UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2001
Commission File Number 0-22278
NEW YORK COMMMUNITY BANCORP, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1377322
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
615 Merrick Avenue, Westbury, New York 11590
--------------------------------------------
(Address of principal executive offices)
(Registrant's telephone number, including area code) 516: 683-4100
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value
-----------------------------
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: None
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
69,086,890
-------------------------------
Number of shares outstanding at
August 13, 2001
NEW YORK COMMUNITY BANCORP, INC.
FORM 10-Q
Quarter Ended June 30, 2001
INDEX Page No.
- ----- --------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Condition as of
June 30, 2001 (unaudited) and December 31, 2000 1
Consolidated Statements of Income and Comprehensive
Income for the Three and Six Months Ended June 30, 2001
and 2000 (unaudited) 2
Consolidated Statement of Changes in Stockholders'
Equity for the Six Months Ended June 30, 2001 (unaudited) 3
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 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 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 26
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 2. Changes in Securities 27
Item 3. Defaults Upon Senior Securities 27
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 29
Exhibits 30
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(in thousands, except per share data)
June 30, December 31,
2001 2000
(unaudited)
----------- ------------
Assets
Cash and due from banks $ 129,502 $ 133,093
Money market investments 101,600 124,622
Securities held to maturity (estimated market value of
$97,523 and $220,608, respectively) 97,245 222,534
Mortgage-backed securities held to maturity (estimated market
value of $1,624 and $1,979, respectively) 1,573 1,923
Securities available for sale 619,789 303,734
Mortgage loans:
1-4 family 698,028 1,267,080
Multi-family 2,132,990 1,945,656
Commercial real estate 368,799 324,068
Construction 64,835 59,469
----------- -----------
Total mortgage loans 3,264,652 3,596,273
Other loans 29,341 39,748
Less: Unearned loan fees (2,404) (1,571)
Allowance for loan losses (18,064) (18,064)
----------- -----------
Loans, net 3,273,525 3,616,386
Premises and equipment, net 37,682 39,191
Goodwill 115,107 118,070
Deferred tax asset, net 23,393 42,360
Other assets 117,192 108,872
----------- -----------
Total assets $ 4,516,608 $ 4,710,785
=========== ===========
Liabilities and Stockholders' Equity
Deposits:
NOW and money market accounts $ 666,100 $ 719,420
Savings accounts 524,329 492,604
Certificates of deposit 1,694,424 1,873,810
Non-interest-bearing accounts 189,786 171,360
----------- -----------
Total deposits 3,074,639 3,257,194
----------- -----------
Official checks outstanding 64,788 41,239
Borrowings 1,038,295 1,037,505
Mortgagors' escrow 17,818 11,291
Other liabilities 31,316 56,146
----------- -----------
Total liabilities 4,226,856 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; 43,441,567 and 44,370,186
shares outstanding at June 30, 2001 and December 31, 2000,
respectively)(1) 465 310
Paid-in capital in excess of par 181,129 174,450
Retained earnings (substantially restricted) 147,643 146,514
Less: Treasury stock (3,013,769 and 2,085,853 shares, respectively)(1) (32,186) (2,388)
Unallocated common stock held by ESOP (8,279) (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 4,791 820
----------- -----------
Total stockholders' equity 289,752 307,410
----------- -----------
Total liabilities and stockholders' equity $ 4,516,608 $ 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 For the
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2001 2000 2001 2000
-------- ------- -------- --------
Interest Income:
Mortgage and other loans $ 63,099 $34,604 $133,607 $ 67,729
Securities 5,229 3,327 14,133 6,350
Mortgage-backed securities 7,302 60 10,094 122
Money market investments 2,686 71 4,839 129
-------- ------- -------- --------
Total interest income 78,316 38,062 162,673 74,330
-------- ------- -------- --------
Interest Expense:
NOW and money market accounts 3,014 855 6,950 1,640
Savings accounts 2,183 1,594 4,321 3,195
Certificates of deposit 24,797 7,975 51,978 16,051
Borrowings 12,111 11,312 28,079 20,669
Mortgagors' escrow 8 7 12 13
-------- ------- -------- --------
Total interest expense 42,113 21,743 91,340 41,568
-------- ------- -------- --------
Net interest income 36,203 16,319 71,333 32,762
Provision for loan losses -- -- -- --
-------- ------- -------- --------
Net interest income after
provision for loan losses 36,203 16,319 71,333 32,762
-------- ------- -------- --------
Other Operating Income:
Fee income 7,789 490 15,722 991
Other 3,339 759 23,887 1,369
-------- ------- -------- --------
Total other operating income 11,128 1,249 39,609 2,360
-------- ------- -------- --------
Non-interest Expense:
Compensation and benefits 7,828 3,430 17,542 6,919
Occupancy and equipment 3,716 681 7,088 1,424
General and administrative 5,347 1,222 11,009 2,463
Other 675 187 1,348 352
-------- ------- -------- --------
Total operating expense 17,566 5,520 36,987 11,158
Amortization of goodwill 1,482 -- 2,964 --
-------- ------- -------- --------
Total non-interest expense 19,048 5,520 39,951 11,158
-------- ------- -------- --------
Income before income taxes 28,283 12,048 70,991 23,964
Income tax expense 9,588 4,278 24,652 8,600
-------- ------- -------- --------
Net income $ 18,695 $ 7,770 $ 46,339 $ 15,364
======== ======= ======== ========
Comprehensive income, net of tax:
Unrealized (loss) gain on securities (2,198) 431 3,971 (69)
-------- ------- -------- --------
Comprehensive income $ 16,497 $ 8,201 $ 50,310 $ 15,295
======== ======= ======== ========
Earnings per share(1) $ 0.47 $ 0.29 $ 1.15 $ 0.58
Diluted earnings per share(1) $ 0.46 $ 0.29 $ 1.13 $ 0.57
======== ======= ======== ========
(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.
2
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended
June 30, 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 5,000
Allocation of ESOP stock 1,834
---------
Balance at end of period 181,129
---------
Retained Earnings:
Balance at beginning of year 146,514
Net income 46,339
Dividends paid on common stock (14,997)
Exercise of stock options (1,592,838 shares) (30,213)
---------
Balance at end of period 147,643
---------
Treasury Stock:
Balance at beginning of year (2,388)
Purchase of common stock (2,520,752 shares) (63,780)
Exercise of stock options (1,592,838 shares) 33,982
---------
Balance at end of period (32,186)
---------
Employee Stock Ownership Plan:
Balance at beginning of year (8,485)
Allocation of ESOP stock 206
---------
Balance at end of period (8,279)
---------
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 3,971
---------
Balance at end of year 4,791
---------
Total stockholders' equity $ 289,752
=========
See accompanying notes to unaudited consolidated financial statements.
3
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
2001 2000
(in thousands) (unaudited)
- ----------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income $ 46,339 $ 15,364
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,363 512
Accretion of discounts, net (10,946) (2)
Amortization of net deferred loan origination fees 2,036 839
Amortization of goodwill 2,964 --
Net gain on redemption and sales of securities and
mortgage-backed securities (3,972) --
Net gain on sales of loans and foreclosed real estate (7,473) (101)
Tax benefit effect on stock plans 5,000 2,705
Earned portion of ESOP 206 840
Changes in assets and liabilities:
Decrease (increase) in deferred income taxes 18,967 (577)
Increase in other assets (8,320) (4,118)
Increase in official checks outstanding 23,549 4,506
(Decrease) increase in other liabilities (24,830) 2,075
--------- ---------
Total adjustments (456) 6,679
--------- ---------
Net cash provided by operating activities 45,883 22,043
--------- ---------
Cash Flows from Investing Activities:
Proceeds from redemption and sales of securities and mortgage-backed
securities held to maturity 350 270
Proceeds from redemption and sales of securities available for sale 463,644 --
Purchase of securities available for sale (619,607) --
Purchase of securities held to maturity -- (8,739)
Net increase in loans (194,521) (143,317)
Proceeds from sales of loans and foreclosed real estate 528,738 468
Purchase of premises and equipment, net (854) (77)
--------- ---------
Net cash provided by (used in) investing activities 177,750 (151,395)
--------- ---------
Cash Flows from Financing Activities:
Net increase in mortgagors' escrow 6,527 7,950
Net decrease in deposits (182,555) (36,261)
Net increase in borrowings 790 164,937
Cash dividends paid and options exercised, net (45,210) (16,506)
Purchase of Treasury stock, net of stock options exercised (29,798) (4,743)
--------- ---------
Net cash (used in) provided by financing activities (250,246) 115,377
--------- ---------
Net decrease in cash and cash equivalents (26,613) (13,975)
Cash and cash equivalents at beginning of period 257,715 37,224
--------- ---------
Cash and cash equivalents at end of period $ 231,102 $ 23,249
========= =========
Supplemental information:
Cash paid for:
Interest $ 91,285 $ 41,576
Income taxes 3,545 9,009
Transfers to foreclosed real estate from loans 186 --
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 that, 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 and six months ended
June 30, 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.
Business Combinations, Goodwill, and Other Intangible Assets
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets," which are effective for fiscal
years beginning after December 15, 2001. Under the new rules, all business
combinations are to be accounted for using the purchase method. In addition,
goodwill and intangible assets deemed to have indefinite lives will no longer be
amortized, but will be subject to annual impairment tests in accordance with the
new standards. Other intangible assets will continue to be amortized over their
useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets on January 1, 2002 and is currently in the process of
assessing their impact. During 2002, the Company will perform the required
impairment tests of goodwill and intangible assets with indefinite lives as of
January 1, 2002; the effect of these tests on the earnings and financial
position of the Company has not yet been determined.
5
SFAS No. 142 stipulates that goodwill no longer be amortized for business
combinations completed after June 30, 2001. This will impact the goodwill
associated with the Company's merger with Richmond County Financial Corp., which
was completed on July 31, 2001.
Note 3. Recent Developments
On July 31, 2001, the Company completed its merger-of-equals with Richmond
County Financial Corp. ("Richmond County"), which was accounted for as a
purchase transaction and was valued at approximately $802.0 million. At June 30,
2001, Richmond County operated 34 banking offices in Staten Island, Brooklyn,
and New Jersey and had consolidated assets of $3.7 billion, including loans,
net, of $1.9 billion, and consolidated liabilities of $3.4 billion, including
deposits of $2.5 billion.
In accordance with the Agreement and Plan of Merger dated March 27, 2001, the
Company issued 1.02 shares of its common stock for each outstanding share of
Richmond County common stock at the date of the merger. Approximately 26.4
million shares were issued, bringing the number of outstanding Company shares to
approximately 70.0 million.
6
NEW YORK COMMUNITY BANCORP, INC.
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 which had assets of $4.5 billion, deposits of $3.1 billion, and a
network of 86 branches at June 30, 2001.
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 multi-family, commercial
real estate, and construction loans, and in investment grade securities.
The Company's second quarter 2001 performance reflects the benefits of its
November 30, 2000 purchase acquisition of Haven Bancorp, Inc. ("Haven") and the
subsequent restructuring of the balance sheet. The Company reported earnings of
$18.7 million, or $0.46 per diluted share, for the current second quarter, as
compared to $7.8 million, or $0.29 per diluted share, for the year-earlier three
months.
On July 24, 2001, the Company declared a quarterly cash dividend of $0.20 per
share, payable on August 15, 2001 to shareholders of record at August 6, 2001.
In addition, the Company announced the adoption of a Dividend Reinvestment Plan
that will enable shareholders to accumulate shares of the Company through
dividend reinvestment and voluntary cash purchases. A Plan brochure and
enrollment form will be mailed to registered shareholders in late September
2001.
On July 31, 2001, the Company completed its merger with Richmond County
Financial Corp. ("Richmond County"), as a result of which Richmond County merged
with and into the Company. Based on the balance sheets of both companies at June
30, 2001, and absent any purchase accounting adjustments, the combined company
has assets of approximately $8.2 billion, deposits of approximately $5.6
billion, and a network of 120 banking offices operated through six divisions:
Queens County Savings Bank, Richmond County Savings Bank, CFS Bank, First
Savings Bank of New Jersey, Ironbound Bank, and South Jersey Bank.
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 its plans and strategies are inherently uncertain. Factors that could
have a material adverse effect on the operations of the Company and its
subsidiary include, but are not limited to, changes in market interest rates,
general economic conditions, legislation, and regulation; changes in the
monetary and fiscal policies of the U.S. Government, including policies of the
U.S. Treasury and the Federal Reserve Board; changes in the quality or
composition of the loan or investment portfolios, demand for loan
7
products, deposit flows, competition, and demand for financial services in the
Company's local markets; changes in local real estate values; 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 merger with Richmond
County. The following factors, among others, could cause the actual results of
the acquisition to differ materially from expectations: the ability to
successfully integrate the companies following the merger, including integration
of data processing systems and retention of key personnel; 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 the 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 second quarter of 2001, the Company continued the de-leveraging strategy
it had pursued since completing the Haven acquisition while, at the same time,
restructuring the balance sheet. As a result, the Company recorded total assets
of $4.5 billion at June 30, 2001, down $194.2 million from the balance recorded
at December 31, 2000. The reduction stemmed primarily from the first quarter
sale of loans and securities totaling $583.9 million that had been acquired in
the Haven transaction.
Mortgage loans outstanding declined $331.6 million from the year-end amount to
$3.3 billion, after six-month originations of $515.5 million. Multi-family
mortgage loans represented $2.1 billion of total mortgage loans at the close of
the second quarter, and represented $315.4 million of originations during the
six-month period. At July 18, 2001, the Company had a pipeline of $374.4
million, signifying a strategic change of direction from de-leveraging to
re-leveraging the balance sheet.
Non-performing assets declined to $8.0 million, or 0.18% of total assets, from
$9.1 million, or 0.19%, at December 31, 2000. Non-performing loans represented
$7.7 million of the June 30, 2001 total, equivalent to 0.23% of loans, net at
that date. In addition, the Company recorded its 27th consecutive quarter
without any net charge-offs; 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 235.27% of non-performing loans and 0.55% of loans, net.
Reflecting the aforementioned balance sheet restructuring, the portfolio of
securities available for sale more than doubled from the year-end 2000 level to
$619.8 million at June 30, 2001. The increase primarily reflects investments in
short-term collateralized mortgage obligations using the proceeds from the
aforementioned sale of loans and securities. At the same time, the portfolio of
securities held to maturity totaled $97.2 million, representing a 56.3%
reduction from the year-end amount.
Primarily reflecting a $179.4 million drop in CDs, total deposits declined
$182.6 million to $3.1 billion at June 30, 2001. Specifically, CDs totaled $1.7
billion, representing 55.1% of total deposits, while core deposits totaled $1.4
billion, representing 44.9%. Borrowings totaled $1.0 billion at June 30, 2001,
up $790,000 from the balance at year-end.
Supported by cash earnings of $57.4 million, stockholders' equity totaled $289.8
million at June 30, 2001, representing 6.42% of total assets and a book value of
$7.13 per share, based on 40,634,796 shares. In the first six months of 2001,
the Company allocated $63.8 million toward its share repurchase program, in
addition to distributing $15.0 million in cash dividends.
8
Loans
The Company recorded total mortgage loans of $3.3 billion at June 30, 2001, down
$331.6 million from the balance recorded at December 31, 2000. The reduction
reflects the first quarter sale of one-to-four family mortgage loans totaling
$526.9 million, as well as the strategic de-leveraging of the balance sheet
during the first six months of the year.
It has been management's intention, since the Haven acquisition, to reduce the
balance of one-to-four family mortgage loans acquired and to rebuild the
portfolio with higher-yielding, shorter-term multi-family, commercial real
estate, and construction loans. In the first six months of 2001, mortgage
originations totaled $515.5 million, including $315.4 million in multi-family
loans, $75.0 million in commercial real estate loans, and $54.1 million in
construction loans. Included in these amounts were second quarter originations
of $149.5 million, $47.2 million, and $42.9 million, respectively.
The balance of multi-family mortgage loans rose to $2.1 billion, representing
65.3% of mortgage loans outstanding at the end of the second quarter, from $1.9
billion, representing 54.1%, at December 31, 2000. Commercial real estate loans
rose to $368.8 million, representing 11.3% of the quarter-end total, from $324.1
million, representing 9.0% of the year-end mortgage mix. Similarly, construction
loans rose to $64.8 million from $59.5 million at the corresponding dates.
Reflecting the aforementioned sales, one-to-four family mortgage loans declined
to $698.0 million, or 21.4% of the June 30, 2001 total, from $1.3 billion, or
35.2%, at December 31, 2000. The Company typically originates one-to-four family
mortgage loans on a flow basis; such originations totaled $27.8 million in the
first six months of 2001.
Since December 2000, the Company has also originated other loans on a flow
basis. The portfolio of other loans thus declined to $29.3 million at June 30,
2001 from $39.7 million at December 31, 2000.
At June 30, 2001, the Company completed its de-leveraging program and began to
re-leverage the balance sheet. With $374.4 million in mortgage loans in the
pipeline, excluding the loans currently in the pipeline from Richmond County,
the Company anticipates producing for portfolio a record level of mortgage loans
by year-end. This said, readers are cautioned that the Company's ability to
close these 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.
At June 30, 2001, Richmond County had total mortgage loans of $1.9 billion and
total other loans of $30.1 million. Included in total mortgage loans were
multi-family mortgage loans of $774.5 million, commercial real estate loans of
$138.7 million, construction loans of $96.1 million, and one-to-four family
mortgage loans of $906.0 million. In addition, Richmond County had a pipeline of
approximately $265.0 million at July 31, 2001.
Asset Quality
The second quarter of 2001 was the Company's 27th consecutive quarter without
any net charge-offs, once again affirming its asset quality. In addition, the
balance of non-performing assets declined $869,000 from the March 31, 2001 level
and $1.1 million from the level recorded at December 31, 2000.
At June 30, 2001, non-performing assets totaled $8.0 million, representing 0.18%
of total assets, down from $8.9 million, or 0.19% of total assets, at the close
of the first quarter and down from $9.1 million, or 0.19% of total assets, at
year-end 2000.
9
Included in the June 30, 2001 balance were foreclosed real estate of $336,000
and non-performing loans of $7.7 million, representing 0.23% of loans, net. At
March 31, 2001 and December 31, 2000, the Company had foreclosed real estate of
$150,000 and $12,000, respectively, and non-performing loans of $8.7 million and
$9.1 million, respectively, equivalent to 0.28% and 0.25% of loans, net.
Included in non-performing loans at the close of the current second quarter were
mortgage loans in foreclosure of $2.1 million and loans 90 days or more
delinquent of $5.6 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 June 30, 2001, the Company had three such investments totaling
$213,000 and yielding an average rate of return of 15.04%.
In the absence of any net charge-offs or provisions for loan losses, the loan
loss allowance was maintained at $18.1 million, representing 235.27% of
non-performing loans and 0.55% of loans, net, at June 30, 2001. 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, the Company's historical loan loss experience, and other
factors that warrant recognition in providing for an adequate loan loss
allowance.
In order to determine the overall adequacy of the loan loss allowance, the
allowance is reviewed quarterly by management (through its Classification of
Assets Committee) and by the Board of Directors' designated committee (the
Mortgage and Real Estate Committee).
Various factors are considered in determining the appropriate level of the
allowance for loan losses. These factors include, but are not limited to:
1) End-of-period levels and observable trends in non-performing loans;
2) Charge-offs experienced over prior periods, including an analysis of
the underlying factors leading to the delinquencies and subsequent
charge-offs (if any);
3) Analysis of the portfolio in the aggregate, as well as on an
individual loan basis, 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 consists of four outside directors,
each possessing over 30 years of complementary real estate
experience). During these meetings, observable trends in the local
economy and their effect on the real estate market are discussed.
5) Discussions with, and periodic review by, the Bank's various
governmental regulators (e.g., Federal Deposit Insurance
Corporation, the New York State Banking Department); and
6) Full Board assessment of all of the preceding factors when making a
business judgment regarding the impact of anticipated changes on the
future level of the allowance for loan losses.
10
When the Bank determines that an asset should be classified, it does not
generally establish a specific allowance for such asset unless it determines
that such asset may result in a loss. However, the Bank may increase its general
valuation allowance in an amount deemed prudent. General valuation allowances
represent loan loss allowances that have been established to recognize the
inherent risk associated with lending activities, but that have not been
allocated to particular problem assets, unlike specific allowances.
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 their 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 or recommend
the establishment of additional general or specific loan 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.
At June 30, 2001, Richmond County Financial Corp. had an allowance for loan
losses of $22.3 million, representing 216.94% of non-performing loans totaling
$10.3 million and 1.15% of loans, net, totaling $1.9 billion. Combining the
Company's June 30, 2001 figures with the June 30, 2001 figures for Richmond
County, the loan loss allowance amounts to $40.4 million, representing 224.77%
of non-performing loans totaling $18.0 million and 0.78% of loans, net totaling
$5.2 billion.
Based upon all relevant and currently available information, management believes
that the current allowance for loan losses is adequate.
On July 6, 2001, the Securities and Exchange Commission (the "SEC") issued Staff
Accounting Bulletin ("SAB") No. 102, "Selected Loan Loss Allowance Methodology
and Documentation Issues," which was immediately effective. SAB No. 102
expresses the views of the SEC staff regarding a registrant's development,
documentation, and application of a systematic methodology for determining the
allowance for loan and lease losses, as required by SEC Financial Reporting
Release ("FRR") No. 28. The guidelines in SAB No. 102 focus on the documents the
SEC staff normally expects registrants to prepare and maintain in support of the
allowance for loan and lease losses. The application of SAB No. 102 is not
expected to have a significant impact on the Company's consolidated financial
statements.
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 20 of this report.
11
Asset Quality Analysis
At or For the At or For the
Six Months Ended Year Ended
June 30, 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 $ 2,081 $ 6,011
Loans 90 days or more delinquent 5,597 3,081
------- -------
Total non-performing loans 7,678 9,092
Foreclosed real estate 336 12
------- -------
Total non-performing assets $ 8,014 $ 9,104
======= =======
Ratios:
Non-performing loans to loans, net 0.23% 0.25%
Non-performing assets to total assets 0.18 0.19
Allowance for loan losses to non-performing loans 235.27 198.68
Allowance for loan losses to loans, net 0.55 0.50
Securities and Money Market Investments
In the second quarter of 2001, the Company continued to shorten the weighted
average maturity of its balance sheet by investing the proceeds from the sales
of loans and securities into readily marketable collateralized mortgage
obligations with an average maturity of 1.5 to 3.5 years. Largely reflecting
these investments, all of which were classified as securities available for
sale, the balance of available for sale securities rose to $619.8 million at the
close of the quarter from $303.7 million at December 31, 2000.
At the same time, the portfolio of securities held to maturity declined to $97.2
million from $222.5 million, reflecting securities that were called during the
six-month period. Included in the 2001 amount were capital trust notes totaling
$25.3 million and FHLB stock of $72.0 million. At June 30, 2001 and December 31,
2000, the market value of the portfolio was $97.5 million and $220.6 million,
respectively, equivalent to 100.3% and 99.1% of carrying value at the
corresponding dates.
Money market investments, consisting entirely of federal funds sold declined
$23.0 million to $101.6 million at June 30, 2001. This balance may be expected
to decline further going forward, as such funds are invested into higher
yielding assets, including short-term securities and loans.
Mortgage-backed Securities Held to Maturity
Reflecting prepayments, and the classification of any such new investments as
available for sale securities, the portfolio of mortgage-backed securities held
to maturity declined $350,000 to $1.6 million at June 30, 2001.
12
Sources of Funds
The Company's primary sources of funds are the deposits it gathers, the interest
and principal payments it receives on loans, and the interest on, and maturity
of, securities and mortgage-backed securities. Additional funding is available
through a line of credit with the Federal Home Loan Bank of New York ("FHLB").
In connection with the de-leveraging strategy pursued by management following
the Haven transaction until the close of the second quarter, the balance of
deposits declined $182.6 million to $3.1 billion at June 30, 2001. CDs accounted
for the majority of the reduction, having dropped $179.4 million to $1.7
billion, while core deposits totaled $1.4 billion, down $3.2 million. The
reduction in CDs supported a desired shift in the concentration of deposits: as
CDs declined to 55.1% from 57.5% of the total, core deposits rose to 44.9% from
42.5%.
The modest decline in core deposits was triggered by a $53.3 million reduction
in NOW and money market accounts to $666.1 million, which was largely offset by
growth in the balances of lower-cost depository accounts. Savings accounts rose
$31.7 million to $524.3 million, while the balance of non-interest-bearing
accounts rose $18.4 million to $189.8 million.
The reduction in CDs and money market accounts also reflects the availability of
alternative investment products in 86 of the Company's banking offices. While
customers have the option of renewing CDs upon maturity, many have opted to
invest in mutual funds or annuities offered through the Bank. The Company earns
other income on the sale of such products, thereby benefiting from the decline
in higher cost depository accounts.
Borrowings totaled $1.0 billion at the close of the current quarter, up $790,000
from the balance at December 31, 2000. Included in the 2001 amount were FHLB
borrowings of $963.8 million against a line of credit totaling $1.8 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.
At June 30, 2001, Richmond County had total deposits of $2.5 billion, including
core deposits of $1.5 billion and CDs of $1.0 billion. Borrowings totaled $807.7
million at the corresponding date.
Prior to the Richmond County merger, the Company gathered deposits through a
network of 19 traditional and 67 in-store branch offices. With the addition of
34 traditional banking offices through the Richmond County merger, the Company
now has 120 locations serving New York City, Long Island, the lower Hudson
Valley, New Jersey, and Connecticut. Following the integration of the companies'
data processing systems during the fourth quarter, customers will be able to
bank at any location within the expanded branch network.
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
13
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 multi-family, commercial real estate, and
construction loans, 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.
For a further discussion of the Company's exposure to market risk, see
"Quantitative and Qualitative Disclosures About Market Risk" on page 26 of this
report.
Liquidity and Capital Position
Liquidity
As previously indicated, the Company's primary funding sources are deposits,
interest and principal payments on loans, and interest payments on, and
maturities of, securities and mortgage-backed securities. Additional funding
stems from the occasional sale of loans and securities, and from the Company's
line of credit with the FHLB. While FHLB 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 six months ended
June 30, 2001, the Company's investing activities provided net cash of $177.8
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 $619.6
million; in addition, the Company recorded a $194.5 million net increase in
loans.
At the same time, the net cash provided by operating activities totaled $45.9
million and the net cash used in financing activities totaled $250.2 million.
The latter amount includes $29.8 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
loan commitments and withdrawals from depository accounts. The Company's most
liquid assets are cash and due from banks and money market investments, which
collectively totaled $231.1 million at June 30, 2001. Additional liquidity stems
from the Company's portfolio of securities available for sale, which more than
doubled to $619.8 million, and from the Bank's lines of credit with the FHLB and
a money center bank.
At July 18, 2001, the Company had loans totaling $374.4 million in the pipeline,
which management anticipates having the ability to fund. In addition, CDs due to
mature in one year or less from June 30, 2001 totaled $1.3 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 or be channeled
into alternative investments which generate other operating income.
14
Capital Position
Supported by six-month cash earnings of $57.4 million, stockholders' equity
totaled $289.8 million at June 30, 2001, representing 6.42% of total assets and
a book value of $7.13 per share, based on 40,634,796 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 that was paid on March 29, 2001.
In the first six months of 2001, the Company distributed cash dividends totaling
$15.0 million and allocated $63.8 million toward the repurchase of 2,520,752
shares, including 1,592,838 that were repurchased in connection with the
exercise of stock options. At June 30, 2001, an additional 860,063 shares were
still available for repurchase under the authorization approved by the Board of
Directors on February 6, 2001.
At June 30, 2001, the level of stockholders' equity was more than sufficient to
exceed the minimum federal requirements for a bank holding company. The leverage
capital ratio equaled 5.54% of average total assets, while the Tier 1 and total
risk-based capital ratios equaled 10.04% and 10.87%, respectively, of total
risk-weighted assets at quarter's end.
The Company's capital strength is paralleled by the solid capital position of
the Bank, as reflected in the excess of its regulatory capital ratios over the
levels required 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 June 30, 2001
----------------
Risk-Based Capital
------------------
Leverage Capital Tier 1 Total
---------------- ------ -----
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- -------- -----
Total savings bank equity $313,327 7.00% $313,327 12.56% $333,530 13.37%
Regulatory capital requirement 134,305 3.00 99,795 4.00 199,590 8.00
-------- ----- -------- ----- -------- -----
Excess $179,022 4.00% $213,532 8.56% $133,940 5.37%
======== ===== ======== ===== ======== =====
Comparison of the Three Months Ended June 30, 2001 and June 30, 2000
Earnings Summary
The Company recorded net income of $18.7 million for the three months ended June
30, 2001, representing a $10.9 million, or 140.6%, increase from $7.8 million
for the three months ended June 30, 2000. The 2001 amount was equivalent to
diluted earnings per share of $0.46, up 58.6% from $0.29 in the year-earlier
second quarter, and provided a 1.66% return on average assets ("ROA") and a
26.45% return on average stockholders equity ("ROE").
The Company also recorded second quarter 2001 cash earnings of $24.4 million, up
from second quarter 2000 cash earnings of $10.2 million. The 2001 amount was
equivalent to diluted cash earnings per share of $0.60, a 57.9% increase from
$0.38 in the second quarter of 2000. In addition to providing $14.2 million, or
30.5%, more to regulatory capital than its reported earnings, the Company's cash
earnings provided an ROA of 2.16% and an ROE of 34.51%.
15
Per-share amounts for the year 2000 have been adjusted to reflect the
three-for-two stock split on March 29, 2001.
The growth in earnings was driven by a combination of factors, including the
Haven acquisition and subsequent strategic actions that capitalized on the
on-going decline in market interest rates. The restructuring of the balance
sheet continued through the quarter, resulting in an increase in net interest
income, while contributing to a reduction in the Company's effective tax rate.
Other operating income also increased in the current quarter, reflecting the
sale of banking services and investment products throughout an expanded branch
network.
Net interest income rose to $36.2 million from $16.3 million, an increase of
$19.9 million, or 121.8%. The increase was the net effect of a $40.3 million
rise in interest income to $78.3 million and a $20.4 million rise in interest
expense to $42.1 million. The growth in interest income was driven by a $2.3
billion rise in the average balance of interest-earning assets to $4.2 billion,
which offset a 47-basis point decline in the average yield to 7.50%. The growth
in interest expense was driven by a $2.2 billion rise in the average balance of
interest-bearing liabilities to $4.0 billion, offset by a 60-basis point decline
in the average cost of funds to 4.26%.
Other operating income increased nearly eight-fold to $11.1 million, the result
of a $7.3 million rise in fee income to $7.8 million and a $2.6 million rise in
other income to $3.3 million.
The combined increase in net interest income and other operating income of $30.8
million more than offset a $13.5 million increase in non-interest expense to
$19.0 million, including operating expense of $17.6 million and goodwill
amortization of $1.5 million. The higher level of operating expense primarily
reflects the costs of operating and staffing a branch network that grew from 14
to 86 locations pursuant to the Haven acquisition.
Income tax expense rose $5.3 million to $9.6 million, reflecting a $16.2 million
rise in pre-tax income to $28.3 million and an effective tax rate of 33.9%.
The provision for loan losses was once again suspended, reflecting management's
assessment of the adequacy of the loan loss allowance and the consistent quality
of the loan portfolio.
Reflecting the strength of its second quarter performance and its prospects in
the favorable interest rate environment, the Company raised its 2001 earnings
projections in an earnings release issued on July 18, 2001. The Company then
projected stand-alone core earnings per share in the range of $1.83 to $1.87,
and diluted cash earnings per share in the range of $2.41 to $2.45. Management
anticipates updating its 2001 earnings projections to reflect the impact of the
Richmond County merger when it issues its third quarter earnings release on
October 17, 2001.
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 7 of this report.
16
Cash Earnings Analysis
(in thousands, except per share data)
For the Three Months Ended
June 30,
--------------------------
2001 2000
------- -------
Net income $18,695 $ 7,770
Additional contributions to tangible stockholders' equity:
Amortization and appreciation of
stock-related benefit plans 2,603 402
Associated tax benefits 571 1,293
Other 1,043 694
Amortization of goodwill 1,482 --
------- -------
Cash earnings $24,394 $10,159
======= =======
Cash earnings per share(1) $ 0.61 $ 0.37
Diluted cash earnings per share(1) $ 0.60 $ 0.38
(1) Share amounts for the year 2000 have been adjusted to reflect a 3-for-2
stock split on March 29, 2001.
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 across-the-board growth in its portfolios of interest-earning assets
that primarily stemmed from the Haven acquisition, the Company recorded a 105.8%
rise in interest income to $78.3 million, from $38.1 million in the second
quarter of 2000. The $40.3 million increase was the net effect of a $2.3
billion, or 118.7%, rise in the average balance of interest-earning assets to
$4.2 billion, and a 47-basis point drop in the average yield to 7.50%.
Mortgage and other loans generated $63.1 million, or 80.6%, of total interest
income in the current second quarter, up from $34.6 million, or 90.9%, in the
year-earlier three months. The $28.5 million increase was the net effect of a
$1.5 billion, or 89.7%, rise in the average balance to $3.2 billion and a
32-basis point drop in the average yield to 7.80%. Mortgage and other loans
represented 77.4% of total average interest-earning assets in the current second
quarter, down from 89.3% in the year-earlier three months.
Securities generated interest income of $5.2 million, or 6.7% of the current
quarter's total, representing a year-over-year increase of $1.9 million. The
increase stemmed from a $43.2 million, or 21.9%, rise in the average balance to
$240.1 million and a 195-basis point rise in the average yield to 8.71%. The
higher yield reflects the addition of securities acquired in the Haven
transaction. Securities represented 5.7% of average interest-earning assets in
the current second quarter, as compared to 10.3% in the second quarter of 2000.
The 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
$7.3 million, or 9.3% of the current quarter's total, from $60,000, or 0.2%, in
the year-earlier three months. The increase was the net effect of a $458.7
million rise in the average balance to $462.0 million and a 98-basis point
decline in the average yield to 6.32%. Mortgage-backed securities represented
11.1% of average interest-earning assets in the current second quarter, as
compared to 0.2% in the year-earlier three months.
The interest income generated by money market investments rose to $2.7 million
from $71,000, the net effect of a $235.5 million increase in the average balance
to $240.2 million and a 144-basis point decline in the average yield to 4.50%.
17
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 second quarter 2001 interest expense of $42.1 million, as
compared to $21.7 million in the second quarter of 2000. The $20.4 million
increase was the net result of a $2.2 billion rise in the average balance of
interest-bearing liabilities to $4.0 billion and a 60-basis point decline in the
average cost to 4.26%.
The comparison of interest expense in the 2001 and 2000 second quarters reflects
the impact of the Haven acquisition and management's de-leveraging program, as
well as the reduction in market interest rates. For example, borrowings
generated $12.1 million, or 28.8%, of total interest expense in the current
second quarter, as compared to $11.3 million, or 52.0%, of the total, in the
year-earlier three months. The $799,000 increase was the net effect of a $276.9
million rise in the average balance to $1.0 billion and a 130-basis point drop
in the average cost to 4.70%. Borrowings represented 25.8% of average
interest-bearing liabilities in the current second quarter and 42.2% of the
average in the year-earlier three months. The declining concentration of
borrowings within the mix of average interest-bearing liabilities is indicative
of management's recently completed de-leveraging strategy and of its ready
access to core deposits and CDs.
CDs generated $24.8 million, or 58.9%, of total interest expense in the current
second quarter, as compared to $8.0 million, or 36.7%, in the year-earlier three
months. The $16.8 million increase stemmed from a $1.1 billion rise in the
average balance to $1.7 billion and a 53-basis point rise in the average cost to
5.72%. CDs represented 43.4% of average interest-bearing liabilities in the
current second quarter, as compared to 34.4% in the second quarter of 2000. The
higher average balance and cost of CDs in the current second quarter primarily
reflects CDs obtained in the Haven acquisition.
Other funding (NOW and money market accounts, savings accounts, mortgagors'
escrow, and non-interest-bearing accounts) generated combined interest expense
of $5.2 million, as compared to $2.5 million in the second quarter of 2000. The
increase was the net effect of a $957.6 million rise in the combined average
balance to $1.4 billion and a 65-basis point decline in the average cost to
1.46%.
The interest expense generated by NOW and money market accounts rose $2.2
million to $3.0 million, the net effect of a $578.0 million rise in the average
balance to $686.9 million and a 139-basis point decline in the average cost to
1.76%. NOW and money market accounts represented 17.1% of average
interest-bearing liabilities in the current second quarter, up from 6.1% in the
year-earlier three months.
Savings accounts generated interest expense of $2.2 million, up $589,000 from
the year-earlier amount. The increase was the net effect of a $234.3 million
rise in the average balance to $513.4 million and a 58-basis point drop in the
average cost to 1.71%. Savings accounts represented 12.8% of average
interest-bearing liabilities in the current second quarter, down from 15.6% in
the year-earlier three months.
The interest expense produced by mortgagors' escrow rose $1,000 to $8,000, the
net effect of a $5.2 million rise in the average balance to $38.2 million and a
six-basis point drop in the average cost to seven basis points.
The average balance of non-interest-bearing accounts rose $140.1 million from
the year-earlier balance to $185.2 million in the second quarter of 2001.
18
Net Interest Income Analysis
(dollars in thousands)
Three Months Ended June 30,
---------------------------------------------------------------------------
2001 2000
------------------------------------ ----------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------- ---------- -------- --------- ---------- --------
Assets:
Interest-earning assets:
Mortgage and other loans, net $3,234,365 $ 63,099 7.80% $1,704,939 $ 34,604 8.12%
Securities 240,118 5,229 8.71 196,943 3,327 6.76
Mortgage-backed securities 461,991 7,302 6.32 3,288 60 7.30
Money market investments 240,237 2,686 4.50 4,782 71 5.94
---------- ---------- -------- ---------- -------- -------
Total interest-earning assets 4,176,711 78,316 7.50 1,909,952 38,062 7.97
Non-interest-earning assets 332,589 81,545
---------- ----------
Total assets $4,509,300 $1,991,497
========== ==========
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
NOW and money market accounts $ 686,870 $ 3,014 1.76% $ 108,896 $ 855 3.15%
Savings accounts 513,419 2,183 1.71 279,100 1,594 2.29
Certificates of deposit 1,738,972 24,797 5.72 616,185 7,975 5.19
Mortgagors' escrow 38,233 8 0.08 33,070 7 0.08
---------- ---------- -------- ---------- -------- -------
Total interest-bearing deposits 2,977,494 30,002 4.03 1,037,251 10,431 4.02
Borrowings 1,032,845 12,111 4.70 755,930 11,312 6.00
---------- ---------- -------- ---------- -------- -------
Total interest-bearing liabilities 4,010,340 42,113 4.26 1,793,181 21,743 4.86
Non-interest-bearing deposits 185,240 45,113
Other liabilities 30,951 24,062
---------- ----------
Total liabilities 4,226,531 1,862,356
Stockholders' equity 282,769 129,141
---------- ----------
Total liabilities and stockholders' equity $4,509,300 $1,991,497
========== ==========
Net interest income/interest rate spread $ 36,203 3.24% $ 16,319 3.11%
========== ======== ======== =======
Net interest-earning assets/net interest
margin $ 166,372 3.47% $ 116,771 3.42%
========== ======== ========== =======
Ratio of interest-earning assets to
interest-bearing liabilities 1.04x 1.07x
======== =======
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 general market interest
rates, which are greatly influenced by the monetary policy of the Federal Open
Market Committee of the Federal Reserve Board of Governors (the "FOMC").
The Company recorded net interest income of $36.2 million in the current second
quarter, up $19.9 million from the year-earlier amount. The increase reflects
the growth of interest-earning assets due to the Haven acquisition, the
Company's strategic de-leveraging, and the marked reduction in funding costs.
19
The Company recorded an interest rate spread of 3.24% in the current second
quarter, as compared to 3.11% in the year-earlier three months. Similarly, the
Company's net interest margin expanded to 3.47% from 3.42% in the corresponding
periods.
It is management's expectation that the Company's net interest income, interest
rate spread, and net interest margin will continue to benefit from the favorable
yield curve, as well as from the anticipated downward repricing of approximately
$1.3 billion in CDs with an average cost of 5.51% over the next 12 months. In
addition, the interest-earning asset mix will begin to reflect the addition of
Richmond County's interest-earning assets as a result of the merger on July 31,
2001.
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 loan demand, 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.
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.
Reflecting ongoing improvement in the quality of its assets, the Company
suspended the provision for loan losses for the 24th consecutive quarter since
the third quarter of 1995. In addition to recording its 27th consecutive quarter
without any net charge-offs, the Company recorded an $869,000 reduction in the
balance of non-performing assets from the March 31, 2001 balance and a $1.1
million reduction from the balance at December 31, 2000. Specifically,
non-performing assets totaled $8.0 million, or 0.18% of total assets, at the
close of the second quarter, including non-performing loans of $7.7 million,
representing 0.23% of loans, net.
In the absence of any loan loss provisions or net charge-offs in the quarter,
the allowance for loan losses was maintained at $18.1 million at June 30, 2001.
The $18.1 million represented 235.27% of non-performing loans and 0.55% of
loans, net, at quarter's end.
Absent a downturn in the national or regional 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. However, it should be noted that the allowance for loan
losses will be increased with the addition of Richmond County's loan loss
allowance, which was $22.3 million at June 30, 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.
Accordingly, other operating income rose to $11.1 million in the current second
quarter from $1.2 million in the year-earlier three months. The eight-fold
increase was driven by a better than 14-fold rise in fee income to $7.8
20
million and by a better than three-fold rise in other income to $3.3 million.
Included in the latter increase was BOLI income and income from the sale of
non-deposit investment products.
It is currently management's intent to introduce investment product sales in the
34 offices added through the Richmond County merger in 2002.
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 second
quarter 2001 operating expense of $17.6 million, or 1.56% of average assets,
down from $19.4 million, or 1.68% of average assets, in the trailing quarter,
and up from $5.5 million, or 1.11% of average assets, in the second quarter of
2000.
While the year-over-year increase reflects the across-the-board impact of
expanding the franchise from 14 to 86 branches, the trailing-quarter decline
reflects certain reductions in staffing and the completion of the Company's
post-Haven computer systems integration in the first quarter of the year.
Accordingly, compensation and benefits expense dropped from $9.7 million in the
first quarter of 2001 to $7.8 million in the current second quarter, while G&A
expense declined from $5.7 million to $5.3 million.
Returning to the comparison of the current and year-earlier second quarters,
compensation and benefits expense rose to $7.8 million from $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 second quarter of 2001, such
plan-related expenses totaled $1.1 million, as compared to $402,000 in the
year-earlier three-months.
Office and equipment expense rose $3.0 million year-over-year to $3.7 million,
while G&A expense and other expense rose $4.1 million and $488,000,
respectively, to $5.3 million and $675,000.
Reflecting the $19.9 million increase in net interest income, the $9.9 million
increase in other operating income, and the $12.0 million increase in operating
expense, the Company recorded an efficiency ratio of 37.11% in the current
second quarter, and a cash efficiency ratio of 34.69%.
Goodwill amortization amounted to $1.5 million in the current second quarter;
there was no comparable expense in the prior three-month period. As a result,
the Company recorded second quarter 2001 non-interest expense of $19.0 million,
as compared to $5.5 million in the second quarter of 2000.
Absent the impact of the Richmond County merger, it was management's expectation
that operating expense would stabilize at the second quarter level for the
remainder of 2001. With the addition of Richmond County, it is expected that a
new level will be projected in the Company's third quarter 2001 earnings
release.
In addition, the amortization of goodwill stemming from the Haven acquisition is
expected to continue at $1.5 million per quarter for the next two quarters. The
impact of the FASB's adoption of SFAS Nos. 141 and 142 on the amortization of
goodwill beginning on January 1, 2002 is currently being assessed by management.
For additional information about goodwill amortization, see the discussion of
SFAS Nos. 141 and 142 beginning on page five of this report.
21
The number of full-time equivalent employees at June 30, 2001 was 917, as
compared to 285 at June 30, 2000.
Income Tax Expense
Reflecting a $16.2 million increase in pre-tax income to $28.3 million, the
Company recorded a $5.3 million rise in second quarter 2001 income tax expense
to $9.6 million. Non-cash items represented $2.5 million of the 2001 total, up
from $1.3 million in the year-earlier three months.
At the same time, the effective tax rate declined to 33.9% from 35.5%. In
addition to the benefit of the Company's increased BOLI investment and the
relocation of its headquarters to Nassau County, New York from New York City,
the lower effective tax rate reflects the benefit of certain tax-advantaged
investments made during the second quarter of 2001.
Comparison of the Six Months Ended June 30, 2001 and June 30, 2000
Earnings Summary
The Company recorded net income of $46.3 million for the six months ended June
30, 2001, up $31.0 million, or 201.6%, from $15.4 million for the six months
ended June 30, 2000. The 2001 amount was equivalent to diluted earnings per
share of $1.13, representing a 98.2% increase from the year-earlier $0.57.
Amounts for the first six months of 2001 reflect a non-recurring after-tax gain
of $10.3 million on the sale of loans and securities in the first quarter.
Excluding this gain, the Company recorded core earnings of $36.1 million, or
$0.88 per diluted share for the six months ended June 30, 2001, up 134.9% and
54.4%, respectively, from the year-earlier amounts.
The Company also recorded cash earnings of $57.4 million, or $1.40 per diluted
share, for the current six-month period, as compared to $20.3 million, or $0.76
per diluted share, for the six months ended June 30, 2000. The Company's
six-month 2001 cash earnings provided $11.1 million, or 23.8%, more to capital
than its comparable-period GAAP earnings and provided a cash ROA and ROE of
2.49% and 40.07%.
The Company's six-month 2001 earnings were driven by higher net interest income
and other operating income, which more than offset increases in non-interest
expense and income tax expense.
Net interest income rose $38.6 million to $71.3 million, the net effect of an
$88.3 million rise in interest income to $162.7 million and a $49.8 million rise
in interest expense to $91.3 million. Other operating income rose $37.2 million
to $39.6 million, including a non-recurring gain of $15.7 million on the first
quarter sale of loans and securities. Excluding this gain, core other operating
income rose to $23.9 million from $2.4 million, reflecting a $14.7 million rise
in fee income to $15.7 million and a $6.8 million rise in core other income to
$8.2 million.
Operating expense rose to $37.0 million from $11.2 million, largely reflecting
the expansion of the branch network, together with certain non-recurring systems
integration costs. In addition, the Company recorded goodwill amortization of
$3.0 million in the current six-month period, bringing total non-interest
expense for the six months ended June 30, 2001 to $40.0 million.
Income tax expense rose to $24.7 million from $8.6 million, reflecting a $47.0
million rise in pre-tax income to $71.0 million and an effective tax rate of
34.7%.
22
Cash Earnings Analysis
(in thousands, except per share data)
For the Six Months Ended
June 30,
-------------------------
2001 2000
------- -------
Net income $46,339 $15,364
Additional contributions to tangible stockholders' equity:
Amortization and appreciation of
stock-related benefit plans 2,040 842
Associated tax benefits 5,000 2,706
Other 1,046 1,388
Amortization of goodwill 2,964 --
------- -------
Cash earnings $57,389 $20,300
======= =======
Cash earnings per share(1) $ 1.42 $ 0.76
Diluted cash earnings per share(1) $ 1.40 $ 0.76
(1) Share amounts for the year 2000 have been adjusted to reflect a 3-for-2
stock split on March 29, 2001.
Interest Income
Largely reflecting the Haven acquisition, the Company recorded interest income
of $162.7 million in the first six months of 2001, up $88.3 million, or 118.9%,
from the year-earlier amount. The increase was the net effect of a $2.4 billion
rise in average interest-earning assets to $4.3 billion and a 37-basis point
drop in the average yield to 7.56%.
Mortgage and other loans contributed interest income of $133.6 million,
representing 82.1% of the year-to-date total, as compared to $67.7 million,
representing 91.1%, in the year-earlier six months. The increase was the net
effect of a $1.8 billion rise in average loans to $3.5 billion and a 46-basis
point decline in the average yield to 7.65%. Loans represented 81.2% of average
interest-earning assets in the current six-month period, as compared to 89.1% in
the six months ended June 30, 2000.
Securities generated interest income of $14.1 million, or 8.7% of the
year-to-date total, up from $6.4 million, or 8.5%, in the year-earlier six
months. The increase stemmed from a $98.2 million rise in the average balance to
$294.7 million and a 313-basis point rise in the average yield to 9.59%. The
significant increase in the average yield reflects the securities acquired in
the Haven transaction.
Mortgage-backed securities provided interest income of $10.1 million, or 6.2% of
the year-to-date total, up from $122,000, or 0.2%, in the first six months of
2000. The increase was the net effect of a $310.3 million rise in the average
balance to $313.7 million and a 77-basis point decline in the average yield to
6.44%. Reflecting new investments in collateralized mortgage obligations during
the current six-month period, mortgage-backed securities represented 7.3% of
year-to-date average interest-earning assets as compared to 0.2% in the
year-earlier six months.
The interest income derived from money market investments rose $4.7 million to
$4.8 million, the net result of a $197.9 million increase in the average balance
to $202.4 million and a 92-basis point decline in the average yield to 4.83%.
23
Interest Expense
The Company recorded interest expense of $91.3 million in the current six-month
period, up $49.8 million, or 119.7%, from the year-earlier amount. The increase
was the net effect of a $2.3 billion rise in average interest-bearing
liabilities to $4.1 billion and a 25-basis point decline in the average cost to
4.51%.
Borrowings represented $28.1 million, or 30.7%, of year-to-date interest
expense, as compared to $20.7 million, or 49.7%, in the year-earlier six months.
The increase was the net effect of a $318.7 million rise in the average balance
to $1.0 billion and a 33-basis point decline in the average cost to 5.48%.
Borrowings represented 25.3% of average interest-bearing liabilities in the
first six months of 2001, down from 40.7% in the first six months of 2000.
CDs contributed $52.0 million, or 56.9%, of total interest expense in the
current six-month period, up from $16.1 million, representing 38.6%, in the
year-earlier six months. The increase stemmed from a $1.2 billion rise in the
average balance to $1.8 billion and from a 72-basis point rise in the average
cost to 5.85%. CDs represented 43.9% and 35.8%, respectively, of average
interest-bearing liabilities in the first six months of 2001 and 2000.
Other funding generated combined interest expense of $11.3 million as compared
to $4.8 million in the first six months of 2000. The increase was the net effect
of a $998.2 million rise in the combined average balance to $1.5 billion and a
58-basis point decline in the average cost to 1.55%.
NOW and money market accounts generated year-to-date interest expense of $7.0
million, up from $1.6 million in the year-earlier six months. The increase was
the net effect of a $611.9 million rise in the average balance to $719.2 million
and a 112-basis point decline in the average cost to 1.95%. NOW and money market
accounts represented 17.6% and 6.1%, respectively, of average interest-bearing
liabilities in the six months ended June 30, 2001 and 2000.
Savings accounts produced interest expense of $4.3 million, up from $3.2 million
in the first six months of the prior year. The increase was the net effect of a
$227.1 million rise in the average balance to $504.4 million and a 59-basis
point decline in the average cost to 1.73%.
Mortgagors' escrow generated interest expense of $12,000 in 2001, a $1,000
decrease, the net result of a $4.0 million rise in the average balance to $31.0
million and a two-basis point drop in the average cost to 0.08%.
In addition, the average balance of non-interest bearing accounts rose to $198.4
million in the current six-month period from $43.3 million in the year-earlier
six months.
Net Interest Income
The Company recorded net interest income of $71.3 million in the current
six-month period, up $38.6 million, or 117.7%, from the level recorded in the
year-earlier six months. The increase reflects the dramatic growth in
interest-earning assets stemming from the Haven acquisition, as well as the
benefit of the subsequent balance sheet restructuring. In addition, the
Company's net interest income reflects the favorable trend in market interest
rates over the past two quarters, as well as the strategic reduction in higher
cost sources of funds.
For the six months ended June 30, 2001, the Company's interest rate spread and
net interest margin equaled 3.05% and 3.31%, respectively, as compared to 3.17%
and 3.50% for the six months ended June 30, 2000.
24
Net Interest Income Analysis
(dollars in thousands)
Six Months Ended June 30,
-------------------------------------------------------------------------
2001 2000
------------------------------------ ---------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
--------- ---------- -------- --------- -------- --------
Assets:
Interest-earning assets:
Mortgage and other loans, net $3,493,505 $133,607 7.65% $1,670,241 $67,729 8.11%
Securities 294,714 14,133 9.59 196,474 6,350 6.46
Mortgage-backed securities 313,680 10,094 6.44 3,383 122 7.21
Money market investments 202,380 4,839 4.83 4,528 129 5.75
---------- -------- ------- ---------- ------- ------
Total interest-earning assets 4,304,280 162,673 7.56 1,874,626 74,330 7.93
Non-interest-earning assets 314,125 80,172
---------- ----------
Total assets $4,618,405 $1,954,798
========== ==========
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
NOW and money market accounts $ 719,227 $ 6,950 1.95% $ 107,326 $ 1,640 3.07%
Savings accounts 504,366 4,321 1.73 277,225 3,195 2.32
Certificates of deposit 1,793,069 51,978 5.85 628,613 16,051 5.13
Mortgagors' escrow 31,023 12 0.08 26,988 13 0.10
---------- -------- ------- ---------- ------- ------
Total interest-bearing deposits 3,047,685 63,261 4.15 1,040,152 20,899 4.02
Borrowings 1,033,945 28,079 5.48 715,236 20,669 5.81
---------- -------- ------- ---------- ------- ------
Total interest-bearing liabilities 4,081,630 91,340 4.51 1,755,388 41,568 4.76
Non-interest-bearing deposits 198,387 43,272
Other liabilities 51,920 26,853
---------- ----------
Total liabilities 4,331,937 1,825,513
Stockholders' equity 286,468 129,285
---------- ----------
Total liabilities and stockholders' equity $4,618,405 $1,954,798
========== ==========
Net interest income/interest rate spread $ 71,333 3.05% $32,762 3.17%
======== ======= ======= ======
Net interest-earning assets/net interest
margin $ 222,649 3.31% $ 119,238 3.50%
========== ======= ========== ======
Ratio of interest-earning assets to
interest-bearing liabilities 1.05x 1.07x
======= ======
Provision for Loan Losses
As discussed in the comparison of earnings for the three months ended June 30,
2001 and 2000, the loan loss provision has been suspended since the third
quarter of 1995. For a further discussion of the loan loss provision and the
allowance for loan losses, please see "Asset Quality" beginning on page 9 and
"Provision for Loan Losses" on page 20 of this report.
Other Operating Income
Including a non-recurring gain of $15.7 million on the sale of loans and
securities during the first quarter, the Company recorded other operating income
of $39.6 million in the first six months of 2001. By contrast, other operating
income totaled $2.4 million in the year-earlier six-month period.
Excluding the non-recurring gain, core other operating income rose to $23.9
million, reflecting a $14.7 million rise in fee income to $15.7 million and a
$6.8 million rise in core other income to $8.2 million. Included in the
25
latter increase are income derived from the Company's BOLI investment and income
earned on the sale of banking services, annuities, and mutual funds through the
branch network.
Non-Interest Expense
The Company recorded six-month 2001 operating expense of $37.0 million,
representing 1.60% of average assets, up from $11.2 million, or 1.14% of average
assets, for the first six months of 2000. The increase stemmed substantially
from the expansion of the branch network pursuant to the Haven acquisition, and
from the integration of data processing systems in the first quarter of the
year.
Compensation and benefits expense totaled $17.5 million in the current six-month
period, up from $6.9 million in the year-earlier six months. Included in the
2001 amount were non-cash items of $2.0 million, representing a $1.2 million
increase from the year-earlier amount.
Occupancy and equipment rose $5.7 million to $7.1 million, again reflecting the
branch network expansion, while G&A expense and other expense rose $8.5 million
and $996,000, respectively, to $11.0 million and $1.3 million.
Reflecting the $38.6 million increase in net interest income, the $21.5 million
increase in core other operating income, and the $25.8 million increase in
operating expense, the core efficiency ratio equaled 38.86% in the current
six-month period, while the cash efficiency ratio equaled 31.50%.
The amortization of goodwill pursuant to the Haven acquisition totaled $3.0
million; there was no comparable expense in the year-earlier period.
Accordingly, non-interest expense totaled $40.0 million in the first six months
of 2001, as compared to $11.2 million in the first six months of 2000. For a
discussion of the impact of SFAS Nos. 141 and 142 on goodwill amortization, see
"Business Combinations, Goodwill, and Intangible Assets" beginning on page 5 and
"Non-interest Expense" on page 21 of this report.
Income Tax Expense
Reflecting a $47.0 million rise in pre-tax income to $71.0 million, income tax
expense rose $16.1 million to $24.7 million in the first six months of 2001.
Included in the 2001 amount were non-cash items totaling $5.0 million, as
compared to $2.7 million in the first six months of 2000.
At the same time, the effective tax rate declined to 34.7% in the current
six-month period from 35.9% in the year-earlier six months. The improvement
reflects the relocation of the Company's headquarters from Flushing, New York to
Nassau County, the Company's investment in BOLI, and its investment in certain
tax-advantaged securities in the second quarter of the year.
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. The Company is in the process of
assessing the impact of the Richmond County merger on its market risk exposure.
26
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, and 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
In connection with the merger of Richmond County Financial Corp. with and into
New York Community Bancorp, Inc., the Company held a Special Meeting of
Shareholders on June 20, 2001. Proxies were solicited with respect to such
meeting under Regulation 14A of the Securities Exchange Act of 1934, as amended,
pursuant to a joint proxy/prospectus dated May 14, 2001. Of the 43,542,333
shares eligible to vote at the special meeting, 35,113,496 were represented in
person or by proxy.
One proposal was submitted for a vote, with the following results:
No. of Votes No. of Votes No. of Votes Broker
For Against Abstaining Non-Votes
--- ------- ---------- ---------
Approval and adoption of the Agreement and
Plan of Merger, dated as of March 27, 2001, by
and between New York Community Bancorp,
Inc. and Richmond County Financial Corp. 34,790,858 117,966 4,672 -0-
Item 5. Other Information
On July 24, 2001, the Board of Directors declared a quarterly cash dividend of
$0.20 per share, payable on August 15, 2001 to shareholders of record at the
close of business on August 6, 2001. In addition, the Board of Directors adopted
a Dividend Reinvestment Plan that will enable shareholders to reinvest their
dividends and make optional cash purchases of New York Community Bancorp shares.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3.1: Certificate of Incorporation, as amended*
Exhibit 3.2: Bylaws**
Exhibit 11: Statement re: Computation of Per Share Earnings - filed
herewith
* Incorporated by reference to the Exhibits filed with the Company's Form
10-Q for the quarterly period ended March 31, 2001.
** Incorporated by reference to the Exhibits filed with the Company's Form
10-K for the year ended December 31, 2000, File No. 0-22278, and the
Exhibits filed with the Company's Registration Statement on SEC Form S-4,
as amended, File No. 333-59486.
27
(b) Reports on Form 8-K
On August 14, 2001, the Company filed a Form 8-K in connection with its
completion, following the close of business on July 31, 2001, of the merger of
Richmond County Financial Corp. with and into the Company. In accordance with
the Agreement and Plan of Merger announced on March 27, 2001, 1.02 shares of the
Company's common stock were issued for each share of Richmond County Financial
Corp. common stock outstanding.
28
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: August 14, 2001 BY: /s/ Joseph R. Ficalora
----------------------------------
Joseph R. Ficalora
President and Chief
Executive Officer
(Duly Authorized Officer)
DATE: August 14, 2001 BY: /s/ Robert Wann
----------------------------------
Robert Wann
Executive Vice President,
Comptroller, and
Chief Financial Officer
(Principal Financial Officer)
29