to loans, net 0.33% 0.25% 0.19% 0.42% 0.55% Total non-performing assets to total assets 0.19 0.19 0.17 0.38 0.54
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, 2001, foreclosed real estate consisted of five residential properties with an aggregate carrying value of approximately $249,000. 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. 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 increased by the provision for loan losses charged to operations and reduced by reversals or by net charge-offs. Management establishes the allowance for loan losses through a process that begins with estimates of probable loss inherent in the portfolio, based on various statistical analyses. These analyses consider historical and projected default rates and loss severities; internal risk ratings; geographic, industry, and other environmental factors; and model imprecision. In establishing the allowance for loan losses, management also considers the Company's current business strategy and credit process, including compliance with stringent guidelines it has established with regard to credit limitations, credit approvals, loan underwriting criteria, and loan workout procedures. The allowance for loan losses is composed of five separate categories corresponding to the various loan classifications listed in Statistical Data-D, "Composition of the Loan Portfolio." The policy of the Bank 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, which is risk weighted at 500 basis points at December 31, 2001, or (2) serious delinquency, a situation in which legal foreclosure action has been initiated, which is risk weighted at 1,200 basis points at December 31, 2001. 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. 6 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 loan type. The performing loan categories are also assigned quantified risk factors, which result in allocations to the allowance that correspond to the individual types of loans in the portfolio. The performing one-to-four family loan category had an overall risk weighting increase from 19 basis points as of December 31, 2000 to 46 basis points as of December 31, 2001. The multi-family category also had a risk weighting increase from 40 basis points to 66 basis points from December 31, 2000 to 2001, respectively. The remaining categories, comprising approximately 15% of the entire loan portfolio, had the following risk weighted assessments: construction loans, which had outstanding balances ranging from $59.5 million to $152.4 million from December 31, 2000 to December 31, 2001, respectively, had an overall increase in risk weighting from 150 basis points to 229 basis points; outstanding balances on commercial real estate loans ranged from $324.1 million to $561.9 million and experienced a decrease from 175 basis points to 145 basis points over the measurement dates; outstanding balances of other loans increased from $39.7 million to $116.9 million and also experienced a decrease in risk weighting from 200 basis points to 121 basis points over the measurement dates. Outstanding loan commitments of $344.4 million as of December 31, 2001 were assigned a risk weighting of 20 basis points. Loan commitments of $180.1 million as of December 31, 2000 did not have a risk weighting assigned. 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-offs (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 5 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; 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. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary, based on changes in economic and local market conditions beyond management's control. In addition, various regulatory agencies periodically review the Bank's loan loss allowance as an integral part of the examination process. Accordingly, the Bank 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 examinations. Based upon all relevant and presently available information, management believes that the current allowance for loan losses is adequate. At December 31, 2001, the total allowance was $40.5 million, which amounted to 231.46% of non-performing loans and 228.21% of non-performing assets. The increase of $22.4 million from $18.1 million at December 31, 2000 7 stemmed from the Richmond County merger. For the years ended December 31, 2001 and 2000, 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, 2001, mortgage-backed securities totaled $2.2 billion, representing 23.49% of total assets. Of the $2.2 billion in total mortgage-backed securities, $50.9 million were classified by the Bank as held to maturity and $2.1 billion 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, 2001, the mortgage-backed securities portfolio had a weighted average interest rate of 6.27% and a market value of approximately $2.2 billion. 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 primarily designed 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. The Company's primary funding sources are deposits and borrowings. To supplement the funding provided by its deposits, the Company increased its borrowings in the second half of 2001. At December 31, 2001, borrowings totaled $2.5 billion, including Federal Home Loan Bank ("FHLB") advances of $1.8 billion, reverse repurchase agreements of $596.7 million, and trust preferred securities of $121.3 million that were issued by the Company in the final month of the year. 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 savings accounts, together with NOW and money market accounts and demand deposits. The flow of deposits is influenced significantly by the 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 its long-standing relationships with its customers to retain these deposits. At December 31, 2001, $408.4 million, or 7.49% of the Bank's deposit balance, consisted of CDs with a balance of $100,000 or more. Federal Home Loan Bank of New York Advances ("FHLB-NY"). The Bank is a member of the FHLB-NY, and had a $3.7 billion line of credit at December 31, 2001. FHLB borrowings totaled $1.8 billion at December 31, 2001. A $10.0 million line of credit with a correspondent financial institution is also available to the Bank. Reverse Repurchase Agreements. The Company has repurchase agreements of $529.7 million and $0 outstanding at December 31, 2001 and 2000, respectively. Trust Preferred Securities. Haven Capital Trust I, Haven Capital Trust II, Queens Capital Trust I, Queens Statutory Trust I, NYCB Capital Trust I, New York Community Statutory Trust I, and New York Community Statutory Trust II are Delaware business trusts of which all the common stock are owned by the Company. The Trusts were formed 8 for the purpose of issuing Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Junior Subordinated Debentures ("Trust Preferred Securities"). The following Trust Preferred Securities were outstanding at December 31, 2001:
Amount Date of Stated Optional Security Title Issuer Outstanding Original Issue Maturity Redemption Date (in thousands) - ----------------------------------------------------------------------------------------------------------------------------------- 10.46% Capital Securities Haven Capital Trust I $ 18,174 February 12, 1997 February 1, 2027 February 1, 2007 10.25% Capital Securities Haven Capital Trust II 23,333 May 26, 1999 September 30, 2029 June 30, 2009 11.045% Capital Securities Queens Capital Trust I 10,000 July 26, 2000 July 19, 2030 July 19, 2010 10.60% Capital Securities Queens Statutory Trust I 15,000 September 7, 2000 September 7, 2030 September 7, 2010 6.007% Floating Rate Capital Securities NYCB Capital Trust I 36,000 November 28, 2001 December 8, 2031 December 8, 2006 5.60% Floating Rate New York Community Capital Securities Statutory Trust I 35,032 December 18, 2001 December 18, 2031 December 18, 2006 5.58% Floating Rate New York Community Capital Securities Statutory Trust II 50,250 December 18, 2001 December 28, 2031 December 28, 2006 -------- $187,789 ========
Subsidiary Activities Under its New York State Leeway Authority, the Bank has formed or acquired through merger 14 active subsidiary corporations, 10 of which are direct subsidiaries of the Bank and four of which are subsidiaries of Bank-owned entities. The following subsidiaries are organized in New York: CFS Investments, Inc., which sells non-deposit investment products; Queens County Capital Management, Inc., which sold life insurance and annuity products during 2001 and currently is inactive; Richmond County Capital Corp., a real estate investment trust (hereinafter "REIT") that holds commercial and residential mortgages; RCBK Mortgage Corp., which holds multi-family mortgage loans; Main Omni Realty Corp., which owns foreclosed and investment properties; RCSB Corporation, which owns a branch building; and Richmond Enterprises Inc., the holding company for Peter B. Cannell & Co., Inc. The following subsidiaries are organized in Delaware: Peter B. Cannell & Co., Inc., which advises high net worth individuals and institutions on the management of their assets; Richmond Investment Corp., the holding company for Ironbound Investment Corp.; Columbia Preferred Capital Corp., a REIT that holds residential and commercial mortgages; and Queens Realty Trust, Inc., a REIT that holds residential and commercial mortgages. The following subsidiaries are organized in New Jersey: CFS Investments New Jersey, Inc., an investment Company which is also the holding company for Columbia Preferred Capital Corp.; Ironbound Investment Corp., which owns real estate mortgages and bank branches and is the holding company for Richmond County Capital Corp.; and Pacific Urban Renewal Corp., which owns a branch building. In addition, the Bank maintains four currently inactive corporations, which are MFO Holding Corp., a New York corporation; Columbia Resources Corp., a New York corporation; Columbia Funding Corporation, a New York corporation; and Bayonne Service Corp, a New Jersey corporation. The Bank is also affiliated with Columbia Travel Services, Inc., an inactive corporation organized in New York. The Company owns seven special business trusts formed for the purpose of issuing capital and common securities and investing the proceeds thereof in the junior subordinated debentures issued by the Company. The following subsidiaries are organized in the state of Delaware: Haven Capital Trust I, Haven Capital Trust II, Queens Capital Trust I, NYCB Capital Trust I, and New York Community Statutory Trust II. The following subsidiaries are organized in the state of 9 Connecticut: Queens Statutory Trust I and New York Community Statutory Trust II. (See "Note 11 - Borrowings" in the Company's 2001 Annual Report to Shareholders which portion is incorporated herein by reference.) Personnel At December 31, 2001, the number of full-time equivalent employees was 1,521. 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, the Bank and their subsidiaries (excluding certain subsidiaries which are qualified as a Real Estate Investment Trust, which files separately) 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. 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 Distribution"), 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 10 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 was 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 Company, the Bank and certain of their subsidiaries are subject to the New York State Franchise Tax on Banking Corporations in an annual amount equal to the greater of (i) 8.5% (falling to 8% and 7.5% in years ending in December 2002 and 2003, respectively), "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 taxable assets allocable to New York State with certain modifications, (b) 3% of "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 prior to 2001, net operating losses could not 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 most 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% of the New York State tax liability. 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 2001. New Jersey State Taxation. The Bank and other subsidiaries of the Company doing business in New Jersey report income on a separate company basis, as New Jersey does not permit combined return filing. New Jersey imposes a Savings Institution Tax of 3% of the net income derived from New Jersey sources. Other subsidiaries are subject to tax on their entire net income allocated to the state, at a rate of 7.5% if income is less than $100,000, or at 9% if income is over $100,000. The total New Jersey state tax liability of subsidiaries subject to New Jersey income taxes is not material. 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"), and through its acquisition of CFS Bank, some deposits are insured by the Savings Association Insurance Fund ("SAIF"). 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 11 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 issued and 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 corporation 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 laws and regulations. In particular, the applicable provision 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-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. 12 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 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, 2001, 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, 2001: Tier I Leverage Capital to Average Assets 6.09% Total Capital to Risk-Weighted Assets 10.97% Tier I Capital to Risk-Weighted Assets 10.12% 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 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 13 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 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 not permitted for national banks (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 Gramm-Leach-Bliley Act of 1999 and FDIC regulations impose certain quantitative and qualitative restrictions on such activities and a bank's dealings with a subsidiary that engages in specified activities. 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 I 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, 2001, the Bank had $83.0 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 measure 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 I 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 I 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 I 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 14 it has a total risk-based capital ratio of less than 6%, a Tier I 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 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 Sections 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. Generally, a bank's subsidiaries are not treated as affiliates unless they are engaged in activities as principal that are not permissible for national banks. 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 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 non-affiliates. 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 15 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 the Bank Insurance Fund ("BIF") and, through its acquisition of CFS Bank, also holds some deposits that are considered to be 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. 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. The FDIC has indicated that it may be necessary to raise BIF premiums during 2002. On September 30, 1996, the Deposit Insurance Funds Act of 1996 (the "Funds Act"), was signed into law. Among other things, the law 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 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 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 bank has 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 bank; 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." 16 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 Bank's latest NYCRA rating, received from the Banking Department in June 2000, was a "1", the highest rating. 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 $41.3 million or less (subject to adjustment by the Federal Reserve Board), the reserve requirement is 3%; for accounts greater than $41.3 million, the reserve requirement is $1.239 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 $41.3 million). The first $5.7 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-interesting-bearing account at a Federal Reserve 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 $114.8 million at December 31, 2001. 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, 2001, and 2000, dividends from the FHLB-NY to the Bank, amounted to $4.6 million and $4.1 million, respectively. If dividends were reduced, or interest on future FHLB advances increased, the Bank's net interest income might also be reduced. Interstate Branching Federal law allows the FDIC, and New York banking law allows the New York superintendent of banks, to approve an application by a state bank to acquire interstate branches by merger, unless, in the case of the FDIC, the state of the target institution has opted out of interstate branching. New York state banking law authorizes savings banks to open and occupy de novo branches outside the state of New York, and the FDIC is authorized to approve a state bank's establishment of a de novo interstate branch if the intended host state has opted into interstate de novo branching. In addition to its branches in New York, the Bank currently maintains branches in New Jersey and Connecticut. Holding Company Regulations Federal Regulation. The Company is currently subject to examination, regulation, and periodic reporting under the Bank Holding Company Act of 1956, as amended ("BHMA"), as administered by the FRB. 17 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 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 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, 2001, the Company's consolidated total and Tier I 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 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. 18 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 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 Law 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) 2001 2000 1999 ---------- ---------- ---------- Mortgage loans (gross): At beginning of period $3,596,273 $1,601,798 $1,487,256 Mortgage loans originated: Multi-family 791,250 541,734 603,347 One-to-four family 137,002 6,205 26,338 Commercial real estate 130,677 58,899 42,708 Construction 91,155 9,133 4,433 ---------- ---------- ---------- Total mortgage loans originated 1,150,084 615,971 676,826 Mortgage loans acquired from Richmond County Financial Corp. and Haven Bancorp, Inc., respectively 1,917,575 1,749,180 -- Principal repayments 765,578 185,539 348,036 Mortgage loans sold 610,581 185,137 213,597 Mortgage loans transferred to foreclosed real estate -- -- 651 ---------- ---------- ---------- At end of period 5,287,773 3,596,273 1,601,798 Other loans (gross): At beginning of period 39,748 8,742 9,750 Other loans originated and/or acquired from Richmond County Financial Corp. and Haven Bancorp, Inc., 254,278 36,655 2,039 respectively Principal repayments 177,148 5,649 3,047 ---------- ---------- ---------- At end of period 116,878 39,748 8,742 ---------- ---------- ---------- Total loans $5,404,651 $3,636,021 $1,610,540 ========== ========== ========== Mortgage-backed securities held to maturity: At beginning of period $ 1,923 $ 2,094 $ 19,680 Purchase of mortgage-backed securities, net 48,942 -- -- Principal repayments -- 171 17,586 ---------- ---------- ---------- At end of period $ 50,865 $ 1,923 $ 2,094 ========== ========== ==========
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, 2001. 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 $765.6 million for the twelve months ended December 31, 2001. Mortgage and Other Loans at December 31, 2001
1-4 Multi- Commercial Home Total (dollars in thousands) Family Family Real Estate Construction Equity Other Loans ---------- ---------- ----------- ------------ ------- ------- ---------- Amount due: Within one year $ 220,028 $ 418,584 $119,905 $141,258 $52,588 $22,084 $ 974,447 After one year: One to three years 228,167 832,543 164,250 11,109 7,310 3,827 1,247,206 Three to five years 199,742 1,604,698 170,119 -- 5,673 1,480 1,981,712 Five to ten years 349,066 359,700 92,911 -- 11,684 1,834 815,195 Ten years and over 321,292 39,642 14,759 -- 10,019 379 386,091 ---------- ---------- -------- -------- ------- ------- ---------- Total due or repricing after one year 1,098,267 2,836,583 442,039 11,109 34,686 7,520 4,430,204 ---------- ---------- -------- -------- ------- ------- ---------- Total amounts due or repricing, gross $1,318,295 $3,255,167 $561,944 $152,367 $87,274 $29,604 $5,404,651 ========== ========== ======== ======== ======= ======= ==========
The following table sets forth, at December 31, 2001, the dollar amount of all loans due after December 31, 2002, and indicates whether such loans have fixed or adjustable rates of interest. Due after December 31, 2002 -------------------------------------------- (dollars in thousands) Fixed Adjustable Total ---------- ---------- ---------- Mortgage loans: Multi-family $ 401,354 $2,435,229 $2,836,583 One-to-four family 502,470 595,797 1,098,267 Commercial real estate 116,897 325,142 442,039 Construction -- 11,109 11,109 Home equity 20,193 14,493 34,686 ---------- ---------- ---------- Total mortgage loans $1,040,914 $3,381,770 $4,422,684 Other loans 6,288 1,232 7,520 ---------- ---------- ---------- Total loans $1,047,202 $3,383,002 $4,430,204 ========== ========== ========== 21 C. Summary of the Allowance for Loan Losses The allowance for loan losses was allocated as follows at December 31,
2001 2000 1999 1998 1997 ----------------- ----------------- ------------------ ------------------ ----------------- Percent Percent Percent Percent Percent of of of of of Loans in Loans in Loans in Loans in Loans in Category Category Category Category Category to Total to Total to Total to Total to Total (dollars in thousands) Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Mortgage loans: Multi-family $21,361 52.74% $ 7,783 43.08% $ 4,927 70.08% $ 6,686 70.89% $ 6,521 69.14% One-to-four family 6,084 15.02 2,923 16.18 663 9.42 1,341 14.22 1,592 16.88 Construction 3,489 8.62 892 4.94 64 0.91 28 0.30 23 0.24 Commercial real estate 8,150 20.12 5,671 31.40 1,202 17.10 1,181 12.52 1,080 11.45 Other loans 1,416 3.50 795 4.40 175 2.49 195 2.07 215 2.29 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Total loans $40,500 100.00% $18,064 100.00% $ 7,031 100.00% $ 9,431 100.00% $ 9,431 100.00% ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
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 the 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,
2001 2000 1999 ----------------------- ------------------------ ----------------------- Percent Percent Percent of of of (dollars in thousands) Amount Total Amount Total Amount Total ------------- ----- ------------- ----- ------------- ---- Mortgage loans: Multi-family $ 3,255,167 60.23% $ 1,945,656 53.51% $ 1,348,351 83.72% One-to-four family 1,318,295 24.40 1,267,080 34.85 152,644 9.48 Commercial real estate 561,944 10.40 324,068 8.91 96,008 5.96 Construction 152,367 2.82 59,469 1.64 4,793 0.30 ------------- ----- ------------- ----- ------------- ---- Total mortgage loans 5,287,773 97.85 3,596,273 98.91 1,601,796 99.46 ------------- ----- ------------- ----- ------------- ---- Other loans: Cooperative apartment -- -- 3,726 0.10 4,856 0.30 Home equity 87,274 1.61 12,240 0.34 1,347 0.08 Student 660 0.01 683 0.02 8 0.00 Passbook savings 1,777 0.03 779 0.02 331 0.02 Other 27,167 0.50 22,320 0.61 2,200 0.14 ------------- ----- ------------- ----- ------------- ---- Total other loans 116,878 2.15 39,748 1.09 8,742 0.54 ------------- ----- ------------- ----- ------------- ---- Total loans 5,404,651 100.00% 3,636,021 100.00% 1,610,538 100.00% ------------- ====== ------------- ====== ------------- ====== Unearned premiums (discounts) 91 (18) (24) Less: Net deferred loan origination fees 3,055 1,553 2,404 Allowance for loan losses 40,500 18,064 7,031 ------------- ------------- ------------- Loans, net $ 5,361,187 $ 3,616,386 $ 1,601,079 ============= ============= ============= 1998 1997 ------------------------ ------------------------ Percent Percent of of (dollars in thousands) Amount Total Amount Total ------------- ----- ------------- ----- Mortgage loans: Multi-family $ 1,239,094 82.77% $ 1,107,343 78.78% One-to-four family 178,770 11.94 224,287 15.96 Commercial real estate 67,494 4.51 61,740 4.39 Construction 1,898 0.13 1,538 0.10 ------------- ----- ------------- ----- Total mortgage loans 1,487,256 99.35 1,394,908 99.23 ------------- ----- ------------- ----- Other loans: Cooperative apartment 4,802 0.32 5,041 0.36 Home equity 1,793 0.12 2,386 0.17 Student 8 0.00 8 0.00 Passbook savings 321 0.02 312 0.02 Other 2,826 0.19 3,048 0.22 ------------- ----- ------------- ----- Total other loans 9,750 0.65 10,795 0.77 ------------- ----- ------------- ----- Total loans 1,497,006 100.00% 1,405,703 100.00% ------------- ====== ------------- ====== Unearned premiums (discounts) (22) (19) Less: Net deferred loan origination fees 1,034 1,281 Allowance for loan losses 9,431 9,431 ------------- ------------- Loans, net $ 1,486,519 $ 1,394,972 ============= =============
23 E. Portfolio of 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 portfolio at the dates indicated:
At December 31, 2001 2000 1999 -------------------------- ---------------------- ---------------------- Carrying Market Carrying Market Carrying Market (dollars in thousands) Value Value Value Value Value Value ---------- ---------- -------- -------- -------- -------- Securities: U.S. Government and agency obligations $ 25,113 $ 24,883 $184,994 $184,161 $140,325 $135,797 Equity securities 208,875 210,523 95,286 95,492 55,690 55,762 Corporate bonds 51,257 51,047 61,140 61,140 -- -- Capital trust notes 165,615 170,529 25,191 23,892 -- -- ---------- ---------- -------- -------- -------- -------- Total securities $ 450,860 $ 456,982 $366,611 $364,685 $196,015 $191,599 ========== ========== ======== ======== ======== ======== Money market investments: Federal funds sold $ 10,166 $ 10,166 $124,622 $124,622 $ 6,000 $ 6,000 ---------- ---------- -------- -------- -------- -------- Total money market investments $ 10,166 $ 10,166 $124,622 $124,622 $ 6,000 $ 6,000 ======== ======== Mortgage-backed securities: GNMA $ 143,179 $ 143,842 $ 1,059 $ 1,067 $ 1,429 $ 1,429 FHLMC 47,528 47,946 6,886 6,942 2,094 2,135 FNMA Certificates 129,123 129,843 80,286 80,286 -- -- CMOs and REMICs 1,841,727 1,850,935 73,341 73,341 -- -- ---------- ---------- -------- -------- -------- -------- Total mortgage-backed securities $2,161,557 $2,172,566 $161,572 $161,636 $ 3,523 $ 3,564 ========== ========== ======== ======== ======== ========
24 ITEM 2. PROPERTIES The executive and administrative offices of the Company and its subsidiaries are located at 615 Merrick Avenue, Westbury, New York. Haven Bancorp 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. At December 31, 2001, the Company's bank subsidiaries owned 30 of their branch offices and leased 93 of their branch offices and other bank business facilities under various lease and license agreements expiring at various times through 2025 (see "Note 13 - Commitments and Contingencies, Lease and License Commitments" in the Company's 2001 Annual Report to Shareholders, which portion is incorporated herein by reference). In the second quarter of 2002, the Company anticipates the divestiture of 14 in-store branches in Connecticut, New Jersey and Rockland County, New York, all of which were leased at December 31, 2001. 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, that 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 None 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 National Market(R) and quoted under the symbol "NYCB". Information regarding the Company's common stock and its price during fiscal year 2001 appears on page 36 of the 2001 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. As of March 29, 2002 the Company had approximately 8,400 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 10 of the 2001 Annual Report to Shareholders under the caption "Financial Summary," and is incorporated therein 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 13 through 35 of the 2001 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 20 through 23 of the 2001 Annual Report to Shareholders under the caption "Asset and Liability Management and the Management of Interest Rate Risk," and is incorporated herein by this reference. 25 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information regarding the consolidated financial statements and the Independent Auditors' Report appears on pages 37 through 63 of the 2001 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 on May 15, 2002, under the caption "Information with Respect to Nominees, Continuing Directors, and Executive Officers," and is incorporated herein by this reference. ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation appears on pages 10 through 19 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held May 15, 2002, 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 15, 2002, 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 15, 2002, under the caption "Information with Respect to the Nominees, Continuing Directors, and Executive Officers," and is incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions appears on page 19 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 15, 2002 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, 2001 and are incorporated herein by this reference: - Consolidated Statements of Condition at December 31, 2001 and 2000; - Consolidated Statements of Income and Comprehensive Income for each of the years in the three-year period ended December 31, 2001; - Consolidated Statements of Changes in Stockholders' Equity for each of the years in the three-year period ended December 31, 2001; - Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2001; - Notes to the Consolidated Financial Statements; - Management's Responsibility for Financial Reporting; - Independent Auditors' Report 26 The remaining information appearing in the 2001 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 2001 None (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) 10.12 Incentive Savings Plan of Queens County Savings Bank (3) 10.13 Retirement Plan of Queens County Savings Bank (1) 10.14 Supplemental Benefit 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) 10.18 Richmond County Financial Corp. 1998 Stock Option Plan (6) 10.19 Richmond County Savings Bank Retirement Plan (6) 11.0 Statement Re: Computation of Per Share Earnings (attached hereto) 13.0 2001 Annual Report to Shareholders 21.0 Subsidiaries information incorporated herein by reference to Part I, "Subsidiaries" 23.0 Consent of KPMG LLP, dated April 1, 2002 (attached hereto) 99.0 Proxy Statement for the Annual Meeting of Shareholders to be held on May 15, 2002 (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. (6) Incorporated herein by reference into this document from the Exhibits to Form S-8, Registration Statement filed on July 31, 2001, Registration No. 333-66366. 27 Signatures 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 4/1/02 ------------------------------------- Joseph R. Ficalora 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/ Michael F. Manzulli 4/1/02 /s/ Joseph R. Ficalora 4/1/02 - --------------------------- ---------------------------------------- Michael F. Manzulli Joseph R. Ficalora Chairman President and Chief Executive Officer (Principal Executive Officer) /s/ Robert Wann 4/1/02 /s/ Donald M. Blake 4/1/02 - --------------------------- ---------------------------------------- Robert Wann Donald M. Blake Executive Vice President Director and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Anthony E. Burke 4/1/02 /s/ Dominick Ciampa 4/1/02 - --------------------------- ---------------------------------------- Anthony E. Burke Dominick Ciampa Director Director /s/ Robert S. Farrell 4/1/02 /s/ Dr. William C. Frederick 4/1/02 - --------------------------- ---------------------------------------- Robert S. Farrell Dr. William C. Frederick Director Director /s/ Max L. Kupferberg 4/1/02 /s/ Howard C. Miller 4/1/02 - --------------------------- ---------------------------------------- Max L. Kupferberg Howard C. Miller Director Director 28 EX-3.2 3 ex3-2.txt AMENDED AND RESTATED BY-LAWS NEW YORK COMMUNITY BANCORP, INC. BYLAWS (Amended and Restated as of February 19, 2002) 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 or at his or her delegation, the Chief Executive Officer of the Corporation shall call to order any meeting of the stockholders and preside over the meeting (such person, the "Chairman of 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 Meeting appoints. Section 6. Conduct of Business. (a) The Chairman of the Meeting 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. 1 (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 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 or she should so determine, he or she 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 by stockholders as a Director of the Corporation unless nominated by the Board of Directors, nominated pursuant to Section 2(b) of Article II of these Bylaws or nominated in accordance with the provisions of this Section 6(c) (the "Section 6(c) Provision"). The Chairman of the Meeting shall, if the facts so warrant, determine that a nomination was not made in accordance with the Section 6(c) Provision and, if he or she shall so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded. 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 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 2 who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the Chairman of 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 nine (9). The Board of Directors shall annually elect a Chairman of the Board from among its members. 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. (a) 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. (b) Notwithstanding any other provision in these Bylaws, until the annual meeting of stockholders of the Corporation in 2004, unless two-thirds of all of the Directors of the Corporation shall otherwise determine, in the event that a Director of the Corporation at the effective time of the merger (the "Merger") of Richmond County Financial Corp. into the Corporation pursuant to the Agreement and Plan of Merger, dated as of March 27, 2001, by and between the Corporation and Richmond County Financial Corp. (the "Merger Agreement") that was a Director of the Corporation prior to the effective time of the Merger (a "New York Community Director") or a Director of the Corporation at the effective time of the Merger that was formerly a Director of Richmond County Financial Corp. prior to the effective time of the Merger (a "Richmond County Director"), or a Director otherwise elected or 3 nominated by the New York Community Directors or the Richmond County Directors as set forth in this paragraph shall resign, no longer be able to serve or not stand or be standing for reelection (for whatever reason), (i) if such Director shall be a New York Community Director or a nominee of the New York Community Directors, then the New York Community Directors and nominees of the New York Community Directors serving as Directors shall have the exclusive right to nominate an individual to fill such vacancy and the entire Board of Directors shall either elect such person a Director or, if appropriate, nominate such person for election as a Director by the stockholders and (ii) if such Director shall be a Richmond County Director or a nominee of the Richmond County Directors, then the Richmond County Directors and nominees of the Richmond County Directors serving as Directors shall have the exclusive right to nominate an individual to fill such vacancy and the entire Board of Directors shall either elect such person a Director or, if appropriate, nominate such person for election as a Director by the stockholders. This paragraph may not be amended, altered or repealed by the Board of Directors except pursuant to a resolution approved by two-thirds of all of the Directors of the Corporation. 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-half (1/2) of the Directors then in office (rounded up to the nearest whole number), or by the Chairman of the Board or the Chief Executive Officer, and shall be held in 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 to each Director, unless waived by such Director, 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 or by hand, not less than twenty-four (24) hours before the meeting in the case of a meeting to be held at a location within twenty-five (25) miles of the Corporation's executive offices and not less than forty-eight (48) hours before the meeting in the case of a meeting to be held at a location beyond twenty-five (25) miles of the Corporation's executive offices. No special meeting shall be held at a location beyond seventy-five (75) miles of the Corporation's executive offices. 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 Chairman of the Board or, in his or her absence or at his or her delegation, the Chief Executive Officer or the Board of Directors 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. Section 8. 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 9. 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; provided, however, that the Board of Directors, by a written resolution approved by a majority of the disinterested members of the Whole Board of Directors, may exclude an incumbent director from such age limitation. Notwithstanding the limitation of this provision, a director shall be able to complete a term in which he or she 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. 4 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. 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 and one of whom shall be the Chief Executive Officer. 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. The provisions of this Section 3 of Article III shall be subject to the provisions of Section 2(b) of Article II. 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; a Chief Executive Officer; a President; one or more Vice Presidents (which may have the designation "Senior Executive", "Executive" or "Senior" before "Vice President"); 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 such Officers' resignation or removal and 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. The removal of Joseph R. Ficalora, as Chief Executive Officer and President, or Michael F. Manzulli, as Chairman of the Board, from such offices or any action to materially modify, amend or breach the employment agreements of either of such persons, or terminate such person's employment, shall require the affirmative vote of 75% of all of the Directors of the Corporation. This Section 1(b) of Article IV of these Bylaws may not be amended, altered or repealed by the Board of Directors except pursuant to a resolution adopted by 75% of all of the Directors of the Corporation. (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. 5 Section 2. Chairman of the Board of Directors. The Chairman of the Board shall, subject to the provisions of these Bylaws and to the direction of the Board of Directors, serve in a general executive capacity. The Chairman of the Board shall perform all duties and have all powers which are delegated to him or her by the Board of Directors. Section 3. Chief Executive Officer and President. The Chief Executive Officer and President shall have general responsibility for the management and control of the business and affairs of the Corporation and shall perform all duties and have all powers that are commonly incident to the office of Chief Executive Officer and President or that are delegated to him or her by the Board of Directors. The Chief Executive Officer and President shall have power to sign all stock certificates, contracts and other instruments of the Corporation that are authorized and shall have general supervision of all of the other Officers (other than the Chairman of the Board), employees and agents of the Corporation. Section 4. 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 "Senior Executive Vice President", "Executive Vice President" or "Senior Vice President". Section 5. 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 6. 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 7. 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 8. 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 or the Chief Executive Officer, 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. 6 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 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. 7 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. 8 EX-11 4 ex11.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) 2001 2000 -------- ------- Net income $104,467 $24,477 -------- ------- Weighted average common shares outstanding(1) 76,728 42,403 Earnings per common share(1) $ 1.36 $ 0.58 ======== ======= Total weighted average common shares outstanding(1) 76,728 42,403 Additional dilutive shares using ending value for the period when utilizing the Treasury stock method regarding stock options(1) 1,327 1,543 -------- ------- Total shares for fully diluted earnings per share(1) 78,055 43,946 Fully diluted earnings per common share and common share equivalents(1) $ 1.34 $ 0.56 ======== ======= (1) Amounts for 2000 have been adjusted to reflect 3-for-2 stock splits on March 29 and September 20, 2001. EX-13 5 ex-13.txt ANNUAL REPORT TO SHAREHOLDERS - -------------------------------------------------------------------------------- Financial Summary ================================================================================
At or For the Years Ended December 31, =============================================================================================================================== (dollars in thousands, except share data) 2001(1) 2000(2) 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------- EARNINGS SUMMARY Net interest income $ 205,816 $ 73,081 $ 68,903 $ 68,522 $ 62,398 Reversal of provision for loan losses -- -- (2,400) -- -- Other operating income 90,615 21,645 2,523 2,554 2,305 Non-interest expense(3) 121,185 49,824 21,390 25,953 27,084 Income tax expense 70,779 20,425 20,772 18,179 14,355 Net income(4) 104,467 24,477 31,664 26,944 23,264 Earnings per share(4)(5) $ 1.36 $ 0.58 $ 0.76 $ 0.63 $ 0.51 Diluted earnings per share(4)(5) 1.34 0.56 0.74 0.60 0.48 SELECTED RATIOS Return on average assets 1.63% 1.06% 1.69% 1.62% 1.61% Return on average stockholders' equity 18.16 13.24 22.99 17.32 12.95 Operating expense to average assets 1.76 2.16 1.14 1.57 1.88 Efficiency ratio 38.04 52.08 29.95 36.51 41.86 Interest rate spread 3.38 3.00 3.41 3.76 3.84 Net interest margin 3.59 3.33 3.79 4.24 4.45 Dividend payout ratio 39.55 78.57 60.00 50.00 38.00 CASH EARNINGS DATA Earnings(4) $ 148,972 $ 58,495 $ 44,349 $ 43,758 $ 35,399 Earnings per share(4)(5) $ 1.94 $ 1.38 $ 1.06 $ 1.02 $ 0.77 Diluted earnings per share(4)(5) 1.91 1.33 1.04 0.96 0.72 Return on average assets 2.33% 2.52% 2.37% 2.64% 2.46% Return on average stockholders' equity 25.90 31.38 32.21 28.13 19.71 Operating expense to average assets 1.76 2.16 1.01 1.16 1.37 Efficiency ratio 27.51 24.47 26.37 27.05 30.47 BALANCE SHEET SUMMARY Total assets $ 9,202,635 $ 4,710,785 $ 1,906,835 $ 1,746,882 $ 1,603,269 Loans, net 5,361,187 3,616,386 1,601,079 1,486,519 1,395,003 Allowance for loan losses 40,500 18,064 7,031 9,431 9,431 Securities held to maturity 203,195 222,534 184,637 152,280 94,936 Securities available for sale 2,374,782 303,734 12,806 4,656 2,617 Mortgage-backed securities held to maturity 50,865 1,923 2,094 19,680 49,781 Deposits 5,450,602 3,257,194 1,076,018 1,102,285 1,069,161 Borrowings 2,506,828 1,037,505 636,378 439,055 309,664 Stockholders' equity 983,134 307,410 137,141 149,406 170,515 Common shares outstanding(5) 101,845,276 66,555,279 47,272,785 47,814,518 50,330,670 Book value per share(5)(6) $ 10.05 $ 4.94 $ 3.34 $ 3.61 $ 3.92 Stockholders' equity to total assets 10.68% 6.53% 7.19% 8.55% 10.64% ASSET QUALITY RATIOS Non-performing loans to loans, net 0.33% 0.25% 0.19% 0.42% 0.55% Non-performing assets to total assets 0.19 0.19 0.17 0.38 0.54 Allowance for loan losses to non-performing loans 231.46 198.68 226.22 152.28 122.61 Allowance for loan losses to loans, net 0.76 0.50 0.44 0.63 0.68 ===============================================================================================================================
(1) The Company merged with Richmond County Financial Corp. on July 31, 2001 and treated the merger as a purchase transaction. Accordingly, the Company's 2001 earnings reflect five months of combined operations. (2) 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. (3) The 2001 amount includes $5.9 million in goodwill amortization stemming from the Haven acquisition and $2.5 million in core deposit intangible amortization stemming from the Richmond County merger. The 2000 amount includes $494,000 in goodwill amortization stemming from the Haven acquisition. (4) The 2001 amount reflects a gain of $39.6 million recorded in other operating income and charges of $23.5 million and $3.0 million, respectively, recorded in non-interest expense and income tax expense, resulting in an after-tax net charge of $836,000, or $0.01 per share. The 2000 amount reflects a gain of $13.5 million recorded in other operating income and a charge of $24.8 million recorded in other operating expense, resulting in a net charge of $11.4 million, or $0.26 per share. The 1999 amount includes a curtailment gain of $1.6 million and a charge of $735,000, both of which were recorded in operating expense and resulted in an after-tax net gain of $1.5 million, or $0.04 per share. The 1997 amount includes the reversal of a $1.3 million tax charge that had been incurred in the prior year. (5) Reflects shares issued as a result of 3-for-2 stock splits on April 10 and October 1, 1997; September 29, 1998; and March 29 and September 20, 2001. (6) Excludes unallocated ESOP shares. 10 New York Community Bancorp, Inc. 2001 Annual Report - -------------------------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations ================================================================================ OVERVIEW New York Community Bancorp, Inc. (the "Company") is the holding company for New York Community Bank (the "Bank") and the eighth largest thrift in the nation, based on market capitalization at March 22, 2002. The Bank currently serves its customers through a network of 108 banking offices spanning all five boroughs of New York City, Long Island, and New Jersey, as well as Westchester County, New York. Capitalizing on the brand equity of its respective divisions, the Bank operates its branches under the following names: Queens County Savings Bank, Richmond County Savings Bank, CFS Bank, First Savings Bank of New Jersey, Ironbound Bank, and South Jersey Bank. In addition to operating the largest supermarket banking franchise in the metro New York region, with 54 in-store branches, the Bank ranks among its leading producers of multi-family mortgage loans. On July 31, 2001, eight months following its acquisition of Haven Bancorp, Inc. ("Haven"), parent company of CFS Bank, on November 30, 2000, the Company completed a merger-of-equals with Richmond County Financial Corp. ("Richmond County"), parent company of Richmond County Savings Bank. With assets of $3.7 billion (including net loans of $1.9 billion) and deposits of $2.5 billion (including core deposits of $1.4 billion) at the date of the merger, Richmond County contributed significantly to the Company's asset and deposit growth. At December 31, 2001, the Company recorded total assets of $9.2 billion (including total loans of $5.4 billion) and total deposits of $5.5 billion (including core deposits of $3.0 billion). The merger also generated goodwill of $498.6 million and a core deposit intangible of $60.0 million; the latter amount was reduced via amortization to $57.5 million at December 31, 2001. In addition, the Richmond County merger added 33 traditional branches and a customer convenience center to the Company's branch network, bringing the total number of banking offices to 119 at year-end 2001. The current number of offices-108-reflects the opening of one traditional and two in-store branches on Staten Island in the first quarter and the anticipated divestiture of 14 in-store branches in Connecticut, New Jersey, and Rockland County, New York in the second quarter of 2002. At December 31, 2001, the number of outstanding shares totaled 101,845,276, reflecting the issuance of 38,545,791 shares pursuant to the Richmond County merger and the issuance of shares pursuant to 3-for-2 stock splits on March 29 and September 20, 2001. The Company also maintained an active share repurchase program, with a total of 6,254,437 shares repurchased over the course of the year. On February 20, 2002, the Company announced that it had completed the repurchase of 2,250,000 shares under the Board of Directors' September 14, 2001 authorization and had been authorized to repurchase up to an additional 2,250,000 shares. Reflecting share repurchases and options exercised in the first eleven weeks of the new year, the number of shares outstanding at March 22, 2002 was 102,175,430. In addition to the five-month benefit of the Richmond County merger, the Company's 2001 performance reflects the full-year benefit of its acquisition of Haven, and the restructuring of the balance sheet subsequent to both events. In 2001, the Company sold $526.9 million and $83.7 million in one-to-four family mortgage loans acquired through the Haven and Richmond County transactions, respectively. Utilizing the funding gained through asset sales, wholesale leveraging, and the transactions, the Company produced a record level of mortgage loans in 2001. Mortgage originations totaled $1.2 billion, more than double the prior-year volume, including $791.3 million in multi-family mortgage loans. Capitalizing on the yield curve, the Company also increased its securities investments, leveraging its capital to profitable effect. At December 31, 2001, the portfolio of securities available for sale totaled $2.4 billion, as compared to $303.7 million at the previous year-end. In 2001, the Company's earnings rose $80.0 million, or 326.8%, to $104.5 million, equivalent to a 139.3% increase in diluted earnings per share to $1.34. Reflecting the full-year benefit of the Richmond County merger and subsequent strategic actions, the Company anticipates that its 2002 diluted earnings per share will increase better than 50%. FORWARD-LOOKING STATEMENTS AND ASSOCIATED 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 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 the purposes of said safe harbor provisions. The forward-looking statements made in this report are based on current expectations, but actual results may differ materially from anticipated results. Forward-looking statements are based on certain assumptions and describe the Company's plans, strategies, and expectations for the year ahead. Generally speaking, such statements may be identified by the use of such words as "believe," "expect," "intend," "anticipate," "estimate," "project," "assume," "evaluate," "assess," or similar expressions. The Company's ability to predict results or the actual effects of its plans and 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; changes 13 in the quality or composition of the Company's portfolios of loans and investments; changes in the demand for loan products or financial services in the Company's local markets; changes in deposit flows or competition; changes in local real estate values; changes in accounting principles and guidelines; war or terrorist activities; and other economic, competitive, governmental, regulatory, geopolitical, and technological factors affecting the Company's operations, pricing, and services. Specific factors that could cause future results to vary from current expectations are detailed from time to time in the Company's SEC filings, including this report. Readers are cautioned not to place undue reliance on these forward-looking statements, including management's 2002 earnings projections, as such statements reflect expectations and assessments based on factors known 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 were made. FINANCIAL CONDITION Balance Sheet Summary The Richmond County merger combined with a record level of loan production to produce a 95.4% increase in total assets over the course of 2001. Total assets rose to $9.2 billion at December 31, 2001 from $4.7 billion at December 31, 2000, reflecting $3.7 billion in net assets acquired in the merger and the origination of $1.2 billion in mortgage loans. The growth in assets was tempered by a strategic restructuring program, designed to enhance profitability and minimize credit and interest rate risk. In 2001, the Company sold $114.9 million of securities acquired in the Haven transaction and, from the Haven and Richmond County transactions, $610.6 million of one-to-four family mortgage loans. Boosted by originations and by $1.9 billion in net loans acquired, the mortgage loan portfolio rose $1.7 billion, or 47.0%, to $5.3 billion, including a $1.3 billion, or 67.3%, increase in multi-family mortgage loans. The growth in loans was partly offset by the aforementioned sale of one-to-four family mortgage loans totaling $610.6 million in connection with the post-transaction restructuring of the balance sheet. Despite the significant asset growth achieved pursuant to the transactions, the Company maintained a solid record of asset quality. While non-performing assets rose $8.6 million year-over-year to $17.7 million, the ratio of non-performing assets to total assets was 0.19% at both December 31, 2001 and 2000. Non-performing loans represented $17.5 million of the year-end 2001 total, while foreclosed real estate accounted for the remaining $249,000. Included in non-performing loans at year-end 2001 were mortgage loans in foreclosure totaling $10.6 million and loans 90 days or more delinquent totaling $6.9 million. Additionally, the fourth quarter of 2001 was the Company's 29th consecutive quarter without any net charge-offs being recorded since the fourth quarter of 1994. Notwithstanding the absence of any net charge-offs or provisions for loan losses, the loan loss allowance rose from $18.1 million at December 31, 2000 to $40.5 million at December 31, 2001. The 2001 amount reflects the addition of $22.4 million pursuant to the Richmond County merger, and represented 231.46% of non-performing loans and 0.76% of loans, net. The increase in assets also reflects the addition of goodwill and the core deposit intangible from the Richmond County merger, which totaled $558.6 million at December 31, 2001. Other assets also rose, to $252.4 million, from $108.9 million at the prior year-end. Bank-owned Life Insurance ("BOLI") represented $123.3 million of the December 31, 2001 balance, as compared to $62.4 million of the balance at December 31, 2000. The growth in assets was also fueled by a $2.1 billion increase in the portfolio of securities available for sale to $2.4 billion, including $2.1 billion in mortgage-backed and mortgage-related securities. In addition to $1.3 billion in securities acquired in the Richmond County merger, the increase reflects the Company's subsequent purchase of investments to capitalize on the attractive yield curve in the latter half of the year. Asset growth was funded by a 67.3% increase in deposits and supplemented by a 141.6% increase in borrowings. Largely reflecting the benefit of the Richmond County merger, total deposits rose $2.2 billion from the year-end 2000 balance to $5.5 billion at December 31, 2001. The increase was fueled by a $1.7 billion rise in core deposits to $3.0 billion, representing 55.8% of total deposits, and by a $534.1 million rise in CDs to $2.4 billion, representing 44.2%. Taking advantage of the attractive yield curve to strengthen its capital position, the Company implemented a wholesale leveraging strategy in the third quarter of the year. Primarily reflecting an increase in FHLB advances, total borrowings rose $1.5 billion to $2.5 billion at December 31, 2001. In addition to $916.2 million in borrowings acquired in the Richmond County merger, the increase also reflects the Company's issuance of $121.3 million in trust preferred securities in December 2001. Supported by twelve-month cash earnings totaling $149.0 million, stockholders' equity rose to $983.1 million at December 31, 2001. In addition to distributing cash dividends totaling $44.0 million, the Company allocated $121.0 million toward the repurchase of 6,254,437 Company shares over the course of the year. 14 New York Community Bancorp, Inc. 2001 Annual Report Under the Federal Deposit Insurance Corporation Improvement Act, better known as "FDICIA," the Company is required to maintain certain minimum levels of capital. Primarily reflecting the aforementioned issuance of $121.3 million in trust-preferred securities in the fourth quarter, the Company's Tier 1 capital ratio improved from 9.70% of risk-weighted assets at December 31, 2000 to 10.37% at December 31, 2001. Loans The Company's capacity for mortgage loan production was significantly fueled by funding acquired in the Haven transaction and by the funding acquired in the merger with Richmond County the following July. As a result, the Company achieved a record level of mortgage loan production in 2001, with twelve-month originations nearly doubling to $1.2 billion from $616.0 million in the prior year. Included in the 2001 amount were multi-family mortgage loan originations of $791.3 million, as compared to $541.7 million in the year-earlier twelve months. Reflecting originations and $783.8 million in multi-family loans acquired in the Richmond County merger, the portfolio of multi-family mortgage loans rose $1.3 billion from the year-end 2000 balance to $3.3 billion at December 31, 2001. Multi-family mortgage loans represented 68.8% of total twelve-month mortgage originations and 61.6% of total mortgage loans outstanding at year-end. The growth in loans was also fueled by commercial real estate and construction loan production, with originations totaling $130.7 million and $91.2 million, respectively, during the twelve-month period. In addition, the Company acquired commercial real estate loans of $136.8 million and construction loans of $86.7 million in the Richmond County merger. As a result, the portfolios grew $237.9 million and $92.9 million to $561.9 million and $152.4 million, respectively, at December 31, 2001. Commercial real estate loans thus represented 10.6% of year-end mortgage loans outstanding, while construction loans represented 2.9%. The remainder of the mortgage loan portfolio consisted of one-to-four family mortgage loans acquired in the Richmond County merger and, to a lesser extent, of seasoned one-to-four family mortgage loans from the Bank's pre-transaction loan portfolio. Of the $875.1 million in one-to-four family mortgage loans acquired in the Richmond County transaction, $83.7 million were immediately sold. While the Company offers its customers an extensive menu of one-to-four family mortgage products, such loans are originated on a conduit basis, and sold without recourse. Applications are taken and processed by a third-party provider, who pays the Company a fee for every loan that is closed and delivered. The benefits of this arrangement are apparent in the fee income generated, and in the reduced exposure to credit and interest rate risk. In addition, the arrangement is consistent with the Company's emphasis on cost reduction, as one-to-four family loans are less efficient to produce and service than multi-family, commercial real estate, and construction loans. Reflecting the post-transaction sale of loans, the conduit relationship, and repayments, the portfolio of one-to-four family mortgage loans rose a modest $51.2 million to $1.3 billion, representing 24.9% of mortgage loans outstanding at December 31, 2001. In 2002, the concentration of one-to-four family mortgage loans is expected to decline through repayments and securitization; at the same time, the concentration of multi-family mortgage loans is expected to increase. The Company's longtime preference for multi-family lending is based on the quality, efficiency, and profitability of such assets as compared to those of one-to-four family mortgage loans. For example, the Company's emphasis on local-market multi-family loans has been rewarded by the fully performing status of such assets during the 15 years ended December 31, 2001. The approval process for these loans is highly efficient, typically taking a period of four to six weeks. Multi-family mortgage loans are arranged through a select group of experienced mortgage brokers who are familiar with the Company's underwriting procedures and its reputation for timely response. As one of the few banks in the marketplace to make multi-family mortgage loans in the late 1980s and early 1990s, the Company has been rewarded with a steady supply of product, despite the entry of new competitors into the marketplace. Multi-family loans also support the Company's preference for short-term assets and feature 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 and a rate that adjusts with 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 are also used as a tool in negotiations with borrowers seeking to refinance their loans before they've reached full term. Multi-family mortgage lending is, in essence, a refinancing business; regardless of whether interest rates are rising or declining, the typical loan in the portfolio refinances within a period of three to five years. The Company's multi-family market niche is centered in the metro New York region and tends to consist of buildings that are rent-controlled or rent-stabilized. At December 31, 2001, 81.1% of the multi-family loan portfolio was secured by buildings in the five boroughs of New York City, including 29.2% in Manhattan and 24.8% in Queens. One of the many attractions of the Richmond County merger was the opportunity to expand the multi-family market niche. Appropriately, 7.8% of multi-family mortgage loans at year-end were secured by buildings in New Jersey and 6.0% by buildings in other neighboring states. The portfolio of multi-family mortgage loans acquired in the Richmond County merger was primarily secured by buildings in the New Jersey counties of Atlantic, Camden, Essex, and Hudson and in the vicinity of Philadelphia, PA. 15 The Company's commercial real estate loans are structured in the same manner as its multi-family credits, typically featuring a fixed rate for the first five years of the loan, and a rate that adjusts in each of years six through ten. The majority of commercial real estate loans are secured by office or retail buildings, nearly half of which are located in Staten Island and Queens. The remainder of the portfolio is secured by properties in the other three boroughs of New York City, and, to a lesser extent, by properties on Long Island and in New Jersey. Another benefit of the merger with Richmond County was the addition of its construction lending expertise. While the Company originated construction loans prior to the transaction, its focus on this type of lending has expanded since the merger took place. The Company primarily originates construction loans to a select group of experienced builders with whom it has had a successful lending relationship in the past. Building loans are primarily made for the construction of owner-occupied one-to-four family homes under contract and, to a far lesser extent, for the acquisition and development of commercial real estate properties. Originated for terms of up to two years, construction loans feature a daily floating prime-based rate of interest, with a floor of the original rate. As a result of the funding acquired in the Richmond County merger, the Company is better positioned than ever before to lend to its full capacity. With first quarter 2002 originations approximating $500.0 million and approximately $600.0 million in the pipeline at quarter's end, the Company currently expects that its 2002 mortgage loan production will exceed the level recorded in 2001. However, the ability to close these loans and others over the course of the next three quarters could be counteracted by various factors, including a downturn in the economy, an increase in competition, and a decline in loan demand. Loan Portfolio Analysis
At December 31, ============================================================================================================================ 2001 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- Percent Percent Percent (dollars in thousands) Amount of Total Amount of Total Amount of Total - ---------------------------------------------------------------------------------------------------------------------------- MORTGAGE LOANS: Multi-family $ 3,255,167 60.23% $ 1,945,656 53.51% $ 1,348,351 83.72% 1-4 family 1,318,295 24.40 1,267,080 34.85 152,644 9.48 Commercial real estate 561,944 10.40 324,068 8.91 96,008 5.96 Construction 152,367 2.82 59,469 1.64 4,793 0.30 - ---------------------------------------------------------------------------------------------------------------------------- Total mortgage loans 5,287,773 97.85 3,596,273 98.91 1,601,796 99.46 - ---------------------------------------------------------------------------------------------------------------------------- OTHER LOANS: Home equity 87,274 1.61 12,240 0.34 1,347 0.08 Cooperative apartment -- -- 3,726 0.10 4,856 0.30 Passbook savings 1,777 0.03 779 0.02 331 0.02 Other 27,827 0.51 23,003 0.63 2,208 0.14 - ---------------------------------------------------------------------------------------------------------------------------- Total other loans 116,878 2.15 39,748 1.09 8,742 0.54 - ---------------------------------------------------------------------------------------------------------------------------- Total loans 5,404,651 100.00% 3,636,021 100.00% 1,610,538 100.00% - ---------------------------------------------------------------------------------------------------------------------------- Unearned premiums (discounts) 91 (18) (24) Less: Net deferred loan origination fees 3,055 1,553 2,404 Allowance for loan losses 40,500 18,064 7,031 - ---------------------------------------------------------------------------------------------------------------------------- Loans, net $ 5,361,187 $ 3,616,386 $ 1,601,079 ============================================================================================================================
16 New York Community Bancorp, Inc. 2001 Annual Report - -------------------------------------------------------------------------------- Asset Quality ================================================================================ While asset growth played a major part in the Company's 2001 performance, the quality of its assets played an important supporting role. Despite the significant portfolio growth generated by transactions and loan production, the quality of the Company's assets was essentially sustained. As proof of point, in 2001, the Company extended its record to 29 consecutive quarters without any net charge-offs, and maintained a 0.19% ratio of non-performing assets to total assets at December 31, 2001. While non-performing assets rose $8.6 million year-over-year to $17.7 million, the 0.19% ratio was consistent with the ratio recorded at the prior year-end. The increase in non-performing assets stemmed almost entirely from an $8.4 million rise in non-performing loans to $17.5 million, equivalent to 0.33% of loans, net. Included in the latter amount were mortgage loans in foreclosure of $10.6 million and loans 90 days or more delinquent of $6.9 million. At the prior year-end, non-performing loans represented 0.25% of loans, net, and included mortgage loans in foreclosure of $6.0 million and loans 90 days or more delinquent of $3.1 million. The increase in non-performing loans was primarily merger-related, consisting of one-to-four family and home equity loans from the Richmond County portfolio. Foreclosed real estate accounted for the remaining $249,000 of total non-performing assets, and was comprised of five one-to-four family mortgage loans. Similarly, the Company's portfolio of non-performing loans was secured by one-to-four family homes within its primary markets; there were no non-performing multi-family, commercial, or construction loans at December 31, 2001. While the quality of the Company's loans reflects the strength of the local real estate market, it also reflects the consistently conservative underwriting and credit standards maintained. In the case of multi-family and commercial real estate loans, management looks at the appraised value of the property that collateralizes the credit, and, more importantly, at the consistency of the cash flow produced. The condition of the property is another critical factor: every building and property is inspected from rooftop to basement, as a prerequisite to approval by the Real Estate and Mortgage Committee of the Board. All inspections are conducted by a senior mortgage officer, who is accompanied by a member of executive management when the amount of the loan exceeds $1.0 million. When the loan amount exceeds $1.5 million, a member of the Board of Directors' Real Estate and Mortgage Committee also participates in the inspection; the entire Committee reviews and approves all loans, regardless of amount. In the event that a loan amount is greater than $5.0 million, the loan must be approved by the Board of Directors of the Bank as a whole. Furthermore, all properties are appraised by independent appraisers whose appraisals are carefully reviewed by the Company's in-house appraisal officers. Credit risk is also controlled by lending in a market that has been home to the Bank and its officers for decades, not years. Such loans are essentially brought to the Bank by a select group of mortgage brokers who have worked with the Bank or its acquirees for thirty years or more. 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%. Although the Company will lend up to 75% of appraised value on multi-family buildings and up to 65% on commercial properties, the average loan-to-value ratio of such credits was 59.6% and 50.3% at year-end 2001. At December 31, 2001, the average multi-family mortgage loan had a principal balance of $1.4 million, while the average commercial real estate loan had a principal balance of $685,800. The largest multi-family mortgage loan was on a garden apartment complex in Queens with 19 buildings and 894 units; the largest commercial loan was on a 15-story office building in Manhattan. The principal balances of these loans were $36.4 million and $31.1 million, respectively, at year-end 2001. The Company's construction loans are also stringently underwritten, and primarily made to multi-generational builders who have worked with the Bank or its acquirees in the past. The Company will typically lend up to 70% of the estimated market value, or up to 80%, in the case of home construction loans to individuals. With respect to commercial constructions loans, which are not its primary focus, the Company will typically lend up to 65% of the estimated market value of the property. Loan proceeds are disbursed periodically in increments as construction progresses, and as warranted by inspection reports provided by the Bank's own lending officers. To a far lesser extent, the Bank also originates land loans to local developers for the purpose of holding or developing the land for sale. Such loans are secured by a lien on the property and are limited to 65% of the appraised value of the secured property on raw land or up to 75% on developed building lots. The principal is reduced as lots are sold and released. While the Company is no longer originating one-to-four family mortgage loans for portfolio (thus lessening its credit risk exposure), such loans were retained for portfolio in the past. Prior to its transactions with Haven and Richmond County, loans originated by the Company were typically made on a limited documentation basis, with approval depending on a thorough property appraisal; the verification of financial assets, when furnished; and a review of the borrower's credit history. With the Richmond County merger, the Company acquired a portfolio of one-to-four family mortgage loans that were primarily made on a full documentation basis, requiring verification of income in addition to the items listed above. To further reduce the credit risk inherent in one-to-four family mortgage lending, the Company anticipates securitizing a significant portion of its portfolio in the second quarter of 2002. 17 While delinquencies have been minimal, the Company maintains specific procedures to ensure that problems are swiftly addressed when they do occur. In the case of multi-family, construction, 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. In the wake of the terrorist attacks on the World Trade Center on September 11th, the Company conducted an analysis of its loans in lower Manhattan, and determined that the portfolio was not at material risk. While concerns have been raised by the subsequent loss of jobs in the region, the soundness of the portfolio is still currently intact. Because the majority of the Company's multi-family loans are secured by rent-controlled and rent-stabilized buildings, it is believed that the portfolio is better insulated against economic downturn than those secured by other types of buildings or by one-to-four family homes. 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, a decline in real estate values, or a downturn in the local economy. To minimize the impact of credit risk, the Company maintains coverage through an allowance for loan losses that rose from $18.1 million at December 31, 2000 to $40.5 million at December 31, 2001. The 2001 amount reflects the addition of $22.4 million pursuant to the Richmond County merger, and represents 231.46% of non-performing loans and 0.76% of loans, net. The allowance for loan losses is increased by the provision for loan losses charged to operations and reduced by reversals or by net charge-offs. Management establishes the allowance for loan losses through a process that begins with estimates of probable loss inherent in the portfolio, based on various statistical analyses. These analyses consider historical and projected default rates and loss severities; internal risk ratings; geographic, industry, and other environmental factors; and model imprecision. In establishing the allowance for loan losses, management also considers the Company's current business strategy and credit process, including compliance with stringent guidelines it has established with regard to credit limitations, credit approvals, loan underwriting criteria, and loan workout procedures. The policy of the Bank 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 loan type. The performing loan categories are also assigned quantified risk factors, which result in allocations 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 and local market conditions beyond management's control. In addition, various regulatory agencies periodically review the Bank's loan loss allowance as an integral part of the examination process. Accordingly, the Bank may be required to take certain charge-offs and/or recognize additions to the allowance based on the judgment of the regulators with regard to information provided to them during their examinations. Based upon all relevant and presently available information, management believes that the current allowance for loan losses is adequate. The Company's policies with regard to the allowance for loan losses are considered critical to its financial condition because they require management to make difficult, complex, or subjective judgments regarding certain matters that may be inherently uncertain. Accordingly, the loan loss allowable is also discussed in Note 1 to the Consolidated Financial Statements. 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 32 of this report. 18 New York Community Bancorp, Inc. 2001 Annual Report Asset Quality Analysis
======================================================================================================================= (dollars in thousands) 2001 2000 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------- ALLOWANCE FOR LOAN LOSSES: Balance at beginning of year $18,064 $ 7,031 $ 9,431 $9,431 $9,359 Loan recoveries -- -- -- -- 72 Acquired allowance 22,436 11,033 -- -- -- Reversal of provision for loan losses -- -- (2,400) -- -- - ----------------------------------------------------------------------------------------------------------------------- Balance at end of year $40,500 $18,064 $ 7,031 $9,431 $9,431 ======================================================================================================================= NON-PERFORMING ASSETS: Mortgage loans in foreclosure $10,604 $ 6,011 $ 2,886 $5,530 $6,121 Loans 90 days or more delinquent 6,894 3,081 222 663 1,571 - ----------------------------------------------------------------------------------------------------------------------- Total non-performing loans 17,498 9,092 3,108 6,193 7,692 Foreclosed real estate 249 12 66 419 1,030 - ----------------------------------------------------------------------------------------------------------------------- Total non-performing assets $17,747 $ 9,104 $ 3,174 $6,612 $8,722 ======================================================================================================================= RATIOS: Non-performing loans to loans, net 0.33% 0.25% 0.19% 0.42% 0.55% Non-performing assets to total assets 0.19 0.19 0.17 0.38 0.54 Allowance for loan losses to non-performing loans 231.46 198.68 226.22 152.28 122.61 Allowance for loan losses to loans, net 0.76 0.50 0.44 0.63 0.68 =======================================================================================================================
Securities, Mortgage-backed Securities, and Money Market Investments While the origination of multi-family mortgage loans remained the Company's primary focus, the Company enriched its mix of assets by increasing its investments in securities and mortgage-backed securities over the course of the year. Investments are selected to support three primary objectives: minimizing exposure to credit and interest-rate risk; providing needed liquidity; and keeping the Bank's funds fully employed at the maximum rate of return. The Company categorizes its securities investments into two classifications: securities available for sale (which includes available-for-sale mortgage-backed securities) and securities and mortgage-backed securities held to maturity. While securities classified as available for sale are intended to generate earnings, they also provide the Company with the flexibility to hold or sell, as needed, depending on changing circumstances and current market opportunities. In keeping with its objectives, and reflecting $1.3 billion in securities available for sale acquired in the Richmond County merger, the Company's portfolio of available-for-sale securities rose from $303.7 million at December 31, 2000 to $2.4 billion at December 31, 2001. While the 2000 amount represented a modest 6.4% of total assets, the 2001 amount represented a far more significant 25.8%. Mortgage-backed securities represented $2.1 billion, or 89.4%, of the year-end 2001 available-for-sale portfolio, and featured an average term to maturity of 2.3 years. Debt and equity securities accounted for the remaining $253.3 million of the balance, including capital trust notes of $124.3 million. The remaining debt and equity securities consisted of preferred and common stock, U.S. Government and agency obligations, and corporate bonds. While the portfolio of securities available for sale rose $2.1 billion, the portfolio of securities held to maturity declined $19.3 million to $203.2 million at December 31, 2001. Partly reflecting securities acquired in the Richmond County merger, the held-to-maturity securities portfolio consisted primarily of corporate and government bonds and capital trust notes with an investment grade rating. The portfolio of mortgage-backed securities held to maturity, meanwhile, rose from $1.9 million to $50.9 million, largely reflecting investments purchased in the fourth quarter of 2001. Money market investments, in the form of federal funds sold overnight, totaled $10.2 million, as compared to $124.6 million at the prior year-end. The decline reflects the deployment of funds into higher yielding securities investments, consistent with the objectives outlined above. Reflecting management's stated preference for multi-family mortgage lending, it is expected that the Company's portfolios of securities and mortgage-backed securities will be reduced over time. Sources of Funds The Company's capacity for asset generation was greatly enhanced by the funding acquired in the Richmond County merger and the resultant addition of 34 banking offices. As a result of the merger, total deposits rose $2.2 billion year-over-year to $5.5 billion, signifying an increase of 67.3% at December 31, 2001. While deposit growth was across-the-board, the growth in core deposits substantially exceeded the growth in CDs. Core deposits rose $1.7 billion year-over-year to $3.0 billion, while CDs rose $534.1 million to $2.4 billion. The concentration of core deposits thus rose to 55.8% of total deposits from 42.5%, the year-earlier percentage, while the concentration of CDs declined to 44.2% from 57.5%. 19 The growth in core deposits stemmed from a $228.9 million rise in NOW and money market accounts to $948.3 million; a $1.1 billion rise in savings accounts to $1.6 billion; and a $283.8 million rise in non-interest-bearing accounts to $455.1 million. NOW and money market accounts thus represented 17.4% of total deposits, while savings accounts and non-interest-bearing accounts represented 30.1% and 8.4%, respectively, at December 31, 2001. The lower concentration of CDs was consistent with management's objective of reducing its dependence on higher cost funding sources, while also reflecting customer response to a declining rate environment. In addition, a significant percentage of CDs maturing during the year were invested in alternative investment products offered through 86 of the Company's branch offices. The Company earns other operating income on the sale of such products and ranks among the industry's top producers of revenues from investment product sales. Capitalizing on the opportunities presented by the highly favorable yield curve, the Company embarked on a wholesale leveraging program in the third quarter of the year. As a result, the balance of borrowings grew to $2.5 billion at December 31, 2001 from $1.0 billion at December 31, 2000. Included in the year-end 2001 balance were Federal Home Loan Bank ("FHLB") advances of $1.8 billion (of which $776.0 million were acquired in the Richmond County merger) and reverse repurchase agreements and trust preferred securities totaling $718.0 million. The funding provided by borrowings and deposits was supplemented by funds from loan prepayments, interest payments on loans and other investments, and the maturities of securities and mortgage-backed securities. The Company's ability to attract and retain deposits depends on various 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. The Company operates its branch network through six community divisions, each one retaining a strong local identity. The Queens County Savings Bank Division is the largest, with 26 locations, including 17 traditional and eight in-store banking offices in Queens. The Richmond County Savings Bank Division is next in line, with 24 locations, including 17 traditional and five in-store offices in Richmond County. Included in the latter amounts are one traditional and two in-store branches that opened in the first quarter of 2002. As a result of its acquisition of Haven, the Company operates the largest supermarket banking franchise in the metro New York region, and one of the largest in the northeast. Open seven days a week, including most holidays, the Company's in-store branches have been a significant source of low cost deposits, and of revenues from the sale of mutual funds and annuities. Reflecting the aforementioned opening of two in-store branches in Staten Island in the first quarter of 2002 and the anticipated divestiture of 14 in-store branches in New Jersey, Connecticut, and Rockland County in the second, the number of in-store branches will soon be 54. While the Company's in-store branches are primarily located on Long Island and the five boroughs of New York City, its 53 traditional banking offices are primarily concentrated in Queens and Richmond counties and New Jersey. The Bank enjoys the fifth and second largest share of deposits, respectively, in the two boroughs and a substantial portion of deposits in several densely populated New Jersey communities. With a total network of 108 offices, a competitive product menu, and a structure that emphasizes community banking, the Company is well positioned to attract and retain a solid customer base. Asset and Liability Management and the Management of Interest Rate Risk The Company manages its assets and liabilities to reduce its exposure to changes in market interest rates. The asset and liability management process has three primary objectives: to evaluate the interest rate risk inherent in certain balance sheet accounts; to determine the level of risk that is appropriate, given the Company's business strategy, operating environment, capital and liquidity requirements, and performance objectives; and to manage that risk in a manner consistent with the Board of Directors' approved guidelines. Market Risk As a financial institution, the Company's primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact the level of income and expense recorded on a large portion of the Company's assets and liabilities, and the market value of all interest-earning assets, other than those possessing a short term to maturity. The Company has pursued the following strategies in the process of managing its interest rate risk: (1) Emphasizing the origination and retention of multi-family and commercial real estate loans with a fixed rate of interest in the first five years of the loan and a rate that adjusts annually in each of years six through ten; (2) selling, from time to time, one-to-four family mortgage loans without recourse; and (3) investing in fixed-rate mortgage-backed and mortgage-related securities with estimated average lives of three to seven years. These strategies take into consideration the relative stability of the Company's core deposits and, more recently, the growth in core deposits stemming from its Haven and Richmond County transactions. 20 New York Community Bancorp, Inc. 2001 Annual Report The actual duration of mortgage loans and mortgage-backed securities can be significantly impacted by changes in prepayment levels and market interest rates. Mortgage prepayments will vary due to a number of factors, including the economy in the region where the underlying mortgages were originated; seasonal factors; demographic variables; and the assumability of the underlying mortgages. However, the largest determinants of prepayments are prevailing interest rates and related mortgage refinancing opportunities. Management monitors interest rate sensitivity so that adjustments in the asset and liability mix can be made on a timely basis when deemed appropriate. The Company does not currently participate in hedging programs, interest rate swaps, or other activities involving the use of off-balance-sheet derivative financial instruments. In 2001, the Company took a variety of actions to minimize its exposure to interest rate risk. First, the Company sold $725.5 million in assets acquired in the Haven and Richmond County transactions and utilized the proceeds to originate assets with shorter terms to maturity. Second, the merger with Richmond County, like the Haven transaction before it, provided a significant infusion of lower cost funds. The increase in funding provided support for the record level of loan production and for the increased concentration of loans specifically structured to minimize risk. Subsequent to the merger, the Company took additional steps to reduce its exposure, by increasing its investment in readily saleable mortgage-backed securities with leveraged funds. The increase in securities available for sale is indicative of a more flexible institution, one better equipped to address changes in market interest rates. Gap Analysis The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are "interest rate sensitive" and by monitoring a bank's interest rate sensitivity "gap." An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that period of time. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time frame and the amount of interest-bearing liabilities maturing or repricing within that same period of time. At December 31, 2001, the Company's one-year gap was a negative 8.69%. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. Accordingly, during a period of rising interest rates, a company with a positive gap would be better positioned to invest in higher yielding assets, as this might result in the yield on its assets increasing at a pace more closely matching the increase in the cost of its interest-bearing liabilities than if it had a negative gap. During a period of falling interest rates, a company with a positive gap would tend to see its assets repricing at a faster rate than one with a negative gap, which might tend to restrain the growth of its net interest income or result in a decline in interest income. The table on page 22 sets forth the amounts of interest- earning assets and interest-bearing liabilities outstanding at December 31, 2001 which, based on certain assumptions stemming from the Bank's historical experience, are expected to reprice or mature in each of the future time periods shown. Except as stated below, the amounts of assets and liabilities shown as repricing or maturing during a particular time period were determined in accordance with the earlier of (a) the term to repricing, or (b) the contractual terms of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at December 31, 2001 on the basis of contractual maturities, anticipated prepayments, and scheduled rate adjustments within a three-month period and subsequent selected time intervals. For mortgage and other loans (both adjustable- and fixed-rate), prepayment rates were assumed to range from 0% to 18% annually. Mortgage-backed and mortgage-related securities were assumed to prepay at rates based on their respective previous three-month prepayment experience. Savings accounts were assumed to decay at a rate of 5% for the first five years and 15% for the years thereafter. NOW and money market accounts were assumed to decay at an annual rate of 20% and 50%, respectively. Prepayment and deposit decay rates can have a significant impact on the Company's estimated gap. While the Company believes its assumptions to be reasonable, there can be no assurance that assumed prepayment and decay rates will approximate actual future loan prepayments and deposit withdrawal activity. 21 - -------------------------------------------------------------------------------- Interest Rate Sensitivity Analysis ================================================================================
At December 31, 2001 ========================================================================================================= 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(1) $ 297,123 $ 985,530 $1,864,151 $1,592,649 Securities(2) 17,369 35,564 1,000 29,470 Mortgage-backed securities(2)(3) 364,031 676,918 762,508 214,331 Money market investments 10,166 -- -- -- - --------------------------------------------------------------------------------------------------------- Total interest-earning assets 688,689 1,698,012 2,627,659 1,836,450 - --------------------------------------------------------------------------------------------------------- INTEREST-BEARING LIABILITIES: Savings accounts 13,660 68,302 163,924 169,560 NOW and Super NOW accounts 11,120 55,599 133,438 133,438 Money market accounts 76,841 230,523 307,365 -- Certificates of deposit 672,329 1,278,552 395,839 37,849 Borrowings 592,511 186,517 47,000 107,500 - --------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 1,366,461 1,819,493 1,047,566 448,347 - --------------------------------------------------------------------------------------------------------- Interest sensitivity gap per period(4) $ (677,772) $ (121,481) $1,580,093 $1,388,103 - --------------------------------------------------------------------------------------------------------- Cumulative interest sensitivity gap $ (677,772) $ (799,253) $ 780,840 $2,168,943 - --------------------------------------------------------------------------------------------------------- Cumulative interest sensitivity gap as a percentage of total assets (7.36)% (8.69)% 8.48% 23.57% Cumulative net interest-earning assets as a percentage of net interest-bearing liabilities 50.40 74.91 118.44 146.33 ========================================================================================================= At December 31, 2001 ===================================================================================== More than More Five Years than (dollars in thousands) to 10 Years 10 Years Total - ------------------------------------------------------------------------------------- INTEREST-EARNING ASSETS: Mortgage and other loans(1) $ 552,097 $ 95,693 $5,387,243 Securities(2) 91,573 281,554 456,530 Mortgage-backed securities(2)(3) 107,932 46,592 2,172,312 Money market investments -- -- 10,166 - ------------------------------------------------------------------------------------- Total interest-earning assets 751,602 423,839 8,026,251 - ------------------------------------------------------------------------------------- INTEREST-BEARING LIABILITIES: Savings accounts 1,223,793 -- 1,639,239 NOW and Super NOW accounts -- -- 333,595 Money market accounts -- -- 614,729 Certificates of deposit 23,318 19 2,407,906 Borrowings 1,498,000 75,300 2,506,828 - ------------------------------------------------------------------------------------- Total interest-bearing liabilities 2,745,111 75,319 7,502,297 - ------------------------------------------------------------------------------------- Interest sensitivity gap per period(4) $(1,993,509) $348,520 $ 523,954 - ------------------------------------------------------------------------------------- Cumulative interest sensitivity gap $ 175,434 $523,954 - ------------------------------------------------------------------------------------- Cumulative interest sensitivity gap as a percentage of total assets 1.91% 5.69% Cumulative net interest-earning assets as a percentage of net interest-bearing liabilities 102.36 106.98 =====================================================================================
(1) For purposes of the gap analysis, non-performing loans have been excluded. (2) Securities and mortgage-backed securities are shown at their respective carrying values. (3) Based on historical repayment experience. (4) The interest sensitivity gap per period represents the difference between interest-earning assets and interest-bearing liabilities. Certain shortcomings are inherent in the method of analysis presented in the preceding Interest Rate Sensitivity Analysis. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates both on a short-term basis and over the life of the asset. Further, in the event of changes in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Finally, the ability of some borrowers to service their adjustable-rate loans may be adversely impacted by an increase in market interest rates. Net Portfolio Value Management also monitors the Company's interest rate sensitivity through the use of a model that generates estimates of the change in the Company's net portfolio value ("NPV") over a range of interest rate scenarios. NPV is defined as the net present value of expected cash flows from assets, liabilities, and off-balance-sheet contracts. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The model assumes estimated loan prepayment rates, reinvestment rates, and deposit decay rates similar to those utilized in formulating the Interest Rate Sensitivity Analysis above. The following table sets forth the Company's NPV as of December 31, 2001: Net Portfolio Value Analysis
================================================================================================================= Change in Portfolio Market Value Interest Rates Change in Change in Net Portfolio Net Projected % Change (in basis points) Asset Value Liability Value Value Change to Base - ----------------------------------------------------------------------------------------------------------------- -200 $9,816,309,332 $8,491,263,970 $1,325,045,362 $ 83,671,497 6.74% -100 9,604,314,175 8,314,909,799 1,289,404,376 48,030,511 3.87 -- 9,387,034,427 8,145,660,562 1,241,373,865 -- -- +100 9,146,989,183 7,977,146,434 1,169,842,749 (71,531,116) (5.76) +200 8,865,028,170 7,801,936,766 1,063,091,404 (178,282,461) (14.36) =================================================================================================================
- -------------------------------------------------------------------------------- 22 New York Community Bancorp, Inc. 2001 Annual Report As with the Interest Rate Sensitivity Analysis, certain shortcomings are inherent in the methodology used in the preceding interest rate risk measurements. Modeling changes in NPV requires that certain assumptions be made which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the NPV Analysis presented on page 22 assumes that the composition of the Company's interest rate sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured, and also assumes that a particular change in interest rates is reflected uniformly across the yield curve, regardless of the duration to maturity or repricing of specific assets and liabilities. Also, the model does not take into account the Company's strategic plans. Accordingly, while the NPV Analysis provides an indication of the Company's interest rate risk exposure at a particular point in time, such measurements are not intended to, and do not, provide a precise forecast of the effect of changes in market interest rates on the Company's net interest income, and may very well differ from actual results. Liquidity and Capital Position Liquidity The Company manages its liquidity to ensure that its cash flows are sufficient to support the Bank's operations and to compensate for any temporary mismatches with regard to sources and uses of funds caused by erratic loan and deposit demand. As previously noted, the Bank's primary funding sources are deposits and borrowings. Additional funding has stemmed from interest and principal payments on loans, securities, and mortgage-backed securities, and the sale of securities, 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 principal investing activities of the Bank are the origination of mortgage loans (primarily secured by multi-family buildings) and, to a lesser extent, the purchase of mortgage-backed and other investment securities. In 2001, the net cash used in investing activities totaled $3.9 billion, primarily reflecting a $2.4 billion net increase in loans, the purchase of securities available for sale totaling $2.7 billion, and proceeds from the redemption and sales of securities available for sale totaling $685.1 million. In addition to loans, net, of $1.8 billion acquired through the Richmond County merger (after sales of $83.7 million), the net increase in loans reflects twelve-month mortgage originations of $1.2 billion, offset by repayments and prepayments totaling $765.6 million. The net cash used in operating activities totaled $425.9 million, including goodwill stemming from the Richmond County and Haven transactions, a $143.6 million increase in other assets (primarily reflecting the Company's BOLI investment), and the merger-related core deposit intangible of $60.0 million. The Bank's investing and operating activities were funded by internal cash flows generated by its financing activities. In 2001, the net cash provided by financing activities totaled $4.2 billion, reflecting a $2.2 billion net increase in deposits and a $1.5 billion net increase in borrowings. Reflected in the latter amounts were $2.5 billion in deposits and $803.5 million in borrowings stemming from the Richmond County merger. The Bank monitors its liquidity position on a daily basis to ensure that sufficient funds are available to meet its financial obligations, including withdrawals from depository accounts, outstanding loan commitments, contractual long-term debt payments, and operating leases. The Bank's most liquid assets are cash and due from banks and money market investments, which collectively totaled $178.6 million at December 31, 2001, as compared to $257.7 million at December 31, 2000. At the same time, the Bank's liquidity position was enhanced by a $2.1 billion increase in the portfolio of securities available for sale to $2.4 billion from $303.7 million. Additional liquidity is available through the Bank's FHLB line of credit, which totaled $3.7 billion at December 31, 2001, and a $10.0 million line of credit with a money center bank. CDs due to mature in one year or less from December 31, 2001 totaled $1.9 billion; based upon recent retention rates as well as current pricing, management believes that a significant portion of such deposits will either roll over or be reinvested in annuities or mutual funds sold through the Bank's branch offices. As the following table indicates, the Bank's and the Company's off-balance-sheet commitments at December 31, 2001 were limited to outstanding loan commitments totaling $344.4 million and investment commitments in the amount of $450.0 million. (in thousands) - -------------------------------------------------------------------------------- Multi-family mortgage loans $228,545 All other loans 115,869 Securities investments(1) 450,000 - -------------------------------------------------------------------------------- Total commitments $794,414 ================================================================================ (1) Consists entirely of commitments to purchase mortgage-backed securities. 23 The following table summarizes the maturity profile of the Company's consolidated contractual long-term debt payments and operating leases at December 31, 2001: ================================================================================ (in thousands) Long-term debt(1) Operating leases - -------------------------------------------------------------------------------- 2002 $ 85,267 $ 5,375 2003 25,000 4,076 2004 22,000 3,512 2005 42,000 3,113 2006 65,500 2,698 2007 and thereafter 1,685,789 16,479 - -------------------------------------------------------------------------------- Total $1,925,556 $35,253 ================================================================================ (1) Includes FHLB advances, trust preferred securities, and reverse repurchase agreements. Based upon the strength of the Bank's liquidity position, management anticipates that the Bank and the Company will have sufficient funding to fulfill these commitments when they are due. The primary sources of funding for the Company are trust preferred securities, dividend payments from the Bank, sales and maturities of investment securities, and, to a lesser extent, earnings on investments and deposits held by the Company. Trust preferred securities and dividend payments by the Bank have primarily been used to fund stock repurchase programs, to pay dividends on Company stock, and to pay the distributions on the trust preferred securities issued by the Company which totaled $255.5 million at December 31, 2001. The Bank's ability to pay dividends and other capital distributions to the Company is generally limited by New York State banking law and regulations, and by regulations of the Federal Deposit Insurance Corporation (the "FDIC"). In addition, the New York State Superintendent of Banks and the FDIC may prohibit the payment of dividends that are otherwise permissible by regulation for reasons of safety and soundness. Under New York State banking law, a New York State-chartered stock 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 the bank's net profits for that year combined with its retained net profits of the preceding two years (subject to certain adjustments). As of December 31, 2001, the Bank had $145.7 million of dividends or capital distributions it could pay to the Company without regulatory approval, and the Company had $2.7 million of securities available for sale and $107.1 million in cash deposits. Were the Bank to apply to the Company for a dividend or capital distribution in excess of the dividend amounts permitted under the regulations, no assurances could be made that said application would be approved by the regulatory authorities. Capital Position The Company maintained an aggressive approach to capital management in 2001 and has already demonstrated a readiness to do so again in 2002. In addition to increasing the quarterly cash dividend 20% in each of the second and fourth quarters, the Company distributed a 50% stock dividend on March 29 and September 20, pursuant to a 3-for-2 stock split on each of these dates. The Company also allocated $121.0 million toward the repurchase of 6,254,437 shares over the course of four quarters at an average price of $19.35 per share. At December 31, 2001, a total of 1,066,787 shares remained available for repurchase under the September 14, 2001 authorization; all of these had been repurchased by February 19, 2002. Accordingly, on that date, the Board of Directors authorized the Company to repurchase up to an additional 2,250,000 shares of stock. Of this number, 1,960,894 shares remained available for repurchase at March 22, 2002. The magnitude of the Company's share repurchase program serves as an indication of management's confidence in the Company's capital strength. Supported by cash earnings of $149.0 million and shares issued pursuant to the Richmond County merger in the amount of $693.4 million, stockholders' equity rose to $983.1 million at December 31, 2001, representing 10.68% of total assets and a book value of $10.05 per share, based on 97,774,030 shares. At the prior year-end, stockholders' equity totaled $307.4 million, representing 6.53% of total assets and a book value of $4.94, based on 62,275,959 shares, as adjusted for the 3-for-2 stock splits cited above. 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, 2001, the number of unallocated ESOP shares was 4,071,246; at the prior year-end, the split-adjusted number of unallocated ESOP shares was 4,279,320. 24 New York Community Bancorp, Inc. 2001 Annual Report The level of stockholders' equity at December 31, 2001 was more than sufficient to exceed the minimum federal requirements for a bank holding company, which are considered on a consolidated basis. The following table sets forth the Company's consolidated leverage, Tier 1 risk-based, and total risk-based capital ratios at December 31, 2001 and 2000, and the respective minimum requirements: ================================================================================ Minimum At December 31, 2001 Actual Requirement - -------------------------------------------------------------------------------- (dollars in thousands) Amount Ratio Ratio - -------------------------------------------------------------------------------- Total risk-based capital $542,430 11.31% 10.0% Tier 1 risk-based capital 497,184 10.37 6.0 Leverage capital 497,184 5.95 5.0 ================================================================================ Minimum At December 31, 2000 Actual Requirement - -------------------------------------------------------------------------------- (dollars in thousands) Amount Ratio Ratio - -------------------------------------------------------------------------------- Total risk-based capital $282,609 10.37% 10.0% Tier 1 risk-based capital 264,545 9.70 6.0 Leverage capital 264,545 8.75 5.0 ================================================================================ While the Company's regulatory capital was reduced by the addition of $558.6 million in goodwill and core deposit intangibles in connection with the Richmond County merger, the Company took steps to enhance its regulatory capital in the fourth quarter with the issuance of $121.3 million in trust preferred securities. As a result, the Company's regulatory Tier 1 risk-based capital ratio rose to 10.37% at December 31, 2001 from 9.70% at the prior year-end. The Company's capital strength is paralleled by the solid capital position of the Bank, as reflected in the excess of its regulatory capital ratios over the levels required by the FDIC for classification as a well capitalized institution. At December 31, 2001, the Bank's Tier 1 leverage capital ratio equaled 6.09% of average adjusted assets, as compared to the 5.00% required for "well capitalized" classification, while its Tier 1 and total risk-based capital ratios equaled 10.12% and 10.97%, respectively, of risk-weighted assets, as compared to the 6.00% and 10.00% required. RESULTS OF OPERATIONS Earnings Summary 2001 and 2000 Comparison: On July 31, 2001, the Company merged with Richmond County in a purchase transaction calling for the exchange of 1.02 Company shares for each share of Richmond County stock held at that date. Accordingly, the Company's 2001 earnings reflect five months of combined operations, and its earnings per share reflect the issuance of 38,545,790 Company shares pursuant to the merger, as adjusted for a 3-for-2 stock split on September 20, 2001. The Company's 2001 earnings also reflect the full-year benefit of its acquisition of Haven on November 30, 2000 in a purchase transaction that called for the exchange of 1.04 Company shares for each share of Haven stock held. The Company's 2000 earnings and earnings per share therefore reflect just one month of combined operations and the addition of 22,112,424 shares, as adjusted for the aforementioned stock split and an earlier 3-for-2 stock split on March 29, 2001. Reflecting the Haven and Richmond County transactions, internal loan growth, and the implementation of various strategic actions, the Company's net income rose 326.8% from $24.5 million in 2000 to $104.5 million in 2001. The Company's earnings also rose 139.3% on a diluted per share basis, from $0.56 to $1.34. The extent of the Company's earnings growth was additionally reflected in the returns provided on its average assets ("ROA") and average stockholders' equity ("ROE"). The ROA rose to 1.63% in 2001 from 1.06% in 2000, while the ROE rose to 18.16% from 13.24%. In 2001, the Company's net income included $25.7 million in non-core after-tax gains on the sale of loans and securities and two office locations (see other operating income), offset by non-core after-tax charges totaling $26.5 million, primarily reflecting $22.8 million stemming from the allocation of Employee Stock Ownership Plan ("ESOP") shares in connection with the Richmond County merger (see compensation and benefits) and $3.0 million stemming from a tax adjustment (see income tax expense). The combined impact of these items on the Company's 2001 earnings was a non-core after-tax charge of $836,000, equivalent to $0.01 per share. 25 In the prior year, the Company's net income included a non-core after-tax charge of $11.4 million, or $0.26 per share, the net effect of a $24.8 million non-core charge on the allocation of ESOP shares pursuant to the Haven acquisition (see compensation and benefits) and a $13.5 million non-core gain on the sale of a Bank-owned property (see other income). Excluding the respective charges, the Company's 2001 core earnings rose $69.4 million, or 193.7%, to $105.3 million, signifying a 64.6% increase in diluted core earnings per share to $1.35. In addition, the 2001 amount provided a core ROA of 1.65% and a core ROE of 18.30%, as compared to 1.56% and 19.40%, respectively, in the prior year. The Company also recorded significant growth in its 2001 cash earnings, which rose to $149.0 million from $58.5 million, a 154.7% increase. The 2001 amount provided a cash ROA and cash ROE of 2.33% and 25.90%, respectively, and was equivalent to a 43.6% increase in diluted cash earnings per share from $1.33 to $1.91. The Company's cash earnings for the twelve months ended December 31, 2001 thus added $44.5 million, or 42.6%, more to tangible Tier 1 capital than its comparable GAAP earnings. Readers are advised to see the Glossary on page 10 for a definition of cash earnings, and to see the cash earnings analysis that appears on page 27 of this report. The Company believes that its cash and core earnings, and the related cash and core performance measures, enable investors to gain a better understanding of its trends and results of operations than its GAAP results alone. Such non-GAAP measures should be viewed in addition to, and not in lieu of, the Company's GAAP results. The growth in earnings was driven by the Haven and Richmond County transactions, a record level of loan production, and the post-transaction restructuring of the balance sheet. In addition, earnings were favorably impacted by the steady decline in market interest rates and the steepening of the yield curve, which created opportunities for leveraged asset growth. While expenses rose, as one might expect, in the wake of two major transactions, the benefits were far more significant. For example, the Company's net interest income rose $132.7 million, or 181.6%, to $205.8 million, the net effect of a $248.5 million rise in interest income to $423.3 million and a $115.7 million rise in interest expense to $217.5 million. The favorable factors that combined to create the increase in net interest income also supported a 38-basis point rise in interest rate spread and a 26-basis point rise in net interest margin to 3.38% and 3.59%, respectively. The Company's earnings were also fueled by a better than three-fold increase in other operating income to $90.6 million, including $39.6 million in non-core gains on the sale of loans and securities and the sale of two Bank-owned properties. In the prior year, other operating income totaled $21.6 million, including a non-core gain of $13.5 million on the sale of the Bank's former headquarters in Queens. Excluding these gains, core other operating income rose to $51.0 million, reflecting a $30.5 million rise in fee income to $35.1 million and a $12.5 million rise in core other income to $16.0 million. While the growth in fee income largely reflects the expansion of the branch network, the growth in other income also reflects the income derived from the Company's investment in BOLI and from the sale of investment products in 86 of the Company's banking offices. The provision for loan losses had no impact on the Company's 2001 or 2000 earnings, as it was suspended in both years. The $201.7 million increase in revenues from net interest and other operating income was more than enough to offset the $71.4 million increase in non-interest expense to $121.2 million. Reflected in the latter amount was a $63.4 million rise in total operating expense to $112.8 million and a $7.9 million rise in the amortization of goodwill and core deposit intangible to $8.4 million. Excluding the aforementioned non-core charges of $22.8 million and $24.8 million stemming from the Company's respective transaction-related ESOP share allocations, core operating expense totaled $90.0 million and $24.5 million, respectively, in 2001 and 2000. The higher operating expense level in 2001 largely reflects the costs of staffing and operating an expanded branch network and, to a lesser extent, the post-transaction integration of data processing systems in the first and fourth quarters of the year. The increase in goodwill and core deposit intangible amortization reflects the full-year impact of the Haven acquisition and the five-month impact of the Richmond County merger. The growth in earnings was also partly offset by a $50.4 million increase in income tax expense to $70.8 million, reflecting a $130.3 million rise in pre-tax income to $175.2 million and an effective tax rate of 40.4%. The increase in 2001 income tax expense also reflects a non-core tax rate adjustment of $3.0 million. Based on its accomplishments in 2001, and the implementation of certain income-enhancing strategies, management currently anticipates that the Company's 2002 performance will reflect a better than 50% increase in diluted earnings per share and a better than 20% increase in diluted cash earnings per share. These earnings growth projections reflect management's current expectation that net interest income, spread, and margin will continue to grow and that the provision for loan losses will continue to be suspended; that other operating income will continue to increase, while operating expense will stabilize and the effective tax rate will be reduced. Estimates regarding cash earnings per share are based on additional assumptions, including assumptions about the extent of share repurchases. Specific estimates for other operating income, operating expense, and the effective tax rate are provided in the respective 26 New York Community Bancorp, Inc. 2001 Annual Report line-item discussions that appear on pages 32-35, of this report. As actual results may differ materially from current projections, readers are urged to read the entire discussion, including the associated risk factors, and to refer to the more general discussion of forward-looking statements and associated risk factors that appears on pages 13-14. 2000 and 1999 Comparison: The Company recorded net income of $24.5 million, or $0.56 per diluted share, in 2000, as compared to $31.7 million, or $0.74 per diluted share, in 1999. Included in the 2000 amount was a non-core net charge of $11.4 million, or $0.26 per share, incurred in connection with the Haven acquisition, which consisted of two components: compensation and benefits expense of $24.8 million stemming from the distribution of ESOP shares pursuant to the transaction, and other operating income of $13.5 million stemming from the sale of the Company's former headquarters in Queens. Included in the 1999 amount were a non-core net benefit of $1.1 million, or $0.03 per share, stemming from the reversal of $2.0 million from the allowance for loan losses and a non-core net benefit of $472,000 stemming from actions taken during the year to lower operating expense. Per-share amounts for 2000 and 1999 have been adjusted to reflect the 3-for-2 stock splits in 2001. Excluding these non-core items, the Company recorded core earnings of $35.9 million, or $0.82 per diluted share (split-adjusted), in 2000, as compared to core earnings of $30.1 million, or $0.71 per diluted share (split-adjusted), in 1999. The 2000 amount provided a core ROA of 1.56% and a core ROE of 19.40%. At the same time, the Company's cash earnings rose to $58.5 million, or $1.33 per diluted share (split-adjusted), in 2000 from $44.3 million, or $1.04 per diluted share (split-adjusted), in the prior year. The Company's cash earnings thus contributed $34.0 million, or 139.0%, more to capital in 2000 than its reported earnings contributed alone. Similarly, while the Company recorded an ROA and ROE of 1.06% and 13.24%, respectively, on a reported earnings basis, its cash ROA and ROE were 2.52% and 31.38%. Excluding the impact of the non-core 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. Core 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 $2.1 million stemming from the Company's initial investment in BOLI on 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, partly reflecting a $7.5 million reduction in pre-tax income to $44.9 million. The growth in core earnings was partly offset by a $2.7 million rise in core operating expense to $24.5 million, or 1.06% of average assets, primarily reflecting post-acquisition increases in compensation and benefits and occupancy and equipment expense. Despite the higher levels of net interest income and core other operating income, the core efficiency ratio rose to 30.20% 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 $0.03 per share. Cash Earnings Analysis
For the Years Ended December 31, ======================================================================================================= (in thousands, except per share data) 2001 2000 1999 - ------------------------------------------------------------------------------------------------------- Net income $104,467 $24,477 $31,664 Additional contributions to tangible stockholders' equity: Amortization and appreciation of stock-related benefit plans 22,775 24,795 2,559 Associated tax benefits 11,000 5,953 7,269 Dividends on unallocated ESOP shares 2,302 2,776 2,857 - ------------------------------------------------------------------------------------------------------- Total additional contributions to tangible stockholders' equity 36,077 33,524 12,685 Amortization of goodwill and core deposit intangible 8,428 494 -- - ------------------------------------------------------------------------------------------------------- Cash earnings $148,972 $58,495 $44,349 ======================================================================================================= Cash earnings per share(1) $ 1.94 $ 1.38 $ 1.06 Diluted cash earnings per share(1) 1.91 1.33 1.04 =======================================================================================================
(1) Per share amounts for 2000 and 1999 have been adjusted to reflect 3-for-2 stock splits on March 29 and September 20, 2001. 27 Interest Income 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 (the "FOMC") of the Federal Reserve Board of Governors, which reduces, maintains, or increases the federal funds rate (i.e., the rate at which banks borrow funds from one another), as it deems necessary. The federal funds rate declined 475 basis points over the course of 2001 to 1.75% in December and, as of this writing, has been sustained at this rate. 2001 and 2000 Comparison: The Haven and Richmond County transactions combined with a record level of mortgage loan production to produce significant interest income growth in 2001. The Company recorded 2001 interest income of $423.3 million, up $248.5 million, or 142.1%, from the year-earlier amount. The growth in interest income was driven by a $3.5 billion, or 161.4%, rise in average interest-earning assets to $5.7 billion, which more than offset a 59-basis point drop in the average yield to 7.38%. While the higher average balance reflects internal loan growth and the benefit of the transactions, the lower yield reflects the steady reduction in market interest rates over the course of the year. Loans generated $325.9 million, or 77.0%, of 2001 interest income, up from $151.6 million, representing 86.7%, in the year-earlier twelve months. The 115.0% increase was driven by a $2.3 billion, or 122.2%, rise in the average balance of loans to $4.2 billion, offsetting a 26-basis point decline in the average yield to 7.71%. In addition to $1.9 billion in net loans acquired in the Richmond County transaction, the higher average balance was bolstered by twelve-month originations totaling $1.2 billion, nearly doubling the year-earlier volume of $616.0 million. While the average yield was partly reduced by the sale of assets acquired in the Haven and Richmond County transactions, the structure of the loan portfolio served to limit the decline. Notwithstanding the significant growth in the average balance, the concentration of loans within the mix of average interest-earning assets declined to 73.8% in 2001 from 86.8% in the prior year. The principal reason for the decline was the merger-related infusion of mortgage-backed securities. In 2001, mortgage-backed securities represented 17.1% of average interest-earning assets, a fairly significant increase from 1.9% in the prior year. Similarly, in 2001, mortgage-backed securities generated 14.5% of total interest income, up from 2.2% of the total in the prior year. Mortgage-backed securities contributed $61.3 million to 2001 interest income, up from $3.8 million in the year-earlier twelve months. Reflecting $1.1 billion in mortgage-backed securities acquired in the Richmond County merger, the average balance rose to $977.7 million from $40.9 million, while generating an average yield of 6.27%, down 300 basis points. The interest income derived from securities grew to $30.1 million year-over-year from $18.0 million, the result of a $148.3 million rise in the average balance to $373.2 million and an eight-basis point rise in the average yield to 8.07%. In 2001, securities represented 6.5% of average interest-earning assets and generated 7.1% of interest income, down from 10.3% and 10.3%, respectively, in the prior twelve-month period. Money market investments generated interest income of $5.9 million, as compared to $1.4 million in the prior year. The increase was the net effect of a $128.8 million rise in the average balance to $153.2 million and a 201-basis point decline in the average yield to 3.88%. 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 stemmed from 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 interest income in 2000, up 15.2% from $131.6 million in 1999. The increase was the net effect of a $271.2 million, or 16.7%, rise in the average balance 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, and money market investments, which increased significantly with the Haven acquisition. In connection with this transaction, 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 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 mortgage-backed securities rose $2.9 million to $3.8 million, the result of a $27.9 million, or 213.0%, rise in the average balance to $40.9 million and a 244-basis point rise in the average yield to 9.27%. Mortgage-backed securities 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. 28 New York Community Bancorp, Inc. 2001 Annual Report Money market investments contributed interest income of $1.4 million in 2000, up from $443,000 in 1999. The increase reflects a $15.1 million rise in the average balance to $24.4 million and a 113-basis point rise in the average yield to 4.89%. 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, the availability of alternative funding sources, and the level of market interest rates. 2001 and 2000 Comparison: In 2001, the level of interest expense was significantly impacted by the infusion of core deposits acquired in the Haven and Richmond County transactions and by the adoption of a wholesale leveraging strategy in the second half of the year. While these factors combined to produce an increase in the average balance of interest-bearing liabilities, the yearlong decline in market interest rates, together with the greater concentration of core deposits, contributed to a markedly lower cost of funds. The Company recorded interest expense of $217.5 million in 2001, as compared to $101.8 million in 2000. The 113.7% increase was fueled by a $3.4 billion, or 165.8%, rise in average interest-bearing liabilities to $5.4 billion, and partly offset by a 97-basis point drop in the average cost of funds to 4.00%. CDs accounted for $108.1 million, or 49.7%, of total interest expense in the current twelve-month period, as compared to $41.2 million, representing 40.5%, in the year-earlier twelve months. The 2001 amount was the net effect of a $1.3 billion rise in the average balance to $2.1 billion and a 34-basis point decline in the average cost to 5.16%. The higher average balance was fueled by CDs acquired in the transactions, while the lower cost corresponds to the aforementioned decline in market interest rates. While CDs represented 38.5% and 36.5%, respectively, of average interest-bearing liabilities in 2001 and 2000, the concentration declined steadily over the course of the year. In the fourth quarter of 2001, the concentration of CDs declined to 33.4% of average interest-earning liabilities and accounted for 42.2% of fourth quarter 2001 interest expense. Other funding (NOW and money market accounts, savings accounts, mortgagors' escrow, and non-interest-bearing deposits) generated combined 2001 interest expense of $33.7 million, up from $11.3 million in the prior year. The increase was the net effect of a $1.5 billion rise in the average balance to $2.1 billion, fueled by the Haven and Richmond County transactions, and a 46-basis point decline in the average cost to 1.62%, reflecting the drop in market interest rates. Specifically, NOW and money market accounts generated 2001 interest expense of $15.2 million, up from $4.9 million in the prior year. The increase was the net effect of a $641.5 million rise in the average balance to $803.5 million and a 113-basis point decline in the average cost to 1.89%. Savings accounts generated 2001 interest expense of $18.5 million, up from $6.3 million, the net effect of a $660.0 million rise in the average balance to $955.3 million and a 22-basis point drop in the average cost to 1.93%. Mortgagors' escrow, meanwhile, produced interest expense of $62,000, up $29,000, the result of a $5.7 million rise in the average balance to $29.4 million and a seven-basis point rise in the average cost to 21 basis points. The average balance of non-interest-bearing deposits, meanwhile, rose to $298.8 million from $60.7 million, signifying an increase of 392.1%. The significant funding provided by the Company's growing mix of deposits was supplemented by an increase in borrowings as the Company capitalized on the yield curve in the second half of the year. The interest expense produced by borrowings thus rose 53.5% to $75.7 million in 2001 from $49.3 million in 2000, the net effect of a $741.0 million rise in the average balance to $1.6 billion and a 117-basis point decline in the average cost to 4.86%. Borrowings thus represented 28.7% of average interest-bearing liabilities and generated 34.8% of interest expense in 2001 as compared to 39.9% and 48.5%, respectively, in the prior year. 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 increase reflects a $247.7 million rise in the average balance 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 and repurchase shares in anticipation of the Haven 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. 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 twelve months. The interest expense produced by CDs rose $6.1 million to $41.2 million, the result of a $33.6 million rise in the average balance to $748.1 million and a 58-basis point rise 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. 29 Other funding 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%. The interest expense produced by NOW and money market accounts rose $2.4 million year-over-year to $4.9 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 from the year-earlier level, 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 deposits rose to $60.7 million in 2000 from $36.7 million in 1999. Net Interest Income Analysis
For the Years Ended December 31, =============================================================================================================================== 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------- Average Average Average Yield/ Average Yield/ (dollars in thousands) Balance Interest Cost Balance Interest Cost - ------------------------------------------------------------------------------------------------------------------------------- ASSETS Interest-earning Assets: Mortgage and other loans, net $4,227,982 $325,924 7.71% $1,902,821 $151,626 7.97% Securities 373,229 30,114 8.07 224,969 17,974 7.99 Mortgage-backed securities 977,706 61,319 6.27 40,945 3,795 9.27 Money market investments 153,219 5,947 3.88 24,408 1,437 5.89 - ------------------------------------------------------------------------------------------------------------------------------- Total interest-earning assets 5,732,136 423,304 7.38 2,193,143 174,832 7.97 Non-interest-earning assets 664,749 108,202 - ------------------------------------------------------------------------------------------------------------------------------- Total assets $6,396,885 $2,301,345 =============================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing Liabilities: NOW and money market accounts $ 803,456 $ 15,171 1.89% $ 161,941 $ 4,892 3.02% Savings accounts 955,343 18,473 1.93 295,370 6,346 2.15 Certificates of deposit 2,093,602 108,097 5.16 748,138 41,178 5.50 Borrowings 1,558,732 75,685 4.86 817,775 49,302 6.03 Mortgagors' escrow 29,449 62 0.21 23,777 33 0.14 - ------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 5,440,582 217,488 4.00 2,047,001 101,751 4.97 Non-interest-bearing deposits 298,794 60,716 Other liabilities 82,218 8,795 - ------------------------------------------------------------------------------------------------------------------------------- Total liabilities 5,821,595 2,116,512 Stockholders' equity 575,290 184,833 - ------------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $6,396,885 $2,301,345 =============================================================================================================================== Net interest income/interest rate spread $205,816 3.38% $ 73,081 3.00% Net interest-earning assets/net interest margin $291,554 3.59% $146,142 3.33% Ratio of interest-earning assets to interest-bearing liabilities 1.05x 1.07x =============================================================================================================================== For the Years Ended December 31, ====================================================================================== 1999 - -------------------------------------------------------------------------------------- Average Average Yield/ (dollars in thousands) Balance Interest Cost - -------------------------------------------------------------------------------------- ASSETS Interest-earning Assets: Mortgage and other loans, net $1,631,168 $131,618 8.07% Securities 166,761 10,169 6.10 Mortgage-backed securities 13,081 893 6.83 Money market investments 9,309 443 4.76 - -------------------------------------------------------------------------------------- Total interest-earning assets 1,820,319 143,123 7.86 Non-interest-earning assets 48,010 - -------------------------------------------------------------------------------------- Total assets $1,868,329 ====================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing Liabilities: NOW and money market accounts $ 83,875 $ 2,456 2.93% Savings accounts 274,402 6,329 2.31 Certificates of deposit 714,546 35,123 4.92 Borrowings 570,077 30,283 5.31 Mortgagors' escrow 23,736 29 0.12 - -------------------------------------------------------------------------------------- Total interest-bearing liabilities 1,666,636 74,220 4.45 Non-interest-bearing deposits 37,596 Other liabilities 26,390 - -------------------------------------------------------------------------------------- Total liabilities 1,730,622 Stockholders' equity 137,707 - -------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $1,868,329 ====================================================================================== Net interest income/interest rate spread $ 68,903 3.41% Net interest-earning assets/net interest margin $153,683 3.79% Ratio of interest-earning assets to interest-bearing liabilities 1.09x ======================================================================================
30 New York Community Bancorp, Inc. 2001 Annual Report 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 Year Ended December 31, 2001 December 31, 2000 December 31, 1999 Compared to Year Ended Compared to Year Ended Compared to Year Ended December 31, 2000 December 31, 1999 December 31, 1998 ================================================================================================================================ Increase/(Decrease) Increase/(Decrease) Increase/(Decrease) - -------------------------------------------------------------------------------------------------------------------------------- Due to Due to Due to - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) Volume Rate Net Volume Rate Net Volume Rate Net - -------------------------------------------------------------------------------------------------------------------------------- INTEREST-EARNING ASSETS: Mortgage and other loans, net $179,270 $ (4,972) $174,298 $21,651 $(1,643) $20,008 $ 15,021 $(7,187) $ 7,834 Securities 11,965 175 12,140 4,651 3,154 7,805 2,938 (233) 2,705 Mortgage-backed securities 58,735 (1,211) 57,524 2,583 319 2,902 (1,619) 174 (1,445) Money market investments 5,005 (495) 4,510 889 105 994 (229) (19) (248) - -------------------------------------------------------------------------------------------------------------------------------- Total 254,975 (6,503) 248,472 29,774 1,935 31,709 16,111 (7,265) 8,846 - -------------------------------------------------------------------------------------------------------------------------------- INTEREST-BEARING LIABILITIES: NOW and money market accounts 12,125 (1,846) 10,279 2,358 78 2,436 410 102 512 Savings accounts 12,737 (610) 12,127 451 (434) 17 135 (30) 105 Certificates of deposit 69,426 (2,507) 66,919 1,848 4,207 6,055 1,482 (2,610) (1,128) Borrowings 36,011 (9,628) 26,383 14,936 4,083 19,019 9,147 (154) 8,993 Mortgagors' escrow 12 17 29 -- 4 4 1 (18) (17) - -------------------------------------------------------------------------------------------------------------------------------- Total 130,310 (14,573) 115,737 19,593 7,938 27,531 11,175 (2,710) 8,465 - -------------------------------------------------------------------------------------------------------------------------------- Net change in interest income $124,664 $ 8,071 $132,735 $10,181 $(6,003) $ 4,178 $ 4,936 $(4,555) $ 381 ================================================================================================================================
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 volume, pricing, and mix of the Company's interest-earning assets; the volume, pricing, and mix of its funding sources; and such external factors as competition, economic conditions, and the monetary policy of the FOMC. 2001 and 2000 Comparison: In 2001, the Company recorded net interest income of $205.8 million, up $132.7 million from the year-earlier amount. The increase reflects the benefit of the Haven and Richmond County transactions, the balance sheet restructuring that followed, and the origination of $1.2 billion in mortgage loans over the twelve-month period. The increase also reflects the implementation of a wholesale leveraging program subsequent to the Richmond County merger that capitalized on the yield curve to further bolster earnings growth. The same factors that combined to support the rise in net interest income combined to expand the Company's interest rate spread and net interest margin in 2001. The Company's spread rose to 3.38% from 3.00%, the year-earlier measure, while its margin rose to 3.59% from 3.33%. The expansion is even more pronounced when comparing the fourth quarter 2001 and 2000 measures: the Company's spread rose to 3.68% from 2.93%, a 75-basis point increase, while its margin rose to 3.83% from 3.24%, a 59-basis point rise. In 2002, the Company anticipates continued expansion of its net interest income, spread, and margin, reflecting certain assumptions regarding the pricing of its deposits, and the level of loan demand and production. With regard to the first of these assumptions, the Company anticipates that $1.9 billion in CDs with an average cost of 4.45% will reprice downward over the four quarters, with the bulk of these repricing in the first half of the year. With regard to the second of these assumptions, the Company will have originated approximately $500.0 million in mortgage loans in the first quarter and have a pipeline of approximately $600.0 million at quarter's end. Furthermore, the increase in funding provided by the Richmond County merger and the subsequent leveraging program have enhanced the Company's lending and investing capacity. 31 Among the factors that could cause a contraction in net interest income, a decline in mortgage loan demand and production are paramount. The Company cannot guarantee that all of the loans in its pipeline will be originated, or that a record volume of loans will be generated over the course of the year. Loan demand may be influenced by changes in market interest rates and other economic conditions, as well as by changes in competition within the marketplace. In addition, the ability to originate loans depends on the availability of funding, which similarly may be influenced by changes in competition and market interest rates. Other factors that could adversely impact the level of net interest income include a decline in asset quality, a significant reduction in the volume of multi-family mortgage loan refinancings, or a change in the deposit mix in favor of higher cost funds. The Company's projections are partially based on the expectation that interest rates will increase immaterially during the year. 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 the cost of funds. At the same time, the Company's spread and margin declined to 3.00% and 3.33%, respectively, from 3.41% and 3.79% in the year-earlier twelve months. While the rise in market interest rates had some impact on the 2000 measures, the contraction in spread and margin was primarily due to the use of higher cost sources of funding for both mortgage loan production and the acquisition-related repurchase of Company shares. Provision for Loan Losses 2001 and 2000 Comparison: Notwithstanding the significant growth of its assets since year-end 2000, the Company upheld its long-standing record of asset quality in 2001. While non-performing assets rose to $17.7 million at December 31, 2001 from $9.1 million at December 31, 2000, the ratio to total assets held steady at 0.19%. Similarly, while non-performing loans rose $8.4 million to $17.5 million, the ratio of non-performing loans to loans, net, rose a modest eight basis points, to 0.33%. In addition, the fourth quarter of 2001 was the Company's 29th consecutive quarter without any net charge-offs being recorded. Reflecting a $22.4 million addition in connection with the Richmond County merger, the allowance for loan losses rose from $18.1 million at December 31, 2000 to $40.5 million at December 31, 2001. The 2001 amount was equivalent to 231.46% of non-performing loans and 0.76% of loans, net. In view of the coverage provided, and the quality of its assets, the Company suspended the provision for loan losses throughout 2001. The fourth quarter of the year was, in fact, its 26th consecutive quarter without any provisions being made. Based on certain assumptions about the quality of the loan portfolio and the adequacy of the coverage provided by the loan loss allowance, management currently anticipates that the provision for loan losses will again be suspended throughout 2002. Factors that could trigger a reversal of this position include a deterioration in the quality of the Company's loans; an increase in loan charge-offs; a downturn in the local real estate market; or a downturn in the local, regional, or national economy. For a detailed explanation of the factors considered by management in determining the allowance for loan losses, please see "Asset Quality" beginning on page 17 of this report. 2000 and 1999 Comparison: The quality of the Company's assets at December 31, 2000 was consistent with their quality at December 31, 1999. While the balance of non-performing loans rose to $9.1 million from $3.1 million (primarily reflecting the Haven acquisition), 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 in all four quarters, consistent with the Company's practice since 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, resulting in a net benefit of $1.1 million, or $0.03 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. Other Operating Income Other operating income consists of fee income (income derived from service charges on loans and traditional banking products) and other income (primarily income derived from the sale of alternative investment products such as annuities and mutual funds). Also included in other income are gains on the sale of securities, loans, and Bank-owned properties, and income from the Company's investment in BOLI. Included on the balance sheet in "other assets," the Company's BOLI investment rose to $123.3 million at December 31, 2001 from $62.4 million at December 31, 2000 and generated other income of $6.6 million and $2.1 million over the respective twelve-month periods. 32 New York Community Bancorp, Inc. 2001 Annual Report 2001 and 2000 Comparison: Other operating income contributed substantially to the Company's 2001 earnings, as expected, reflecting a better than three-fold increase from the year-earlier amount. Specifically, other operating income rose to $90.6 million in 2001 from $21.6 million in 2000, representing 30.6% and 22.9% of total revenues in the respective years. Included in the 2001 amount were $37.9 million in non-core gains on the sale of loans and securities and $1.7 million in non-core gains on the sale of two Bank-owned properties, for a total of $39.6 million. Included in the 2000 amount was a non-core gain of $13.5 million on the sale of the Bank's former headquarters in Flushing, in connection with its acquisition of Haven and subsequent move to Westbury, New York. Excluding the respective non-core gains, and largely reflecting the full-year effect of the Haven acquisition, core other operating income rose to $51.0 million from $8.1 million, including a $30.5 million increase in fee income to $35.1 million and a $12.5 million rise in core other income to $16.0 million. With the acquisition of Haven, the Company increased its franchise from 14 to 86 branches, and significantly expanded its customer base. In addition, Haven was among the nation's leading distributors of alternative investment products, generating significant income from the sale of annuities and mutual funds. To supplement the income thereby produced through the former Haven branches, the Company introduced the sale of such products in its original 14 branches during 2001. The increase in core other operating income also reflects the income generated by BOLI and by the origination of one-to-four family mortgage and consumer loans through third-party conduits. In 2002, the Company anticipates recording other operating income in the range of $62.0 million to $65.0 million, as it enjoys the full-year benefit of the Richmond County merger and rolls out the sale of investment products in the acquired banking offices. In addition, the Company opened one new traditional and two new supermarket branches on Staten Island in the first quarter, further expanding its customer base. BOLI is expected to contribute approximately $7.2 million in non-taxable other income, with additional 2002 income expected to stem from gains on the sale of securities and loans. The Company also anticipates a modest increase in fee income stemming from its first quarter 2002 acquisition of Peter B. Cannell & Co., Inc., an investment advisory firm with assets under management of approximately $650.0 million at December 31, 2001. Prior to the acquisition, the Company had a 47% equity interest in the firm. 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; a decline in the demand for one-to-four family and consumer loans; an economic downturn in the markets served by the Company's branches; and a significant increase in the level of market interest rates. 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-core gain of $13.5 million stemming from the sale of the Company's former headquarters on December 30, 2000, 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 $2.1 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 in connection with service charges on banking products and loans). Non-interest Expense The Company's non-interest expense has two primary components: operating expense, which itself consists of compensation and benefits, occupancy and equipment, general and administrative ("G&A"), and other expenses; and the amortization of goodwill and the core deposit intangible ("CDI") incurred in connection with the Company's Haven and Richmond County transactions, respectively. 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 year. In addition, plan-related expenses are among the items added back to net income to calculate the cash earnings of the Company. Reflecting the adoption of Statement of Financial Accounting Standards ("SFAS") Nos. 141 and 142 on January 1, 2002, the amortization of the goodwill stemming from the Haven acquisition is no longer required; however, the amortization of the CDI stemming from the Richmond County merger will be amortized over a period of ten years. 2001 and 2000 Comparison: The Company recorded non-interest expense of $121.2 million in 2001 and $49.8 million in 2000. Operating expense accounted for $112.8 million of the 2001 figure and $49.3 million of the 2000 amount. In connection with the allocation of ESOP shares pursuant to both the Haven and Richmond County transactions, the Company incurred non-core charges of $22.8 million and $24.8 million, respectively, in 2001 and 2000 that were recorded in operating expense. Excluding the charges in each of these years, the Company recorded core operating expense of $90.0 million, 33 representing 1.41% of average assets, in the current twelve-month period, and $24.5 million, representing 1.06% of average assets, in the year-earlier twelve months. The increase in core operating expense reflects the full-year impact of the Haven acquisition, which expanded the branch network from 14 to 86 branches in November 2000 and the five-month impact of the Richmond County merger, which added 34 more banking offices on July 31, 2001. Compensation and benefits expense thus rose $24.1 million to $63.1 million on a GAAP basis, including the aforementioned non-core charge. Excluding this charge, core compensation and benefits expense rose to $40.3 million from $14.2 million, reflecting the increased staffing needs of a $9.2 billion company with 119 offices spanning three states. At December 31, 2001, the number of full-time equivalent employees totaled 1,521, as compared to 908 at the prior year-end. The increase in 2001 operating expense also includes a $14.7 million rise in occupancy and equipment expense to $18.6 million; a $22.2 million rise in G&A expense to $27.6 million; and a $2.4 million rise in other expense to $3.4 million. In addition to the expanded branch network, the increase in occupancy and equipment expense reflects the costs incurred in integrating the data processing systems of CFS Bank and Richmond County Savings Bank with those of New York Community Bank in the first and fourth quarters of 2001, respectively. The higher G&A expense likewise reflects the expansion of the franchise and the costs of marketing the Bank's products and services to a substantially larger customer base. The growth in operating expense was partly offset by the growth in net interest income and other operating income to produce a core efficiency ratio of 35.03% and a cash efficiency ratio of 27.51%. The comparable measures were 30.20% and 24.47%, respectively, in the prior year. Reflecting ongoing cost controls and additional reductions in overlapping resources, it is currently management's expectation that operating expense will range from $123.0 million to $125.0 million in 2002. This estimate also reflects the planned divestiture of 14 in-store branch offices early in the second quarter, and the opening of three branches on Staten Island in the first quarter of the year. Among the factors that could cause actual operating expense to differ materially from the range expected would be a delay in the divestiture of the 14 in-store branches, a delay in the reduction of overlapping resources, and further expansion of the branch network, whether through transactions or de novo branch development. Reflecting the full-year impact of the Haven acquisition and the five-month impact of the Richmond County merger, the amortization of goodwill and CDI rose to $8.4 million in 2001 from $494,000 in the prior year. The 2001 amount included $5.9 million in goodwill amortization stemming from the Haven acquisition and $2.5 million in CDI amortization stemming from the merger with Richmond County. The 2000 amount reflected one month of goodwill amortization stemming from the Haven acquisition. As more fully discussed on page 35 under "Impact of Accounting Pronouncements--Business Combinations, Goodwill, and Other Intangible Assets," the adoption of new accounting rules will result in the amortization of goodwill stemming from the Haven acquisition being discontinued in 2002, resulting in an annual savings of $5.9 million. The amortization of the CDI stemming from the Richmond County merger will, however, continue, and is expected to approximate $1.5 million per quarter or $6.0 million for the year. 2000 and 1999 Comparison: The Company recorded non-interest expense of $49.8 million in 2000 and $21.4 million in 1999. While the 2000 amount included $494,000 in goodwill amortization stemming from the Haven acquisition, there was no comparable expense in 1999. Excluding the $24.8 million impact of the aforementioned ESOP allocation, the Company recorded core operating expense of $24.5 million, or 1.06% of average assets, as compared to core operating expense of $22.3 million, or 1.14% of average assets, in 1999. The 1999 amount excluded a net gain of $865,000 pursuant to the freezing of the Company's defined benefit plan at September 30, and the implementation of an early retirement plan in the fourth quarter of the year. On a reported basis, operating expense totaled $49.3 million in 2000, as compared to $21.4 million in 1999. Core compensation and benefits expense totaled $14.2 million in 2000, as compared to $13.5 million in the prior year. Including the non-core items mentioned above, compensation and benefits expense totaled $39.0 million and $13.5 million, respectively, in the corresponding periods. The 2000 amount included plan-related expenses of $24.8 million, up from $2.6 million 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. 34 New York Community Bancorp, Inc. 2001 Annual Report 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 30.20%, as compared to 28.70% in the prior year. On the basis of cash earnings, the efficiency ratio improved to 24.47% from the year-earlier measure of 26.37%. 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 expenses stemming from the amortization and appreciation of shares held in its stock-related benefit plans. While these plan-related tax expenses are recorded as a charge against earnings, they are added back to stockholders' equity at the end of the period, and are among the items added back to net income to determine the cash earnings of the Company. 2001 and 2000 Comparison: In 2001, the Company recorded income tax expense of $70.8 million, as compared to $20.4 million in the year-earlier twelve months. Included in the 2001 amount was a non-core tax expense of $3.0 million pursuant to the write-down of state deferred tax assets in connection with the Company's tax planning strategies. The $50.4 million increase in income tax expense further reflects a $130.3 million rise in pre-tax income to $175.2 million, offset by a decline in the effective tax rate to 40.4% from 45.5%. While the effective tax rate declined in 2001 from the rate recorded in 2000, it was unfavorably impacted in both of these years by the non-deductibility of certain transaction-related ESOP expenses totaling $11.0 million and $6.0 million, respectively. In connection with the implementation of certain tax planning strategies in the fourth quarter of 2001, management is currently projecting an effective tax rate of 32% to 33% in 2002. 2000 and 1999 Comparison: The Company recorded income tax expense of $20.4 million in 2000, a year-over-year reduction of $347,000, reflecting a $7.5 million decline in pre-tax income to $44.9 million. The effective tax rate rose to 45.5% from 39.6%, the 1999 level, primarily due to non-deductible expenses stemming from the acquisition-related allocation of ESOP shares. Included in 2000 and 1999 income tax expense were plan-related expenses of $6.0 million and $7.3 million, which were added back to stockholders' equity at the respective year-ends. IMPACT OF ACCOUNTING PRONOUNCEMENTS Business Combinations, Goodwill, and Other Intangible Assets In June 2001, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets," which are effective for fiscal years beginning after December 15, 2001 and immediately applicable to business combinations occurring after June 30, 2001. Under the new rules, all business combinations are to be accounted for using the purchase method. In addition, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized, but will be subject to annual impairment tests in accordance with the new standards. Other intangible assets will continue to be amortized over their useful lives. As previously stated, the Company acquired Haven in a purchase transaction on November 30, 2000 and merged with Richmond County in a purchase transaction on July 31, 2001. The Company will apply the new rules on accounting for goodwill and other intangible assets with regard to the Haven acquisition on January 1, 2002, at which time the amortization of goodwill stemming from this acquisition will be discontinued, representing a savings of approximately $1.5 million per quarter, or approximately $5.9 million per year. The new rules were applied on August 1, 2001 with regard to the Richmond County merger; as a result, no goodwill is being amortized in connection with this transaction. The amortization of the CDI stemming from the Richmond County merger amounted to $2.5 million in 2001 and is expected to approximate $1.5 million per quarter, or $6.0 million, in 2002. The Company expects to perform the required impairment tests of its goodwill as of January 1, 2002 in the second quarter of the year. It is not anticipated that these tests will have a material effect on the consolidated financial statements of the Company. Accounting for the Impairment or Disposal of Long-lived Assets In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets." SFAS No. 144 establishes more stringent criteria than those currently existing under GAAP for determining when a long-lived asset is held for sale. While SFAS No. 144 also broadens the definition of "discontinued operations," it does not allow for the accrual of future operating losses as was previously permitted. The provisions of the new standard are to be applied prospectively. The Company does not expect SFAS No. 144 to have a material impact on its consolidated financial statements when it is adopted on January 1, 2002. 35 MARKET PRICE OF COMMON STOCK AND DIVIDENDS PAID PER COMMON SHARE Shares of New York Community Bancorp, Inc. are traded on The Nasdaq National Market(R) under the symbol "NYCB." At December 31, 2001, the number of outstanding shares was 101,845,276 and the number of registered owners was approximately 8,500. The latter figure does not include those investors whose shares were held for them by a bank or broker at that date. 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 Market(R), and the cash dividends paid per common share for each of the four quarters of 2001 and 2000. The 2000 amounts have been adjusted to reflect 3-for-2 stock splits on March 29 and September 20, 2001. Market Price(1) Dividends Declared --------------------------------- per Common Share(1) High Low Close ================================================================================ 2001 1st Quarter $0.1111 $19.933 $14.667 $19.333 2nd Quarter 0.1333 26.660 19.293 25.100 3rd Quarter 0.1333 31.633 16.250 23.210 4th Quarter 0.1600 28.930 21.650 22.870 ================================================================================ 2000 1st Quarter $0.1111 $12.056 $ 7.722 $ 8.028 2nd Quarter 0.1111 9.417 7.667 8.194 3rd Quarter 0.1111 12.917 8.222 12.833 4th Quarter 0.1111 16.806 11.333 16.333 ================================================================================ (1) Amounts shown have been adjusted to reflect 3-for-2 stock splits on March 29 and September 20, 2001. 36 New York Community Bancorp, Inc. 2001 Annual Report Consolidated Statements of Condition
December 31, ====================================================================================================================== (in thousands, except share data) 2001 2000 - ---------------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 168,449 $ 133,093 Money market investments 10,166 124,622 Securities held to maturity ($114,881 and $120,125 pledged at December 31, 2001 and 2000, respectively) (note 4) 203,195 222,534 Mortgage-backed securities held to maturity ($50,801 and $0 pledged at December 31, 2001 and 2000, respectively) (note 5) 50,865 1,923 Securities available for sale ($1,381,356 and $127,858 pledged at December 31, 2001 and 2000, respectively) (note 6) 2,374,782 303,734 Mortgage loans, net (notes 7 and 11) 5,284,718 3,594,720 Other loans 116,969 39,730 Less: Allowance for loan losses (note 8) (40,500) (18,064) - ---------------------------------------------------------------------------------------------------------------------- Loans, net (notes 7 and 8) 5,361,187 3,616,386 Premises and equipment, net 69,010 39,191 Goodwill, net (note 2) 614,653 118,070 Core deposit intangible, net (note 2) 57,500 -- Deferred tax asset, net (note 12) 40,396 42,360 Other assets (notes 9 and 14) 252,432 108,872 - ---------------------------------------------------------------------------------------------------------------------- Total assets $ 9,202,635 $ 4,710,785 ====================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits (note 10): NOW and money market accounts $ 948,324 $ 719,420 Savings accounts 1,639,239 492,604 Certificates of deposit 2,407,906 1,873,810 Non-interest-bearing accounts 455,133 171,360 - ---------------------------------------------------------------------------------------------------------------------- Total deposits 5,450,602 3,257,194 - ---------------------------------------------------------------------------------------------------------------------- Official checks outstanding 87,647 41,239 Borrowings (note 11) 2,506,828 1,037,505 Mortgagors' escrow 21,496 11,291 Other liabilities (note 14) 152,928 56,146 - ---------------------------------------------------------------------------------------------------------------------- Total liabilities 8,219,501 4,403,375 - ---------------------------------------------------------------------------------------------------------------------- Stockholders' equity (note 3): Preferred stock at par $0.01 (5,000,000 shares authorized; none issued) -- -- Common stock at par $0.01 (150,000,000 shares authorized; 108,224,425 shares issued; 101,845,276 and 66,555,279 shares outstanding at December 31, 2001 and 2000, respectively) 1,082 310 Paid-in capital in excess of par 898,830 174,450 Retained earnings (substantially restricted) (note 17) 167,511 146,514 Less: Treasury stock (6,379,149 and 3,128,780 shares, respectively) (78,294) (2,388) Unallocated common stock held by ESOP (note 15) (6,556) (8,485) Common stock held by SERP and Deferred Compensation Plans (notes 14 and 15) (3,113) (3,770) Unearned common stock held by RRPs (note 15) (41) (41) Accumulated other comprehensive income, net of tax effect 3,715 820 - ---------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 983,134 307,410 - ---------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (note 13) Total liabilities and stockholders' equity $ 9,202,635 $ 4,710,785 ======================================================================================================================
See accompanying notes to consolidated financial statements. 37 Consolidated Statements of Income and Comprehensive Income
Years Ended December 31, ============================================================================================================== (in thousands, except per share data) 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------- INTEREST INCOME: Mortgage and other loans (note 7) $325,924 $151,626 $ 131,618 Securities 30,114 17,974 10,169 Mortgage-backed securities 61,319 3,795 893 Money market investments 5,947 1,437 443 - -------------------------------------------------------------------------------------------------------------- Total interest income 423,304 174,832 143,123 - -------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE: NOW and money market accounts 15,171 4,892 2,456 Savings accounts 18,473 6,346 6,329 Certificates of deposit 108,097 41,178 35,123 Borrowings (note 11) 75,685 49,302 30,283 Mortgagors' escrow 62 33 29 - -------------------------------------------------------------------------------------------------------------- Total interest expense 217,488 101,751 74,220 - -------------------------------------------------------------------------------------------------------------- Net interest income 205,816 73,081 68,903 Reversal of provision for loan losses (note 8) -- -- 2,400 - -------------------------------------------------------------------------------------------------------------- Net interest income after reversal of provision for loan losses 205,816 73,081 71,303 - -------------------------------------------------------------------------------------------------------------- OTHER OPERATING INCOME: Fee income 35,061 4,595 1,863 Other (note 7) 55,554 17,050 660 - -------------------------------------------------------------------------------------------------------------- Total other operating income 90,615 21,645 2,523 - -------------------------------------------------------------------------------------------------------------- OPERATING EXPENSE: Compensation and benefits (notes 14 and 15) 63,140 39,014 13,458 Occupancy and equipment (note 13) 18,643 3,953 2,289 General and administrative 27,610 5,413 4,771 Other 3,364 950 872 - -------------------------------------------------------------------------------------------------------------- Total operating expense 112,757 49,330 21,390 Amortization of goodwill and core deposit intangible 8,428 494 -- - -------------------------------------------------------------------------------------------------------------- Total non-interest expense 121,185 49,824 21,390 Income before income taxes 175,246 44,902 52,436 Income tax expense (note 12) 70,779 20,425 20,772 - -------------------------------------------------------------------------------------------------------------- Net income $104,467 $ 24,477 $ 31,664 - -------------------------------------------------------------------------------------------------------------- Comprehensive income, net of tax: Unrealized gains (losses) on securities 2,895 820 (34) Comprehensive income $107,362 $ 25,297 $ 31,630 ============================================================================================================== Earnings per share $ 1.36 $ 0.58 $ 0.76 Diluted earnings per share $ 1.34 $ 0.56 $ 0.74 ==============================================================================================================
See accompanying notes to consolidated financial statements. 38 New York Community Bancorp, Inc. 2001 Annual Report Consolidated Statements of Changes in Stockholders' Equity
=============================================================================================================================== Years Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------- (in thousands, except per share data) 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------- COMMON STOCK (Par Value: $0.01): Balance at beginning of year $ 310 $ 310 $ 310 Shares issued in the Richmond County merger 772 -- -- - ------------------------------------------------------------------------------------------------------------------------------- Balance at end of year 1,082 310 310 - ------------------------------------------------------------------------------------------------------------------------------- PAID-IN CAPITAL IN EXCESS OF PAR: Balance at beginning of year 174,450 147,607 138,180 Tax benefit on stock plans 11,000 5,953 7,269 Allocation of ESOP stock 20,846 20,890 2,158 Shares issued in the Richmond County merger 692,534 -- -- - ------------------------------------------------------------------------------------------------------------------------------- Balance at end of year 898,830 174,450 147,607 - ------------------------------------------------------------------------------------------------------------------------------- RETAINED EARNINGS: Balance at beginning of year 146,514 150,545 165,383 Net income 104,467 24,477 31,664 Dividends paid on common stock (43,955) (17,847) (18,563) Exercise of stock options (3,004,071; 1,003,705; and 2,351,752 shares) (39,515) (10,661) (27,939) - ------------------------------------------------------------------------------------------------------------------------------- Balance at end of year 167,511 146,514 150,545 - ------------------------------------------------------------------------------------------------------------------------------- TREASURY STOCK: Balance at beginning of year (2,388) (145,122) (137,901) Purchase of common stock (6,254,437; 3,833,714; and 2,893,482 shares) (121,048) (41,483) (38,352) Shares issued in the Haven acquisition -- 174,283 -- Exercise of stock options (3,004,071; 1,003,705; and 2,351,752 shares) 45,142 9,934 31,131 - ------------------------------------------------------------------------------------------------------------------------------- Balance at end of year (78,294) (2,388) (145,122) - ------------------------------------------------------------------------------------------------------------------------------- EMPLOYEE STOCK OWNERSHIP PLAN: Balance at beginning of year (8,485) (12,388) (12,767) Allocation of ESOP stock 1,929 3,903 379 - ------------------------------------------------------------------------------------------------------------------------------- Balance at end of year (6,556) (8,485) (12,388) - ------------------------------------------------------------------------------------------------------------------------------- SERP AND DEFERRED COMPENSATION PLANS: Balance at beginning of year (3,770) (3,770) (3,770) Allocation of SERP stock 657 -- -- - ------------------------------------------------------------------------------------------------------------------------------- Balance at end of year (3,113) (3,770) (3,770) - ------------------------------------------------------------------------------------------------------------------------------- RECOGNITION AND RETENTION PLANS: Balance at beginning of year (41) (41) (63) Earned portion of RRPs -- -- 22 - ------------------------------------------------------------------------------------------------------------------------------- Balance at end of year (41) (41) (41) - ------------------------------------------------------------------------------------------------------------------------------- ACCUMULATED COMPREHENSIVE INCOME, NET OF TAX: Balance at beginning of year 820 -- 34 Unrealized gains (losses) on securities, net of tax of $4,398, $442, and $0 8,167 820 (34) Less: Reclassification adjustment for gains included in net income, net of tax of $2,839, $0, and $0 (5,272) -- -- - ------------------------------------------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) in securities, net of tax 2,895 820 (34) - ------------------------------------------------------------------------------------------------------------------------------- Balance at end of year 3,715 820 -- - ------------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity $ 983,134 $ 307,410 $ 137,141 ===============================================================================================================================
See accompanying notes to consolidated financial statements. 39 Consolidated Statements of Cash Flows
Years Ended December 31, =========================================================================================================================== (in thousands) 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 104,467 $ 24,477 $ 31,664 - --------------------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 5,495 1,461 923 Reversal of provision for loan losses -- -- (2,400) (Accretion of discounts) amortization of premiums, net (2,261) (1,818) 2 Amortization of net deferred loan origination fees 1,393 4,808 1,372 Amortization of goodwill and core deposit intangible 8,428 494 -- Net gain on redemption and sales of securities and mortgage-backed securities (27,539) (704) (91) Net gain on sale of loans (10,305) (121) (126) Net gain on sale of Bank office buildings (1,484) (13,500) -- Tax benefit effect on stock plans 11,000 5,953 7,269 Earned portion of RRPs -- -- 22 Earned portion of ESOP 22,775 24,793 2,537 Earned portion of SERP 657 -- -- Changes in assets and liabilities: Goodwill recognized in the Richmond County merger and the Haven acquisition, respectively (502,511) (118,070) -- Core deposit intangible recognized in the Richmond County merger (60,000) -- -- Acquired allowance 22,436 11,033 -- Decrease (increase) in deferred income taxes 1,964 (36,864) 421 Increase in other assets (143,560) (55,433) (32,569) Increase (decrease) in official checks outstanding 46,408 10,050 (3,298) Increase in other liabilities 96,782 40,325 7,256 - --------------------------------------------------------------------------------------------------------------------------- Total adjustments (530,322) (127,593) (18,682) - --------------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by operating activities (425,855) (103,116) 12,982 - --------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from redemption and sales of securities and mortgage-backed securities held to maturity 112,573 64,396 17,380 Proceeds from redemption and sales of securities available for sale 685,074 447,508 14,534 Purchase of securities held to maturity, net (93,234) (24,754) (48,041) Purchase of mortgage-backed securities held to maturity, net (48,942) -- -- Purchase of securities available for sale, net (2,723,427) (738,436) (6,794) Net increase in loans (2,379,211) (2,021,624) (329,480) Proceeds from sale of loans 620,886 103,860 216,129 Acquisition or purchase of premises and equipment, net (33,830) (30,592) (584) - --------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (3,860,111) (2,199,642) (136,856) - --------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in mortgagors' escrow 10,205 1,003 (2,796) Net increase (decrease) in deposits 2,193,408 2,181,176 (26,267) Net increase in borrowings 1,469,323 401,127 197,323 Cash dividends and stock options exercised (83,470) (28,508) (46,502) Purchase of Treasury stock, net of stock options exercised (75,906) (31,549) (7,221) Shares issued in the Richmond County merger 693,306 -- -- - --------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 4,206,866 2,523,249 114,537 - --------------------------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (79,100) 220,491 (9,337) Cash and cash equivalents at beginning of period 257,715 37,224 46,561 - --------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 178,615 $ 257,715 $ 37,224 =========================================================================================================================== Supplemental information: Cash paid for: Interest $ 217,958 $ 101,759 $ 74,177 Income taxes 3,541 11,754 14,582 - --------------------------------------------------------------------------------------------------------------------------- Transfers to foreclosed real estate from loans 55 -- 223 - --------------------------------------------------------------------------------------------------------------------------- Transfers to real estate held for investment from foreclosed real estate -- -- 457 ===========================================================================================================================
See accompanying notes to consolidated financial statements. 40 New York Community Bancorp, Inc. 2001 Annual Report Notes to the Consolidated Financial Statements NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES As more fully described in Note 3, New York Community Bank, formerly known as Queens County Savings Bank (the "Bank" or the "Subsidiary"), converted from a mutual savings bank to the capital stock form of ownership on November 23, 1993. In anticipation of the conversion, New York Community Bancorp, Inc. (the "Company" or the "Parent"), formerly known as Queens County Bancorp, Inc., 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 was merged with and into the Company, and on January 31, 2001, CFS Bank merged with and into the Bank. On March 27, 2001, the Company and Richmond County Financial Corp. ("Richmond County") entered into an agreement, valued at $693.4 million, under which the two companies would combine in a merger-of-equals. On July 31, 2001, Richmond County merged with and into the Company. At the same time, Richmond County Savings Bank, the primary subsidiary of Richmond County, merged with and into the Bank. At December 31, 2001, the Bank operated 119 banking offices (including 52 traditional and 66 in-store) in New York City, Long Island, Rockland and Westchester counties, Connecticut, and New Jersey, through six divisions: Queens County Savings Bank, Richmond County Savings Bank, CFS Bank, First Savings Bank of New Jersey, Ironbound Bank, and South Jersey Bank. In the second quarter of 2002, the Company expects to complete the divestiture of 14 in-store branches in Connecticut, Rockland County, New York, and New Jersey, and will have opened one traditional and two in-store branches on Staten Island, bringing the total number of banking offices to 108. 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 2001 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, net, 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 under the contractual terms of the loan. 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. Management establishes the allowance for loan losses through a process that begins with estimates of probable loss inherent in the portfolio based on various statistical analyses. These analyses consider historical and projected default rates and loss severities; internal risk ratings; 41 geographic, industry, and other environmental factors; and model imprecision. In addition, management considers the Company's current business strategy and credit process, including compliance with stringent guidelines it has established with regard to credit limitations, credit approvals, loan underwriting criteria, and loan workout procedures. 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. Fees are charged for originating mortgage loans at the time the loans are granted. Loan origination fees, partially offset by certain expenses associated with loans originated, are amortized to interest on loans over a 12-month period, using the straight-line method, which approximates 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 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 (generally five to twenty years). 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, 2001, 2000, and 1999 amounted to approximately $5.5 million, $1.5 million, and $923,000, 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 stock options 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 five stock option plans at December 31, 2001, including two plans for directors and employees of New York Community Bank; two plans for directors and employees of the former CFS Bank, and a plan for directors and employees of the former Richmond County Savings Bank. The Bank applies APB Opinion No. 25 and the related interpretations in accounting for its plans; accordingly, no compensation cost has been recognized. Retirement Plans The Company maintains three pension plans: one for employees of the former Queens County Savings Bank, a second for employees of the former CFS Bank, and a third for employees of the former Richmond County Savings Bank, covering substantially all employees who had attained minimum service requirements at the time the plans were frozen on September 30, 1999, December 29, 2000, and March 31, 1999, respectively. 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. 42 New York Community Bancorp, Inc. 2001 Annual Report 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, with original maturities of less than 90 days. Earnings per Share (Basic and Diluted) In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," simplifying the standards for computing earnings per share previously found in APB Opinion No. 15, "Earnings per Share" and replacing the presentation of primary EPS with a presentation of basic EPS. SFAS No. 128 requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. 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 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, 2001, 2000, and 1999, the weighted average number of common shares outstanding used in the computation of basic EPS was 76,727,717; 42,402,771; and 41,685,503, respectively. The weighted average number of common shares outstanding used in the computation of diluted EPS was 78,054,538; 43,946,073; and 42,614,701 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. Share amounts for 2000 and 1999 have been adjusted to reflect 3-for-2 stock splits on March 29 and September 20, 2001. Accounting Changes: Business Combinations Effective July 1, 2001, the Company adopted the provisions of SFAS No. 141 and certain provisions of SFAS No. 142 as required for goodwill and intangible assets resulting from business combinations consummated after June 30, 2001. The new rules require that all business combinations initiated after June 30, 2001 be accounted for under the purchase method. The non-amortization provisions of the new rules affecting goodwill and intangible assets deemed to have indefinite lives are effective for all purchase business combinations completed after June 30, 2001. NOTE 2: BUSINESS COMBINATIONS On July 31, 2001, the Company completed a merger-of-equals with Richmond County, parent of Richmond County Savings Bank, which operated 34 banking offices in Staten Island, Brooklyn, and New Jersey. At the date of the merger, Richmond County had consolidated assets of $3.7 billion, including loans, net, of $1.9 billion, and consolidated liabilities of $3.4 billion, including deposits of $2.5 billion. Under the terms of the plan and agreement of merger, holders of Richmond County common stock received 1.02 shares of the Company's common stock for each share of Richmond County common stock held at the merger date. In connection therewith, the Company issued 38,545,791 shares of common stock (split-adjusted) with a value of $693.4 million. The excess of cost over fair value of net assets acquired was $498.6 million. On August 1, 2001, the Company applied certain provisions of SFAS No. 142 as required for goodwill and intangible assets; as a result, no goodwill is being amortized in connection with this transaction. A core deposit intangible of $60.0 million was also recognized in connection with the merger, which is being amortized on a straight-line basis over ten years. The results of operations of Richmond County were included in the Consolidated Statements of Income and Comprehensive Income subsequent to July 31, 2001. On November 30, 2000, the Company acquired Haven, 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 common stock received 1.04 shares of the Company's common stock for each share of Haven common stock held at the date of the acquisition. In connection therewith, the Company issued 22,112,424 shares of common stock (split-adjusted) from Treasury with a value of $174.3 million. The excess of cost over fair value of net assets acquired was $118.6 million. In accordance with the adoption of SFAS No. 142 on January 1, 2002, the Company has suspended the amortization of goodwill generated by the Haven acquisition. In further accordance with SFAS No. 142, the goodwill resulting from the Richmond County merger and the Haven acquisition will be assessed for impairment as of January 1, 2002 in the second quarter of the year. It is not anticipated that these tests will have a material effect on the consolidated financial statements of the Company. 43 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 seven 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, September 29, 1998, and March 29 and September 20, 2001), the initial offering price adjusts to $1.65 per share. The number of shares outstanding at December 31, 2001 was 101,845,276. NOTE 4: SECURITIES HELD TO MATURITY Securities held to maturity at December 31, 2001 and 2000 are summarized as follows:
December 31, 2001 ======================================================================================================= Gross Gross Estimated (in thousands) Cost Unrealized Gain Unrealized Loss Market Value - ------------------------------------------------------------------------------------------------------- Corporate bonds $ 37,870 $ -- $390 $ 37,480 - ------------------------------------------------------------------------------------------------------- Capital trust notes 45,444 1,289 462 46,271 - ------------------------------------------------------------------------------------------------------- FHLB stock 114,881 -- -- 114,881 Corporate stock 5,000 15 -- 5,015 - ------------------------------------------------------------------------------------------------------- Total stock 119,881 15 -- 119,896 - ------------------------------------------------------------------------------------------------------- Total securities held to maturity $203,195 $1,304 $852 $203,647 =======================================================================================================
December 31, 2000 ======================================================================================================= Gross Gross Estimated (in thousands) Cost Unrealized Gain Unrealized Loss Market Value - ------------------------------------------------------------------------------------------------------- U.S. Government and agencies $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 =======================================================================================================
The following is a summary of the amortized cost and estimated market value of securities held to maturity at December 31, 2001 by remaining term to maturity: ================================================================================ Corporate Capital Trust Estimated (in thousands) Bonds Notes Market Value - -------------------------------------------------------------------------------- Up to 30 years $37,870 $45,444 $83,751 ================================================================================ 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. 44 New York Community Bancorp, Inc. 2001 Annual Report NOTE 5: MORTGAGE-BACKED SECURITIES HELD TO MATURITY Mortgage-backed securities held to maturity at December 31, 2001 and 2000 are summarized as follows: December 31, ================================================================================ (in thousands) 2001 2000 - -------------------------------------------------------------------------------- Principal balance $50,801 $1,926 Unamortized premium 103 -- Unamortized discount (39) (3) - -------------------------------------------------------------------------------- Mortgage-backed securities, net 50,865 1,923 Gross unrealized gains 254 56 - -------------------------------------------------------------------------------- Estimated market value $51,119 $1,979 ================================================================================ 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, 2001 by remaining term to maturity: ================================================================================ Estimated (in thousands) Cost Basis Market Value - -------------------------------------------------------------------------------- Over 5 years $50,865 $51,119 - -------------------------------------------------------------------------------- Mortgage-backed securities, net $50,865 $51,119 ================================================================================ There were no sales of mortgage-backed securities held to maturity during the years ended December 31, 2001, 2000, or 1999. NOTE 6: SECURITIES AVAILABLE FOR SALE Securities available for sale at December 31, 2001 and 2000 are summarized as follows:
December 31, 2001 ========================================================================================================================= 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 $ 25,113 $ -- $ 230 $ 24,883 Corporate bonds 13,387 182 2 13,567 Capital trust notes 120,171 4,809 722 124,258 Preferred stock 79,857 392 78 80,171 Common stock 9,137 1,575 256 10,456 - ------------------------------------------------------------------------------------------------------------------------- Total $ 247,665 $ 6,958 $1,288 $ 253,335 - ------------------------------------------------------------------------------------------------------------------------- Mortgage-backed securities available for sale: GNMA certificates $ 143,179 $ 667 $ 4 $ 143,842 FNMA certificates 78,258 468 2 78,724 FHLMC certificates 47,528 418 -- 47,946 CMOs and REMICs 1,841,727 10,140 932 1,850,935 - ------------------------------------------------------------------------------------------------------------------------- Total $2,110,692 $11,693 $ 938 $2,121,447 - ------------------------------------------------------------------------------------------------------------------------- Total securities available for sale $2,358,357 $18,651 $2,226 $2,374,782 =========================================================================================================================
45
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 Preferred stock 15,203 -- -- 15,203 Common stock 8,065 -- -- 8,065 - ------------------------------------------------------------------------------------------------------------------------- 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 =========================================================================================================================
The gross proceeds, gross realized gains, and gross realized losses from the sale of available-for-sale securities for the year ended December 31, 2001 were as follows: (in thousands) ================================================================================ Gross proceeds $685,074 Gross realized gains 37,207 Gross realized losses 9,668 ================================================================================ The impact of the respective data for the years ended December 31, 2000 and 1999 on the Consolidated Statements of Income and Comprehensive Income was immaterial. The following table presents information regarding securities available for sale at December 31, 2001, based on contractual maturity:
====================================================================================================================== Due Due Within Due Within One to After Total Fair (in thousands) One Year Five Years Five Years Cost Value - ---------------------------------------------------------------------------------------------------------------------- U.S. Government and agency obligations $ -- $ -- $ 25,113 $ 25,113 $ 24,883 Corporate bonds 3,461 4,731 5,195 13,387 13,567 Capital trust notes -- -- 120,171 120,171 124,257 Preferred stock 79,857 -- -- 79,857 80,171 Common stock 9,137 -- -- 9,137 10,456 GNMA certificates -- -- 143,179 143,179 143,842 FNMA certificates -- -- 78,258 78,258 78,724 FHLMC certificates -- -- 47,528 47,528 47,947 CMOs and REMICs -- -- 1,841,727 1,841,727 1,850,935 - ---------------------------------------------------------------------------------------------------------------------- Total securities available for sale $ 92,455 $ 4,731 $2,261,171 $2,358,357 $2,374,782 ======================================================================================================================
At December 31, 2001, the Company had commitments to purchase securities available for sale of $450.0 million, all of which were expected to settle within 60 days. The Company had no such commitments at December 31, 2000. 46 New York Community Bancorp, Inc. 2001 Annual Report NOTE 7: LOANS The composition of the loan portfolio at December 31, 2001 and 2000 is summarized as follows: December 31, ================================================================================ (in thousands) 2001 2000 - -------------------------------------------------------------------------------- MORTGAGE LOANS: Multi-family $3,255,167 $ 1,945,656 1-4 family 1,318,295 1,267,080 Commercial real estate 561,944 324,068 Construction 152,367 59,469 - -------------------------------------------------------------------------------- Total mortgage loans 5,287,773 3,596,273 Less: Net deferred loan origination fees 3,055 1,553 - -------------------------------------------------------------------------------- Mortgage loans, net 5,284,718 3,594,720 - -------------------------------------------------------------------------------- OTHER LOANS: Home equity 87,274 12,240 Cooperative apartment -- 3,726 Passbook savings 1,777 779 Other 27,827 23,003 - -------------------------------------------------------------------------------- Total other loans 116,878 39,748 Unearned premiums (discounts) 91 (18) - -------------------------------------------------------------------------------- Other loans, net 116,969 39,730 Less: Allowance for loan losses 40,500 18,064 - -------------------------------------------------------------------------------- Loans, net $5,361,187 $ 3,616,386 ================================================================================ The Bank has a diversified loan portfolio as to type and borrower concentration. At December 31, 2001 and 2000, approximately $4.4 billion and $3.1 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 Bank's borrowers to honor their contracts. On December 1, 2000, the Bank adopted a policy of originating one-to-four family mortgage loans on a conduit basis in order to minimize its exposure to credit and interest rate risk. Since then, applications have been taken and processed by a third party and the loans sold to said party, service-released. Under this program, the Bank sold one-to-four family mortgage loans totaling $67.0 million and $1.7 million in 2001 and 2000, respectively. During the year ended December 31, 2001, the Bank sold $610.6 million in one-to-four family mortgage loans that were primarily acquired in the Haven transaction. On December 28, 2000, the Bank sold one-to-four family mortgage loans totaling $105.7 million that it had acquired in the Haven transaction, while retaining the servicing rights. During 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. The Bank services mortgage loans for various third parties, including the FHLB-NY, Savings Bank Life Insurance ("SBLI"), FNMA, and the State of New York Mortgage Agency ("SONYMA"). The unpaid principal balance of serviced loans amounted to $1.7 billion, $1.1 billion, and $224.8 million at December 31, 2001, 2000, and 1999, respectively. Custodial escrow balances maintained in connection with such loans amounted to $5.5 million, $3.4 million, and $1.9 million at the corresponding dates. At December 31, 2001 and 2000, loan commitments amounted to approximately $344.4 million and $180.1 million, respectively. Substantially all of the commitments at December 31, 2001 were expected to close within 90 days. 47 NOTE 8: ALLOWANCE FOR LOAN LOSSES Activity in the allowance for loan losses for the years ended December 31, 2001, 2000, and 1999 is summarized as follows: December 31, ================================================================================ (in thousands) 2001 2000 1999 - -------------------------------------------------------------------------------- Balance, beginning of year $18,064 $ 7,031 $ 9,431 Acquired allowance 22,436 11,033 -- Reversal of provision for loan losses -- -- (2,400) - -------------------------------------------------------------------------------- Balance, end of year $40,500 $18,064 $ 7,031 ================================================================================ The allowance for loan losses was increased by $22.4 million in 2001 pursuant to the Richmond County merger, and by $11.0 million in 2000 pursuant to 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 in connection with the sale of $211.6 million in loans to the FHLB-NY. Mortgage loans in foreclosure amounted to approximately $10.6 million, $6.0 million, and $2.9 million, at December 31, 2001, 2000, and 1999, 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, 2001, 2000, and 1999, are summarized below: December 31, ================================================================================ (in thousands) 2001 2000 1999 - -------------------------------------------------------------------------------- Interest income that would have been recorded $ 651 $ 435 $ 641 Interest income recognized (42) (51) (70) - -------------------------------------------------------------------------------- Interest income foregone $ 609 $ 384 $ 571 ================================================================================ 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 2001, 2000, or 1999. 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, 2001 and 2000:
December 31, ==================================================================================================== (in thousands) 2001 2000 - ---------------------------------------------------------------------------------------------------- Balance, beginning of year $ 12 $ 66 Acquired in the Richmond County merger and the Haven acquisition, respectively 204 12 Transfers in 55 -- Sales (22) (66) - ---------------------------------------------------------------------------------------------------- Balance, end of year $ 249 $ 12 ====================================================================================================
Foreclosed real estate is carried at fair market value. There were no valuation allowances at December 31, 2001 or 2000, and no provisions for the years ended December 31, 2001, 2000, or 1999. 48 New York Community Bancorp, Inc. 2001 Annual Report NOTE 10: DEPOSITS The following is a summary of weighted average interest rates at December 31, 2001 and 2000 for each type of deposit:
December 31, ======================================================================================================================= 2001 2000 - ----------------------------------------------------------------------------------------------------------------------- Percent Weighted Percent Weighted (dollars in thousands) Amount of Total Average Rate Amount of Total Average Rate - ----------------------------------------------------------------------------------------------------------------------- Non-interest-bearing demand accounts $ 455,133 8.35% 0.00% $ 171,360 5.26% 0.00% NOW and money market accounts 948,324 17.40 1.40 719,420 22.09 2.87 Savings accounts 1,639,239 30.07 1.61 492,604 15.12 1.87 Certificates of deposit 2,407,906 44.18 4.18 1,873,810 57.53 6.05 - ----------------------------------------------------------------------------------------------------------------------- Total deposits $5,450,602 100.00% 2.57% $3,257,194 100.00% 4.40% - -----------------------------------------------------------------------------------------------------------------------
The following is a summary of certificates of deposit in amounts of $100,000 or more at December 31, 2001 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 $101,770 $92,771 $123,299 $90,606 $408,446 ================================================================================
At December 31, 2001 and 2000, the aggregate amount of certificates of deposit of $100,000 or more was approximately $408.4 million and $320.7 million, respectively. NOTE 11: BORROWINGS Borrowings totaled $2.5 billion and $1.0 billion at December 31, 2001 and 2000, respectively, and consisted of the following: Federal Home Loan Bank of New York ("FHLB-NY") Advances
============================================================================================= 2001 2000 - --------------------------------------------------------------------------------------------- (dollars in thousands) Weighted Average Weighted Average Contractual Maturity Amount Interest Rate Amount Interest Rate - --------------------------------------------------------------------------------------------- 2001 $ -- --% $ 20,000 5.29% 2002 124,267(1) 4.15 51,609 5.72 2003 25,000 5.49 20,000 5.62 2004 22,000 5.32 -- -- 2005 42,000 5.82 20,000 6.21 2006 65,500 4.78 -- -- 2007 -- -- -- -- 2008 501,400 5.24 34,000 5.47 2009 429,300 5.79 346,800 5.89 2010 567,300 6.08 455,700 6.16 - --------------------------------------------------------------------------------------------- $1,776,767(1) 5.57% $948,109 5.98% =============================================================================================
(1) Includes $54.0 million of FHLB-NY overnight line of credit advances at December 31, 2001. The rate is based on the federal funds rate at the time of takedown plus 10 basis points. Principal and interest are due on the next succeeding business day. The Company had an overnight line of credit with the FHLB-NY for a maximum of $100.0 million at December 31, 2001. The advances received were all fixed rate under the FHLB-NY convertible advance program, which grants the FHLB-NY the option to call the advance after an initial lock-out period of one to three or five years and quarterly thereafter, until maturity. At December 31, 2001 and 2000, the convertible advances were collateralized by mortgage-backed securities with a carrying value of approximately $924.6 million and $248.0 million; pledges of FHLB-NY stock of $114.9 million and $72.0 million; and a blanket assignment of the Company's unpledged, qualifying mortgage loans. The Company maintains a line of credit with the FHLB-NY that totaled $3.7 billion and $1.9 billion at December 31, 2001 and 2000, respectively. The credit line is collateralized by stock in the FHLB and by certain mortgage loans under a blanket pledge agreement in an amount equal to 110% of outstanding borrowings. 49 Reverse Repurchase Agreements The contractual maturities of outstanding reverse repurchase agreements at December 31, 2001 were as follows: - -------------------------------------------------------------------------------- (dollars in thousands) Weighted Average Contractual Maturity Amount Interest Rate - -------------------------------------------------------------------------------- January 2002 $514,743 1.84% December 2002(1) 15,000 5.90 - -------------------------------------------------------------------------------- $529,743(1) 1.96% ================================================================================ (1) Callable commencing December 2000 and quarterly thereafter, until maturity. The above agreements are collateralized by mortgage-backed securities with a carrying value of approximately $507.5 million at December 31, 2001. The Company had no repurchase agreements outstanding as of December 31, 2000. Trust Preferred Securities Haven Capital Trust I, Haven Capital Trust II, Queens Capital Trust I, Queens Statutory Trust I, NYCB Capital Trust I, New York Community Statutory Trust I, and New York Community Statutory Trust II (the "Trusts") are Delaware business trusts of which all the common securities are owned by the Company. The Trusts were formed for the purpose of issuing Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Junior Subordinated Debentures ("Trust Preferred Securities"). The Trust Preferred Securities are described below. Dividends on the Trust Preferred Securities are payable either quarterly or semi-annually and are deferrable, at the Company's option, for up to five years. As of December 31, 2001, all dividends were current. As each one was issued, the Trusts used the proceeds from the Trust Preferred Securities offerings to purchase a like amount of Junior Subordinated Deferrable Interest Debentures (the "Debentures") of the Company. The Debentures bear the same terms and interest rates as the related Trust Preferred Securities. The Debentures are the sole assets of the Trusts and are eliminated, along with the related income statement effects, in the consolidated financial statements. The Company has fully and unconditionally guaranteed all of the obligations of the Trusts. Under applicable regulatory guidelines, a portion of the Trust Preferred Securities qualify as Tier I capital, and the remaining qualify as Tier II Capital. The following Trust Preferred Securities were outstanding at December 31, 2001:
================================================================================================= (in thousands) Amount Date of Security Title Issuer Outstanding Original Issue - ------------------------------------------------------------------------------------------------- 10.46% Capital Securities Haven Capital Trust I $ 18,174 February 12, 1997 - ------------------------------------------------------------------------------------------------- 10.25% Capital Securities Haven Capital Trust II 23,333 May 26, 1999 - ------------------------------------------------------------------------------------------------- 11.045% Capital Securities Queens Capital Trust I 10,000 July 26, 2000 - ------------------------------------------------------------------------------------------------- 10.60% Capital Securities Queens Statutory Trust I 15,000 September 7, 2000 - ------------------------------------------------------------------------------------------------- 6.007% Floating Rate NYCB Capital Trust I Capital Securities 36,000 November 28, 2001 - ------------------------------------------------------------------------------------------------- 5.60% Floating Rate New York Community Capital Securities Statutory Trust I 35,032 December 18, 2001 - ------------------------------------------------------------------------------------------------- 5.58% Floating Rate New York Community Capital Securities Statutory Trust II 50,250 December 28, 2001 - ------------------------------------------------------------------------------------------------- $187,789 ================================================================================================= =================================================================================== Security Title Optional (in thousands) Stated Maturity Redemption Date - ----------------------------------------------------------------------------------- 10.46% Capital Securities February 1, 2027 February 1, 2007 - ----------------------------------------------------------------------------------- 10.25% Capital Securities September 30, 2029 June 30, 2009 - ----------------------------------------------------------------------------------- 11.045% Capital Securities July 19, 2030 July 19, 2010 - ----------------------------------------------------------------------------------- 10.60% Capital Securities September 7, 2030 September 7, 2010 - ----------------------------------------------------------------------------------- 6.007% Floating Rate Capital Securities December 8, 2031 December 8, 2006 - ----------------------------------------------------------------------------------- 5.60% Floating Rate Capital Securities December 18, 2031 December 18, 2006 - ----------------------------------------------------------------------------------- 5.58% Floating Rate Capital Securities December 28, 2031 December 28, 2006 - ----------------------------------------------------------------------------------- ===================================================================================
50 New York Community Bancorp, Inc. 2001 Annual Report The Trust Preferred Securities issued by Haven Capital Trust I, Haven Capital Trust II, Queens Capital Trust I, and Queens Statutory Trust I accrue interest at an annual rate of 10.46%, 10.25%, 11.045%, and 10.60%, respectively. The NYCB Capital Trust I accrues interest at a variable rate, adjustable semi-annually, equal to 3.75% over the six-month LIBOR, with an initial rate of 6.007%, and an interest rate cap of 11.00% effective through December 8, 2006. The New York Community Statutory Trust I accrues interest at a variable rate, adjustable quarterly, equal to 3.60% over the three-month LIBOR, with an initial rate of 5.60%, and an interest rate cap of 12.50% effective through December 18, 2006. The New York Community Statutory Trust II accrues interest at a variable rate, adjustable semi-annually, equal to 3.60% over the six-month LIBOR, with an initial rate of 5.58%, and an interest rate cap of 10.00% effective through December 28, 2006. The total amount of Trust Preferred Securities outstanding at December 31, 2001 and 2000 was $187.8 million and $76.9 million, respectively. For the twelve months ended December 31, 2001, the weighted average balance of total borrowings was approximately $1.6 billion, with a weighted average interest rate of 4.86%. In the year-earlier period, the weighted average balance was approximately $817.8 million, with an average interest rate of 6.03%. The maximum amount of borrowings outstanding at any month-end during 2001 was $2.3 billion; in 2000, the maximum month-end amount was $958.7 million. Accrued interest of $12.5 million was included in the balance of borrowings at each of December 31, 2001 and 2000. 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, 2001. NOTE 12: FEDERAL, STATE, AND LOCAL TAXES The components of the net deferred tax asset at December 31, 2001 and 2000 are summarized as follows: December 31, ================================================================================ (in thousands) 2001 2000 - -------------------------------------------------------------------------------- DEFERRED TAX ASSETS: Financial statement loan loss allowance $ 15,188 $ 7,699 Accrual for post-retirement benefits 3,178 2,507 Mark to market on securities available for sale -- 18,413 Mark to market on loans 2,760 8,883 Mark to market on borrowings 17,823 3,178 Charitable contributions 8,099 -- Merger-related costs 2,331 -- Loan origination costs -- 2,831 SERP and deferred compensation 1,577 2,623 Other 1,867 302 - -------------------------------------------------------------------------------- Total deferred tax assets 52,823 46,436 - -------------------------------------------------------------------------------- DEFERRED TAX LIABILITIES: Tax reserve in excess of base year reserve (1,645) (1,296) Prepaid pension cost (3,428) (2,008) Mark to market on securities available for sale (6,060) -- Other (1,294) (772) - -------------------------------------------------------------------------------- Total deferred tax liabilities (12,427) (4,076) - -------------------------------------------------------------------------------- Net deferred tax asset $ 40,396 $ 42,360 ================================================================================ The net deferred tax asset at December 31, 2001 and 2000 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. 51 Income tax expense for the years ended December 31, 2001, 2000, and 1999 is summarized as follows: December 31, ================================================================================ (in thousands) 2001 2000 1999 - -------------------------------------------------------------------------------- Federal--current $33,123 $15,362 $ 16,792 State and local--current 1,905 1,913 3,559 - -------------------------------------------------------------------------------- Total current 35,028 17,275 20,351 - -------------------------------------------------------------------------------- Federal--deferred 32,815 3,040 518 State and local--deferred 2,936 110 (97) - -------------------------------------------------------------------------------- Total deferred 35,751 3,150 421 - -------------------------------------------------------------------------------- Total income tax expense $70,779 $20,425 $ 20,772 ================================================================================ The following is a reconciliation of statutory federal income tax expense to combined effective income tax expense for the years ended December 31, 2001, 2000, and 1999:
December 31, =========================================================================================================== (in thousands) 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------- Statutory federal income tax expense $ 61,336 $ 15,716 $ 18,352 State and local income taxes, net of federal income tax benefit 3,147 1,315 5,805 ESOP 6,250 5,865 84 Amortization of intangibles 2,950 173 -- BOLI (2,294) (735) -- Other, net (610) (1,909) (3,469) - ----------------------------------------------------------------------------------------------------------- Total income tax expense $ 70,779 $ 20,425 $ 20,772 ===========================================================================================================
The Company, the Bank, and their non-REIT subsidiaries, file a consolidated federal income tax return on a calendar year basis. As a savings institution, the Bank is subject to special provisions in the federal and New York State tax laws regarding its allowable tax bad debt deductions and related tax bad debt reserves. Tax bad debt reserves consist of a defined base year amount plus additional amounts, or excess reserves, accumulated after the base year. Deferred tax liabilities are recognized with respect to such excess reserves, as well as any portion of the base year amount that is expected to become taxable, or recaptured, in the foreseeable future. Federal tax laws include a requirement to recapture into taxable income, over a six-year period, the federal bad debt reserves in excess of the base year amounts. The Bank has established a deferred tax liability with respect to such excess federal reserves. New York State tax laws designate all State bad debt reserves as the base year amount. The Bank's base year tax bad debt reserves at December 31, 2001 and 2000 were $27.3 million (including $9.6 million from Richmond County Savings Bank), and $17.7 million, respectively. Associated deferred tax liabilities have not been recognized since the Company does not expect that the base year reserves will become taxable in the foreseeable future. Under the tax laws, events that would result in taxation of certain of these reserves include (1) redemptions of the Bank's stock or certain excess distributions by the Bank to the Company, and (2) failure of the Bank to maintain a specified qualifying assets ratio or meet other thrift definition tests for New York State tax purposes. NOTE 13: COMMITMENTS AND CONTINGENCIES Pledged Assets At December 31, 2001, the Company had pledged $1.04 billion of investment securities as collateral for its FHLB advances and $507.5 million of investment securities as collateral for its reverse repurchase agreements. At December 31, 2000, $250.0 million of investment securities were pledged as collateral for FHLB advances; the Company had no reverse repurchase agreements at that date. Lease and License Commitments At December 31, 2001, the Company was obligated under seventy-nine non-cancelable operating lease and license 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 agreements contain escalation clauses commencing at various times during the lives of the agreements. Such clauses provide for increases in the annual rental. At December 31, 2001, the Company had entered into several non-cancelable operating lease and license agreements for the rental of Bank properties. The agreements contain escalation clauses that provide for periodic increases in the annual rental. 52 New York Community Bancorp, Inc. 2001 Annual Report The projected minimum annual rental commitments under these agreements, exclusive of taxes and other charges, are summarized as follows: (in thousands) Rental Income Rental Expense - -------------------------------------------------------------------------------- 2002 $ 691 $ 5,375 2003 686 4,076 2004 571 3,512 2005 567 3,113 2006 579 2,698 2007 and thereafter 1,791 16,479 - -------------------------------------------------------------------------------- Total minimum future rentals $4,885 $35,253 ================================================================================ Included in "occupancy and equipment expense," the rental expense under these leases and licenses was approximately $5.7 million, $1.1 million, and $485,000 for the years ended December 31, 2001, 2000, and 1999, respectively. Rental income on Bank properties, netted in occupancy and equipment expense, was approximately $1.2 million, $1.1 million, and $1.3 million for the corresponding periods. On December 15, 2000, the Company relocated its corporate headquarters to the former headquarters of Haven 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"). Under the IDA and PILOT agreements, which were assumed by the Company, 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, 2001, the Bank has a lawsuit pending, whereby the plaintiffs are seeking recovery of approximately $12.4 million in actual damages. This amount does not include any statutory pre-judgment interest that could be awarded. 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 this action and continues to defend its position. NOTE 14: EMPLOYEE BENEFITS Retirement Plans The Company maintains three pension plans, all of which are presently frozen: one for employees of the former Queens County Savings Bank, one for employees of the former CFS Bank, and one for employees of the former Richmond County Savings Bank. The plans cover substantially all employees who had attained minimum service requirements prior to the date on which each plan was frozen. Once "frozen," the plans ceased to accrue additional benefits, service, and compensation factors, and became closed to employees who would have met eligibility requirements after the "freeze" date. The Queens County Savings Bank Retirement Plan was frozen at September 30, 1999, while the CFS Bank Retirement Plan was frozen on June 30, 1996 and reactivated on November 30, 2000, with a subsequent refreeze on December 29, 2000. The Richmond County Savings Bank Retirement Plan was frozen on March 31, 1999. 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 all plans were frozen prior to 2001, there was no service cost or employer contribution for the current year. 53 The following tables set forth the disclosures required under SFAS No. 132, "Employers' Disclosures about Pensions and Other Post-retirement Benefits," for all three benefit plans, combined, in 2001; for the Queens County Savings Bank and CFS Bank plans combined, in 2000; and for the Queens County Savings Bank plan, alone, in 1999: Pension Benefits ================================================================================ (in thousands) 2001 2000 - -------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year $ 32,612 $ 22,051 Interest cost 1,832 1,683 Actuarial loss (1,898) (728) Benefits paid (1,390) (2,881) Settlement (832) -- Plan amendments 2,014 -- - -------------------------------------------------------------------------------- Benefit obligation at end of year $ 32,338 $ 20,125 - -------------------------------------------------------------------------------- CHANGE IN PLAN ASSETS: Fair value of assets at beginning of year $ 40,014 $ 26,758 Actual return on plan assets (3,181) 1,943 Benefits paid (1,390) (2,881) Settlement (832) -- - -------------------------------------------------------------------------------- Fair value of assets at end of year $ 34,611 $ 25,820 - -------------------------------------------------------------------------------- FUNDED STATUS: Funded status $ 8,115 $ 5,695 Unrecognized net actuarial (gain) loss 1,151 (982) - -------------------------------------------------------------------------------- Prepaid benefit cost $ 9,266 $ 4,713 ================================================================================ Years Ended December 31, ================================================================================ 2001 2000 1999 - -------------------------------------------------------------------------------- WEIGHTED-AVERAGE ASSUMPTIONS: Discount rate 7.50% 8.00% 7.75% Expected rate of return on plan assets 9.00 8.00 8.00 Rate of compensation increase N.A. 4.00 5.50 ================================================================================ Years Ended December 31, ================================================================================ (in thousands) 2001 2000 1999 - -------------------------------------------------------------------------------- COMPONENTS OF NET PERIODIC BENEFIT COST: Service cost $ -- $ -- $ 641 Interest cost 1,832 1,683 1,024 Expected return on plan assets (2,630) (2,192) (1,203) Amortization of prior service cost 161 (56) (1,906) - -------------------------------------------------------------------------------- Net periodic benefit $ (637) $ (565) $(1,444) ================================================================================ At December 31, 2001, the CFS Bank Retirement Plan, on a stand-alone basis, had a benefit obligation that exceeded plan assets by $2.7 million. The aggregate benefit obligation and the aggregate fair value of plan assets for the CFS Bank Retirement Plan were $11.0 million and $8.3 million, respectively, as of December 31, 2001. Qualified Savings Plans The Company maintains three defined contribution Qualified Savings Plans in which all regular salaried employees were able to participate after one year of service and having attained age 21. Other eligibility criteria included being salaried and/or hourly-paid, depending on the Plan. Pursuant to the Bank's conversion from mutual to stock form in 1993 and the adoption of the Employee Stock Ownership Plan ("ESOP"), all matching contributions to the Thrift Incentive Plan for employees of the former Queens County Savings Bank were suspended, in order to comply with the limitations set forth by the Internal Revenue Code. In connection with the Richmond County merger and the Haven acquisition, respectively, all matching contributions to the Richmond County Savings Bank Plan were suspended effective January 1, 2002 and all matching contributions to the CFS Bank Plan were suspended effective January 1, 2001. Accordingly, there were five months of Company contributions relating to the Richmond County Savings Bank Plan for the year ended December 31, 2001, one month of Company contributions relating to the CFS Bank Plan for the year ended December 31, 2000, and no Company contributions for the year ended December 31, 1999. 54 New York Community Bancorp, Inc. 2001 Annual Report Other Compensation Plans To ensure that the Bank will be able to call on their service in the future, the Company maintains an unfunded non-qualified plan to provide retirement benefits to directors who are neither officers nor employees of the Bank. The unfunded balance of approximately $779,000 at December 31, 2001 is reflected in "other liabilities" on the Company's Consolidated Statements of Condition; no such balance existed at December 31, 2000. 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 approximately $588,000 and $1.4 million at December 31, 2001 and 2000, respectively, are unfunded and, as such, are reflected in "other liabilities" on the Company's Consolidated Statements of Condition. Post-Retirement Health and Welfare Benefits The Company offers certain post-retirement benefits, including medical, dental, and life insurance, to retired employees, depending on age and years of service at the time of retirement, and 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 for the plans benefiting employees of the former Queens County Savings Bank, the former CFS Bank, and the former Richmond County Savings Bank, combined, in 2001; for the Queens County Savings Bank and CFS Bank plans, combined, in 2000; and for the Queens County Savings Bank plan, alone, in 1999: Post-retirement Benefits ================================================================================ (in thousands) 2001 2000 - -------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year $ 6,994 $ 4,535 Service cost 53 226 Interest cost 377 347 Actuarial loss (gain) 203 (98) Benefits paid (546) (122) Plan amendments (288) -- Curtailment (3) -- - -------------------------------------------------------------------------------- Benefit obligation at end of year $ 6,790 $ 4,888 ================================================================================ CHANGE IN PLAN ASSETS: Fair value of assets at beginning of year $ -- $ -- Employer contribution 546 184 Benefits paid (546) (184) - -------------------------------------------------------------------------------- Fair value of assets at end of year $ -- $ -- ================================================================================ FUNDED STATUS: Accrued post-retirement benefit cost $(8,476) $(6,181) Employer contribution 993 184 Total net periodic benefit cost (credit) (213) 548 - -------------------------------------------------------------------------------- Accrued post-retirement benefit cost $(7,696) $(5,449) ================================================================================ Years Ended December 31, ================================================================================ 2001 2000 1999 - -------------------------------------------------------------------------------- WEIGHTED-AVERAGE ASSUMPTIONS: Discount rate 7.50% 8.00% 7.75% Current medical trend rate 9.00 6.50 6.50 Rate of compensation increase 4.25 5.50 5.50 ================================================================================ Years Ended December 31, ================================================================================ (in thousands) 2001 2000 1999 - -------------------------------------------------------------------------------- COMPONENTS OF NET PERIODIC BENEFIT COST: Service cost $ 53 $ 226 $ 89 Interest cost 377 347 205 Expected return on plan assets -- -- (61) Amortization of prior service cost (217) (25) (63) - -------------------------------------------------------------------------------- Net periodic benefit cost $ 213 $ 548 $ 170 ================================================================================ 55 Increasing the assumed health care cost trend rate by 1% in each year would have increased the accumulated post-retirement benefit obligation as of December 31, 2001 by $391,992, and the aggregate of the benefits earned and interest components of 2001 net post-retirement benefit expense by $24,761. Decreasing the assumed health care cost trend rate by 1% in each year would have decreased the accumulated post-retirement benefit obligation as of December 31, 2001 by $366,406 and the aggregate of the benefits earned and interest components of 2001 net post-retirement benefit expense by $24,193. 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, have attained age 21, and are of salaried full-time employment status: 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 10,453,185 shares (as adjusted for the seven stock splits discussed in Note 3). The loan is being 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, 2001, the loan had an outstanding balance of $5.0 million and a fixed interest rate of 6.0%. Interest expense for the obligation was approximately $422,500 for the year ended December 31, 2001. 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. Contributions to the ESOP were approximately $2.5 million for the year ended December 31, 2001. Dividends and investment income received on ESOP shares used for debt service amounted to approximately $658,800 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 Richmond County merger and the Haven acquisition, respectively, the Company allocated 973,071 and 875,053 ESOP shares to participants in 2001 and 2000. At December 31, 2001, there were 3,306,249 shares remaining for future allocation, with a market value of $75.6 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 $22.8 million, $24.8 million, and $2.5 million for the years ended December 31, 2001, 2000, and 1999, 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 $3.1 million and $3.8 million of trust-held assets at December 31, 2001 and 2000, respectively, based upon the cost of said assets at the time of purchase. Trust-held assets consist entirely of Company common stock and amounted to 480,604 and 582,053 shares at December 31, 2001 and 2000. The cost of such shares is reflected as contra-equity and additional paid-in capital in the accompanying Consolidated Statements of Condition. The Company recorded no SERP-related compensation expense in 2001 or 2000. Recognition and Retention Plans and Trusts ("RRPs") The RRPs were established 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 3,318,469 shares (split-adjusted) of the common stock in the conversion, substantially all of which 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 and at a rate of 20% per year for officers and employees. 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 Bank recognizes expense based on the original cost of the common stock at the date of vesting for the RRP. The Company recorded no compensation expense for the RRPs in 2001 or 2000; in 1999, the compensation expense recorded for the RRPs was $22,000. 56 New York Community Bancorp, Inc. 2001 Annual Report Stock Option Plans At December 31, 2001, the Company had five stock option plans: the 1993 and 1997 Queens County Bancorp, Inc. Stock Option Plans, the 1993 and 1996 Haven Bancorp, Inc. Stock Option Plans, and the 1998 Richmond County Financial Corp. Stock Compensation Plan. 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 shares 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 two 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, 2001, 2000, and 1999, the number of options that were outstanding under the 1993 Queens County Bancorp, Inc. Stock Option Plan was 89,935; 552,445; and 1,787,321, respectively; under the 1997 Queens County Bancorp, Inc. Stock Option Plan, the number of options that were outstanding at those dates was 2,943,509; 3,200,063; and 1,511,156, respectively. The number of options that were outstanding under the 1993 and 1996 Haven Bancorp, Inc. Stock Option Plans at December 31, 2001 and 2000 were 288,489 and 1,748,439, respectively. The number of options that were outstanding under the Richmond County Financial Corp. 1998 Stock Compensation Plan at December 31, 2001 was 3,238,034. At December 31, 2001, there was a total of 3,707,322 shares reserved for future issuance under the Company's five stock option plans. The status of the five stock option plans at December 31, 2001, 2000, and 1999, and changes during the years ending on those dates, are summarized below:
Years Ended December 31, ================================================================================================================================ 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------------------------- Weighted Weighted Weighted Number Average Number Average Number Average of Stock Exercise of Stock Exercise of Stock Exercise Options(1) Price(1) Options(1) Price(1) Options(1) Price(1) - -------------------------------------------------------------------------------------------------------------------------------- Stock options outstanding, beginning of year 5,500,946 $ 7.96 3,298,478 $ 7.08 5,389,776 $ 4.29 Granted 1,525,565 15.37 1,749,656 8.92 1,511,156 13.49 Assumed in acquisition 3,586,934 18.35 1,748,439 4.00 -- -- Exercised (4,053,478) 6.96 (1,295,627) 1.65 (3,602,455) 5.60 - -------------------------------------------------------------------------------------------------------------------------------- Stock options outstanding, end of year 6,559,967 $15.98 5,500,946 $ 7.96 3,298,478 $ 7.08 ================================================================================================================================ Options exercisable at year-end 4,759,493 3,751,290 1,787,322 Weighted average grant-date fair value of options granted during the year $10.78 $7.70 $0.97 ================================================================================================================================
(1) Amounts have been adjusted to reflect 3-for-2 stock splits on March 29 and September 20, 2001. The following table summarizes information about stock options outstanding at December 31, 2001:
======================================================================================================== Weighted Average Number Remaining Weighted Weighted Range of of Options Contractual Life Average Options Average Exercise Outstanding at of Options Exercise Exercisable at Exercise Price December 31, 2001 Outstanding Price December 31, 2001 Price - -------------------------------------------------------------------------------------------------------- $ 1 - $ 4 89,935 1.92 years $ 1.65 89,935 $ 1.65 $ 5 - $10 416,452 1.50 8.30 416,452 8.30 $11 - $15 954,322 7.00 13.30 954,322 13.30 $16 - $20 5,038,509 7.10 17.31 3,238,034 9.75 $21 - $25 60,750 9.08 21.85 -- 21.85 - -------------------------------------------------------------------------------------------------------- 6,559,967 6.67 years $15.98 4,759,493 $ 9.79 ========================================================================================================
57 Because stock options granted under all of these plans have characteristics significantly different from those of traded options, and because changes in the subjective assumptions can materially affect the estimated fair values, the Company used a Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2001, 2000, and 1999: Years Ended December 31, ================================================================================ 2001 2000 1999 - -------------------------------------------------------------------------------- Dividend yield 2.82% 2.68% 3.69% Expected volatility 33.03 10.02 9.24 Risk-free interest rate 4.83 4.00 4.83 Expected option lives 6.7 years 9.5 years 9.5 years ================================================================================ Had compensation cost for the Company's 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 millions, except per share data) 2001 2000 1999 - -------------------------------------------------------------------------------- Net income As reported $ 104.5 $ 24.48 $ 31.70 Pro forma 84.1 17.75 23.49 Diluted earnings per share(1) As reported $ 1.34 $ 0.56 $ 0.75 Pro forma 1.07 0.41 0.56 ================================================================================ (1) Per share amounts for 2000 and 1999 have been adjusted to reflect 3-for-2 stock splits on March 29 and September 20, 2001. NOTE 16: FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value information about its on- and off-balance-sheet financial instruments. Quoted market prices, when available, are used as the measure of fair value. In cases where quoted market prices are not available, fair values are based on present value estimates or other valuation techniques. These derived fair values are significantly affected by assumptions used, the timing of future cash flows, and the discount rate. Because assumptions are inherently subjective in nature, the estimated fair values cannot be substantiated by comparison to independent market quotes and, in many cases, the estimated fair values would not necessarily be realized in an immediate sale or settlement of the instrument. The following table summarizes the carrying values and estimated fair values of the Company's on-balance-sheet financial instruments at December 31, 2001 and 2000:
December 31, ============================================================================================================= 2001 2000 - ------------------------------------------------------------------------------------------------------------- Carrying Estimated Carrying Estimated (in thousands) Value Fair Value Value Fair Value - ------------------------------------------------------------------------------------------------------------- FINANCIAL ASSETS: Cash and cash equivalents $ 178,615 $ 178,615 $ 257,715 $ 257,715 Securities held to maturity 203,195 203,647 222,534 220,608 Mortgage-backed securities held to maturity 50,865 51,119 1,923 1,979 Securities available for sale 2,374,782 2,374,782 303,734 303,734 Loans, net 5,361,187 5,432,025 3,616,386 3,702,138 FINANCIAL LIABILITIES: Deposits $5,450,602 $5,492,533 $3,257,194 $3,278,831 Borrowings 2,506,828 2,609,560 1,037,505 1,037,505 Mortgagors' escrow 21,496 21,496 11,291 11,291 =============================================================================================================
58 New York Community Bancorp, Inc. 2001 Annual Report 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 have short-term maturities. Securities and Mortgage-backed Securities Held to Maturity and Securities Available for Sale Estimated fair values are based on independent dealer quotations and quoted market prices. 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 mortgage and other loans are computed by discounting the anticipated cash flows from the respective portfolios. The discount rates reflect current market rates for loans with similar terms to borrowers of similar credit quality. The estimated fair values of non-performing mortgage and other loans are based on recent collateral appraisals. The 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 accounts, 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 represent a relatively stable, low-cost source of funding that has a substantial intangible value separate from the value of the deposit balances. Borrowings The estimated fair value of borrowings is based on the discounted value of contractual cash flows with interest rates currently in effect for borrowings with similar maturities and collateral requirements. 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 fair value of commitments to purchase securities available for sale is based on the estimated cost to terminate them or otherwise settle the obligations with the counterparties. The estimated fair values of these off-balance-sheet financial instruments resulted in no unrealized gain or loss at December 31, 2001 or 2000. 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 requires 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. 59 NOTE 18: PARENT COMPANY-ONLY FINANCIAL INFORMATION Following are the condensed financial statements for New York Community Bancorp, Inc. (parent company-only): CONDENSED STATEMENTS OF CONDITION
December 31, ==================================================================================================================== (in thousands) 2001(1) 2000 - -------------------------------------------------------------------------------------------------------------------- ASSETS Cash $ 168 $ 7,422 Money market investments 107,076 5,143 Securities held to maturity 10,000 -- Securities available for sale 2,676 1,444 Investments in and advances to subsidiary banks, net 1,068,967 127,742 Goodwill -- 118,071 Other assets 6,877 26,762 - -------------------------------------------------------------------------------------------------------------------- Total assets $1,195,764 $286,584 - -------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Other liabilities $ 306,604 $ 18,639 Stockholders' equity 889,160 267,945 - -------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $1,195,764 $286,584 ====================================================================================================================
(1) In accordance with regulatory requirements, push-down accounting from the parent company to its primary subsidiary was applied to reflect the Richmond County merger and the Haven acquisition in 2001. CONDENSED STATEMENTS OF INCOME
Years Ended December 31, ==================================================================================================================== (in thousands) 2001(1) 2000 1999 - -------------------------------------------------------------------------------------------------------------------- Interest income from subsidiary bank $ 754 $ -- $ -- Other interest income 189 56 78 Dividends from subsidiary bank -- 88,800 33,100 - -------------------------------------------------------------------------------------------------------------------- Total income 943 88,856 33,178 Interest expense to subsidiary bank -- 1,808 1,683 Operating expense 129 275 301 - -------------------------------------------------------------------------------------------------------------------- Income before income tax and equity in undistributed earnings 814 86,773 31,194 Income tax expense 268 150 150 - -------------------------------------------------------------------------------------------------------------------- Income before equity in undistributed earnings of subsidiary bank 546 86,623 31,044 Equity in (excess dividends)/undistributed earnings of subsidiary bank 103,921 (62,146) 620 - -------------------------------------------------------------------------------------------------------------------- Net income $104,467 $ 24,477 $31,664 ====================================================================================================================
(1) In accordance with regulatory requirements, push-down accounting from the parent company to its primary subsidiary was applied to reflect the Richmond County merger and the Haven acquisition in 2001. 60 New York Community Bancorp, Inc. 2001 Annual Report CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31, ================================================================================================================ (in thousands) 2001(1) 2000 1999 - ---------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 104,467 $ 24,477 $ 31,664 Equity in undistributed earnings of the Bank not provided for (103,921) 62,146 (620) - ---------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 546 86,623 31,044 ================================================================================================================ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of securities (11,232) -- -- Payments for investments in and advances to subsidiaries, net (428,565) (105,933) (36,277) Cash dividends from subsidiaries -- 88,800 60,505 - ---------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by investing activities (439,797) (17,133) 24,228 ================================================================================================================ CASH FLOWS FROM FINANCING ACTIVITIES: Shares issued in the Richmond County merger 693,306 -- -- Purchase of Treasury stock (121,048) (41,483) (38,352) Dividends paid (43,955) (17,847) (18,563) Exercise of stock options 5,627 (727) 3,192 - ---------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 533,930 (60,057) (53,723) - ---------------------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 94,679 9,433 1,549 - ---------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of year 12,565 3,132 1,583 - ---------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 107,244 $ 12,565 $ 3,132 ================================================================================================================
(1) In accordance with regulatory requirements, push-down accounting from the parent company to its primary subsidiary was applied to reflect the Richmond County merger and the Haven acquisition in 2001. 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, 2001, the Bank met all capital adequacy requirements to which it was subject. As of December 31, 2001, 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. 61 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 At December 31, 2001 Actual Adequacy Purposes Action Provisions - -------------------------------------------------------------------------------------------------------------------------- (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio - -------------------------------------------------------------------------------------------------------------------------- Total capital (to risk-weighted assets) $536,737 10.97% $391,413 8.0% $489,266 10.0% Tier 1 capital (to risk-weighted assets) 495,037 10.12 195,706 4.0 293,559 6.0 Tier 1 leverage capital (to average assets) 495,037 6.09 324,934 4.0 406,167 5.0 ========================================================================================================================== ========================================================================================================================== To Be Well Capitalized For Capital Under Prompt Corrective At 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 ==========================================================================================================================
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, 2001 and 2000 follows:
=========================================================================================================================== 2001 2000 - --------------------------------------------------------------------------------------------------------------------------- (in thousands, except per share data) 4th 3rd 2nd 1st 4th 3rd 2nd 1st - --------------------------------------------------------------------------------------------------------------------------- Net interest income $75,044 $59,439 $36,203 $35,130 $24,041 $16,278 $16,319 $16,443 Provision for loan losses -- -- -- -- -- -- -- -- Other operating income 18,983 32,023 11,128 28,481 18,021 1,264 1,249 1,111 Operating expense 26,027 49,742 17,567 19,421 32,486 5,684 5,520 5,638 Amortization of goodwill and core deposit intangible 2,982 2,482 1,482 1,482 494 -- -- -- - --------------------------------------------------------------------------------------------------------------------------- Income before income tax expense 65,018 39,238 28,282 42,708 9,082 11,858 12,048 11,916 Income tax expense 22,497 23,631 9,587 15,064 7,753 4,073 4,278 4,322 - --------------------------------------------------------------------------------------------------------------------------- Net income $42,521 $15,607 $18,695 $27,644 $ 1,329 $ 7,785 $ 7,770 $ 7,594 =========================================================================================================================== Diluted earnings per common share(1) $ 0.43 $ 0.18 $ 0.31 $ 0.44 $ 0.03 $ 0.20 $ 0.20 $ 0.19 =========================================================================================================================== Cash dividends declared per common share(1) $ 0.16 $ 0.13 $ 0.13 $ 0.11 $ 0.11 $ 0.11 $ 0.11 $ 0.11 =========================================================================================================================== Dividend payout ratio 37% 72% 42% 24% 417% 56% 57% 60% =========================================================================================================================== Average common shares and equivalents outstanding(1) 99,411 87,668 61,336 62,361 48,366 39,362 40,041 40,826 =========================================================================================================================== Stock price per common share(1): High(2) $ 28.23 $ 31.37 $ 24.98 $ 19.13 $ 16.67 $ 12.83 $ 9.19 $ 11.93 Low(2) 21.83 19.12 19.33 14.72 11.69 8.31 7.97 7.89 Close 22.87 23.21 25.10 19.33 16.33 12.83 8.19 8.03 ===========================================================================================================================
(1) Amounts for the year 2000 have been adjusted to reflect 3-for-2 stock splits on March 29 and September 20, 2001. (2) Reflects closing prices. 62 New York Community Bancorp, Inc. 2001 Annual Report - -------------------------------------------------------------------------------- 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 2001, this system of internal controls was adequate to accomplish the intended objectives. /s/ Joseph R. Ficalora /s/ Robert Wann Joseph R. Ficalora Robert Wann President and Executive Vice President and Chief Executive Officer Chief Financial Officer January 23, 2002 - -------------------------------------------------------------------------------- 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, 2001 and 2000 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, 2001. 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, in all material respects, the financial position of New York Community Bancorp, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, in 2001, the Company changed its methods of accounting for goodwill and intangible assets resulting from business combinations consummated after June 30, 2001. New York, New York January 23, 2002 63 EX-23.0 6 ex23.txt INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.0 Independent Auditors' Consent The Board of Directors New York Community Bancorp, Inc.: We consent to incorporation by reference in the Registration Statement (Nos. 333-32881, 333-51998, and 333-66366) on Form S-8 of New York Community Bancorp, Inc. of our report dated January 23, 2002, relating to the consolidated statements of condition of New York Community Bancorp, Inc. and subsidiaries as of December 31, 2001 and 2000, 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, 2001, which report appears in the December 31, 2001 annual report and is incorporated by reference on Form 10-K of New York Community Bancorp, Inc. Our report refers to changes, in 2001, in New York Community Bancorp, Inc.'s methods of accounting for goodwill and intangible assets resulting from business combinations consummated after June 30, 2001. New York, New York April 1, 2002 -----END PRIVACY-ENHANCED MESSAGE-----