UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2001
Commission File Number 0-22278
NEW YORK COMMMUNITY BANCORP, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1377322
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
615 Merrick Avenue Westbury, New York 11590
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(Address of principal executive offices)
(Registrant's telephone number, including area code) 516: 683-4100
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Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value
-----------------------------
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. |X| Yes |_| No
43,542,333
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Number of shares outstanding at
May 7, 2001
NEW YORK COMMUNITY BANCORP, INC. AND SUBSIDIARY
FORM 10-Q
Three Months Ended March 31, 2001
INDEX Page No.
- ----- --------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Condition as of
March 31, 2001 (unaudited) and December 31, 2000 1
Consolidated Statements of Income and Comprehensive
Income for the Three Months Ended March 31, 2001
and 2000 (unaudited) 2
Consolidated Statement of Changes in Stockholders'
Equity for the Three Months Ended March 31, 2001
(unaudited) 3
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2001 and 2000 (unaudited) 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 20
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
Exhibits 24
23
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(in thousands)
March 31, December 31,
2001 2000
(unaudited)
----------- ------------
Assets
Cash and due from banks $ 82,064 $ 133,093
Money market investments 548,300 124,622
Securities held to maturity ($86,281 and $120,125 pledged, respectively) 181,628 222,534
Mortgage-backed securities held to maturity 1,881 1,923
Securities available for sale ($165,581 and $127,858 pledged, respectively) 342,449 303,734
Mortgage loans:
1-4 family 727,746 1,267,080
Multi-family 2,031,701 1,945,656
Commercial real estate 339,261 324,068
Construction 57,425 59,469
----------- -----------
Total mortgage loans 3,156,133 3,596,273
Other loans 32,654 39,748
Less: Unearned loan fees (1,953) (1,571)
Allowance for loan losses (18,064) (18,064)
----------- -----------
Loans, net 3,168,770 3,616,386
Premises and equipment, net 38,167 39,191
Goodwill 116,589 118,070
Deferred tax asset, net 29,207 42,360
Other assets 125,453 108,872
----------- -----------
Total assets $ 4,634,508 $ 4,710,785
=========== ===========
Liabilities and Stockholders' Equity
Deposits:
NOW and money market accounts $ 726,030 $ 719,420
Savings accounts 504,826 492,604
Certificates of deposit 1,808,927 1,873,810
Non-interest-bearing accounts 174,031 171,360
----------- -----------
Total deposits 3,213,814 3,257,194
----------- -----------
Official checks outstanding 32,598 41,239
Borrowings 1,033,222 1,037,505
Mortgagors' escrow 30,119 11,291
Other liabilities 38,392 56,146
----------- -----------
Total liabilities 4,348,145 4,403,375
----------- -----------
Stockholders' equity:
Preferred stock at par $0.01 (5,000,000 shares authorized;
none issued) -- --
Common stock at par $0.01 (60,000,000 shares authorized;
46,455,336 shares issued; 43,457,043 and 44,370,186
shares outstanding at March 31, 2001 and December 31, 2000,
respectively)(1) 465 310
Paid-in capital in excess of par 177,586 174,450
Retained earnings (substantially restricted) 143,139 146,514
Less: Treasury stock (2,998,293 and 2,085,853 shares, respectively)(1) (29,623) (2,388)
Unallocated common stock held by ESOP (8,382) (8,485)
Common stock held by SERP (3,770) (3,770)
Unearned common stock held by RRPs (41) (41)
Accumulated other comprehensive income, net of tax effect 6,989 820
----------- -----------
Total stockholders' equity 286,363 307,410
----------- -----------
Total liabilities and stockholders' equity $ 4,634,508 $ 4,710,785
=========== ===========
(1) Share amounts for the year 2000 have been adjusted to reflect a 3-for-2
stock split on March 29, 2001.
See accompanying notes to unaudited consolidated financial statements.
1
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)
For the
Three Months Ended
March 31,
----------------------
2001 2000
------- --------
Interest Income:
Mortgage and other loans $70,509 $ 33,126
Securities 8,903 3,023
Mortgage-backed securities 2,792 62
Money market investments 2,154 58
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Total interest income 84,358 36,269
------- --------
Interest Expense:
NOW and money market accounts 3,936 785
Savings accounts 2,139 1,601
Certificates of deposit 27,180 8,076
Borrowings 15,969 9,357
Mortgagors' escrow 4 7
------- --------
Total interest expense 49,228 19,826
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Net interest income 35,130 16,443
Provision for loan losses -- --
------- --------
Net interest income after
provision for loan losses 35,130 16,443
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Other Operating Income:
Fee income 7,933 501
Other 20,548 610
------- --------
Total other operating income 28,481 1,111
------- --------
Non-interest Expense:
Compensation and benefits 9,714 3,488
Occupancy and equipment 3,372 744
General and administrative 5,662 1,242
Other 672 164
------- --------
Total operating expense 19,420 5,638
Amortization of goodwill 1,482 --
------- --------
Total non-interest expense 20,902 5,638
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Income before income taxes 42,709 11,916
Income tax expense 15,065 4,322
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Net income $27,644 $ 7,594
Comprehensive income, net of tax:
Unrealized gain (loss) on securities 6,169 (500)
------- --------
Comprehensive income $33,813 $ 7,094
======= ========
Earnings per share $ 0.68 $ 0.28(1)
Diluted earnings per share $ 0.66 $ 0.28(1)
======= ========
(1) Amounts have been adjusted to reflect a 3-for-2 stock split on March 29,
2001.
See accompanying notes to unaudited consolidated financial statements.
2
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended
March 31, 2001
(in thousands, except per share data) (unaudited)
- --------------------------------------------------------------------------------
Common Stock (Par Value: $0.01):
Balance at beginning of year $ 310
Shares issued 155
---------
Balance at end of period 465
---------
Paid-in Capital in Excess of Par:
Balance at beginning of year 174,450
Shares issued and fractional shares (155)
Tax benefit effect on stock plans 2,500
Allocation of ESOP stock 791
---------
Balance at end of period 177,586
---------
Retained Earnings:
Balance at beginning of year 146,514
Net income 27,644
Dividends paid on common stock (6,894)
Exercise of stock options (1,328,169 shares) (24,125)
---------
Balance at end of period 143,139
---------
Treasury Stock:
Balance at beginning of year (2,388)
Purchase of common stock (2,240,607 shares) (54,899)
Exercise of stock options (1,328,169 shares) 27,664
---------
Balance at end of period (29,623)
---------
Employee Stock Ownership Plan:
Balance at beginning of year (8,485)
Allocation of ESOP stock 103
---------
Balance at end of period (8,382)
---------
SERP Plan:
Balance at beginning of year (3,770)
Common stock acquired by SERP --
---------
Balance at end of period (3,770)
---------
Recognition and Retention Plans:
Balance at beginning of year (41)
Earned portion of RRPs --
---------
Balance at end of period (41)
---------
Accumulated Comprehensive Income, Net of Tax:
Balance at beginning of year 820
Net unrealized appreciation in securities, net of tax 6,169
Balance at end of year 6,989
---------
Total stockholders' equity $ 286,363
=========
See accompanying notes to unaudited consolidated financial statements.
3
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
2001 2000
(in thousands) (unaudited)
- -----------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net Income $ 27,644 $ 7,594
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 1,197 258
Accretion of discounts, net (4,832) --
Amortization of net deferred loan origination fees 1,021 220
Amortization of goodwill 1,482 --
Net gain on redemption and sales of securities and
mortgage-backed securities (3,695) --
Net gain on sale of loans and foreclosed real estate (7,408) (32)
Tax benefit effect on stock plans 2,500 1,413
Earned portion of ESOP 103 439
Changes in assets and liabilities:
Decrease (increase) in deferred income taxes 13,153 (488)
Increase in other assets (16,581) (3,537)
Decrease in official checks outstanding (8,641) (12,546)
Decrease in other liabilities (17,754) (5,719)
--------- ---------
Total adjustments (39,455) (19,992)
--------- ---------
Net cash used in operating activities (11,811) (12,398)
--------- ---------
Cash Flows from Investing Activities:
Proceeds from redemption and sales of securities and mortgage-backed
securities held to maturity 42 63
Proceeds from redemption and sales of securities available for sale 140,906 110
Purchase of securities available for sale (88,264) --
Net increase in loans (109,362) (79,820)
Proceeds from sale of loans and foreclosed real estate 528,402 60
Purchase of premises and equipment, net (173) (38)
--------- ---------
Net cash provided by (used in) investing activities 471,551 (79,625)
--------- ---------
Cash Flows from Financing Activities:
Net increase in mortgagors' escrow 18,828 14,888
Net decrease in deposits (43,380) (22,777)
Net (decrease) increase in borrowings (4,283) 107,776
Cash dividends paid and options exercised, net (31,019) (8,787)
Purchase of Treasury stock, net of stock options exercised (27,237) (2,968)
--------- ---------
Net cash (used in) provided by financing activities (87,091) 88,132
--------- ---------
Net increase (decrease) in cash and cash equivalents 372,649 (3,891)
Cash and cash equivalents at beginning of period 257,715 37,224
--------- ---------
Cash and cash equivalents at end of period $ 630,364 $ 33,333
========= =========
Supplemental information:
Cash paid for:
Interest $ 49,167 $ 19,809
Income taxes 3,500 5,180
Transfers to foreclosed real estate from loans 150 --
See accompanying notes to unaudited consolidated financial statements.
4
NEW YORK COMMUNITY BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of New York Community Bancorp, Inc. (the "Company") and its
wholly-owned subsidiary, New York Community Bank (the "Bank").
The statements reflect all normal recurring adjustments which, in the opinion of
management, are necessary to present a fair statement of the results for the
periods presented. The results of operations for the three months ended March
31, 2001 are not necessarily indicative of the results of operations that may be
expected for all of 2001.
Certain information and note disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted, pursuant to the
rules and regulations of the Securities and Exchange Commission.
These unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in
the Company's 2000 Annual Report to Shareholders and incorporated by reference
into the Company's 2000 Annual Report on Form 10-K.
Note 2. Impact of Accounting Pronouncements
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities
On September 29, 2000, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." SFAS No. 140 replaces SFAS No. 125, which was issued in June 1996,
and addresses implementation issues that were identified in applying SFAS No.
125. SFAS No. 140 is effective for transfers of financial assets (including
securitizations) occurring after March 31, 2001. However, the provisions of SFAS
No. 140 related to the recognition and reclassification of collateral in
financial statements and disclosures related to securities transactions and
collateral are effective for fiscal years ending after December 15, 2000. The
Company does not expect the adoption of SFAS No. 140 to have a material effect
upon its consolidated financial statements.
Exposure Draft Re: Changing the Method of Accounting for Goodwill in a Purchase
Transaction
On February 14, 2001, the FASB issued an exposure draft for public comment which
proposes changing the method of accounting for goodwill in a purchase
transaction from capitalization and amortization against earnings to
capitalization and periodic evaluation for impairment. If this change were
adopted by the FASB, the Company's unamortized goodwill would be reported as an
asset and would not be amortized against earnings unless it became impaired
based on analyses performed by the Company on a periodic basis. The public
comment period ended on March 16, 2001 and the FASB is continuing its
deliberations, which may result in further changes to the proposed standards.
The FASB expects to vote on the new accounting standards in late June 2001 and
to issue the new standards in mid-July 2001; however, there can be no assurance
that the FASB will ever adopt new standards regarding accounting for goodwill
and intangible assets or that any final standard will become effective in July
2001.
5
NEW YORK COMMUNITY BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
New York Community Bancorp, Inc. (the "Company") is the holding company for New
York Community Bank (the "Bank"), a New York State-chartered financial
institution with 19 traditional and 67 in-store branch offices. The primary
business of the Bank is gathering deposits from its customers in New York City,
Long Island, Westchester and Rockland counties, Connecticut, and New Jersey, and
investing these funds in the origination of local-market multi-family and
commercial real estate loans.
The Company's first quarter 2001 performance reflects the benefit of its
November 30, 2000 purchase acquisition of Haven Bancorp, Inc., parent of CFS
Bank, with $2.7 billion in assets and 70 branch offices. As a result of the
acquisition and subsequent strategic actions, the Company experienced a
significant rise in first quarter earnings, driven by a dramatic level of
revenue growth. The Company reported earnings of $27.6 million, or $0.66 per
diluted share, in the current first quarter, as compared to $7.6 million, or
$0.28 per diluted share, in the year-earlier three months.
On March 27, 2001, the Company announced the signing of a definitive agreement
to combine with Richmond County Financial Corp., the $3.5 billion holding
company for Richmond County Savings Bank, in a merger-of-equals. The purchase
transaction, which is expected to close in the third quarter of 2001 pending the
necessary regulatory and shareholder approvals, is valued at approximately
$802.0 million, based on the closing price of New York Community Bancorp common
stock on the date the agreement was signed. Upon completion, Richmond County
Financial Corp. will merge into New York Community Bancorp; the combined company
is expected to have assets of $8.8 billion, deposits of $5.6 billion, and 119
branch offices.
On March 29, 2001, the Company issued 15,484,676 shares of common stock pursuant
to a three-for-two stock split in the form of a 50% stock dividend that had been
declared by the Board of Directors on February 6, 2001. Reflecting the split,
and the repurchase of 2,240,607 shares over the course of the quarter, the
Company had 43,457,043 shares outstanding at March 31, 2001.
On March 30, 2001, the Company completed the sale of CFS Insurance Agency, which
had been acquired in the Haven transaction. The sale had no meaningful impact on
the Company's first quarter 2001 results.
Forward-looking Statements and Associated Risk Factors
This filing contains certain forward-looking statements with regard to the
Company's prospective performance and strategies within the meaning of Section
27A of the Securities Act of 1993, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The Company intends such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995,
and is including this statement for purposes of said safe harbor provisions.
These forward-looking statements are based on current expectations, but actual
results may differ materially from anticipated future results. Forward-looking
statements, which are based on certain assumptions and describe future plans,
strategies, and expectations of the Company, are generally identified by use of
the words "believe," "expect," "intend," "anticipate," "estimate," "project," or
similar expressions. The Company's ability to predict results or the actual
effects of future plans or strategies are inherently uncertain. Factors that
could have a material adverse effect on the operations of the Company and its
subsidiaries include, but are not limited to,
6
changes in market interest rates, general economic conditions, legislation, and
regulation; changes in the monetary and fiscal policies of the U.S. Government,
including policies of the U.S. Treasury and the Federal Reserve Board; changes
in the quality or composition of the loan or investment portfolios, demand for
loan products, deposit flows, competition, and demand for financial services in
the Company's market area; changes in real estate values in the Company's market
area; changes in accounting principles and guidelines; and other economic,
competitive, governmental, regulatory, and technological factors affecting the
Company's operations, pricing, and services.
Forward-looking statements also include, without limitation, those statements
relating to the anticipated effects of the Company's proposed merger with
Richmond County Financial Corp. The following factors, among others, could cause
the actual results of the acquisition to differ materially from expectations:
the ability of the companies to obtain the required shareholder or regulatory
approvals of the merger; the imposition of any regulatory conditions or
requirements on the merger; the ability of the companies to consummate the
merger; the ability to successfully integrate the companies following the
merger, including integration of data processing systems and retention of key
personnel; a materially adverse change in the financial condition, operations,
or projected or actual earnings of either company; the ability to fully realize
the expected cost savings and revenues; the ability to realize the expected cost
savings and revenues on a timely basis; and any material change in the local
markets in which each company operates.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this filing. Except as required
by applicable law or regulation, the Company undertakes no obligation to update
these forward-looking statements to reflect events or circumstances that occur
after the date on which such statements were made.
Financial Condition
In the first quarter of 2001, the Company achieved the objectives set forth at
the time of the Haven transaction by selling an additional $583.9 million of
acquired loans and securities. At the same time, the Company recorded mortgage
originations of $257.6 million and invested $88.3 million in securities
available for sale, consistent with management's goal of shortening the maturity
of the balance sheet. As a result of these actions, total assets declined $76.3
million from the December 31, 2000 level to $4.6 billion at March 31, 2001.
Mortgage loans represented $3.2 billion, or 68.1% of total assets, down $440.1
million from the year-end amount. The reduction was largely the net effect of a
$539.3 million decline in one-to-four family mortgage loans to $727.7 million
and an increase of $86.0 million in multi-family mortgage loans.
The quality of the portfolio continued to be solid. In addition to recording its
26th consecutive quarter without any net charge-offs, the ratio of
non-performing assets to total assets was 0.19% at March 31, 2001, consistent
with the ratio at year-end. Non-performing assets declined $221,000 from the
year-end amount to $8.9 million, the net effect of a $359,000 decline in
non-performing loans to $8.7 million and a $138,000 rise in foreclosed real
estate to $150,000.
In the absence of any net charge-offs or provisions for loan losses, the loan
loss allowance was maintained at $18.1 million, representing 206.85% of
non-performing loans and 0.57% of loans, net, at March 31, 2001.
Securities held to maturity declined $40.9 million to $181.6 million, while
mortgage-backed securities held to maturity declined $42,000 to $1.9 million at
quarter's end. These reductions were partly offset by a $423.7 million increase
in money market investments to $548.3 million (largely reflecting the proceeds
from the sale of loans that settled at the close of the quarter), and by a $38.7
million rise in securities available for sale to $342.4 million after $57.9
million of such securities were sold.
7
Deposits declined $43.4 million to $3.2 billion, the net effect of a $64.9
million decline in CDs to $1.8 billion (representing 56.3% of total deposits)
and a $21.5 million rise in core deposits to $1.4 billion (representing 43.7%).
Borrowings totaled $1.0 billion at the close of the quarter, down $4.3 million
from the total recorded at December 31, 2000.
Supported by cash earnings of $33.0 million, stockholders' equity totaled $286.4
million at March 31, 2001, representing 6.18% of total assets and a book value
of $7.05 per share, based on 40,638,843 shares. In addition to distributing cash
dividends of $6.9 million during the quarter, the Company allocated $54.9
million toward the repurchase of 2.2 million shares. At quarter's end, 1,140,209
shares were still available for repurchase under the authorization approved by
the Board of Directors on February 6, 2001.
At March 31, 2001, the Company's capital ratios continued to exceed the minimum
levels required by the FDIC.
Loans
Mortgage loans outstanding totaled $3.2 billion at March 31, 2001, down $440.1
million from the December 31, 2000 amount. The reduction primarily reflects the
sale of one-to-four family mortgage loans acquired in the Haven transaction and
total mortgage loan originations of $257.6 million.
In accordance with the objectives set forth at the time of Haven acquisition,
the Company sold $526.9 million of one-to-four family mortgage loans in the
current first quarter, bringing the total volume of acquired loans sold to
$632.6 million at March 31, 2001. Primarily reflecting the sales, the portfolio
of one-to-four family mortgage loans declined to $727.7 million, from $1.3
billion at December 31, 2000. As a result, one-to-four family mortgage loans
represented 23.1% of total mortgage loans at the close of the current quarter,
as compared to 35.2% at year-end. The reduction in the portfolio was partly
offset by one-to-four family mortgage loan originations of $52.6 million,
representing loans that were in the pipeline prior to December 1, 2000. At that
date, the Company adopted a policy of originating one-to-four family mortgage
loans on a pass-through basis only; such loans are no longer retained for
portfolio.
Consistent with its traditional emphasis on multi-family mortgage lending, the
Company originated $166.0 million in loans secured by multi-family buildings
during the quarter, increasing the portfolio to $2.0 billion from $1.9 billion
at year-end. As a result, the concentration of multi-family mortgage loans rose
to 64.4% of total mortgage loans at March 31, 2001 from 54.1% at December 31,
2000.
The $86.0 million increase in multi-family mortgage loans was complemented by a
$15.2 million rise in commercial real estate loans outstanding. Reflecting
originations of $27.8 million, the portfolio of commercial real estate loans
grew to $339.3 million, representing 10.7% of outstanding mortgage loans at
March 31, 2001.
Construction loans totaled $57.4 million at quarter's end, down $2.0 million
from the year-end 2000 level after first quarter originations of $11.2 million.
At March 31, 2001, the Company's portfolio of other loans totaled $32.7 million,
down $7.1 million from the volume recorded at December 31, 2000. As a result of
the Company's policy of originating consumer loans on a pass-through basis only,
the portfolio of other loans is currently expected to decline over the course of
the year.
Consistent with management's focus on shortening the maturity of the balance
sheet, the Company will continue to emphasize the origination of multi-family,
commercial real estate, and construction loans throughout 2001. At April 17,
2001, the Company's pipeline held mortgage loans of $281.0 million, including
$205.0 million in loans secured by multi-family properties. The Company's
ability to close such loans may be adversely influenced by such factors as an
economic downturn, an increase in competition, or an unexpected change in the
direction of market interest rates.
8
Asset Quality
The Company extended its record of asset quality in the current first quarter,
with a $221,000 decline in the balance of non-performing assets and a $359,000
decline in the balance of non-performing loans. Non-performing assets totaled
$8.9 million at March 31, 2001, representing 0.19% of total assets, as compared
to $9.1 million, or 0.19% of total assets, at December 31, 2000. In addition, no
net charge-offs were recorded during the quarter, bringing the total number of
consecutive quarters without any net charge-offs to 26. At March 31, 2001, the
Company's non-performing assets consisted of foreclosed real estate of $150,000
and non-performing loans of $8.7 million, representing 0.28% of loans, net. The
$8.7 million was comprised of mortgage loans in foreclosure totaling $2.8
million and loans 90 days or more delinquent totaling $6.0 million. The
Company's non-performing loans were primarily secured by one-to-four family
homes located in its core marketplace.
From time to time, properties that are classified as "foreclosed real estate"
are rented by the Company. When this occurs, such properties are reclassified as
"real estate held for investment" and included in "other assets" on the balance
sheet. At March 31, 2001, the Company had six such investments totaling $521,800
and yielding an average rate of return of 9.66%.
In the absence of any net charge-offs or provisions for loan losses, the
allowance for loan losses was maintained at $18.1 million, representing 206.85%
of non-performing loans and 0.57% of loans, net. The allowance for loan losses
is established through a provision for loan losses based on management's
evaluation of the risks inherent in its loan portfolio and the regional and
national economies. Such evaluation, which includes a review of all loans on
which full collectibility may not be reasonably assured, considers, among other
matters, the current market value of the underlying collateral, economic
conditions, historical loan loss experience, and other factors that warrant
recognition in providing for an adequate loan loss allowance.
In order to determine its overall adequacy, the allowance for loan losses is
reviewed quarterly by both management (through its Classification of Assets
Committee) and the Board of Directors' designated committee (the Mortgage and
Real Estate Committee).
Various factors are considered in determining the appropriate level of the
allowance for loan losses. These factors include, but are not limited to:
1) End of period levels and observable trends in non-performing loans;
2) Charge-offs experienced over prior periods, including an analysis of
the underlying factors leading to the delinquencies and subsequent
charge-off (if any);
3) Analysis of the portfolio in the aggregate as well as on an
individual loan basis, taking into consideration:
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 four outside
directors, each possessing over 30 years of complementary real
estate experience) during which observable trends in the local
economy and their effect on the real estate market are discussed.
5) Discussions with and periodic review by the various governmental
regulators (e.g., Federal Deposit Insurance Corporation, the New
York State Banking Department); and
9
6) Full Board assessment of all of the above factors when making a
business judgment regarding the impact of anticipated changes on the
future level of the allowance for loan losses.
When the Bank determines that an asset should be classified, it generally does
not establish a specific allowance for such asset unless it determines that such
asset may result in a loss. The Bank may, however, increase its general
valuation allowance in an amount deemed prudent. General valuation allowances
represent loss allowances which have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets.
The policy of the Company is to segment the allowance to correspond to the
various types of loans in the loan portfolio. These loan categories are assessed
with specific emphasis on the underlying collateral, which corresponds to the
respective levels of quantified and inherent risk. The initial assessment takes
into consideration non-performing loans and the valuation of the collateral
supporting each loan. Non-performing loans are risk-weighted based upon an aging
schedule that typically depicts either (1) delinquency, a situation in which
repayment obligations are at least 90 days in arrears, or (2) serious
delinquency, a situation in which legal foreclosure action has been initiated.
Based upon this analysis, a quantified risk factor is assigned to each type of
non-performing loan. This results in an allocation to the overall allowance for
the corresponding type and severity of each non-performing loan category.
Performing loans are also reviewed by collateral type, with similar risk factors
being assigned. These risk factors take into consideration, among other matters,
the borrower's ability to pay and the Company's past loan loss experience with
each type of loan. The performing loan categories are also assigned quantified
risk factors, which result in allocations to the allowance that correspond to
the individual types of loans in the portfolio.
While management uses available information to recognize losses on loans, future
additions to the allowance may be necessary, based on changes in economic
conditions beyond management's control. In addition, various regulatory
agencies, as an integral part of the examination process, periodically review
the loan loss allowance. The Bank's determination as to the classification of
its assets and the amount of its valuation allowances are subject to review by
the FDIC and the New York State Banking Department, which can order the
establishment of additional general or specific loss allowances. While the Bank
believes that the level of its loan loss allowance is adequate and utilizes a
conservative approach when evaluating the adequacy of its loan loss allowance,
such authorities may require the Bank to recognize additions to the allowance
based on their judgment about information made available to them at the time of
their examinations.
Based upon all relevant and currently available information, management believes
that the current allowance for loan losses is adequate.
For more information regarding asset quality and the loan loss allowance, see
the asset quality analysis that follows and the discussion of the provision for
loan losses beginning on page 18 of this report.
10
Asset Quality Analysis
At or For the At or For the
Three Months Ended Year Ended
March 31, December 31,
2001 2000
(dollars in thousands) (unaudited)
- ---------------------------------------------------------------------------------------
Allowance for Loan Losses:
Balance at beginning of period $18,064 $ 7,031
Acquired allowance -- 11,033
------- -------
Balance at end of period $18,064 $18,064
======= =======
Non-performing Assets at Period-end:
Mortgage loans in foreclosure $ 2,776 $ 6,011
Loans 90 days or more delinquent 5,957 3,081
------- -------
Total non-performing loans 8,733 9,092
Foreclosed real estate 150 12
------- -------
Total non-performing assets $ 8,883 $ 9,104
======= =======
Ratios:
Non-performing loans to loans, net 0.28% 0.25%
Non-performing assets to total assets 0.19 0.19
Allowance for loan losses to non-performing loans 206.85 198.68
Allowance for loan losses to loans, net 0.57 0.50
Securities and Money Market Investments
In the first quarter of 2001, the Company sold an additional $57.9 million of
securities acquired in the Haven transaction and took additional steps to
shorten the maturity of its balance sheet.
At March 31, 2001, the balance of securities held to maturity totaled $181.6
million, down $40.9 million from the balance recorded at December 31, 2000.
Included in the 2001 amount were U.S. Government and agency obligations totaling
$86.3 million, capital trust notes totaling $25.2 million, and FHLB stock of
$72.0 million. At March 31, 2001 and December 31, 2000, the market value of the
portfolio was $180.8 million and $220.6 million, respectively, equivalent to
99.5% and 99.1% of carrying value at the corresponding dates.
In contrast, the balance of securities available for sale rose to $342.4 million
at March 31, 2001 from $303.7 million at year-end 2000, after $57.9 million in
such securities were sold. The $38.7 million increase primarily reflects the
Company's investment in readily marketable collateralized mortgage obligations
with an average maturity of 3.5 to 1.5 years.
Money market investments, consisting entirely of federal funds sold, rose $423.7
million to $548.3 million, primarily representing the proceeds from the sale of
loans that settled at quarter's end. This balance may be expected to decline in
the second quarter of 2001, as such funds are invested into higher yielding
assets, including short-term securities and multi-family mortgage loans.
Mortgage-backed Securities Held to Maturity
Reflecting prepayments and the absence of any new investments in such assets,
the portfolio of mortgage-backed securities declined $42,000 to $1.9 million at
March 31, 2001. The market value of the portfolio at that date was $1.9 million,
or 103.2% of carrying value, as compared to $2.0 million, or 102.9% of carrying
value, at December 31, 2000.
11
Sources of Funds
The Company's primary sources of funds are the deposits it gathers and the line
of credit it maintains with the Federal Home Loan Bank of New York ("FHLB").
Additional funding stems from interest and principal payments on loans and the
interest on, and maturity of, securities and mortgage-backed secutities.
At March 31, 2001, the Company recorded deposits of $3.2 billion, down $43.4
million from the balance at December 31, 2000. The reduction stemmed primarily
from a $64.9 million decline in CDs to $1.8 billion, representing 56.3% of total
deposits, consistent with management's goal of reducing funding costs. At
December 31, 2000, CDs totaled $1.9 billion, representing 57.5% of total
deposits at that date.
The balance of core deposits rose $21.5 million to $1.4 billion, representing
43.7% of total deposits at March 31, 2001. The increase stemmed from a $6.6
million rise in NOW and money market accounts to $726.0 million; a $12.2 million
rise in savings accounts to $504.8 million; and a $2.7 million rise in
non-interest-bearing accounts to $174.0 million.
The Company gathers deposits through a network of 19 traditional and 67 in-store
branch offices. Included in the latter amount were two in-store branches opened
during the current first quarter (one each in Brooklyn and the Bronx.) In
addition, the Company integrated the data processing systems of New York
Community Bank and CFS Bank in the current first quarter. As a result, customers
can bank at any of the Company's 86 locations throughout the greater
metropolitan New York area, New Jersey, and Connecticut.
Borrowings totaled $1.0 billion at the close of the current quarter, down $4.3
million from the level recorded at December 31st. Included in the 2001 amount
were FHLB borrowings of $960.0 million against a line of credit totaling $1.9
billion. The line of credit is collateralized by stock in the FHLB and by
certain securities and mortgage loans under a blanket pledge agreement in an
amount equal to 110% of outstanding borrowings. The balance of the Company's
borrowings are in the form of various trust preferred securities.
Market Risk and Interest Rate Sensitivity
Given the influence of market interest rates on net interest income, interest
rate volatility is the Company's primary market risk. In order to manage its
interest rate risk, the Company strives to maintain an appropriate balance
between the interest rate sensitivity of its interest-earning assets and the
interest rate sensitivity of its interest-bearing liabilities.
The process of assessing and managing interest rate risk is governed by policies
that are established by senior management and reviewed and approved by the Board
of Directors. Senior management meets periodically to evaluate the impact of
changes in market interest rates on assets and liabilities, net interest margin,
liquidity, and capital levels, and to evaluate its asset and liability
management strategies. As part of this process, management measures the
sensitivity of net interest income to changes in interest rates. In addition to
considering the relative sensitivity of assets and liabilities to market
interest rate fluctuations, management considers such factors as scheduled
maturities, repricing characteristics, deposit growth and retention, and
estimated cash flows in arriving at its estimates.
The relative sensitivity of assets and liabilities is particularly important, as
the Company's core deposits are not subject to the same degree of interest rate
sensitivity as its portfolio of loans and securities. Core deposit costs are
internally controlled, and generally exhibit less sensitivity to changes in
interest rates than adjustable rate assets, which feature yields based on
external indices.
It is management's objective to maintain a stable level of net interest income
under a range of probable rate scenarios. In the current rate environment,
management is focused on shortening the maturity of the Company's assets, by
emphasizing the origination of loans secured by multi-family buildings and
commercial real estate
12
properties, which tend to have shorter terms to maturity than one-to-four family
mortgage loans. On the liability side of the balance sheet, management has been
increasing core deposits while reducing the balance of higher cost funds.
As a result of these actions and recent actions of the Federal Open Market
Committee (the "FOMC") of the Federal Reserve Board of Governors, the Company's
exposure to interest rate risk at March 31, 2001 was comparable to that
discussed in the 2000 Annual Report to Shareholders.
Liquidity and Capital Position
Liquidity
As previously indicated, the Company's primary funding sources are deposits and
borrowings. Additional funding stems from interest and principal payments on
loans, securities, and mortgage-backed securities, and the sale of loans and
foreclosed real estate. While borrowings and scheduled amortization of loans and
securities are predictable funding sources, deposit flows and mortgage
prepayments are less so, being subject to such external factors as economic
conditions, competition, and market interest rates.
The Company primarily invests in mortgage loan originations and supplements such
investments with the purchase of short-term securities. In the first quarter of
2001, the Company's investing activities provided net cash of $471.6 million,
primarily reflecting the aforementioned proceeds from the sale of one-to-four
family mortgage loans and securities. A portion of the proceeds was utilized to
purchase securities available for sale in the amount of $88.3 million; in
addition, the Company recorded a $109.4 million net increase in loans.
At the same time, the net cash used in operating activities totaled $11.8
million and the net cash used in financing activities totaled $87.1 million. The
latter amount includes $27.2 million allocated toward the repurchase of Company
shares, net of stock options exercised.
The Company monitors its liquidity on a daily basis to ensure that sufficient
funds are available to meet its financial obligations, including outstanding
loans commitments and withdrawals from depository accounts. The Company's most
liquid assets are cash and due from banks and money market investments, which
collectively totaled $630.4 million at March 31, 2001, including the proceeds
from the sale of loans that settled at quarter's end. Additional liquidity stems
from the Company's portfolio of securities available for sale, which totaled
$342.4 million, and from the Bank's lines of credit with the FHLB and with a
money center bank.
At April 17, 2001, the Company had loans totaling $281.0 million in the
pipeline, which management anticipates having the ability to fund. In addition,
CDs due to mature in one year or less from March 31, 2001 totaled $1.2 billion;
based on its historic retention rate, as well as current pricing, management
believes that a significant portion of such deposits will remain with the Bank.
Capital Position
Supported by first quarter 2001 cash earnings of $33.0 million, stockholders'
equity totaled $286.4 million at March 31, 2001, representing 6.18% of total
assets and a book value of $7.05 per share, based on 40,638,843 shares. At
December 31, 2000, the Company recorded stockholders' equity of $307.4 million,
representing 6.52% of total assets and a book value of $7.41 per share, based on
41,517,306 shares, as adjusted for the 3-for-2 stock split on March 29, 2001.
In the first quarter of 2001, the Company distributed $6.9 million in cash
dividends and allocated $54.9 million toward the repurchase of 2,240,607 shares,
including 1,328,169 shares that were repurchased in connection with the exercise
of stock options. At March 31, 2001, an additional 1,140,209 shares were still
available for repurchase under the authorization approved by the Board of
Directors on February 6, 2001.
13
At March 31, 2001, the level of stockholders' equity was more than sufficient to
exceed the minimum federal requirements for a bank holding company. The
Company's leverage capital totaled $235.2 million, or 5.22% of adjusted average
assets; its Tier 1 and total risk-based capital amounted to $235.2 million and
$254.3 million, representing 9.31% and 10.07% of risk-weighted assets,
respectively.
The Company's capital strength is paralleled by the solid capital position of
the Bank, as reflected in the excess of its regulatory capital ratios over the
levels required for classification as a well capitalized bank by the FDIC. The
following regulatory capital analysis sets forth the Bank's leverage, Tier 1 and
total regulatory capital levels in comparison with the minimum federal
requirements.
Regulatory Capital Analysis (Bank Only)
At March 31, 2001
-----------------
Risk-Based Capital
------------------
Leverage Capital Tier 1 Total
---------------- ------ -----
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- -------- -----
Total savings bank equity $292,379 6.42% $292,379 11.03% $311,438 11.75%
Regulatory capital requirement 136,591 3.00 106,064 4.00 212,128 8.00
-------- ---- -------- ----- -------- -----
Excess $155,788 3.42% $186,315 7.03% $ 99,310 3.75%
======== ==== ======== ===== ======== =====
Comparison of the Three Months Ended March 31, 2001 and March 31, 2000
Earnings Summary
The Company recorded earnings of $27.6 million, or $0.66 per diluted share, in
the first quarter of 2001, as compared to $7.6 million, or $0.28 per diluted
share, in the year-earlier three months(1). The 2001 amount includes a
non-recurring net gain of $10.3 million on the sale of one-to-four family
mortgage loans and securities. Absent this gain, the Company's core earnings
rose to $17.4 million, or $0.42 per diluted share, providing a 1.50% return on
average assets and a 24.84% return on average stockholders' equity.
The Company's cash earnings rose to $33.0 million, or $0.79 per diluted share,
in the current first quarter from $10.1 million, or $0.37 per diluted share, in
the year-earlier three months(1). In addition to providing $5.4 million, or
19.6%, more to tangible capital than its reported earnings, the Company's cash
earnings provided an ROA of 2.85% and an ROE of 47.13%.
The Company's first quarter 2001 performance reflected the benefit of its
November 30, 2000 purchase acquisition of Haven Bancorp, as well as internal
growth stemming from management's subsequent strategic actions with regard to
the restructuring and de-leveraging of the balance sheet.
Net interest income rose to $35.1 million from $16.4 million, an increase of
$18.7 million, or 113.6%. The increase was the net effect of a $48.1 million
rise in interest income to $84.4 million and a $29.4 million rise in interest
expense to $49.2 million. The growth in interest income was driven by a $2.5
billion rise in the average balance of interest-earning assets to $4.3 billion,
which offset an eight-basis point drop in the average yield to 7.81%. The growth
in interest expense was driven by a $2.4 billion rise in the average balance of
interest-bearing liabilities to $4.1 billion, together with a 19-basis point
rise in the average cost of funds to 4.83%. While the Company's interest rate
spread and net interest margin declined from the year-earlier measures, a
trailing-quarter comparison reflects modest expansion of both. In the first
quarter of 2001, the Company's spread rose to 2.98% from 2.93% in the trailing
quarter, while its margin rose to 3.25% from 3.24%.
- ----------
(1) Per-share amounts for the year 2000 have been adjusted to reflect the
3-for-2 stock split on March 29, 2001.
14
Other operating income rose to $28.5 million from $1.1 million in the
year-earlier three months. In addition to the $15.7 million pre-tax gain on the
sale of loans and securities during the quarter, the increase reflects a 16-fold
increase in fee income to $7.9 million and a seven-fold increase in core other
income to $4.8 million.
The dramatic growth in revenues was only partly offset by an increase in
non-interest expense to $20.9 million, including operating expense of $19.4
million and goodwill amortization of $1.5 million. In addition to the costs
incurred in operating a vastly expanded branch network, the higher level of
operating expense reflects certain non-recurring expenses stemming from the
integration of the data processing systems utilized by the CFS Bank branches
with the systems used by New York Community Bank.
Income tax expense rose $10.7 million to $15.1 million, reflecting a $30.8
million increase in pre-tax income to $42.7 million, resulting in an effective
tax rate of 35.3%.
The provision for loan losses was once again suspended, reflecting the adequacy
of the loan loss allowance and the consistent strong quality of the Company's
loan portfolio.
Based on the Company's first quarter results and its strategic direction,
management currently anticipates that the Company's core diluted earnings per
share for 2001 will range between $1.80 and $1.83 and that its diluted cash
earnings per share will range between $2.38 and $2.41. These estimates, which
exclude any impact from the proposed merger with Richmond County Financial, are
based on management's assessment of the current interest rate environment, the
expected direction of interest rates over the next four quarters, and the
following projections regarding the Company's results:
o Net interest income, interest rate spread, and net interest margin
are expected to benefit from the anticipated downward repricing of
approximately $1.2 billion in CDs with a current cost of
approximately 5.92%;
o The proceeds from the sale of one-to-four family mortgage loans and
securities are expected to be deployed into the origination of
multi-family, commercial real estate, and construction loans with a
shorter term to maturity;
o The branch network is expected to generate fee income and revenues
from the sale of banking services and investment products;
o Operating expenses are expected to reflect management's focus on
expense control, with an expected run rate of $17.0 million to $17.5
million per quarter for the remainder of 2001; and
o Tax benefits will be maximized, resulting in an expected effective
tax rate of 35% to 36%.
For a discussion of factors that could adversely impact the Company's ability to
fulfill these expectations, please see the discussion of forward-looking
statements and associated risk factors beginning on page 6 of this report.
15
Cash Earnings Analysis
(in thousands, except per share data)
For the Three Months Ended
March 31,
2001 2000
------- -------
Net income $27,644 $ 7,594
Additional contributions to tangible stockholders' equity:
Amortization and appreciation of
stock-related benefit plans 894 440
Associated tax benefits 2,500 1,413
Other 475 694
Amortization of goodwill 1,482 --
------- -------
Cash earnings $32,995 $10,141
======= =======
Cash earnings per share $ 0.81 $ 0.38
Diluted cash earnings per share $ 0.79 $ 0.37
Interest Income
The level of interest income in any given period depends upon the average
balance and mix of the Company's interest-earning assets, the yield on said
assets, and the current level of market interest rates.
Reflecting the benefit of the Haven acquisition and a significant level of
mortgage loan production, the Company recorded interest income of $84.4 million
in the first quarter of 2001, up from $36.3 million in the year-earlier three
months. The increase stemmed from a $2.5 billion, or 134.9%, rise in the average
balance of interest-earning assets to $4.3 billion, which offset an eight-basis
point drop in the average yield to 7.81%.
Mortgage and other loans generated $70.5 million, or 83.6%, of total interest
income in the current first quarter, up from $33.1 million in the year-earlier
period. The $37.4 million increase was the net effect of a $2.0 billion, or
122.7%, rise in the average balance to $3.6 billion and a 36-basis point drop in
the average yield to 7.74%.
Securities generated interest income of $8.9 million, or 10.6% of the current
quarter's total, representing a year-over-year increase of $5.9 million. The
increase stemmed from a $153.8 million, or 78.5%, rise in the average balance to
$349.8 million and a 401-basis point rise in the average yield to 10.18%.
The significant interest income produced by loans and securities was
supplemented by the interest income produced by mortgage-backed securities and
money market investments. The interest income generated by mortgage-backed
securities rose to $2.8 million from $62,000, the net effect of a $160.2 million
rise in the average balance to $163.7 million and a 31-basis point decline in
the average yield to 6.82%. The interest income generated by money market
investments rose to $2.2 million from $58,000, the net effect of a $159.8
million increase in the average balance to $164.1 million and an 18-basis point
decline in the average yield to 5.28%.
Interest Expense
The level of interest expense is driven by the average balance and composition
of the Company's interest-bearing liabilities and by the respective costs of the
funding sources found within this mix. These factors are influenced, in turn, by
competition for deposits and by the level of market interest rates.
The Company recorded first quarter 2001 interest expense of $49.2 million, as
compared to $19.8 million in the first quarter of 2000. The $29.4 million
increase was the result of a $2.4 billion rise in the average balance of
interest-bearing liabilities to $4.1 billion and a 19-basis point rise in the
average cost to 4.83%.
16
Borrowings generated $16.0 million, or 32.4%, of total interest expense in the
current first quarter, as compared to $9.4 million, or 47.2%, of total interest
expense in the year-earlier three months. The $6.6 million increase reflects a
$360.5 million rise in the average balance to $1.0 billion and a 68-basis point
rise in the average cost to 6.26%. Borrowings represented 25.0% and 39.3%,
respectively, of average interest-bearing liabilities in the first quarter of
2001 and 2000, respectively.
CDs generated $27.2 million, or 55.2%, of total interest expense in the current
first quarter, as compared to $8.1 million, or 40.7%, in the year-earlier three
months. The $19.1 million increase stemmed from a $1.2 billion rise in the
average balance to $1.8 billion and a 90-basis point rise in the average cost to
5.97%. CDs represented 44.7% of average interest-bearing liabilities in the
current first quarter, as compared to 37.3% in the first quarter of 2000.
Other funding (NOW and money market accounts, savings accounts,
non-interest-bearing accounts, and mortgagors' escrow) generated combined
interest expense of $6.1 million, as compared to $2.4 million in the first
quarter of 2000. The increase was the net effect of a $970.2 million rise in the
combined average balance to $1.4 billion, and a 44-basis point decline in the
average cost to 1.72%.
The interest expense generated by NOW and money market accounts rose $3.2
million to $3.9 million, the net effect of a $625.6 million rise in the average
balance to $731.4 million and an 81-basis point drop in the average cost to
2.18%. Savings accounts generated interest expense of $2.1 million, up $538,000,
the net effect of a $219.9 million rise in the average balance to $495.2 million
and a 59-basis point drop in the average cost to 1.75%. In addition, the average
balance of non-interest-bearing accounts rose $121.8 million to $163.3 million
in the first quarter of 2001.
The interest expense produced by mortgagors' escrow dropped $3,000 to $4,000,
the net effect of a $2.8 million rise in the average balance to $23.7 million
and a six-basis point drop in the average cost to seven basis points.
Net Interest Income
Net interest income is the Company's primary source of income. Its level is a
function of the average balance of interest-earning assets, the average balance
of interest-bearing liabilities, and the spread between the yield on said assets
and the cost of said liabilities. These factors are influenced by the pricing
and mix of the Company's interest-earning assets and interest-bearing
liabilities which, in turn, may be impacted by such external factors as economic
conditions, competition for loans and deposits, and the monetary policy of the
FOMC. The FOMC reduces, maintains, or increases the federal funds rate (the rate
at which banks borrow funds from one another) as it deems necessary. In the
first four months of 2001, the federal funds rate was lowered 200 basis points
to its current 4.50% level; in 2000, the federal funds rate ranged between 5.50%
and 6.50%.
In the first quarter of 2001, the Company recorded net interest income of $35.1
million, up $11.1 million from the trailing quarter level and up $18.7 million
from the year-earlier amount. The increase was fueled by the dramatic growth of
average interest-earning assets, and tempered by the rise in funding costs.
While the Company's interest rate spread and net interest margin declined 27 and
33 basis points, respectively, from the year-earlier levels, the trailing
quarter comparison reflects modest growth. In the first quarter of 2001, the
Company's interest rate spread was 2.98%, as compared to 2.93% and 3.25% in the
trailing and year-earlier quarters, and its net interest margin was 3.25%, as
compared to 3.24% and 3.58%.
It is management's expectation that the Company's net interest income, interest
rate spread, and net interest margin will benefit from the reduction in market
interest rates, as well as from the anticipated downward repricing of
approximately $1.2 billion in CDs with an average cost of 5.92% over the next 12
months. In addition, the proceeds from the sale of one-to-four family mortgage
loans and securities in the current first
17
quarter are expected to be deployed into the origination of multi-family,
commercial real estate, and construction loans with a shorter term to maturity
than one-to-four family mortgage loans.
Among the factors that could cause net interest income, interest rate spread,
and net interest margin to fall below anticipated levels are a change in the
direction of market interest rates; a decline in the demand for multi-family
loans within the local market; a significant increase in refinancings at lower
rates of interest; a decline in the quality of the Company's loan portfolio;
significant competition for loans and deposits; and a significant change in the
Company's deposit mix and borrowings.
Net Interest Income Analysis
(dollars in thousands)
Three Months Ended March 31,
------------------------------------------------------------------------------
2001 2000
----------------------------------- -----------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------- -------- ------- ---------- -------- -------
Assets:
Interest-earnings assets:
Mortgage and other loans, net $3,642,448 $70,509 7.74% $1,635,542 $33,126 8.10%
Securities 349,820 8,903 10.18 196,005 3,023 6.17
Mortgage-backed securities 163,722 2,792 6.82 3,478 62 7.13
Money market investments 164,101 2,154 5.28 4,271 58 5.46
---------- ------- ---- ---------- ------- ----
Total interest-earning assets 4,320,091 84,358 7.81 1,839,296 36,269 7.89
Non-interest-earning assets 305,741 78,801
---------- ----------
Total assets $4,625,832 $1,918,097
========== ==========
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
NOW and money market accounts $ 731,373 $ 3,936 2.18% $ 105,754 $ 785 2.99%
Savings accounts 495,212 2,139 1.75 275,350 1,601 2.34
Certificates of deposit 1,847,767 27,180 5.97 641,041 8,076 5.07
Mortgagors' escrow 23,733 4 0.07 20,906 7 0.13
---------- ------- ---- ---------- ------- ----
Total interest-bearing deposits 3,098,085 33,259 4.29 1,043,051 10,469 4.01
Borrowings 1,035,057 15,969 6.26 674,542 9,357 5.58
---------- ------- ---- ---------- ------- ----
Total interest-bearing liabilities 4,133,142 49,228 4.83 1,717,593 19,826 4.64
Non-interest-bearing deposits 163,278 41,431
Other liabilities 49,365 29,732
---------- ----------
Total liabilities 4,345,785 1,788,756
Stockholders' equity 280,047 129,341
---------- ----------
Total liabilities and stockholders' equity $4,625,832 $1,918,097
========== ==========
Net interest income/interest rate spread $35,130 2.98% $16,443 3.25%
======= ==== ======= ====
Net interest-earning assets/net interest
margin $ 186,949 3.25% $ 121,703 3.58%
========== ==== ========== ====
Ratio of interest-earning assets to
to interest-bearing liabilities 1.05x 1.07x
==== ====
Provision for Loan Losses
The provision for loan losses is based on management's periodic assessment of
the adequacy of the loan loss allowance which, in turn, is based on such
interrelated factors as the composition of the loan portfolio and its inherent
risk characteristics; the level of non-performing loans and charge-offs, both
current and historic; local economic conditions; the direction of real estate
values; and current trends in regulatory supervision.
18
While the Company's loan portfolio has grown dramatically with the acquisition
of Haven Bancorp, the quality of its assets has remained essentially unchanged.
Non-performing assets represented 0.19% of total assets at both March 31, 2001
and December 31, 2000, and the number of consecutive quarters without any net
charge-offs increased to 26. Accordingly, the Company suspended the provision
for loan losses in the current first quarter, extending a practice initiated in
the third quarter of 1995. At March 31, 2001, the allowance for loan losses
totaled $18.1 million, representing 206.85% of non-performing loans and 0.57% of
loans, net.
Absent a significant downturn in the economy or in the quality of the Company's
assets, or an increase in loan delinquencies or charge-offs, management
anticipates that it will suspend the provision for loan losses for the remainder
of 2001. For additional information about the allowance for loan losses, please
see the discussion of asset quality beginning on page 9 of this report.
Other Operating Income
Traditionally, the Company has supplemented its net interest income with other
operating income derived from service fees and fees charged on loans and
depository accounts. Since the acquisition of Haven Bancorp, these income
sources have been augmented by income from the Company's increased investment in
Bank-owned Life Insurance ("BOLI") and by the sale of banking and investment
services in a vastly expanded branch network.
Reflecting the one-time gain of $15.7 million on the sale of loans and
securities, other operating income rose to $28.5 million in the first quarter of
2001 from $1.1 million in the first quarter of 2000. Excluding this gain, the
Company recorded core other operating income of $12.8 million, representing a
better than 11-fold increase. Reflecting the benefit of the Haven acquisition,
fee income rose to $7.9 million from $501,000, while core other income rose to
$4.8 million from $610,000. The latter increase includes BOLI income of
$974,000, as well as non-deposit investment product revenues of $1.7 million.
Non-Interest Expense
Non-interest expense has two primary components: operating expense, consisting
of compensation and benefits, occupancy and equipment, general and
administrative ("G&A"), and other expenses; and the amortization of goodwill
stemming from the Company's acquisition of Haven Bancorp, Inc.
The Company's ability to contain its level of operating expense has
traditionally been one of its distinguishing characteristics, and has been
reflected in its ratio of operating expense to average assets and to the sum of
net interest income and other operating income (the "efficiency ratio").
Reflecting the impact of the Haven acquisition, the Company recorded first
quarter 2001 operating expense of $19.4 million, or 1.68% of average assets, as
compared to $5.6 million, or 1.18% of average assets, in the first quarter of
2000. The increase largely reflects the cost of operating a bank with 86
branches, as compared to 14 branches in the year-earlier period. Compensation
and benefits expense rose $6.2 million to $9.7 million, while occupancy and
equipment expense rose $2.6 million to $3.4 million.
Included in compensation and benefits expense are expenses associated with the
amortization and appreciation of shares held in the Company's stock-related
benefit plans ("plan-related expenses"), which are added back to stockholders'
equity at the end of the period. In the first quarter of 2001, such plan-related
expenses totaled $894,000, as compared to $440,000 in the year-earlier
three-month period.
Primarily reflecting costs incurred in the process of integrating and upgrading
the Company's data processing systems pursuant to the Haven acquisition, G&A
expense rose $4.4 million to $5.7 million. Other expense rose $508,000 to
$672,000.
19
Reflecting the $18.7 million increase in net interest income, the $11.7 million
increase in core other operating income, and the $13.8 million increase in
operating expense, the Company recorded a core efficiency ratio of 40.59% in the
current first quarter and a cash efficiency ratio of 29.12%.
Goodwill amortization amounted to $1.5 million in the current first quarter;
there was no comparable expense in the prior three-month period. As a result,
the Company recorded first quarter 2001 non-interest expense of $20.9 million,
as compared to $5.6 million in the first quarter of 2000.
It is currently management's expectation that operating expense will range
between $17.0 million and $17.5 million in each of the remaining three quarters
of 2001, absent any impact of the proposed merger with Richmond County Financial
Corp. In addition, the amortization of goodwill is expected to approximate $1.5
million per quarter, absent the adoption of proposed accounting standards that
would discontinue the amortization of goodwill effective June 30, 2001.
The number of full-time equivalent employees at March 31, 2001 was 873.
Income Tax Expense
Reflecting a $30.8 million increase in pre-tax income to $42.7 million, the
Company recorded a $10.7 million rise in first quarter 2001 income tax expense
to $15.1 million. Non-cash items represented $2.5 million of total income tax
expense in the current first quarter, as compared to $1.4 million in the first
quarter of 2000.
The effective tax rate declined to 35.3% from 36.3% in the year-earlier quarter,
a benefit of the Company's increased BOLI investment and the relocation of its
headquarters to Nassau County, New York. Management anticipates that the
effective tax rate will range between 35% and 36% over the course of 2001.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about the Company's market risk were
presented in the discussion and analysis of Market Risk and Interest Rate
Sensitivity that appear on pages 17 - 19 of the Company's 2000 Annual Report to
Shareholders, filed on March 27, 2001. At this writing, there has been no
material change in the Company's market risk profile since the 2000 Annual
Report was filed.
20
NEW YORK COMMUNITY BANCORP, INC.
PART 2 - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any pending legal proceedings other than routine
legal proceedings occurring in the ordinary course of business. Such routine
legal proceedings, in the aggregate, are believed by management to be immaterial
to the Company's financial condition, results of operations, or cash flows.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Shareholders on May 9, 2001.
Proxies were solicited with respect to such meeting under Regulation
14A of the Securities Exchange Act of 1934, as amended, pursuant to
proxy materials dated April 6, 2001. Of the 28,971,798 shares
eligible to vote at the annual meeting, 27,257,552 were represented
in person or by proxy.
(b) There was no solicitation in opposition to the Board's nominees for
director, and all of such nominees were elected, as follows:
No. of Votes No. of Votes Broker
For Withheld Non-Votes
------------ ------------ ---------
Henry E. Froebel 26,235,577 1,021,975 -0-
Howard C. Miller 25,658,867 1,598,685 -0-
Msgr. Thomas J. Hartman 26,337,073 920,479 -0-
John A. Pileski 26,332,444 925,108 -0-
The following directors are serving terms of office that continue through 2002
and 2003, as noted:
Director Year Term Expires
- -------- -----------------
Max L. Kupferberg 2002
Dominick Ciampa 2002
Richard H. O'Neill 2002
Michael J. Levine 2002
Donald M. Blake 2003
Joseph R. Ficalora 2003
Robert M. Sprotte 2003
21
(c) Three additional proposals were submitted for a vote, with the
following results:
No. of Votes No. of Votes No. of Votes Broker
For Against Abstaining Non-Votes
--- ------- ---------- ---------
1. Amendment of the New York Community
Bancorp, Inc. 1997 Stock Option Plan. 19,258,081 3,763,760 90,744 4,144,967
2. Approval of an amendment to the
Company's Certificate of Incorporation
increasing the number of authorized
shares of common stock. 23,219,510 3,973,773 33,368 30,901
3. Ratification of the appointment of KPMG
LLP as independent auditors for the fiscal
year ending December 31, 2001. 27,117,028 132,379 8,145 -0-
Item 5. Other Information
On April 24, 2001 the Board of Directors declared a quarterly cash dividend of
$0.20 per share, payable on May 15, 2001 to shareholders of record at the close
of business on May 7, 2001.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3.1: Amended and Restated Certificate of Incorporation -
filed herewith
Exhibit 3.2: Bylaws*
Exhibit 11: Statement re: Computation of Per Share Earnings -
filed herewith
(b) Reports on Form 8-K
On February 12, 2001, the Company filed a Form 8-K in connection
with its announcement on February 7, 2001 that the Board of
Directors had a declared a 3-for-2 stock split in the form of a 50%
stock dividend, payable on March 29, 2001 to shareholders of record
at March 14, 2001. In addition, the Form 8-K indicated that the
Board had authorized the repurchase of up to one million shares of
Company stock (1.5 million shares, as split-adjusted).
On March 28, 2001, the Company filed a Form 8-K in connection with
its announcement on March 27, 2001 that it had entered into an
Agreement and Plan of Merger with Richmond County Financial Corp.,
pursuant to which Richmond County will merge into New York Community
Bancorp, Inc.
Under the terms of the Merger Agreement, each share of Richmond
County will be converted into 0.68 of a share of New York Community
Bancorp stock (1.02 shares, as adjusted for the 3-for-2 stock
split). The merger is subject to various conditions, including
adoption of the Merger Agreement by the shareholders of each company
and the receipt of the required regulatory approvals. The merger is
intended to qualify as a tax-free reorganization under the Internal
Revenue Code of 1986, as amended, and is expected to be completed in
the third quarter of 2001.
* Incorporated by reference to the Exhibits filed with the Annual Report on
SEC Form 10-K for the fiscal year ended December 31, 2000, File No.
0-22278.
22
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: May 7, 2001 BY: /s/ Joseph R. Ficalora
------------------------------------
Joseph R. Ficalora
Chairman, President, and
Chief Executive Officer
(Duly Authorized Officer)
DATE: May 7, 2001 BY: /s/ Robert Wann
------------------------------------
Robert Wann
Executive Vice President,
Comptroller, and
Chief Financial Officer
(Principal Financial Officer)
23
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NEW YORK COMMUNITY BANCORP, INC.
New York Community Bancorp, Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
1. The name of the Company is New York Community Bancorp, Inc. The
Company was originally incorporated under the name Queens County
Bancorp, Inc. The date of filing of its original Certificate of
Incorporation with the Secretary of State of the State of Delaware
was July 16, 1993. Certificates of Amendment were filed with the
Secretary of State of the State of Delaware on August 11, 1998 and
on November 20, 2000.
2. The Amended and Restated Certificate of Incorporation, which
amends, restates and supersedes the provisions of the Certificate as
originally filed and thereafter amended as described in Paragraph 1
above, was duly adopted by the Board of Directors and the
stockholders of the Company in accordance with the provisions of
Sections 242 and 245 of the DGCL.
3. The text of the Restated Certificate, as amended, is hereby
amended, restated and superseded to read in its entirety as follows:
FIRST: The name of the Corporation is New York Community Bancorp,
Inc. (hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in
the State of Delaware is Corporation Trust Center, 1209 Orange Street, in
the City of Wilmington, County of New Castle. The name of the registered
agent at that address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of Delaware.
24
FOURTH: A. The total number of shares of all classes of stock which
the Corporation shall have authority to issue is one hundred fifty-five
million (155,000,000) consisting of:
1. Five million (5,000,000) shares of Preferred Stock,
par value one cent ($.01) per share (the "Preferred Stock"); and
2. One hundred fifty million (150,000,000) shares of
Common Stock, par value one cent ($.01) per share (the "Common Stock").
B. The Board of Directors is authorized, subject to any
limitations prescribed by law, to provide for the issuance of the shares
of Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware (such certificate being
hereinafter referred to as a "Preferred Stock Designation"), to establish
from time to time the number of shares to be included in each such series,
and to fix the designation, powers, preferences, and rights of the shares
of each such series and any qualifications, limitations or restrictions
thereof. The number of authorized shares of Preferred Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the
Common Stock, without a vote of the holders of the Preferred Stock, or of
any series thereof, unless a vote of any such holders is required pursuant
to the terms of any Preferred Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate
of Incorporation, in no event shall any record owner of any outstanding
Common Stock which is beneficially owned, directly or indirectly, by a
person who, as of any record date for the determination of stockholders
entitled to vote on any matter, beneficially owns in excess of the
"Limit", be entitled, or permitted to any vote in respect of the shares
held in excess of the Limit. The number of votes which may be cast by any
record owner by virtue of the provisions hereof in respect of Common Stock
beneficially owned by such person beneficially owning shares in excess of
the Limit shall be a number equal to the total number of votes which a
single record owner of all Common Stock beneficially owned by such person
would be entitled
25
to cast subject to the provisions of this Article FOURTH, multiplied by a
fraction, the numerator of which is the number of shares of such class or
series which are both beneficially owned by such person and owned of
record by such record owner and the denominator of which is the total
number of shares of Common Stock beneficially owned by such person owning
shares in excess of the Limit.
2. The following definitions shall apply to this Section
C of this Article FOURTH:
(a) "Affiliate" shall have the meaning ascribed to
it in Rule 12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on the date of filing of this
Certificate of Incorporation.
(b) "Beneficial ownership" shall be determined
pursuant to Rule 13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934 (or any successor rule or statutory
provision), or, if said Rule 13d-3 shall be rescinded and there shall be
no successor rule or provision thereto, pursuant to said Rule 13d-3 as in
effect on the date of filing of this Certificate of Incorporation;
provided, however, that a person shall, in any event, also be deemed the
"beneficial owner" of any Common Stock:
(1) which such person or any of its Affiliates
beneficially owns, directly or indirectly; or
(2) which such person or any of its Affiliates has
(i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding (but shall not be deemed to
be the beneficial owner of any voting shares solely by reason of an
agreement, contract, or other arrangement with this Corporation to
effect any transaction which is described in any one or more of
clauses 1 through 5 of Section A of Article EIGHTH) or upon the
exercise of conversion rights, exchange rights, warrants, or options
or otherwise, or (ii) sole or shared voting or investment power with
respect thereto pursuant to any agreement, arrangement,
understanding,
26
relationship or otherwise (but shall not be deemed to be the
beneficial owner of any voting shares solely by reason of a
revocable proxy granted for a particular meeting of stockholders,
pursuant to a public solicitation of proxies for such meeting, with
respect to shares of which neither such person nor any such
Affiliate is otherwise deemed the beneficial owner); or
(3) which are beneficially owned, directly or
indirectly, by any other person with which such first mentioned
person or any of its Affiliates acts as a partnership, limited
partnership, syndicate or other group pursuant to any agreement,
arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any shares of capital stock of this
Corporation;
and provided further, however, that (1) no Director or Officer of this
Corporation (or any Affiliate of any such Director or Officer) shall,
solely by reason of any or all of such Directors or Officers acting in
their capacities as such, be deemed, for any purposes hereof, to
beneficially own any Common Stock beneficially owned by any other such
Director or Officer (or any Affiliate thereof), and (2) neither any
employee stock ownership or similar plan of this Corporation or any
subsidiary of this Corporation, nor any trustee with respect thereto or
any Affiliate of such trustee (solely by reason of such capacity of such
trustee), shall be deemed, for any purposes hereof, to beneficially own
any Common Stock held under any such plan. For purposes of computing the
percentage of beneficial ownership of Common Stock of a person, the
outstanding Common Stock shall include shares deemed owned by such person
through application of this subsection but shall not include any other
Common Stock which may be issuable by this Corporation pursuant to any
agreement, or upon exercise of conversion rights, warrants or options, or
otherwise. For all other purposes, the outstanding Common Stock shall
include only Common Stock then outstanding and shall not include any
Common Stock which may be issuable by this Corporation pursuant to any
agreement, or upon the exercise of conversion rights, warrants or options,
or otherwise.
27
(c) The "Limit" shall mean 10% of the then-outstanding shares
of Common Stock.
(d) A "person" shall include an individual, firm, a group
acting in concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock company, a trust, an unincorporated
organization or similar company, a syndicate or any other group formed for
the purpose of acquiring, holding or disposing of securities or any other
entity
3. The Board of Directors shall have the power to construe and apply
the provisions of this section and to make all determinations necessary or
desirable to implement such provisions, including but not limited to
matters with respect to (i) the number of shares of Common Stock
beneficially owned by any person, (ii) whether a person is an Affiliate of
another, (iii) whether a person has an agreement, arrangement, or
understanding with another as to the matters referred to in the definition
of beneficial ownership, (iv) the application of any other definition or
operative provision of the section to the given facts, or (v) any other
matter relating to the applicability or effect of this section.
4. The Board of Directors shall have the right to demand that any
person who is reasonably believed to beneficially own Common Stock in
excess of the Limit (or holds of record Common Stock beneficially owned by
any person in excess of the Limit) supply the Corporation with complete
information as to (i) the record owner(s) of all shares beneficially owned
by such person who is reasonably believed to own shares in excess of the
Limit, (ii) any other factual matter relating to the applicability or
effect of this section as may reasonably be requested of such person.
5. Except as otherwise provided by law or expressly provided in this
Section C, the presence, in person or by proxy, of the holders of record
of shares of capital stock of the Corporation entitling the holders
thereof to cast a majority of the votes (after giving effect to the
provisions of this Section C) entitled to be cast by the holders of shares
of capital stock of the Corporation entitled to vote shall constitute a
quorum at all meetings of the stockholders, and every reference in this
Certificate of Incorporation to a majority or other proportion of
28
capital stock (or the holders thereof) for purposes of determining any
quorum requirement or any requirement for stockholder consent or approval
shall be deemed to refer to such majority or other proportion of the votes
(or the holders thereof) then entitled to be cast in respect of such
capital stock.
6. Any constructions, applications, or determinations made by the
Board of Directors, pursuant to this section in good faith and on the
basis of such information and assistance as was then reasonably available
for such purpose shall be conclusive and binding upon the Corporation and
its stockholders.
7. In the event any provision (or portion thereof) of this Section C
shall be found to be invalid, prohibited or unenforceable for any reason,
the remaining provisions (or portions thereof) of this Section shall
remain in full force and effect, and shall be construed as if such
invalid, prohibited or unenforceable provision had been stricken here from
or otherwise rendered inapplicable, it being the intent of this
Corporation and its stockholders that each such remaining provision (or
portion thereof ) of this Section C remain, to the fullest extent
permitted by law, applicable and enforceable as to all stockholders,
including stockholders beneficially owning an amount of stock over the
Limit, notwithstanding any such finding.
FIFTH: The following provisions are inserted for the management of
the business and the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the
Corporation and of its Directors and stockholders:
A. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors. In addition
to the powers and authority expressly conferred upon them by statute or by
this Certificate of Incorporation or the Bylaws of the Corporation, the
Directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
B. The Directors of the Corporation need not be elected by
written ballot unless the Bylaws so provide.
29
C. Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual
or special meeting of stockholders of the Corporation and may not be
effected by any consent in writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be
called only by the Board of Directors pursuant to a resolution adopted by
a majority of the Whole Board or as otherwise provided in the Bylaws. The
term "Whole Board" shall mean the total number of authorized directorships
(whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board
for adoption) (the Whole Board).
SIXTH: A. The number of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by
a majority of the Whole Board. The Directors shall be divided into three
classes, as nearly equal in number as reasonably possible, with the term
of office of the first class to expire at the first annual meeting of
stockholders, the term of office of the second class to expire at the
annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the annual meeting of stockholders two
years thereafter with each Director to hold office until his or her
successor shall have been duly elected and qualified. At each annual
meeting of stockholders following such initial classification and
election, Directors elected to succeed those Directors whose terms expire
shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders after their election with each Director to
hold office until his or her successor shall have been duly elected and
qualified.
B. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, newly created directorships resulting
from any increase in the authorized number of Directors or any vacancies
in the Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause may be filled only by
a majority vote of the Directors then in office, though less than a
quorum, and Directors so chosen shall hold office for a term expiring at
the annual meeting of stockholders at which the
30
term of office of the class to which they have been chosen expires. No
decrease in the number of Directors constituting the Board of Directors
shall shorten the term of any incumbent Director.
C. Advance notice of stockholder nominations for the election
of Directors and of business to be brought by stockholders before any
meeting of the stockholders of the Corporation shall be given in the
manner provided in the Bylaws of the Corporation.
D. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any Directors, or the entire Board of
Directors, may be removed from office at any time, but only for cause and
only by the affirmative vote of the holders of at least 80 percent of the
voting power of all of the then-outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of Directors (after
giving effect to the provisions of Article FOURTH of this Certificate of
Incorporation ("Article FOURTH")), voting together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt,
amend or repeal Bylaws of the Corporation. Any adoption, amendment or
repeal of the Bylaws of the corporation by the Board of Directors shall
require the approval of a majority of the Whole Board. The stockholders
shall also have power to adopt, amend or repeal the Bylaws of the
Corporation; provided, however, that, in addition to any vote of the
holders of any class or series of stock of this Corporation required by
law or by this Certificate of Incorporation, the affirmative vote of the
holders of at least 80 percent of the voting power of all of the
then-outstanding shares of the capital stock of the Corporation entitled
to vote generally in the election of Directors (after giving effect to the
provisions of Article FOURTH), voting together as a single class, shall be
required to adopt, amend or repeal any provisions of the Bylaws of the
Corporation.
EIGHTH: A. In addition to any affirmative vote required by law or
this Certificate of Incorporation, and except as otherwise expressly
provided in this Article EIGHTH:
31
1. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (i) any Interested Stockholder
(as hereinafter defined) or (ii) any other corporation (whether or not
itself an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate (as hereinafter defined) of an
Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to or
with any Interested Stockholder, or any Affiliate of any Interested
Stockholder, of any assets of the Corporation or any Subsidiary having an
aggregate Fair Market Value (as hereinafter defined) equaling or exceeding
25% or more of the combined assets of the Corporation and its
Subsidiaries; or
3. the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any Interested
Stockholder or any Affiliate of any Interested Stockholder in exchange for
cash, securities or other property (or a combination thereof) having an
aggregate Fair Market Value (as hereinafter defined) equaling or exceeding
25% of the combined Fair Market Value of the outstanding common stock of
the Corporation and its Subsidiaries, except for any issuance or transfer
pursuant to an employee benefit plan of the Corporation or any Subsidiary
thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an Interested
Stockholder or any Affiliate of any Interested Stockholder; or
5. any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an
Interested Stockholder) which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class
of equity or convertible securities of the Corporation or any Subsidiary
which is directly or indirectly owned by any Interested Stockholder or any
Affiliate of any Interested Stockholder;
32
shall require the affirmative vote of the holders of at least 80% of the
voting power of the then-outstanding shares of stock of the Corporation
entitled to vote in the election of Directors (the "Voting Stock") (after
giving effect to the provisions of Article FOURTH), voting together as a
single class. Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage may be
specified, by law or by any other provisions of this Certificate of
Incorporation or any Preferred Stock Designation or in any agreement with
any national securities exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall
mean any transaction which is referred to in any one or more of paragraphs
1 through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only the affirmative vote of the majority of the
outstanding shares of capital stock entitled to vote (after giving effect
to the provisions of Article FOURTH), or such vote (if any) as is required
by law or by this Certificate of Incorporation, if, in the case of any
Business Combination that does not involve any cash or other consideration
being received by the stockholders of the Corporation solely in their
capacity as stockholders of the Corporation, the condition specified in
the following paragraph 1 is met or, in the case of any other Business
Combination, all of the conditions specified in either of the following
paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a
majority of the Disinterested Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
(a) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by the holders of
Common Stock in such Business Combination shall at least be equal to the
higher of the following:
33
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage commissions, transfer
taxes and soliciting dealers' fees, paid by the Interested
Stockholder or any of its Affiliates for any shares of Common Stock
acquired by it (i) within the two-year period immediately prior to
the first public announcement of the proposal of the Business
Combination (the "Announcement Date"), or (ii) in the transaction in
which it became an Interested Stockholder, whichever is higher.
(2) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter date is
referred to in this Article EIGHTH as the "Determination Date"),
whichever is higher.
(b) The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of
shares of any class of outstanding Voting Stock other than Common
Stock shall be at least equal to the highest of the following (it
being intended that the requirements of this subparagraph (b) shall
be required to be met with respect to every such class of
outstanding Voting Stock, whether or not the Interested Stockholder
has previously acquired any shares of a particular class of Voting
Stock):
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage commissions, transfer
taxes and soliciting dealers' fees, paid by the Interested
Stockholder for any shares of such class of Voting Stock acquired by
it (i) within the two-year period immediately prior to the
Announcement Date, or (ii) in the transaction in which it became an
Interested Stockholder, whichever is higher;
(2) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of Voting Stock
are entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; and
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(3) the Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the Determination Date,
whichever is higher.
(c) The consideration to be received by holders of a
particular class of outstanding Voting Stock (including Common
Stock) shall be in cash or in the same form as the Interested
Stockholder has previously paid for shares of such class of Voting
Stock. If the Interested Stockholder has paid for shares of any
class of Voting Stock with varying forms of consideration, the form
of consideration to be received per share by holders of shares of
such class of Voting Stock shall be either cash or the form used to
acquire the largest number of shares of such class of Voting Stock
previously acquired by the Interested Stockholder. The price
determined in accordance with subparagraph B.2 of this Article
EIGHTH shall be subject to appropriate adjustment in the event of
any stock dividend, stock split, combination of shares or similar
event.
(d) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination: (1) except as approved by a majority of the
Disinterested Directors (as hereinafter defined), there shall have
been no failure to declare and pay at the regular date therefor any
full quarterly dividends (whether or not cumulative) on any
outstanding stock having preference over the Common Stock as to
dividends or liquidation; (2) there shall have been (i) no reduction
in the annual rate of dividends paid on the Common Stock (except as
necessary to reflect any subdivision of the Common Stock), except as
approved by a majority of the Disinterested Directors, and (ii) an
increase in such annual rate of dividends as necessary to reflect
any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of the
Common Stock, unless the failure to so increase such annual rate is
approved by a majority of the Disinterested Directors, and (3)
neither such Interested Stockholder or any of its Affiliates shall
have become the beneficial owner of any additional shares of Voting
Stock except as part of the
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transaction which results in such Interested Stockholder becoming an
Interested Stockholder.
(e) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the
benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided, directly or indirectly, by the Corporation, whether in
anticipation of or in connection with such Business Combination or
otherwise.
(f) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing the Securities
Exchange Act of 1934 and the rules or regulations thereunder) shall
be mailed to stockholders of the Corporation at least 30 days prior
to the consummation of such Business Combination (whether or not
such proxy or information statement is required to be mailed
pursuant to such Act or subsequent provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, firm, a group
acting in concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock company, a trust, an unincorporated
organization or similar company, a syndicate or any other group formed for
the purpose of acquiring, holding or disposing of securities or any other
entity.
2. "Interested Stockholder" shall mean any person (other
than the Corporation or any Holding Company or Subsidiary thereof) who or
which:
(a) is the beneficial owner, directly or indirectly, of more
than 10% of the outstanding Voting Stock; or
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(b) is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 10% or more of the voting
power of the then outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act of
1933.
3. For purposes of this Article EIGHTH, "beneficial ownership" shall
be determined in the manner provided in Section C of Article FOURTH
hereof.
4. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on the date of
filing of this Certificate of Incorporation.
5. "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition of
Interested Stockholder set forth in Paragraph 2 of this Section C, the
term "Subsidiary" shall mean only a corporation of which a majority of
each class of equity security is owned, directly or indirectly, by the
Corporation.
6. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested Stockholder and was a
member of the Board of Directors prior to the time that the Interested
Stockholder became an Interested Stockholder, and any Director who is
thereafter chosen to fill any vacancy of the Board of Directors or who is
elected and who, in either event, is unaffiliated with the Interested
Stockholder and in connection with his or her initial assumption of office
is recommended for appointment or election by a majority of Disinterested
Directors then on the Board of Directors.
7. "Fair Market Value" means: (a) in the case of stock, the highest
closing sales price of the stock during the 30-day period immediately
preceding the date in question of a
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share of such stock on the National Association of Securities Dealers
Automated Quotation System or any system then in use, or, if such stock is
admitted to trading on a principal United States securities exchange
registered under the Securities Exchange Act of 1934, Fair Market Value
shall be the highest sale price reported during the 30-day period
preceding the date in question, or, if no such quotations are available,
the Fair Market Value on the date in question of a share of such stock as
determined by the Board of Directors in good faith, in each case with
respect to any class of stock, appropriately adjusted for any dividend or
distribution in shares of such stock or any stock split or
reclassification of outstanding shares of such stock into a greater number
of shares of such stock or any combination or reclassification of
outstanding shares of such stock into a smaller number of shares of such
stock, and (b) in the case of property other than cash or stock, the Fair
Market Value of such property on the date in question as determined by the
Board of Directors in good faith.
8. Reference to "Highest Per Share Price" shall in each case with
respect to any class of stock reflect an appropriate adjustment for any
dividend or distribution in shares of such stock or any stock split or
reclassification of outstanding shares of such stock into a greater number
of shares of such stock or any combination or reclassification of
outstanding shares of such stock into a smaller number of shares of such
stock.
9. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as
used in Subparagraphs (a) and (b) of Paragraph 2 of Section B of this
Article EIGHTH shall include the shares of Common Stock and/or the shares
of any other class of outstanding Voting Stock retained by the holders of
such shares.
D. A majority of the Disinterested Directors of the Corporation
shall have the power and duty to determine for the purposes of this
Article EIGHTH, on the basis of information known to them after reasonable
inquiry: (a) whether a person is an Interested Stockholder; (b) the number
of shares of Voting Stock beneficially owned by any person; (c) whether a
person is an Affiliate or Associate of another; and (d) whether the assets
which are
38
the subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the Corporation or
any Subsidiary in any Business Combination has an aggregate Fair Market
Value equaling or exceeding 25% of the combined Fair Market Value of the
Common Stock of the Corporation and its Subsidiaries. A majority of the
Disinterested Directors shall have the further power to interpret all of
the terms and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary or other obligation
imposed by law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a
lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the Voting Stock required by
law, this Certificate of Incorporation or any Preferred Stock Designation,
the affirmative vote of the holders of at least 80 percent of the voting
power of all of the then-outstanding shares of the Voting Stock (after
giving effect to the provisions of Article FOURTH), voting together as a
single class, shall be required to alter, amend or repeal this Article
EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating
any offer of another Person (as defined in Article EIGHTH hereof) to (A)
make a tender or exchange offer for any equity security of the
Corporation, (B) merge or consolidate the Corporation with another
corporation or entity or (C) purchase or otherwise acquire all or
substantially all of the properties and assets of the Corporation, may, in
connection with the exercise of its judgment in determining what is in the
best interest of the Corporation and its stockholders, give due
consideration to all relevant factors, including, without limitation,
those factors that Directors of any subsidiary of the Corporation may
consider in evaluating any action that may result in a change or potential
change in the control of the subsidiary, and the social and economic
effect of acceptance of such offer: on the Corporation's present and
future customers and employees and those of its Subsidiaries (as defined
in Article EIGHTH hereof); on the communities in which the Corporation and
its Subsidiaries operate or are located; on the ability of the
39
Corporation to fulfill its corporate objective as a holding company under
applicable laws and regulations; and on the ability of its subsidiary to
fulfill the objectives of a stock form financial institution under
applicable statutes and regulations.
TENTH: A. Each person who was or is made a party or is threatened to
be made a party to or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or
was a Director or an Officer of the Corporation or is or was serving at
the request of the Corporation as a Director, Officer, employee or agent
of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as a Director, Officer, employee or
agent or in any other capacity while serving as a Director, Officer,
employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than
such law permitted the Corporation to provide prior to such amendment),
against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in
connection therewith; provided, however, that, except as provided in
Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this
Article TENTH shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an
40
advancement of expenses incurred by an indemnitee in his or her capacity
as a Director or Officer (and not in any other capacity in which service
was or is rendered by such indemnitee, including, without limitation,
services to an employee benefit plan) shall be made only upon delivery to
the Corporation of an undertaking (hereinafter an "undertaking"), by or on
behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement
of expenses conferred in Sections A and B of this Article TENTH shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a Director, Officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid
in full by the Corporation within sixty days after a written claim has
been received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be
twenty days, the indemnitee may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by
the indemnitee to enforce a right to indemnification hereunder (but not in
a suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking the Corporation shall be entitled to recover such expenses
upon a final adjudication that, the indemnitee has not met any applicable
standard for indemnification set forth in the Delaware General Corporation
Law. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification
of the indemnitee is proper in the
41
circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the indemnitee has
not met such applicable standard of conduct, shall create a presumption
that the indemnitee has not met the applicable standard of conduct or, in
the case of such a suit brought by the indemnitee, be a defense to such
suit. In any suit brought by the indemnitee to enforce a right to
indemnification or to an advancement of expenses hereunder, or by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the burden of proving that the indemnitee is not entitled
to be indemnified, or to such advancement of expenses, under this Article
TENTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to
protect itself and any Director, Officer, employee or agent of the
Corporation or Subsidiary or Affiliate or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article TENTH with respect to the
indemnification and advancement of expenses of Directors and Officers of
the Corporation.
ELEVENTH: A Director of this Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a Director, except for liability (i) for any
breach of the Director's duty of loyalty to the
42
Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or
(iv) for any transaction from which the Director derived an improper
personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the
Corporation shall be eliminated or limited to the fullest extent permitted
by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a Director of the Corporation existing at the time of such
repeal or modification.
TWELFTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred
upon stockholders are granted subject to this reservation; provided,
however, that, notwithstanding any other provision of this Certificate of
Incorporation or any provision of law which might otherwise permit a
lesser vote or no vote, but in addition to any vote of the holders of any
class or series of the stock of this Corporation required by law or by
this Certificate of Incorporation, the affirmative vote of the holders of
at least 80 percent of the voting power of all of the then-outstanding
shares of the capital stock of the Corporation entitled to vote generally
in the election of Directors (after giving effect to the provisions of
Article FOURTH), voting together as a single class, shall be required to
amend or repeal this Article TWELFTH, Section C of Article FOURTH,
Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH, Article
EIGHTH, Article NINTH or Article TENTH.
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IN WITNESS WHEREOF, the undersigned, has hereunto signed this Certificate
as of the 9th day of May, 2001.
ATTEST: NEW YORK COMMUNITY BANCORP, INC.
/s/ Michael J. Lincks By: /s/ Joseph R. Ficalora
- ---------------------------------- -------------------------------------
Michael J. Lincks Joseph R. Ficalora
Corporate Secretary President and Chief Executive Officer
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