10-K 1 d54872_10k.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: Commission File Number 0-31565 December 31, 2002 NEW YORK COMMUNITY BANCORP, INC. (Exact name of registrant as specified in its charter) Delaware 06-1377322 (State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) 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: 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 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| Indicated by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) Yes |X| No| | As of June 28, 2002, the aggregate market value of the shares of common stock outstanding of the registrant was $2.709 billion, excluding 7,971,078 shares held by all directors and executive officers of the registrant. This figure is based on the closing price as reported by the Nasdaq National Market for a share of the registrant's common stock on June 28, 2002, which was $27.10 as reported in The Wall Street Journal on July 1, 2002. The number of shares of the registrant's common stock outstanding as of March 26, 2003 was 104,897,760 shares. Documents Incorporated by Reference Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 2003, and the 2002 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 Formerly known as Queens County Bancorp, Inc., New York Community Bancorp, Inc. (the "Company"),was incorporated in the State of Delaware on July 20, 1993, to serve as the holding company for New York Community Bank (the "Bank"), formerly known as Queens County Savings Bank. Established on April 14, 1859, the Bank was the first savings bank chartered in the State of New York in the Borough of Queens. 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 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 a network of 110 banking offices in New York City, Long Island, Westchester County, and New Jersey, and operates through six divisions with strong local identities: 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. The Company also serves its customers, and its shareholders, through its website, www.myNYCB.com. Earnings releases, dividend announcements, and other press releases are typically available at this site within ten minutes of issuance. In addition, the Company's Securities and Exchange Commission filings (including its annual report on Form 10-K; its quarterly reports on Form 10-Q; and its current reports on Form 8-K) are typically available within ten minutes of being filed with the Securities and Exchange Commission. General The Company recorded total assets of $11.3 billion at December 31, 2002, up $2.1 billion, or 22.9%, from the balance recorded at December 31, 2001. Mortgage loans represented $5.4 billion, or 47.8%, of total assets, including $4.5 billion of multi-family loans. The latter amount reflects twelve-month originations totaling $2.1 billion, representing 80.3% of total mortgage loans produced in 2002. While the multi-family loan portfolio rose $1.2 billion, or 38.1%, during the year, the increase was largely offset by a $1.1 billion decline in one-to-four family loans to $265.7 million. In addition to a significant level of prepayments, the reduction stemmed from the sale of loans totaling $215.9 million and the securitization of loans totaling $572.5 million. The reduction in one-to-four family loans, like the increase in multi-family lending, was indicative of a strategic balance sheet restructuring program designed to enhance the quality of the Company's loan portfolio. The quality of the Company's loans was demonstrated by the performance of the portfolio in 2002. At December 31, 2002, non-performing assets declined $1.2 million to $16.5 million, representing 0.15% of total assets, while non-performing loans declined $1.2 million to $16.3 million, representing 0.30% of loans, net. In addition, the fourth quarter of 2002 was the Company's 33 consecutive quarter without any net charge-offs being recorded. In the absence of any net charge-offs or provisions for loan losses, the allowance for loan losses was maintained at $40.5 million, representing 247.8% of non-performing loans at December 31, 2002. While enhancing the mix of mortgage loans was its primary objective, the Company also focused on growing its assets through a leveraging strategy. Reflecting the deployment of borrowings into securities investments and the aforementioned loan securitization, the portfolio of securities available for sale rose $1.6 billion to $4.0 billion, while the portfolio of securities held to maturity rose $496.3 million to $699.4 million. Mortgage-backed securities, with an average maturity of 2.4 years, represented $3.6 billion, or 91.0% of the available-for-sale portfolio, while capital trust notes, corporate bonds, and Federal Home Loan Bank ("FHLB") stock comprised the bulk of securities held to maturity. 1 At December 31, 2002, the Company's borrowings totaled $4.6 billion, up $2.1 billion from the balance recorded at December 31, 2001. Included in the 2002 amount were Federal Home Loan Bank of New York ("FHLB-NY") advances of $2.3 billion; reverse repurchase agreements of $2.0 billion; and trust preferred securities of $368.8 million. Additional funding stemmed from a $264.2 million increase in core deposits to $3.3 billion, representing 62.9% of total deposits at year-end 2002. The increase was partly offset by a $458.8 million decline in CDs to $1.9 billion, reflecting management's focus on the sale of third-party investment products, and the divestiture of 14 in-store branch offices in Connecticut, New Jersey, and Rockland County (New York) in the second quarter of the year. The reduction in banking offices was partly offset by the opening of four new banking offices in Richmond and Nassau Counties during the first three quarters of 2002. While core deposits and borrowings were the Company's primary funding sources, funding also stemmed from a robust level of prepayments in both the mortgage-backed securities and one-to-four family mortgage loan portfolios in 2002. The funding derived from these sources was further supplemented by funds derived from loan and securities sales totaling $825.1 million and the maturity of loans and securities. In 2002, the Company enhanced its capital position through two successful public offerings. On May 14th, the Company issued 5,865,000 shares of common stock in an oversubscribed secondary offering that generated net proceeds of $147.5 million; and, on November 4, 2002, the Company issued 5.5 million Bifurcated Option Note Unit Securities (BONUSES(SM) Units) in an oversubscribed offering that generated net proceeds of $267.3 million. A hybrid investment instrument, the BONUSES Units combine a warrant to purchase common stock with a trust preferred security. The net proceeds generated in connection with the warrant portion of the offering amounted to $89.9 million; the balance of the net proceeds was recorded in borrowings. At December 31, 2002, stockholders' equity totaled $1.3 billion, up $340.4 million, or 34.6%, from the balance recorded at December 31, 2001. The 2002 amount was equivalent to 11.70% of total assets and a book value per share of $12.97, based on 102,058,843 shares. Reflecting the record level of mortgage loans produced and the merits of the leveraging program, the Company recorded 2002 net income of $229.2 million, up $124.8 million, or 119.4%, from the year-earlier amount. The $229.2 million was equivalent to an $0.88, or 65.7% increase in diluted earnings per share to $2.22, and provided a return on average assets and average stockholders' equity of 2.29% and 19.95%, respectively. Earnings growth was supported by a $167.4 million, or 81.4%, rise in net interest income to $373.3 million and by an $11.2 million, or 12.4%, rise in other operating income to $101.8 million. Reflected in net interest income is the interest income produced by the Company's portfolios of loans and securities investments, which more than offset the interest expense produced by its portfolios of interest-bearing deposits and borrowings. Other operating income stemmed from a variety of sources, including the fee income derived from branch operations; net gains on the sale of securities; and other revenue sources. Included in the latter category are the income derived from the sale of third-party investment products, the income derived from the Company's investment in Bank-owned Life Insurance, and the income derived from the Company's 100% equity interest in Peter B. Cannell & Co., Inc., an investment advisory firm. Reflecting the strength of its earnings and its capital position, the Company increased its quarterly cash dividend 25% in the second quarter of 2002 and another 25% in the first quarter of 2003. In addition, the Company maintained an active share repurchase program during 2002, allocating $120.0 million toward the repurchase of 4,337,534 shares. Reflecting shares repurchases, which were offset by option exercises and the issuance of shares in the secondary offering, the number of shares outstanding at December 31, 2002 was 105,664,464. Reflecting share repurchases in the first quarter of 2003, the number of outstanding shares at March 26, 2003 was 104,897,760. 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 22% market share. The remainder of the franchise consists of 31 branches in Long Island, 19 in New Jersey, 8 more in New York City, and 4 in Westchester County, New York. 2 The Company's multi-family market niche is centered in the metro New York region and is primarily comprised of buildings that are rent-controlled or rent-stabilized. 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 vies with commercial banks, other savings banks, credit unions, and savings and loan associations for deposits, and with the same institutions, as well as mortgage banking companies and insurance companies, for loans. 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. In recent years, competition has increased 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 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 brokerage and underwriting firms. Reflecting the entry of new banks into the market, the Bank has recently faced increased competition for the origination of multi-family loans. While management anticipates that competition for multi-family loans will continue to rise in the future, the level of loans produced in 2002 and in the current first quarter would indicate that the Company has the resources to compete effectively. This said, no assurances can be made that the Bank will be able to sustain its leadership role in the multi-family lending market, given that loan production may be influenced by competition as well as by such other factors as economic conditions and market interest rates. The Company's ability to compete for deposits has been enhanced by the growth of its branch network, both through merger transactions and through de novo development. In addition, the Company places an emphasis on convenience by featuring 24-hour banking, both on line and through a network of 146 ATMS. 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 commercial real estate, one-to-four family, construction, and other loans. At December 31, 2002, loans outstanding totaled $5.5 billion, of which $4.5 billion, or 81.9%, were multi-family mortgage loans. Reflected in the latter amount were twelve-month originations totaling $2.1 billion, representing 80.4% of total mortgage loan originations for the year. One-to-four family mortgage loans totaled $265.7 million at December 31, 2002, representing 4.8% of outstanding loans. The year-end balance reflects a robust level of prepayments, the securitization of loans totaling $572.5 million in the second quarter, and the sale of loans from portfolio totaling $215.9 million over the course of the year. In addition, the Company currently originates one-to-four family loans on a conduit basis; as a result, no newly originated loans are retained for portfolio. The remainder of the mortgage loan portfolio at year-end 2002 consisted of commercial real estate loans totaling $533.3 million and construction loans totaling $117.0 million. In addition, the Company had other loans totaling $78.8 million. At December 31, 2002, 82.0% of outstanding mortgage loans had been made at adjustable rates of interest and 18.0% 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, 2002, mortgage- 3 backed securities totaled $3.63 billion, representing 32.1% of total assets, of which $3.60 billion were classified as available for sale and $36.95 million were classified as held to maturity. The market value of total mortgage-backed securities was approximately $3.64 billion at December 31, 2002. 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 ended December 31, 2002 and 2001, sales of one-to-four family mortgage loans in connection with the conduit program amounted to $201.6 million and $67.0 million, respectively. In connection with the Company's balance sheet restructuring program, sales of one-to-four family mortgage loans totaled $215.9 million and $610.6 million, respectively, in 2002 and 2001, excluding $201.6 million and $67.0 million of such loans that were originated and sold through the conduit program in the corresponding years. As of December 31, 2002 and 2001, the Bank was servicing $694.9 million and $1.7 billion, respectively, of 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 that are primarily located in the metropolitan New York area. At December 31, 2002, the Bank's portfolio of multi-family mortgage loans totaled $4.5 billion, representing 81.9% of loans outstanding. Of this total, $4.3 billion, or 96.1%, were secured by rental apartment buildings and $173.9 million, or 3.9%, 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 one over the first five years of the loan. 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 flows 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 properties, 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, 2002 consisted of 17 loans secured by 17 multi-family properties located in the Bank's primary market area. These loans were made to several borrowers who are deemed to be related for regulatory purposes. As of December 31, 2002, the outstanding balance of these loans totaled $96.9 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. Payments on loans secured by multi-family buildings are generally dependent on the income produced by such properties, which, in turn, is dependent on their successful operation or management. Accordingly, repayment of such loans may be subject 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 cash flow 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; in the fourth quarter of 2002, the Company classified a $2.3 million multi-family loan as non-performing, but subsequently sold the loan in the first quarter of 2003 without any loss of principal or interest. One-to-Four Family Mortgage Lending. At December 31, 2002, $265.7 million, or 4.8%, of the Bank's loan portfolio, consisted of one-to-four family mortgage loans. In addition to a robust level of prepayments, the year-end amount reflects the securitization of loans totaling $572.5 million and the sale of loans totaling $215.9 million from the portfolio. On December 1, 2000, the Bank adopted a policy of originating one-to-four family 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 $201.6 million and $67.0 million in 2002 and 2001, respectively. In the years ended December 31, 2002 and 2001, the Bank originated $251.8 million and $137.0 million, respectively, of one-to-four family loans. 4 In 2003, the balance of one-to-four family mortgage loans is expected to decline further through principal repayments. Non-performing one-to-four family loans totaled $14.1 million at December 31, 2002, representing the majority of the Company's non-performing loans at that date. In addition, foreclosed real estate, which is included in "other assets" in the Consolidated Statements of Condition, consisted of four properties with a total carrying value of approximately $175,000 as of December 31, 2002. In the first quarter of 2003, two of those loans were sold without any loss. 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, 2002, the Bank had loans secured by commercial real estate of $533.3 million, comprising 9.7% 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 and feature the same terms and prepayment penalties as the Bank's multi-family loans. The origination of commercial real estate loans requires one or more of the following: the 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 income stream and debt service ratio. Construction Lending. 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, for the acquisition and development of commercial real estate properties. The Bank will typically lend up to 70% of the estimated market value, or up to 80%, in the case of home construction loans to individuals. Personal guarantees and a permanent loan commitment are typically required. 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, 2002, the Bank had $117.0 million, or 2.1% of its total loan portfolio, invested in construction loans. Other Lending. The Company currently originates other loans on a conduit basis, with applications being taken and processed by a third party and the loans then being sold to said party, service-released. To further reduce the portfolio, the Company sold other loans totaling $71.4 million in 2002. Other loans thus totaled $78.8 million at December 31, 2002, representing 1.4% of the Bank's total loan portfolio. Loan Approval Authority and Underwriting. The Board of Directors establishes lending authority for individual officers for its various loan products. All loans require the approval of the Mortgage and Real Estate Committee, and all loans in excess of $5.0 million must be approved by the Board of Directors as a whole. During the year ended December 31, 2002, the Bank originated 82 loans in excess of $5.0 million. Non-performing Loans and Foreclosed Assets. Non-performing loans totaled $16.3 million at December 31, 2002, including mortgage loans in foreclosure totaling $11.9 million and loans 90 days or more delinquent totaling $4.4 million. Based on the current market values of the properties collateralizing the mortgages, management does not expect any loss to be incurred by the Bank. 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 non-performing loans. 5 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, 2002, 2001, and 2000, the amounts of additional interest income that would have been recorded on mortgage loans in foreclosure, had they been current, totaled approximately $429,000, $651,000 and $435,000, respectively. These amounts were not included in the Bank's interest income for the respective periods. 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, 2002, 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, 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- (dollars in thousands) Mortgage loans in foreclosure $11,915 $10,604 $6,011 $2,886 $5,530 Loans 90 days or more delinquent and still accruing interest 4,427 6,894 3,081 222 663 ------- ------- ------ ------ ------ Total non-performing loans 16,342 17,498 9,092 3,108 6,193 ------- ------- ------ ------ ------ Foreclosed real estate 175 249 12 66 419 Total non-performing assets $16,517 $17,747 $9,104 $3,174 $6,612 ======= ======= ====== ====== ====== Total non-performing loans to loans, net 0.30% 0.33% 0.25% 0.19% 0.42% Total non-performing assets to total assets 0.15 0.19 0.19 0.17 0.38
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, 2002, foreclosed real estate consisted of four residential properties with an aggregate carrying value of approximately $175,000. 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. In the first quarter of 2003, two of these properties were sold without any loss of principal or interest. 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; and geographic, industry, and other environmental 6 factors. 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 Company's various loan classifications. 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. 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 4 independent 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. 7 The Bank's allowance for loan losses totaled $40.5 million at December 31, 2002 and 2001. The year-end 2002 amount represented 247.8% of non-performing loans and 245.2% of non-performing assets, respectively. The year-end 2001 amount represented 231.5% of non-performing loans and 228.2% of non-performing assets, respectively. For the years ended December 31, 2002 and 2001, 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- B, C, and D, for components of the Bank's loan portfolio, maturity, and repricing, and for a summary of the allowance for loan losses. Mortgage-backed Securities The majority of the Bank's mortgage-backed securities are private label mortgage-backed securities and the remainder are directly or indirectly insured or guaranteed by the FNMA, FHLMC, or GNMA. At December 31, 2002, mortgage-backed securities totaled $3.63 billion, representing 32.1% of total assets. Of the $3.63 billion in total mortgage-backed securities, $36.95 million were classified by the Bank as held to maturity and $3.60 billion were classified as available for sale. Because a majority of the Bank's mortgage-backed securities are fixed-rate private label collateralized mortgage obligations ("CMOs"), the Bank anticipates that the majority of its mortgage-backed securities will prepay or reprice within three years. At December 31, 2002, the mortgage-backed securities portfolio had a weighted average interest yield of 5.10% and a market value of approximately $3.64 billion. Investment Activities General. The investment policy of the Bank is established by the Board of Directors and implemented by the Mortgage and Real Estate Committee and the Investment Committee of the Board of Directors, together with certain executive officers of the Bank. The policy is primarily designed to provide and maintain liquidity, to generate a favorable return on investments without incurring undue prepayment, 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, corporate securities, commercial paper, certificates of deposit, and federal funds. The Bank does not currently participate in hedging programs or interest rate swaps and or high-risk mortgage derivatives. At December 31, 2002 the Bank's investment securities portfolio totaled $1.1 billion, representing 9.3% of total assets. Of the $1.1 billion, in total investment securities, $699.4 million were classified by the Bank as held to maturity and $355.0 million were classified as available for sale. At December 31, 2002, the investment securities portfolio had a weighted average interest yield of 7.04% and a market value of $1.1 billion. Sources of Funds General. The Company's primary funding sources are deposits and borrowings. In connection with the Company's leveraged growth strategy, the Company increased its borrowings during 2002. At December 31, 2002, borrowings totaled $4.6 billion, including FHLB-NY advances of $2.3 billion, reverse repurchase agreements of $2.0 billion, and trust preferred securities of $368.8 million. Included in the latter amount was $182.5 million stemming from the aforementioned issuance of the BONUSES Units in the fourth quarter 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 has been 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, 2002, $615.7 million, or 11.7% of the Bank's deposit balance, consisted of CDs with a balance of $100,000 or more. FHLB-NY Advances. The Bank is a member of the FHLB-NY, and had a $4.5 billion line of credit at December 31, 2002. FHLB-NY advances totaled $2.3 billion at December 31, 2002. A $10.0 million line of credit with a correspondent financial institution is also available to the Bank, which had not been drawn upon at December 31, 2002. 8 Reverse Repurchase Agreements. The Company has repurchase agreements of $2.0 billion and $529.7 million outstanding at December 31, 2002 and 2001, 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, New York Community Statutory Trust II and New York Community Capital Trust V are Delaware business trusts of which all the common stock is 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 issued by New York Community Capital Trust V were issued as part of the Company's BONUSES(SM) Units offering in November 2002. For additional information about the Company's trust preferred securities, see "Note 10 - Borrowings" in the Company's 2002 Annual Report to Shareholders, which portion is incorporated herein by reference. Subsidiary Activities Under its New York State Leeway Authority, the Bank has formed, or acquired through merger, 11 active subsidiary corporations, seven of which are direct subsidiaries of the Bank and four of which are subsidiaries of Bank-owned entities. The direct subsidiaries are: CFS Investments, Inc. (organized in New York), which sells non-deposit investment products; RCBK Mortgage Corp. (organized in New York), which holds multi-family mortgage loans; RCSB Corporation (organized in New York), which owns a branch building; Richmond Enterprises Inc. (organized in New York), which is the holding company for Peter B. Cannell & Co., Inc.; CFS Investments New Jersey, Inc. (organized in Delaware), an investment Company and the holding company for three Real Estate Investment Trusts (REITs), Columbia Preferred Capital Corp, Ironbound Investment Company, Inc. and Queens Realty Trust; Pacific Urban Renewal Corp. (organized in New Jersey), which owns a branch building and Main Omni Realty Corp. (organized in New York), which manages the Bank's properties aquired through foreclosure while they are being marketed for sale. The subsidiaries of Bank-owned entities are: Peter B. Cannell & Co., Inc. (organized in Delaware), which advises high net worth individuals and institutions on the management of their assets; Queens Realty Trust, Inc. (organized in Delaware), a REIT that holds residential and commercial mortgages; Ironbound Investment Company, Inc. (organized in New Jersey), a REIT that holds residential and commercial mortgages; Richmond County Capital Corp. (organized in New York), a REIT that holds residential and commercial mortgages; and Columbia Preferred Capital Corp. (organized in Delaware), a REIT that holds residential and commercial mortgages. In addition, the Bank maintains five inactive corporations: Bayonne Service Corp, (organized in New Jersey); MFO Holding Corp. (organized in New York); Queens County Capital Management, Inc. (organized in New York); Columbia Resources Corp. (organized in New York); and Columbia Funding Corporation, (organized in New York). The Bank is also affiliated with Columbia Travel Services, Inc., an inactive corporation organized in New York. The Company owns eight 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 named in the "Trust Preferred Securities" section above. (See "Note 10- Borrowings" in the Company's 2002 Annual Report to Shareholders, which portion is incorporated herein by reference). Personnel At December 31, 2002, the number of full-time equivalent employees was 1,465. The Bank's employees are not represented by a collective bargaining unit, and the Bank considers its relationship with its employees to be good. 9 FEDERAL, STATE, AND LOCAL TAXATION Federal Taxation General. The Company, the Bank and their subsidiaries (excluding certain subsidiaries which are qualified as Real Estate Investment Trusts, which file 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 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. Prior to the enactment of the Small Business Job Protection Act of 1996 (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. Under the 1996 Act, the Bank is no longer permitted to make additions to its tax bad debts reserves and was required to recapture (i.e., take into income) over a six-year period approximately $7.4 million, representing 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. 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 previously deducted for Federal income tax purposes would create a tax liability for the Bank. The amount of additional taxable income resulting 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 "Regulations 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 an alternative minimum tax ("AMT") at a rate of 20% on a base of regular taxable income plus certain tax preferences ("alternative minimum taxable income" or "AMTI"). The AMT is payable to the extent such AMTI is in excess of an exemption amount. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. The Company has not been and does not in the foreseeable future expect to be subject to the alternative minimum tax and has no such amounts available as credits for carryover. 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. 10 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 the annual amount equal to the greater of (i) 8% (falling to 7 1/2% in 2003) of "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 taxable income, subject to certain modifications 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 New Jersey), and is subject to this surcharge rate of 17% of the New York State tax liability computed as though the franchise tax rate was still 9%. 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. Additionally, the Bank and other subsidiaries of the Company doing business in New Jersey are required to file and pay taxes in that state. Taxes paid to states other than New York are 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 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 11 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-one borrower limitations. Under New York State Banking Law, a New York State chartered stock form savings bank may declare and pay dividends out of its net profits, unless there is an impairment of capital, but approval of the Superintendent is required if the total of all dividends declared in a calendar year would exceed the total of its net profits for that year combined with its retained net profits of the preceding two years, subject to certain adjustments. Under New York State Banking Law, the Superintendent of Banks may issue an order to a New York State chartered banking institution to appear and explain an apparent violation of law, to discontinue unauthorized or unsafe practices, and to keep prescribed books and accounts. Upon a finding by the Banking Department that any director, trustee, or officer of any banking organization has violated any law, or has continued unauthorized or unsafe practices in conducting the business of the banking organization after having been notified by the Superintendent to discontinue such practices, such director, trustee, or officer may be removed from office after notice and an opportunity to be heard. FDIC Regulations Capital Requirements. The FDIC has adopted risk-based capital guidelines to which the Bank is subject. The guidelines establish a systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk profiles among banking organizations. The Bank is required to maintain certain levels of regulatory capital in relation to regulatory risk-weighted assets. The ratio of such regulatory capital to regulatory risk-weighted assets is referred to as the Bank's "risk-based capital ratio." Risk-based capital ratios are determined by allocating assets and specified off-balance-sheet items to four risk-weighted categories ranging from 0% to 100%, with higher levels of capital being required for the categories perceived as representing greater risk. These guidelines divide a savings bank's capital into two tiers. The first tier ("Tier I") includes common equity, retained earnings, certain non-cumulative perpetual preferred stock (excluding auction rate issues) and minority interests in equity accounts of consolidated subsidiaries, less goodwill and other intangible assets (except mortgage servicing rights and purchased credit card relationships subject to certain limitations). Supplementary ("Tier II") capital includes, among other items, cumulative perpetual and long-term limited-life preferred stock, mandatory convertible securities, certain hybrid 12 capital instruments, term subordinated debt and the allowance for loan and lease losses, subject to certain limitations, less required deductions. Savings banks are required to maintain a total risk-based capital ratio of 8%, of which at least 4% must be Tier I capital. In addition, the FDIC has established regulations prescribing a minimum Tier I leverage capital ratio (Tier I capital to adjusted average assets as specified in the regulations). These regulations provide for a minimum Tier I leverage capital ratio of 3% for banks that meet certain specified criteria, including that they have the highest examination rating and are not experiencing or anticipating significant growth. All other banks are required to maintain a Tier I leverage capital ratio of at least 4%. The FDIC may, however, set higher leverage and risk-based capital requirements on individual institutions when particular circumstances warrant. Savings banks experiencing or anticipating significant growth are expected to maintain capital ratios, including tangible capital positions, well above the minimum levels. As of December 31, 2002, 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, 2002:
Tier I Leverage Capital to Average Assets 8.18% Total Capital to Risk-Weighted Assets 17.01% Tier I Capital to Risk-Weighted Assets 16.20%
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 subsequently 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. Banks that engage in specified amounts of trading activity may be subject to adjustments in the calculation of the risk-based capital requirement to assure sufficient additional capital to support market 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. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the Guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard, as required by the Federal Deposit Insurance Act, as amended, ("FDI Act"). The final regulation establishes deadlines for the submission and review of such safety and soundness compliance plans. Real Estate Lending Standards. The FDIC and the other federal banking agencies have adopted regulations that prescribe standards for extensions of credit that (i) are secured by real estate or (ii) are made for the purpose of financing the construction or improvements on real estate. The FDIC regulations require each savings bank to establish and maintain written internal real estate lending standards that are consistent with safe and sound banking practices and appropriate to the size of the bank and the nature and scope of its real estate lending activities. The standards also must be consistent with accompanying FDIC Guidelines, which include loan-to-value limitations for the different types of real estate loans. Savings banks are also permitted to make a limited amount of loans that do not conform to the proposed loan-to-value limitations so long as such exceptions are reviewed and justified appropriately. The Guidelines also list a number of lending situations in which exceptions to the loan-to-value standard are justified. Dividend Limitations. The FDIC has authority to use its enforcement powers to prohibit a savings bank from paying dividends if, in its opinion, the payment of dividends would constitute an unsafe or unsound practice. Federal law 13 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 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 regulation 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, 2002, the Bank had $239.2 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 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. 14 "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. As of December 31, 2002, 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%. 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. The Sarbanes-Oxley Act of 2002 generally prohibits loans by the Company to its executive officers and directors. However, the Sarbanes-Oxley Act contains a specific exemption for loans by the Bank to its executive officers and directors in compliance with federal banking laws. Section 22(h) of the Federal Reserve Act governs a savings bank's 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. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to executive officers over other employees. Section 22(g) of the Federal Reserve Act places additional limitations on loans to executive officers. Enforcement The FDIC has extensive enforcement authority over insured savings banks, including the Bank. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease and desist orders, and to remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations and unsafe or unsound practices. 15 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. 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 in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC. The management of the Bank does not know of any practice, condition, or violation that might lead to the termination of deposit insurance. Community Reinvestment Act Federal Regulation. Under the Community Reinvestment Act ("CRA"), as implemented by FDIC regulations, a savings 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 February 2003, 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 July 2002, was "outstanding". Federal Reserve System Under Federal Reserve Board ("FRB") regulations, the Bank is required to maintain non-interest-earning reserves against its transaction accounts (primarily NOW and regular checking accounts). The Federal Reserve Board regulations generally require that reserves be maintained against aggregate transaction accounts as follows: for that portion of transaction accounts aggregating $42.1 million or less (subject to adjustment by the Federal Reserve Board), the reserve requirement is 3%; for amounts greater than $42.1 million, the reserve requirement is 10% (subject to adjustment by the Federal Reserve Board between 8% and 14%). The first $6.0 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board) are exempted from the reserve requirements. The Bank is in compliance with the foregoing requirements. Because required reserves must be maintained in the form of either vault cash, a non-interest-bearing account at a Federal Reserve 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 $186.9 million at December 31, 2002. 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, 2002, and 2001, dividends from the FHLB-NY to the Bank, amounted to $7.4 million and $4.6 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. 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 ("BHCA"), 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, 2002, 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." 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, including acquisitions, sales, and principal repayments, for the periods indicated:
For the Years Ended December 31, ------------------------ (dollars in thousands) 2002 2001 2000 ---------- ---------- ---------- Mortgage loans (gross): At beginning of period $5,287,773 $3,596,273 $1,601,798 Mortgage loans originated: Multi-family 2,059,282 791,250 541,734 One-to-four family 255,988 137,002 6,205 Commercial real estate 159,267 130,677 58,899 Construction 89,208 91,155 9,133 ---------- ---------- ---------- Total mortgage loans originated 2,563,745 1,150,084 615,971 Mortgage loans acquired in the Richmond County and Haven transactions, respectively -- 1,917,575 1,749,180 Principal repayments 1,451,171 765,578 185,539 Mortgage loans sold 417,485 610,581 185,137 Mortgage loans securitized to mortgage-backed securities 572,466 -- -- ---------- ---------- ---------- At end of period 5,410,396 5,287,773 3,596,273 Other loans (gross): At beginning of period 116,878 39,748 8,742 Other loans originated and/or acquired in the Richmond County and Haven transaction. respectively 102,062 254,278 36,655 Principal repayments 68,263 177,148 5,649 Other loans sold 71,430 -- -- Reclassification from other loans to securities available for sale 460 -- -- ---------- ---------- ---------- At end of period 78,787 116,878 39,748 ---------- ---------- ---------- Total loans $5,489,183 $5,404,651 $3,636,021 ========== ========== ==========
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, 2002. 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 $1.5 billion for the twelve months ended December 31, 2002.
Mortgage and Other Loans at December 31, 2002 ------------------------ Multi- 1-4 Commercial Total (dollars in thousands) Family Family Real Estate Construction Other Loans ------ ------ ----------- ------------ ----- ----- Amount due: Within one year $ 259,707 $ 32,244 $ 44,363 $117,013 $36,250 $ 489,577 After one year: One to five years 3,283,022 54,683 302,967 -- 21,926 3,662,598 Over five years 951,603 178,797 185,997 -- 20,611 1,337,008 ----------- -------- -------- -------- ------- ------------ Total due or repricing after one year 4,234,625 233,480 488,964 -- 42,537 4,999,606 ----------- -------- -------- -------- ------- ------------ Total amounts due or repricing, gross $ 4,494,332 $265,724 $533,327 $117,013 $78,787 $ 5,489,183 =========== ======== ======== ======== ======= ============
The following table sets forth, at December 31, 2002, 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, 2003 --------------------------- (dollars in thousands) Fixed Adjustable Total ----- ---------- ----- Mortgage loans: Multi-family $635,281 $3,599,344 $ 4,234,625 One-to-four family 143,643 89,837 233,480 Commercial real estate 123,085 365,879 488,964 Construction -- -- -- -------- ---------- ----------- Total mortgage loans $902,009 $4,055,060 $ 4,957,069 Other loans 9,674 32,863 42,537 -------- ---------- ----------- Total loans $911,683 $4,087,923 $ 4,999,606 ======== ========== =========== 21 C. Summary of the Allowance for Loan Losses The allowance for loan losses was allocated as follows at December 31,
2002 2001 2000 1999 1998 ----------------- ------------------- ---------------- ------------------ ----------------- Percent Percent Percent Percent Percent of of of of of Loans in Loans in Loans in Loans in Loans 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 $25,433 62.80% $21,361 52.74% $ 7,783 43.08% $4,927 70.08% $6,686 70.89% One-to-four family 2,763 6.82 6,084 15.02 2,923 16.18 663 9.42 1,341 14.22 Construction 2,104 5.20 3,489 8.62 892 4.94 64 0.91 28 0.30 Commercial real estate 7,016 17.32 8,150 20.12 5,671 31.40 1,202 17.10 1,181 12.52 Other loans 3,184 7.86 1,416 3.50 795 4.40 175 2.49 195 2.07 ------- ------ ------- ------ ------- ------ ------ ------ ------ ------ Total loans $40,500 100.00% $40,500 100.00% $18,064 100.00% $7,031 100.00% $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,
2002 2001 2000 1999 1998 -------------------- ------------------- -------------------- --------------------- ------------------ Percent Percent Percent Percent Percent of of of of of (dollars in thousands) Amount Total Amount Total Amount Total Amount Total Amount Total ------------ ------ ----------- ------ ----------- ----- ---------- ------ ---------- -------- Mortgage loans: Multi-family $ 4,494,332 81.88% $ 3,255,167 60.23% $ 1,945,656 53.51% $1,348,351 83.72% $1,239,094 82.77% One-to-four family 265,724 4.84 1,318,295 24.40 1,267,080 34.85 152,644 9.48 178,770 11.94 Commercial real estate 533,327 9.72 561,944 10.40 324,068 8.91 96,008 5.96 67,494 4.51 Construction 117,013 2.13 152,367 2.82 59,469 1.64 4,793 0.30 1,898 0.13 ------------ ------ ----------- ------ ----------- ------ ---------- ------ ---------- ------ Total mortgage loans 5,410,396 98.57 5,287,773 97.85 3,596,273 98.91 1,601,796 99.46 1,487,256 99.35 Total other loans 78,787 1.43 116,878 2.15 39,748 1.09 8,742 0.54 9,750 0.65 ------------ ------ ----------- ------ ----------- ------ ---------- ------ ---------- ------ Total loans 5,489,183 100.00% 5,404,651 100.00% 3,636,021 100.00% 1,610,538 100.00% 1,497,006 100.00% ------------ ====== ----------- ====== ----------- ====== ---------- ====== ---------- ====== Unearned premiums (discounts) 19 91 (18) (24) (22) Less: Net deferred loan origination fees 5,130 3,055 1,553 2,404 1,034 Allowance for loan losses 40,500 40,500 18,064 7,031 9,431 ------------ ----------- ---------- ---------- ---------- Loans, net $ 5,443,572 $ 5,361,187 $3,616,386 $1,601,079 $1,486,519 ============ =========== ========== ========== ==========
23 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, 2002, the Company's bank subsidiary owned 30 of its branch offices and leased 80 of its branch offices and other bank business facilities under various lease and license agreements expiring at various times through 2025 (See "Note 12 - Commitments and Contingencies, Lease and License Commitments" in the Company's 2002 Annual Report to Shareholders, which portion is incorporated herein by reference). The Company and the Bank believe their facilities are adequate to meet their present and immediately foreseeable needs. ITEM 3. 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, 2002, the Bank had 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. 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 New York Stock Exchange, under the symbol, "NYB". Information regarding the Company's common stock and its price during fiscal year 2002 appears on page 33 of the 2002 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 26, 2003 the Company had approximately 8,600 shareholders of record, excluding the number of persons or entities holding stock in nominee or street name through various brokers and banks. Use of Proceeds from BONUSES(SM) Units and Common Stock Offering On November 4, 2002, the Company and its subsidiary, New York Community Capital Trust V (the "Trust"), issued 5.5 million BONUSES(SM) Units (the "Units"), consisting of a preferred security issued by the Trust and a warrant to purchase 1.4036 shares of the Company's common stock. The Units were issued pursuant to a registration statement on Form S-3 (Registration No. 333-86682) initially filed with the Securities and Exchange Commission on April 22, 2002, as amended, and effective on May 8, 2002, and pursuant to a registration statement on Form S-3 (Registration No. 333-100767) filed with the Securities and Exchange Commission 24 on October 25, 2002 and effective on the same date. The managing underwriters for the offering were Salomon Smith Barney Inc. (sole book-running manager) and Lehman Brothers Inc. (joint-lead manager). Units representing $275.0 million were registered and sold in the offering. Total expenses for the Units offering were approximately $7.7 million, including underwriters' discounts and commissions for the offering of $6,875,000. The net proceeds from the Units offering thus totaled approximately $267.3 million. The Units were issued pursuant to a "shelf" registration process pursuant to which the Company also generated approximately $170.0 million through the issuance of 5.9 million shares of its common stock on May 14, 2002 (as previously reported in the Company Form 10-Q for the quarterly period ended June 30, 2002). As previously reported, the net proceeds of the common stock offering totaled approximately $147.5 million. The net proceeds of the Units offering and the May 14, 2002 common stock offering, combined, totaled approximately $414.8 million, and were used for the following purposes: (1) A capital contribution to the Company's primary subsidiary, the Bank of $100.0 million; (2) Repurchase of Company common stock in the amount of $56.5 million; (3) Payment of dividends on Company common stock in the amount of $41.4 million; (4) Payment of dividends on trust preferred securities in the amount of $10.5 million; and (5) Investment in interest-earning assets and other corporate purposes in the amount of $206.4 million ITEM 6. SELECTED FINANCIAL DATA Information regarding selected financial data appears on page 10 of the 2002 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 33 of the 2002 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 22 of the 2002 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. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information regarding the consolidated financial statements and the Independent Auditors' Report appears on pages 34 through 63 of the 2002 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 4 through 7 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 2003, under the caption, "Information with Respect to Nominees, Continuing Directors, and Executive Officers," and is incorporated herein by this reference. 25 ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation appears on pages 9 through 16 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 2003, and is incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Equity Compensation Plan Information as of December 31, 2002
Plan category Number of securities to be Weighted-average exercise Number of securities issued upon exercise of price of outstanding remaining available for outstanding options, options, warrants and future issuance under warrants and rights rights equity compensation plans (excluding securities reflected in column (a) (a) (b) (c) Equity compensation plans approved by security holders 10,922,801 $22.78 1,726,194 Equity compensation plans not approved by security holders -- -- -- Total 10,922,801 $22.78 1,726,194
Information regarding security ownership of certain beneficial owners appears on page 3 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 2003, 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 4 through 7 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 2003, 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 17 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 2003 under the caption, "Transactions with Certain Related Persons," and is incorporated herein by this reference. ITEM 14. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures The Corporation maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Corporation files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed within 90 days of the filing date of this report, the chief executive officer and the chief financial officer of the Corporation concluded that the Corporation's disclosure controls and procedures were adequate. (b) Changes in internal controls The Corporation made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls by the chief executive officer and chief financial officer. 26 PART IV ITEM 15. 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, 2002 and are incorporated herein by this reference: - Consolidated Statements of Condition at December 31, 2002 and 2001; - Consolidated Statements of Income and Comprehensive Income for each of the years in the three-year period ended December 31, 2002; - Consolidated Statements of Changes in Stockholders' Equity for each of the years in the three-year period ended December 31, 2002; - Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2002; - Notes to the Consolidated Financial Statements; - Glossary; - Cash Earnings; - Management's Responsibility for Financial Reporting; - Independent Auditors' Report The remaining information appearing in the 2002 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 2002 - On November 4, 2002, the Company filed a Form 8-K to file its underwriting agreement, form of amended and restated declaration of trust and form of indenture, among other things, as incorporated by reference to its registration statement on Form S-3. (c) Exhibits Required by Securities and Exchange Commission Regulation S-K Exhibit Number ------- 3.1 Amended and Restated Certificate of Incorporation (1) 3.2 Bylaws (2) 4.1 Specimen Stock Certificate (3) 4.2 Shareholder Rights Agreement, dated as of January 16, 1996 and amended on March 27, 2001 and August 1, 2001 between New York Community Bancorp, Inc. and Registrar and Transfer Company, as Rights Agent (4) 4.3 Amended and Restated Declaration of Trust of New York Community Capital Trust V, dated as of November 4, 2002 (5) 4.4 Indenture relating to the Junior Subordinated Debentures between New York Community Bancorp, Inc. and Wilmington Trust Company, as Trustee, dated November 4, 2002 (5) 4.5 First Supplemental Indenture between New York Community Bancorp, Inc. and Wilmington Trust Company, as Trustee, dated as of November 4, 2002 (5) 4.6 Form of Preferred Security (included in Exhibit 4.3) 4.7 Form of Warrant (included in Exhibit 4.11) 4.8 Form of Unit Certificate (included in Exhibit 4.10) 4.9 Guarantee Agreement, issued in connection with the BONUSES(SM) Units, dated as of November 4, 2002 (5) 4.10 Unit Agreement among New York Community Bancorp, Inc., New York Community Capital Trust V and Wilmington Trust Company, as Warrant Agent, Property Trustee and Agent, dated as of November 4, 2002 (5) 4.11 Warrant Agreement between New York Community Bancorp, Inc. and Wilmington Trust Company, as Agent, dated as of November 4, 2002 (5) 27 4.12 Registrant will furnish, upon request, copies of all instruments defining the rights of holders of long-term debt instruments of registrant and its consolidated subsidiaries. 10.1 Form of Employment Agreement between New York Community Bancorp, Inc. (formerly known as "Queens County Bancorp, Inc.") and Joseph R. Ficalora, Robert Wann and James O'Donovan 10.2 Form of Employment Agreement between New York Community Bank and Joseph R. Ficalora, Robert Wann and James O'Donovan 10.3 Agreement by and among New York Community Bancorp, Inc., Richmond County Financial Corp., Richmond County Savings Bank and Michael F. Manzulli (6) 10.4 Agreement by and among New York Community Bancorp, Inc., Richmond County Financial Corp., Richmond County Savings Bank and Anthony E. Burke (6) 10.5 Agreement by and among New York Community Bancorp, Inc., Richmond County Financial Corp., Richmond County Savings Bank and Thomas R. Cangemi (6) 10.6 Form of Change in Control Agreements among the Company, the Bank, and Certain Officers (7) 10.7 Noncompetition Agreement, dated March 27, 2001, by and among New York Community Bancorp, Inc., Richmond County Financial Corp., Richmond County Savings Bank and Thomas R. Cangemi (6) 10.8 Noncompetition Agreement, dated March 27, 2001, by and among New York Community Bancorp, Inc., Richmond County Financial Corp., Richmond County Savings Bank and Michael F. Manzulli (6) 10.9 Noncompetition Agreement, dated March 27, 2001, by and among New York Community Bancorp, Inc., Richmond County Financial Corp., Richmond County Savings Bank and Anthony E. Burke (6) 10.10 Form of Queens County Savings Bank Recognition and Retention Plan for Outside Directors (7) 10.11 Form of Queens County Savings Bank Recognition and Retention Plan for Officers (7) 10.12 Form of Queens County Bancorp, Inc. 1993 Incentive Stock Option Plan (8) 10.13 Form of Queens County Bancorp, Inc. 1993 Incentive Stock Option Plan for Outside Directors (8) 10.14 Form of Queens County Savings Bank Employee Severance Compensation Plan (7) 10.15 Form of Queens County Savings Bank Outside Directors' Consultation and Retirement Plan (7) 10.16 Form of Queens County Bancorp, Inc. Employee Stock Ownership Plan and Trust (7) 10.17 ESOP Loan Documents (7) 10.18 Incentive Savings Plan of Queens County Savings Bank (9) 10.19 Retirement Plan of Queens County Savings Bank (7) 10.20 Supplemental Benefit Plan of Queens County Savings Bank (10) 10.21 Excess Retirement Benefits Plan of Queens County Savings Bank (7) 10.22 Queens County Savings Bank Directors' Deferred Fee Stock Unit Plan (7) 10.23 Queens County Bancorp, Inc. 1997 Stock Option Plan (11) 10.24 Richmond County Financial Corp. 1998 Stock Option Plan (12) 10.25 Richmond County Savings Bank Retirement Plan (12) 11.0 Statement Re: Computation of Per Share Earnings (attached hereto) 13.0 2002 Annual Report to Shareholders 21.0 Subsidiaries information incorporated herein by reference to Part I, "Subsidiaries" 23.0 Consent of KPMG LLP, dated March 31, 2003 (attached hereto) 99.1 Certification of President and Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 99.2 Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (1) Incorporated by reference to Exhibits filed with the Company's Form 10-Q for the quarterly period ended March 31, 2001 (File No. 0-22278) (2) Incorporated by reference to Exhibits filed with the Company's Form 10-K for the year ended December 31, 2001 (File No. 0-22278) (3) Incorporated by reference to Exhibits filed with the Company's Registration Statement on Form S-1 (Registration No. 33-66852) (4) Incorporated by reference to Exhibits filed with the Company's Form 8-A filed with the Securities and Exchange Commission on January 24, 1996, amended as reflected in Exhibit 4.2 to the Company's Registration Statement on Form S-4 filed with the Securities and Exchange Commission on April 25, 2001 (Registration No. 333-59486) and as reflected in Exhibit 4.3 to the Company's Form 8-A filed with the Securities and Exchange Commission on December 12, 2002 (File No. 1-31565) (5) Incorporated by reference to the Company's Form 10-Q for the quarterly period ended September 30, 2002 (File No. 0-22278) 28 (6) Incorporated by reference to Exhibits filed with the Company's Registration Statement on Form S-4 filed with the Securities and Exchange Commission on April 25, 2001 (Registration No. 333-59486) (7) Incorporated by reference to Exhibits filed with the Registration Statement on Form S-1, Registration No. 33-66852 (8) 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 (9) 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 (10) Incorporated by reference to Exhibits filed with the 1995 Proxy Statement for the Annual Meeting of Shareholders held on April 19, 1995 (11) Incorporated by reference to Exhibit filed with the 1997 Proxy Statement for the Annual Meeting of Shareholders held on April 16, 1997, as amended as reflected in the Company's Proxy Statement the Annual Meeting of Shareholders held on May 15, 2002 (12) 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 29 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) 3/25/03 ------------------------ 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 3/25/03 /s/ Joseph R. Ficalora 3/25/03 ---------------------------- ----------------------------- Michael F. Manzulli Joseph R. Ficalora Chairman President and Chief Executive Officer (Principal Executive Officer) /s/ Robert Wann 3/25/03 /s/ Donald M. Blake 3/25/03 ---------------------------- ----------------------------- Robert Wann Donald M. Blake Executive Vice President Director and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Anthony E. Burke 3/25/03 /s/ Dominick Ciampa 3/25/03 ---------------------------- ----------------------------- Anthony E. Burke Dominick Ciampa Director Director /s/ Robert S. Farrell 3/25/03 /s/ Dr. William C. Frederick 3/25/03 ---------------------------- ----------------------------- Robert S. Farrell William C. Frederick, M.D. Director Director /s/ Max L. Kupferberg 3/25/03 /s/ Howard C. Miller 3/25/03 ---------------------------- ----------------------------- Max L. Kupferberg Howard C. Miller Director Director /s/ John A. Pileski 3/25/03 ---------------------------- John A. Pileski Director 30 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. New York Community Bancorp, Inc. -------------------------------- (Registrant) DATE: March 25, 2003 BY: /s/ Joseph R. Ficalora ---------------------------- Joseph R. Ficalora President and Chief Executive Officer (Duly Authorized Officer) DATE: March 25, 2003 BY: /s/ Robert Wann ---------------------------- Robert Wann Executive Vice President and Chief Financial Officer (Principal Financial Officer) 31 NEW YORK COMMUNITY BANCORP, INC. CERTIFICATIONS I, Joseph R. Ficalora, certify that: 1. I have reviewed this annual report on Form 10-K of New York Community Bancorp, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the consolidated financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 25, 2003 BY: /s/ Joseph R. Ficalora ---------------------------- Joseph R. Ficalora President and Chief Executive Officer (Duly Authorized Officer) 32 NEW YORK COMMUNITY BANCORP, INC. CERTIFICATIONS I, Robert Wann, certify that: 1. I have reviewed this annual report on Form 10-K of New York Community Bancorp, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the consolidated financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 25, 2003 BY: /s/ Robert Wann ---------------------------- Robert Wann Executive Vice President and Chief Financial Officer (Principal Financial Officer) 33