- --------------------------------------------------------------------------------
Financial Summary
================================================================================
At or For the Years Ended December 31,
===============================================================================================================================
(dollars in thousands, except share data) 2001(1) 2000(2) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
EARNINGS SUMMARY
Net interest income $ 205,816 $ 73,081 $ 68,903 $ 68,522 $ 62,398
Reversal of provision for loan losses -- -- (2,400) -- --
Other operating income 90,615 21,645 2,523 2,554 2,305
Non-interest expense(3) 121,185 49,824 21,390 25,953 27,084
Income tax expense 70,779 20,425 20,772 18,179 14,355
Net income(4) 104,467 24,477 31,664 26,944 23,264
Earnings per share(4)(5) $ 1.36 $ 0.58 $ 0.76 $ 0.63 $ 0.51
Diluted earnings per share(4)(5) 1.34 0.56 0.74 0.60 0.48
SELECTED RATIOS
Return on average assets 1.63% 1.06% 1.69% 1.62% 1.61%
Return on average stockholders' equity 18.16 13.24 22.99 17.32 12.95
Operating expense to average assets 1.76 2.16 1.14 1.57 1.88
Efficiency ratio 38.04 52.08 29.95 36.51 41.86
Interest rate spread 3.38 3.00 3.41 3.76 3.84
Net interest margin 3.59 3.33 3.79 4.24 4.45
Dividend payout ratio 39.55 78.57 60.00 50.00 38.00
CASH EARNINGS DATA
Earnings(4) $ 148,972 $ 58,495 $ 44,349 $ 43,758 $ 35,399
Earnings per share(4)(5) $ 1.94 $ 1.38 $ 1.06 $ 1.02 $ 0.77
Diluted earnings per share(4)(5) 1.91 1.33 1.04 0.96 0.72
Return on average assets 2.33% 2.52% 2.37% 2.64% 2.46%
Return on average stockholders' equity 25.90 31.38 32.21 28.13 19.71
Operating expense to average assets 1.76 2.16 1.01 1.16 1.37
Efficiency ratio 27.51 24.47 26.37 27.05 30.47
BALANCE SHEET SUMMARY
Total assets $ 9,202,635 $ 4,710,785 $ 1,906,835 $ 1,746,882 $ 1,603,269
Loans, net 5,361,187 3,616,386 1,601,079 1,486,519 1,395,003
Allowance for loan losses 40,500 18,064 7,031 9,431 9,431
Securities held to maturity 203,195 222,534 184,637 152,280 94,936
Securities available for sale 2,374,782 303,734 12,806 4,656 2,617
Mortgage-backed securities held to maturity 50,865 1,923 2,094 19,680 49,781
Deposits 5,450,602 3,257,194 1,076,018 1,102,285 1,069,161
Borrowings 2,506,828 1,037,505 636,378 439,055 309,664
Stockholders' equity 983,134 307,410 137,141 149,406 170,515
Common shares outstanding(5) 101,845,276 66,555,279 47,272,785 47,814,518 50,330,670
Book value per share(5)(6) $ 10.05 $ 4.94 $ 3.34 $ 3.61 $ 3.92
Stockholders' equity to total assets 10.68% 6.53% 7.19% 8.55% 10.64%
ASSET QUALITY RATIOS
Non-performing loans to loans, net 0.33% 0.25% 0.19% 0.42% 0.55%
Non-performing assets to total assets 0.19 0.19 0.17 0.38 0.54
Allowance for loan losses to
non-performing loans 231.46 198.68 226.22 152.28 122.61
Allowance for loan losses to loans, net 0.76 0.50 0.44 0.63 0.68
===============================================================================================================================
(1) The Company merged with Richmond County Financial Corp. on July 31, 2001
and treated the merger as a purchase transaction. Accordingly, the
Company's 2001 earnings reflect five months of combined operations.
(2) The Company acquired Haven Bancorp, Inc. on November 30, 2000 and treated
the acquisition as a purchase transaction. Accordingly, the Company's 2000
earnings reflect one month of combined operations.
(3) The 2001 amount includes $5.9 million in goodwill amortization stemming
from the Haven acquisition and $2.5 million in core deposit intangible
amortization stemming from the Richmond County merger. The 2000 amount
includes $494,000 in goodwill amortization stemming from the Haven
acquisition.
(4) The 2001 amount reflects a gain of $39.6 million recorded in other
operating income and charges of $23.5 million and $3.0 million,
respectively, recorded in non-interest expense and income tax expense,
resulting in an after-tax net charge of $836,000, or $0.01 per share. The
2000 amount reflects a gain of $13.5 million recorded in other operating
income and a charge of $24.8 million recorded in other operating expense,
resulting in a net charge of $11.4 million, or $0.26 per share. The 1999
amount includes a curtailment gain of $1.6 million and a charge of
$735,000, both of which were recorded in operating expense and resulted in
an after-tax net gain of $1.5 million, or $0.04 per share. The 1997 amount
includes the reversal of a $1.3 million tax charge that had been incurred
in the prior year.
(5) Reflects shares issued as a result of 3-for-2 stock splits on April 10 and
October 1, 1997; September 29, 1998; and March 29 and September 20, 2001.
(6) Excludes unallocated ESOP shares.
10 New York Community Bancorp, Inc. 2001 Annual Report
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
================================================================================
OVERVIEW
New York Community Bancorp, Inc. (the "Company") is the holding company
for New York Community Bank (the "Bank") and the eighth largest thrift in the
nation, based on market capitalization at March 22, 2002. The Bank currently
serves its customers through a network of 108 banking offices spanning all five
boroughs of New York City, Long Island, and New Jersey, as well as Westchester
County, New York. Capitalizing on the brand equity of its respective divisions,
the Bank operates its branches under the following names: Queens County Savings
Bank, Richmond County Savings Bank, CFS Bank, First Savings Bank of New Jersey,
Ironbound Bank, and South Jersey Bank.
In addition to operating the largest supermarket banking franchise in the
metro New York region, with 54 in-store branches, the Bank ranks among its
leading producers of multi-family mortgage loans.
On July 31, 2001, eight months following its acquisition of Haven Bancorp,
Inc. ("Haven"), parent company of CFS Bank, on November 30, 2000, the Company
completed a merger-of-equals with Richmond County Financial Corp. ("Richmond
County"), parent company of Richmond County Savings Bank. With assets of $3.7
billion (including net loans of $1.9 billion) and deposits of $2.5 billion
(including core deposits of $1.4 billion) at the date of the merger, Richmond
County contributed significantly to the Company's asset and deposit growth. At
December 31, 2001, the Company recorded total assets of $9.2 billion (including
total loans of $5.4 billion) and total deposits of $5.5 billion (including core
deposits of $3.0 billion).
The merger also generated goodwill of $498.6 million and a core deposit
intangible of $60.0 million; the latter amount was reduced via amortization to
$57.5 million at December 31, 2001.
In addition, the Richmond County merger added 33 traditional branches and
a customer convenience center to the Company's branch network, bringing the
total number of banking offices to 119 at year-end 2001. The current number of
offices-108-reflects the opening of one traditional and two in-store branches on
Staten Island in the first quarter and the anticipated divestiture of 14
in-store branches in Connecticut, New Jersey, and Rockland County, New York in
the second quarter of 2002.
At December 31, 2001, the number of outstanding shares totaled
101,845,276, reflecting the issuance of 38,545,791 shares pursuant to the
Richmond County merger and the issuance of shares pursuant to 3-for-2 stock
splits on March 29 and September 20, 2001. The Company also maintained an active
share repurchase program, with a total of 6,254,437 shares repurchased over the
course of the year. On February 20, 2002, the Company announced that it had
completed the repurchase of 2,250,000 shares under the Board of Directors'
September 14, 2001 authorization and had been authorized to repurchase up to an
additional 2,250,000 shares. Reflecting share repurchases and options exercised
in the first eleven weeks of the new year, the number of shares outstanding at
March 22, 2002 was 102,175,430.
In addition to the five-month benefit of the Richmond County merger, the
Company's 2001 performance reflects the full-year benefit of its acquisition of
Haven, and the restructuring of the balance sheet subsequent to both events. In
2001, the Company sold $526.9 million and $83.7 million in one-to-four family
mortgage loans acquired through the Haven and Richmond County transactions,
respectively. Utilizing the funding gained through asset sales, wholesale
leveraging, and the transactions, the Company produced a record level of
mortgage loans in 2001. Mortgage originations totaled $1.2 billion, more than
double the prior-year volume, including $791.3 million in multi-family mortgage
loans. Capitalizing on the yield curve, the Company also increased its
securities investments, leveraging its capital to profitable effect. At December
31, 2001, the portfolio of securities available for sale totaled $2.4 billion,
as compared to $303.7 million at the previous year-end.
In 2001, the Company's earnings rose $80.0 million, or 326.8%, to $104.5
million, equivalent to a 139.3% increase in diluted earnings per share to $1.34.
Reflecting the full-year benefit of the Richmond County merger and subsequent
strategic actions, the Company anticipates that its 2002 diluted earnings per
share will increase better than 50%.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK FACTORS
This report contains certain forward-looking statements with regard to the
Company's prospective performance and strategies within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The Company intends such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995,
and is including this statement for the purposes of said safe harbor provisions.
The forward-looking statements made in this report are based on current
expectations, but actual results may differ materially from anticipated results.
Forward-looking statements are based on certain assumptions and describe the
Company's plans, strategies, and expectations for the year ahead. Generally
speaking, such statements may be identified by the use of such words as
"believe," "expect," "intend," "anticipate," "estimate," "project," "assume,"
"evaluate," "assess," or similar expressions. The Company's ability to predict
results or the actual effects of its plans and strategies is inherently
uncertain. Factors that could have a material adverse effect on the operations
of the Company and its subsidiaries include, but are not limited to, changes in
market interest rates, general economic conditions, legislation, and regulation;
changes in the monetary and fiscal policies of the U.S. Government, including
policies of the U.S. Treasury and the Federal Reserve Board; changes
13
in the quality or composition of the Company's portfolios of loans and
investments; changes in the demand for loan products or financial services in
the Company's local markets; changes in deposit flows or competition; changes in
local real estate values; changes in accounting principles and guidelines; war
or terrorist activities; and other economic, competitive, governmental,
regulatory, geopolitical, and technological factors affecting the Company's
operations, pricing, and services.
Specific factors that could cause future results to vary from current
expectations are detailed from time to time in the Company's SEC filings,
including this report.
Readers are cautioned not to place undue reliance on these forward-looking
statements, including management's 2002 earnings projections, as such statements
reflect expectations and assessments based on factors known only as of the date
of this report. Except as required by applicable law or regulation, the Company
undertakes no obligation to update these forward-looking statements to reflect
events or circumstances that occur after the date on which such statements were
made.
FINANCIAL CONDITION
Balance Sheet Summary
The Richmond County merger combined with a record level of loan production
to produce a 95.4% increase in total assets over the course of 2001. Total
assets rose to $9.2 billion at December 31, 2001 from $4.7 billion at December
31, 2000, reflecting $3.7 billion in net assets acquired in the merger and the
origination of $1.2 billion in mortgage loans.
The growth in assets was tempered by a strategic restructuring program,
designed to enhance profitability and minimize credit and interest rate risk. In
2001, the Company sold $114.9 million of securities acquired in the Haven
transaction and, from the Haven and Richmond County transactions, $610.6 million
of one-to-four family mortgage loans.
Boosted by originations and by $1.9 billion in net loans acquired, the
mortgage loan portfolio rose $1.7 billion, or 47.0%, to $5.3 billion, including
a $1.3 billion, or 67.3%, increase in multi-family mortgage loans. The growth in
loans was partly offset by the aforementioned sale of one-to-four family
mortgage loans totaling $610.6 million in connection with the post-transaction
restructuring of the balance sheet.
Despite the significant asset growth achieved pursuant to the
transactions, the Company maintained a solid record of asset quality. While
non-performing assets rose $8.6 million year-over-year to $17.7 million, the
ratio of non-performing assets to total assets was 0.19% at both December 31,
2001 and 2000. Non-performing loans represented $17.5 million of the year-end
2001 total, while foreclosed real estate accounted for the remaining $249,000.
Included in non-performing loans at year-end 2001 were mortgage loans in
foreclosure totaling $10.6 million and loans 90 days or more delinquent totaling
$6.9 million. Additionally, the fourth quarter of 2001 was the Company's 29th
consecutive quarter without any net charge-offs being recorded since the fourth
quarter of 1994.
Notwithstanding the absence of any net charge-offs or provisions for loan
losses, the loan loss allowance rose from $18.1 million at December 31, 2000 to
$40.5 million at December 31, 2001. The 2001 amount reflects the addition of
$22.4 million pursuant to the Richmond County merger, and represented 231.46% of
non-performing loans and 0.76% of loans, net.
The increase in assets also reflects the addition of goodwill and the core
deposit intangible from the Richmond County merger, which totaled $558.6 million
at December 31, 2001.
Other assets also rose, to $252.4 million, from $108.9 million at the
prior year-end. Bank-owned Life Insurance ("BOLI") represented $123.3 million of
the December 31, 2001 balance, as compared to $62.4 million of the balance at
December 31, 2000.
The growth in assets was also fueled by a $2.1 billion increase in the
portfolio of securities available for sale to $2.4 billion, including $2.1
billion in mortgage-backed and mortgage-related securities. In addition to $1.3
billion in securities acquired in the Richmond County merger, the increase
reflects the Company's subsequent purchase of investments to capitalize on the
attractive yield curve in the latter half of the year.
Asset growth was funded by a 67.3% increase in deposits and supplemented
by a 141.6% increase in borrowings. Largely reflecting the benefit of the
Richmond County merger, total deposits rose $2.2 billion from the year-end 2000
balance to $5.5 billion at December 31, 2001. The increase was fueled by a $1.7
billion rise in core deposits to $3.0 billion, representing 55.8% of total
deposits, and by a $534.1 million rise in CDs to $2.4 billion, representing
44.2%.
Taking advantage of the attractive yield curve to strengthen its capital
position, the Company implemented a wholesale leveraging strategy in the third
quarter of the year. Primarily reflecting an increase in FHLB advances, total
borrowings rose $1.5 billion to $2.5 billion at December 31, 2001. In addition
to $916.2 million in borrowings acquired in the Richmond County merger, the
increase also reflects the Company's issuance of $121.3 million in trust
preferred securities in December 2001.
Supported by twelve-month cash earnings totaling $149.0 million,
stockholders' equity rose to $983.1 million at December 31, 2001. In addition to
distributing cash dividends totaling $44.0 million, the Company allocated $121.0
million toward the repurchase of 6,254,437 Company shares over the course of the
year.
14 New York Community Bancorp, Inc. 2001 Annual Report
Under the Federal Deposit Insurance Corporation Improvement Act, better
known as "FDICIA," the Company is required to maintain certain minimum levels of
capital. Primarily reflecting the aforementioned issuance of $121.3 million in
trust-preferred securities in the fourth quarter, the Company's Tier 1 capital
ratio improved from 9.70% of risk-weighted assets at December 31, 2000 to 10.37%
at December 31, 2001.
Loans
The Company's capacity for mortgage loan production was significantly
fueled by funding acquired in the Haven transaction and by the funding acquired
in the merger with Richmond County the following July. As a result, the Company
achieved a record level of mortgage loan production in 2001, with twelve-month
originations nearly doubling to $1.2 billion from $616.0 million in the prior
year. Included in the 2001 amount were multi-family mortgage loan originations
of $791.3 million, as compared to $541.7 million in the year-earlier twelve
months.
Reflecting originations and $783.8 million in multi-family loans acquired
in the Richmond County merger, the portfolio of multi-family mortgage loans rose
$1.3 billion from the year-end 2000 balance to $3.3 billion at December 31,
2001. Multi-family mortgage loans represented 68.8% of total twelve-month
mortgage originations and 61.6% of total mortgage loans outstanding at year-end.
The growth in loans was also fueled by commercial real estate and
construction loan production, with originations totaling $130.7 million and
$91.2 million, respectively, during the twelve-month period. In addition, the
Company acquired commercial real estate loans of $136.8 million and construction
loans of $86.7 million in the Richmond County merger. As a result, the
portfolios grew $237.9 million and $92.9 million to $561.9 million and $152.4
million, respectively, at December 31, 2001. Commercial real estate loans thus
represented 10.6% of year-end mortgage loans outstanding, while construction
loans represented 2.9%.
The remainder of the mortgage loan portfolio consisted of one-to-four
family mortgage loans acquired in the Richmond County merger and, to a lesser
extent, of seasoned one-to-four family mortgage loans from the Bank's
pre-transaction loan portfolio. Of the $875.1 million in one-to-four family
mortgage loans acquired in the Richmond County transaction, $83.7 million were
immediately sold.
While the Company offers its customers an extensive menu of one-to-four
family mortgage products, such loans are originated on a conduit basis, and sold
without recourse. Applications are taken and processed by a third-party
provider, who pays the Company a fee for every loan that is closed and
delivered. The benefits of this arrangement are apparent in the fee income
generated, and in the reduced exposure to credit and interest rate risk. In
addition, the arrangement is consistent with the Company's emphasis on cost
reduction, as one-to-four family loans are less efficient to produce and service
than multi-family, commercial real estate, and construction loans.
Reflecting the post-transaction sale of loans, the conduit relationship,
and repayments, the portfolio of one-to-four family mortgage loans rose a modest
$51.2 million to $1.3 billion, representing 24.9% of mortgage loans outstanding
at December 31, 2001. In 2002, the concentration of one-to-four family mortgage
loans is expected to decline through repayments and securitization; at the same
time, the concentration of multi-family mortgage loans is expected to increase.
The Company's longtime preference for multi-family lending is based on the
quality, efficiency, and profitability of such assets as compared to those of
one-to-four family mortgage loans. For example, the Company's emphasis on
local-market multi-family loans has been rewarded by the fully performing status
of such assets during the 15 years ended December 31, 2001.
The approval process for these loans is highly efficient, typically taking
a period of four to six weeks. Multi-family mortgage loans are arranged through
a select group of experienced mortgage brokers who are familiar with the
Company's underwriting procedures and its reputation for timely response. As one
of the few banks in the marketplace to make multi-family mortgage loans in the
late 1980s and early 1990s, the Company has been rewarded with a steady supply
of product, despite the entry of new competitors into the marketplace.
Multi-family loans also support the Company's preference for short-term
assets and feature a term of ten years, and occasionally less. Such loans
generally feature a fixed rate of interest for the first five years of the
mortgage and a rate that adjusts with prime in each of years six through ten.
Another feature of these loans is a stringent prepayment penalty schedule.
Penalties range from five percentage points to two in years one through five of
the mortgage, depending on the remaining term at the time the loan is prepaid.
While discouraging prepayments, such penalties are also used as a tool in
negotiations with borrowers seeking to refinance their loans before they've
reached full term. Multi-family mortgage lending is, in essence, a refinancing
business; regardless of whether interest rates are rising or declining, the
typical loan in the portfolio refinances within a period of three to five years.
The Company's multi-family market niche is centered in the metro New York
region and tends to consist of buildings that are rent-controlled or
rent-stabilized. At December 31, 2001, 81.1% of the multi-family loan portfolio
was secured by buildings in the five boroughs of New York City, including 29.2%
in Manhattan and 24.8% in Queens.
One of the many attractions of the Richmond County merger was the
opportunity to expand the multi-family market niche. Appropriately, 7.8% of
multi-family mortgage loans at year-end were secured by buildings in New Jersey
and 6.0% by buildings in other neighboring states. The portfolio of multi-family
mortgage loans acquired in the Richmond County merger was primarily secured by
buildings in the New Jersey counties of Atlantic, Camden, Essex, and Hudson and
in the vicinity of Philadelphia, PA.
15
The Company's commercial real estate loans are structured in the same
manner as its multi-family credits, typically featuring a fixed rate for the
first five years of the loan, and a rate that adjusts in each of years six
through ten. The majority of commercial real estate loans are secured by office
or retail buildings, nearly half of which are located in Staten Island and
Queens. The remainder of the portfolio is secured by properties in the other
three boroughs of New York City, and, to a lesser extent, by properties on Long
Island and in New Jersey.
Another benefit of the merger with Richmond County was the addition of its
construction lending expertise. While the Company originated construction loans
prior to the transaction, its focus on this type of lending has expanded since
the merger took place. The Company primarily originates construction loans to a
select group of experienced builders with whom it has had a successful lending
relationship in the past.
Building loans are primarily made for the construction of owner-occupied
one-to-four family homes under contract and, to a far lesser extent, for the
acquisition and development of commercial real estate properties. Originated for
terms of up to two years, construction loans feature a daily floating
prime-based rate of interest, with a floor of the original rate.
As a result of the funding acquired in the Richmond County merger, the
Company is better positioned than ever before to lend to its full capacity. With
first quarter 2002 originations approximating $500.0 million and approximately
$600.0 million in the pipeline at quarter's end, the Company currently expects
that its 2002 mortgage loan production will exceed the level recorded in 2001.
However, the ability to close these loans and others over the course of the next
three quarters could be counteracted by various factors, including a downturn in
the economy, an increase in competition, and a decline in loan demand.
Loan Portfolio Analysis
At December 31,
============================================================================================================================
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Percent Percent Percent
(dollars in thousands) Amount of Total Amount of Total Amount of Total
- ----------------------------------------------------------------------------------------------------------------------------
MORTGAGE LOANS:
Multi-family $ 3,255,167 60.23% $ 1,945,656 53.51% $ 1,348,351 83.72%
1-4 family 1,318,295 24.40 1,267,080 34.85 152,644 9.48
Commercial real estate 561,944 10.40 324,068 8.91 96,008 5.96
Construction 152,367 2.82 59,469 1.64 4,793 0.30
- ----------------------------------------------------------------------------------------------------------------------------
Total mortgage loans 5,287,773 97.85 3,596,273 98.91 1,601,796 99.46
- ----------------------------------------------------------------------------------------------------------------------------
OTHER LOANS:
Home equity 87,274 1.61 12,240 0.34 1,347 0.08
Cooperative apartment -- -- 3,726 0.10 4,856 0.30
Passbook savings 1,777 0.03 779 0.02 331 0.02
Other 27,827 0.51 23,003 0.63 2,208 0.14
- ----------------------------------------------------------------------------------------------------------------------------
Total other loans 116,878 2.15 39,748 1.09 8,742 0.54
- ----------------------------------------------------------------------------------------------------------------------------
Total loans 5,404,651 100.00% 3,636,021 100.00% 1,610,538 100.00%
- ----------------------------------------------------------------------------------------------------------------------------
Unearned premiums (discounts) 91 (18) (24)
Less: Net deferred loan origination fees 3,055 1,553 2,404
Allowance for loan losses 40,500 18,064 7,031
- ----------------------------------------------------------------------------------------------------------------------------
Loans, net $ 5,361,187 $ 3,616,386 $ 1,601,079
============================================================================================================================
16 New York Community Bancorp, Inc. 2001 Annual Report
- --------------------------------------------------------------------------------
Asset Quality
================================================================================
While asset growth played a major part in the Company's 2001 performance,
the quality of its assets played an important supporting role. Despite the
significant portfolio growth generated by transactions and loan production, the
quality of the Company's assets was essentially sustained.
As proof of point, in 2001, the Company extended its record to 29
consecutive quarters without any net charge-offs, and maintained a 0.19% ratio
of non-performing assets to total assets at December 31, 2001. While
non-performing assets rose $8.6 million year-over-year to $17.7 million, the
0.19% ratio was consistent with the ratio recorded at the prior year-end.
The increase in non-performing assets stemmed almost entirely from an $8.4
million rise in non-performing loans to $17.5 million, equivalent to 0.33% of
loans, net. Included in the latter amount were mortgage loans in foreclosure of
$10.6 million and loans 90 days or more delinquent of $6.9 million. At the prior
year-end, non-performing loans represented 0.25% of loans, net, and included
mortgage loans in foreclosure of $6.0 million and loans 90 days or more
delinquent of $3.1 million. The increase in non-performing loans was primarily
merger-related, consisting of one-to-four family and home equity loans from the
Richmond County portfolio.
Foreclosed real estate accounted for the remaining $249,000 of total
non-performing assets, and was comprised of five one-to-four family mortgage
loans. Similarly, the Company's portfolio of non-performing loans was secured by
one-to-four family homes within its primary markets; there were no
non-performing multi-family, commercial, or construction loans at December 31,
2001.
While the quality of the Company's loans reflects the strength of the
local real estate market, it also reflects the consistently conservative
underwriting and credit standards maintained. In the case of multi-family and
commercial real estate loans, management looks at the appraised value of the
property that collateralizes the credit, and, more importantly, at the
consistency of the cash flow produced. The condition of the property is another
critical factor: every building and property is inspected from rooftop to
basement, as a prerequisite to approval by the Real Estate and Mortgage
Committee of the Board. All inspections are conducted by a senior mortgage
officer, who is accompanied by a member of executive management when the amount
of the loan exceeds $1.0 million. When the loan amount exceeds $1.5 million, a
member of the Board of Directors' Real Estate and Mortgage Committee also
participates in the inspection; the entire Committee reviews and approves all
loans, regardless of amount. In the event that a loan amount is greater than
$5.0 million, the loan must be approved by the Board of Directors of the Bank as
a whole. Furthermore, all properties are appraised by independent appraisers
whose appraisals are carefully reviewed by the Company's in-house appraisal
officers.
Credit risk is also controlled by lending in a market that has been home
to the Bank and its officers for decades, not years. Such loans are essentially
brought to the Bank by a select group of mortgage brokers who have worked with
the Bank or its acquirees for thirty years or more.
To further minimize credit risk, the Company limits the amount of credit
granted to any one borrower and requires a minimum debt coverage ratio of 120%.
Although the Company will lend up to 75% of appraised value on multi-family
buildings and up to 65% on commercial properties, the average loan-to-value
ratio of such credits was 59.6% and 50.3% at year-end 2001. At December 31,
2001, the average multi-family mortgage loan had a principal balance of $1.4
million, while the average commercial real estate loan had a principal balance
of $685,800. The largest multi-family mortgage loan was on a garden apartment
complex in Queens with 19 buildings and 894 units; the largest commercial loan
was on a 15-story office building in Manhattan. The principal balances of these
loans were $36.4 million and $31.1 million, respectively, at year-end 2001.
The Company's construction loans are also stringently underwritten, and
primarily made to multi-generational builders who have worked with the Bank or
its acquirees in the past. The Company will typically lend up to 70% of the
estimated market value, or up to 80%, in the case of home construction loans to
individuals. With respect to commercial constructions loans, which are not its
primary focus, the Company will typically lend up to 65% of the estimated market
value of the property. Loan proceeds are disbursed periodically in increments as
construction progresses, and as warranted by inspection reports provided by the
Bank's own lending officers.
To a far lesser extent, the Bank also originates land loans to local
developers for the purpose of holding or developing the land for sale. Such
loans are secured by a lien on the property and are limited to 65% of the
appraised value of the secured property on raw land or up to 75% on developed
building lots. The principal is reduced as lots are sold and released.
While the Company is no longer originating one-to-four family mortgage
loans for portfolio (thus lessening its credit risk exposure), such loans were
retained for portfolio in the past. Prior to its transactions with Haven and
Richmond County, loans originated by the Company were typically made on a
limited documentation basis, with approval depending on a thorough property
appraisal; the verification of financial assets, when furnished; and a review of
the borrower's credit history. With the Richmond County merger, the Company
acquired a portfolio of one-to-four family mortgage loans that were primarily
made on a full documentation basis, requiring verification of income in addition
to the items listed above. To further reduce the credit risk inherent in
one-to-four family mortgage lending, the Company anticipates securitizing a
significant portion of its portfolio in the second quarter of 2002.
17
While delinquencies have been minimal, the Company maintains specific
procedures to ensure that problems are swiftly addressed when they do occur. In
the case of multi-family, construction, and commercial real estate loans, the
borrower is personally contacted within 20 days of non-payment; in the case of
one-to-four family mortgage loans, the borrower is notified by mail within 20
days.
In the wake of the terrorist attacks on the World Trade Center on
September 11th, the Company conducted an analysis of its loans in lower
Manhattan, and determined that the portfolio was not at material risk. While
concerns have been raised by the subsequent loss of jobs in the region, the
soundness of the portfolio is still currently intact. Because the majority of
the Company's multi-family loans are secured by rent-controlled and
rent-stabilized buildings, it is believed that the portfolio is better insulated
against economic downturn than those secured by other types of buildings or by
one-to-four family homes.
While every effort is consistently made to originate quality assets, the
absence of problem loans cannot be guaranteed. The ability of a borrower to
fulfill his or her obligations may be impacted by a change in personal
circumstances, a decline in real estate values, or a downturn in the local
economy. To minimize the impact of credit risk, the Company maintains coverage
through an allowance for loan losses that rose from $18.1 million at December
31, 2000 to $40.5 million at December 31, 2001. The 2001 amount reflects the
addition of $22.4 million pursuant to the Richmond County merger, and represents
231.46% of non-performing loans and 0.76% of loans, net.
The allowance for loan losses is increased by the provision for loan
losses charged to operations and reduced by reversals or by net charge-offs.
Management establishes the allowance for loan losses through a process that
begins with estimates of probable loss inherent in the portfolio, based on
various statistical analyses. These analyses consider historical and projected
default rates and loss severities; internal risk ratings; geographic, industry,
and other environmental factors; and model imprecision. In establishing the
allowance for loan losses, management also considers the Company's current
business strategy and credit process, including compliance with stringent
guidelines it has established with regard to credit limitations, credit
approvals, loan underwriting criteria, and loan workout procedures.
The policy of the Bank is to segment the allowance to correspond to the
various types of loans in the loan portfolio. These loan categories are assessed
with specific emphasis on the underlying collateral, which corresponds to the
respective levels of quantified and inherent risk. The initial assessment takes
into consideration non-performing loans and the valuation of the collateral
supporting each loan. Non-performing loans are risk-weighted based upon an aging
schedule that typically depicts either (1) delinquency, a situation in which
repayment obligations are at least 90 days in arrears, or (2) serious
delinquency, a situation in which legal foreclosure action has been initiated.
Based upon this analysis, a quantified risk factor is assigned to each type of
non-performing loan. This results in an allocation to the overall allowance for
the corresponding type and severity of each non-performing loan category.
Performing loans are also reviewed by collateral type, with similar risk
factors being assigned. These risk factors take into consideration, among other
matters, the borrower's ability to pay and the Bank's past loan loss experience
with each loan type. The performing loan categories are also assigned quantified
risk factors, which result in allocations to the allowance that correspond to
the individual types of loans in the portfolio.
While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary, based on changes in economic
and local market conditions beyond management's control. In addition, various
regulatory agencies periodically review the Bank's loan loss allowance as an
integral part of the examination process. Accordingly, the Bank may be required
to take certain charge-offs and/or recognize additions to the allowance based on
the judgment of the regulators with regard to information provided to them
during their examinations. Based upon all relevant and presently available
information, management believes that the current allowance for loan losses is
adequate.
The Company's policies with regard to the allowance for loan losses are
considered critical to its financial condition because they require management
to make difficult, complex, or subjective judgments regarding certain matters
that may be inherently uncertain. Accordingly, the loan loss allowable is also
discussed in Note 1 to the Consolidated Financial Statements. For more
information regarding asset quality and the coverage provided by the loan loss
allowance, see the Asset Quality Analysis that follows and the discussion of the
provision for loan losses on page 32 of this report.
18 New York Community Bancorp, Inc. 2001 Annual Report
Asset Quality Analysis
=======================================================================================================================
(dollars in thousands) 2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of year $18,064 $ 7,031 $ 9,431 $9,431 $9,359
Loan recoveries -- -- -- -- 72
Acquired allowance 22,436 11,033 -- -- --
Reversal of provision for loan losses -- -- (2,400) -- --
- -----------------------------------------------------------------------------------------------------------------------
Balance at end of year $40,500 $18,064 $ 7,031 $9,431 $9,431
=======================================================================================================================
NON-PERFORMING ASSETS:
Mortgage loans in foreclosure $10,604 $ 6,011 $ 2,886 $5,530 $6,121
Loans 90 days or more delinquent 6,894 3,081 222 663 1,571
- -----------------------------------------------------------------------------------------------------------------------
Total non-performing loans 17,498 9,092 3,108 6,193 7,692
Foreclosed real estate 249 12 66 419 1,030
- -----------------------------------------------------------------------------------------------------------------------
Total non-performing assets $17,747 $ 9,104 $ 3,174 $6,612 $8,722
=======================================================================================================================
RATIOS:
Non-performing loans to loans, net 0.33% 0.25% 0.19% 0.42% 0.55%
Non-performing assets to total assets 0.19 0.19 0.17 0.38 0.54
Allowance for loan losses to non-performing loans 231.46 198.68 226.22 152.28 122.61
Allowance for loan losses to loans, net 0.76 0.50 0.44 0.63 0.68
=======================================================================================================================
Securities, Mortgage-backed Securities, and Money Market Investments
While the origination of multi-family mortgage loans remained the
Company's primary focus, the Company enriched its mix of assets by increasing
its investments in securities and mortgage-backed securities over the course of
the year. Investments are selected to support three primary objectives:
minimizing exposure to credit and interest-rate risk; providing needed
liquidity; and keeping the Bank's funds fully employed at the maximum rate of
return.
The Company categorizes its securities investments into two
classifications: securities available for sale (which includes
available-for-sale mortgage-backed securities) and securities and
mortgage-backed securities held to maturity. While securities classified as
available for sale are intended to generate earnings, they also provide the
Company with the flexibility to hold or sell, as needed, depending on changing
circumstances and current market opportunities.
In keeping with its objectives, and reflecting $1.3 billion in securities
available for sale acquired in the Richmond County merger, the Company's
portfolio of available-for-sale securities rose from $303.7 million at December
31, 2000 to $2.4 billion at December 31, 2001. While the 2000 amount represented
a modest 6.4% of total assets, the 2001 amount represented a far more
significant 25.8%.
Mortgage-backed securities represented $2.1 billion, or 89.4%, of the
year-end 2001 available-for-sale portfolio, and featured an average term to
maturity of 2.3 years. Debt and equity securities accounted for the remaining
$253.3 million of the balance, including capital trust notes of $124.3 million.
The remaining debt and equity securities consisted of preferred and common
stock, U.S. Government and agency obligations, and corporate bonds.
While the portfolio of securities available for sale rose $2.1 billion,
the portfolio of securities held to maturity declined $19.3 million to $203.2
million at December 31, 2001. Partly reflecting securities acquired in the
Richmond County merger, the held-to-maturity securities portfolio consisted
primarily of corporate and government bonds and capital trust notes with an
investment grade rating.
The portfolio of mortgage-backed securities held to maturity, meanwhile,
rose from $1.9 million to $50.9 million, largely reflecting investments
purchased in the fourth quarter of 2001.
Money market investments, in the form of federal funds sold overnight,
totaled $10.2 million, as compared to $124.6 million at the prior year-end. The
decline reflects the deployment of funds into higher yielding securities
investments, consistent with the objectives outlined above.
Reflecting management's stated preference for multi-family mortgage
lending, it is expected that the Company's portfolios of securities and
mortgage-backed securities will be reduced over time.
Sources of Funds
The Company's capacity for asset generation was greatly enhanced by the
funding acquired in the Richmond County merger and the resultant addition of 34
banking offices. As a result of the merger, total deposits rose $2.2 billion
year-over-year to $5.5 billion, signifying an increase of 67.3% at December 31,
2001.
While deposit growth was across-the-board, the growth in core deposits
substantially exceeded the growth in CDs. Core deposits rose $1.7 billion
year-over-year to $3.0 billion, while CDs rose $534.1 million to $2.4 billion.
The concentration of core deposits thus rose to 55.8% of total deposits from
42.5%, the year-earlier percentage, while the concentration of CDs declined to
44.2% from 57.5%.
19
The growth in core deposits stemmed from a $228.9 million rise in NOW and
money market accounts to $948.3 million; a $1.1 billion rise in savings accounts
to $1.6 billion; and a $283.8 million rise in non-interest-bearing accounts to
$455.1 million. NOW and money market accounts thus represented 17.4% of total
deposits, while savings accounts and non-interest-bearing accounts represented
30.1% and 8.4%, respectively, at December 31, 2001.
The lower concentration of CDs was consistent with management's objective
of reducing its dependence on higher cost funding sources, while also reflecting
customer response to a declining rate environment. In addition, a significant
percentage of CDs maturing during the year were invested in alternative
investment products offered through 86 of the Company's branch offices. The
Company earns other operating income on the sale of such products and ranks
among the industry's top producers of revenues from investment product sales.
Capitalizing on the opportunities presented by the highly favorable yield
curve, the Company embarked on a wholesale leveraging program in the third
quarter of the year. As a result, the balance of borrowings grew to $2.5 billion
at December 31, 2001 from $1.0 billion at December 31, 2000. Included in the
year-end 2001 balance were Federal Home Loan Bank ("FHLB") advances of $1.8
billion (of which $776.0 million were acquired in the Richmond County merger)
and reverse repurchase agreements and trust preferred securities totaling $718.0
million. The funding provided by borrowings and deposits was supplemented by
funds from loan prepayments, interest payments on loans and other investments,
and the maturities of securities and mortgage-backed securities.
The Company's ability to attract and retain deposits depends on various
factors, including market interest rates and competition with other banks. The
Company vies for deposits by emphasizing convenience and by offering an array of
financial products consistent with those expected of a full-service bank.
The Company operates its branch network through six community divisions,
each one retaining a strong local identity. The Queens County Savings Bank
Division is the largest, with 26 locations, including 17 traditional and eight
in-store banking offices in Queens. The Richmond County Savings Bank Division is
next in line, with 24 locations, including 17 traditional and five in-store
offices in Richmond County. Included in the latter amounts are one traditional
and two in-store branches that opened in the first quarter of 2002.
As a result of its acquisition of Haven, the Company operates the largest
supermarket banking franchise in the metro New York region, and one of the
largest in the northeast. Open seven days a week, including most holidays, the
Company's in-store branches have been a significant source of low cost deposits,
and of revenues from the sale of mutual funds and annuities. Reflecting the
aforementioned opening of two in-store branches in Staten Island in the first
quarter of 2002 and the anticipated divestiture of 14 in-store branches in New
Jersey, Connecticut, and Rockland County in the second, the number of in-store
branches will soon be 54.
While the Company's in-store branches are primarily located on Long Island
and the five boroughs of New York City, its 53 traditional banking offices are
primarily concentrated in Queens and Richmond counties and New Jersey. The Bank
enjoys the fifth and second largest share of deposits, respectively, in the two
boroughs and a substantial portion of deposits in several densely populated New
Jersey communities.
With a total network of 108 offices, a competitive product menu, and a
structure that emphasizes community banking, the Company is well positioned to
attract and retain a solid customer base.
Asset and Liability Management and the Management of Interest Rate Risk
The Company manages its assets and liabilities to reduce its exposure to
changes in market interest rates. The asset and liability management process has
three primary objectives: to evaluate the interest rate risk inherent in certain
balance sheet accounts; to determine the level of risk that is appropriate,
given the Company's business strategy, operating environment, capital and
liquidity requirements, and performance objectives; and to manage that risk in a
manner consistent with the Board of Directors' approved guidelines.
Market Risk
As a financial institution, the Company's primary component of market risk
is interest rate volatility. Fluctuations in interest rates will ultimately
impact the level of income and expense recorded on a large portion of the
Company's assets and liabilities, and the market value of all interest-earning
assets, other than those possessing a short term to maturity.
The Company has pursued the following strategies in the process of
managing its interest rate risk: (1) Emphasizing the origination and retention
of multi-family and commercial real estate loans with a fixed rate of interest
in the first five years of the loan and a rate that adjusts annually in each of
years six through ten; (2) selling, from time to time, one-to-four family
mortgage loans without recourse; and (3) investing in fixed-rate mortgage-backed
and mortgage-related securities with estimated average lives of three to seven
years. These strategies take into consideration the relative stability of the
Company's core deposits and, more recently, the growth in core deposits stemming
from its Haven and Richmond County transactions.
20 New York Community Bancorp, Inc. 2001 Annual Report
The actual duration of mortgage loans and mortgage-backed securities can
be significantly impacted by changes in prepayment levels and market interest
rates. Mortgage prepayments will vary due to a number of factors, including the
economy in the region where the underlying mortgages were originated; seasonal
factors; demographic variables; and the assumability of the underlying
mortgages. However, the largest determinants of prepayments are prevailing
interest rates and related mortgage refinancing opportunities. Management
monitors interest rate sensitivity so that adjustments in the asset and
liability mix can be made on a timely basis when deemed appropriate. The Company
does not currently participate in hedging programs, interest rate swaps, or
other activities involving the use of off-balance-sheet derivative financial
instruments.
In 2001, the Company took a variety of actions to minimize its exposure to
interest rate risk. First, the Company sold $725.5 million in assets acquired in
the Haven and Richmond County transactions and utilized the proceeds to
originate assets with shorter terms to maturity. Second, the merger with
Richmond County, like the Haven transaction before it, provided a significant
infusion of lower cost funds. The increase in funding provided support for the
record level of loan production and for the increased concentration of loans
specifically structured to minimize risk. Subsequent to the merger, the Company
took additional steps to reduce its exposure, by increasing its investment in
readily saleable mortgage-backed securities with leveraged funds. The increase
in securities available for sale is indicative of a more flexible institution,
one better equipped to address changes in market interest rates.
Gap Analysis
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring a bank's interest rate sensitivity "gap." An asset or liability is
said to be interest rate sensitive within a specific time period if it will
mature or reprice within that period of time. The interest rate sensitivity gap
is defined as the difference between the amount of interest-earning assets
maturing or repricing within a specific time frame and the amount of
interest-bearing liabilities maturing or repricing within that same period of
time. At December 31, 2001, the Company's one-year gap was a negative 8.69%.
A gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. A gap is
considered positive when the amount of interest rate sensitive assets exceeds
the amount of interest rate sensitive liabilities. Accordingly, during a period
of rising interest rates, a company with a positive gap would be better
positioned to invest in higher yielding assets, as this might result in the
yield on its assets increasing at a pace more closely matching the increase in
the cost of its interest-bearing liabilities than if it had a negative gap.
During a period of falling interest rates, a company with a positive gap would
tend to see its assets repricing at a faster rate than one with a negative gap,
which might tend to restrain the growth of its net interest income or result in
a decline in interest income.
The table on page 22 sets forth the amounts of interest- earning assets
and interest-bearing liabilities outstanding at December 31, 2001 which, based
on certain assumptions stemming from the Bank's historical experience, are
expected to reprice or mature in each of the future time periods shown. Except
as stated below, the amounts of assets and liabilities shown as repricing or
maturing during a particular time period were determined in accordance with the
earlier of (a) the term to repricing, or (b) the contractual terms of the asset
or liability. The table sets forth an approximation of the projected repricing
of assets and liabilities at December 31, 2001 on the basis of contractual
maturities, anticipated prepayments, and scheduled rate adjustments within a
three-month period and subsequent selected time intervals. For mortgage and
other loans (both adjustable- and fixed-rate), prepayment rates were assumed to
range from 0% to 18% annually. Mortgage-backed and mortgage-related securities
were assumed to prepay at rates based on their respective previous three-month
prepayment experience. Savings accounts were assumed to decay at a rate of 5%
for the first five years and 15% for the years thereafter. NOW and money market
accounts were assumed to decay at an annual rate of 20% and 50%, respectively.
Prepayment and deposit decay rates can have a significant impact on the
Company's estimated gap. While the Company believes its assumptions to be
reasonable, there can be no assurance that assumed prepayment and decay rates
will approximate actual future loan prepayments and deposit withdrawal activity.
21
- --------------------------------------------------------------------------------
Interest Rate Sensitivity Analysis
================================================================================
At December 31, 2001
=========================================================================================================
Three Four to More Than More Than
Months Twelve One Year to Three Years
(dollars in thousands) or Less Months Three Years to Five Years
- ---------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS:
Mortgage and other loans(1) $ 297,123 $ 985,530 $1,864,151 $1,592,649
Securities(2) 17,369 35,564 1,000 29,470
Mortgage-backed securities(2)(3) 364,031 676,918 762,508 214,331
Money market investments 10,166 -- -- --
- ---------------------------------------------------------------------------------------------------------
Total interest-earning assets 688,689 1,698,012 2,627,659 1,836,450
- ---------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Savings accounts 13,660 68,302 163,924 169,560
NOW and Super NOW accounts 11,120 55,599 133,438 133,438
Money market accounts 76,841 230,523 307,365 --
Certificates of deposit 672,329 1,278,552 395,839 37,849
Borrowings 592,511 186,517 47,000 107,500
- ---------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,366,461 1,819,493 1,047,566 448,347
- ---------------------------------------------------------------------------------------------------------
Interest sensitivity gap per period(4) $ (677,772) $ (121,481) $1,580,093 $1,388,103
- ---------------------------------------------------------------------------------------------------------
Cumulative interest sensitivity gap $ (677,772) $ (799,253) $ 780,840 $2,168,943
- ---------------------------------------------------------------------------------------------------------
Cumulative interest sensitivity gap
as a percentage of total assets (7.36)% (8.69)% 8.48% 23.57%
Cumulative net interest-earning assets as a
percentage of net interest-bearing liabilities 50.40 74.91 118.44 146.33
=========================================================================================================
At December 31, 2001
=====================================================================================
More than More
Five Years than
(dollars in thousands) to 10 Years 10 Years Total
- -------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS:
Mortgage and other loans(1) $ 552,097 $ 95,693 $5,387,243
Securities(2) 91,573 281,554 456,530
Mortgage-backed securities(2)(3) 107,932 46,592 2,172,312
Money market investments -- -- 10,166
- -------------------------------------------------------------------------------------
Total interest-earning assets 751,602 423,839 8,026,251
- -------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Savings accounts 1,223,793 -- 1,639,239
NOW and Super NOW accounts -- -- 333,595
Money market accounts -- -- 614,729
Certificates of deposit 23,318 19 2,407,906
Borrowings 1,498,000 75,300 2,506,828
- -------------------------------------------------------------------------------------
Total interest-bearing liabilities 2,745,111 75,319 7,502,297
- -------------------------------------------------------------------------------------
Interest sensitivity gap per period(4) $(1,993,509) $348,520 $ 523,954
- -------------------------------------------------------------------------------------
Cumulative interest sensitivity gap $ 175,434 $523,954
- -------------------------------------------------------------------------------------
Cumulative interest sensitivity gap
as a percentage of total assets 1.91% 5.69%
Cumulative net interest-earning assets as a
percentage of net interest-bearing liabilities 102.36 106.98
=====================================================================================
(1) For purposes of the gap analysis, non-performing loans have been excluded.
(2) Securities and mortgage-backed securities are shown at their respective
carrying values.
(3) Based on historical repayment experience.
(4) The interest sensitivity gap per period represents the difference between
interest-earning assets and interest-bearing liabilities.
Certain shortcomings are inherent in the method of analysis presented in
the preceding Interest Rate Sensitivity Analysis. For example, although certain
assets and liabilities may have similar maturities or periods to repricing, they
may react in different degrees to changes in market interest rates. Also, the
interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while interest rates on other types
may lag behind changes in market rates. Additionally, certain assets, such as
adjustable-rate loans, have features that restrict changes in interest rates
both on a short-term basis and over the life of the asset. Further, in the event
of changes in interest rates, prepayment and early withdrawal levels would
likely deviate significantly from those assumed in calculating the table.
Finally, the ability of some borrowers to service their adjustable-rate loans
may be adversely impacted by an increase in market interest rates.
Net Portfolio Value
Management also monitors the Company's interest rate sensitivity through
the use of a model that generates estimates of the change in the Company's net
portfolio value ("NPV") over a range of interest rate scenarios. NPV is defined
as the net present value of expected cash flows from assets, liabilities, and
off-balance-sheet contracts. The NPV ratio, under any interest rate scenario, is
defined as the NPV in that scenario divided by the market value of assets in the
same scenario. The model assumes estimated loan prepayment rates, reinvestment
rates, and deposit decay rates similar to those utilized in formulating the
Interest Rate Sensitivity Analysis above. The following table sets forth the
Company's NPV as of December 31, 2001:
Net Portfolio Value Analysis
=================================================================================================================
Change in Portfolio Market Value
Interest Rates Change in Change in Net Portfolio Net Projected % Change
(in basis points) Asset Value Liability Value Value Change to Base
- -----------------------------------------------------------------------------------------------------------------
-200 $9,816,309,332 $8,491,263,970 $1,325,045,362 $ 83,671,497 6.74%
-100 9,604,314,175 8,314,909,799 1,289,404,376 48,030,511 3.87
-- 9,387,034,427 8,145,660,562 1,241,373,865 -- --
+100 9,146,989,183 7,977,146,434 1,169,842,749 (71,531,116) (5.76)
+200 8,865,028,170 7,801,936,766 1,063,091,404 (178,282,461) (14.36)
=================================================================================================================
- --------------------------------------------------------------------------------
22 New York Community Bancorp, Inc. 2001 Annual Report
As with the Interest Rate Sensitivity Analysis, certain shortcomings are
inherent in the methodology used in the preceding interest rate risk
measurements. Modeling changes in NPV requires that certain assumptions be made
which may or may not reflect the manner in which actual yields and costs respond
to changes in market interest rates. In this regard, the NPV Analysis presented
on page 22 assumes that the composition of the Company's interest rate sensitive
assets and liabilities existing at the beginning of a period remains constant
over the period being measured, and also assumes that a particular change in
interest rates is reflected uniformly across the yield curve, regardless of the
duration to maturity or repricing of specific assets and liabilities. Also, the
model does not take into account the Company's strategic plans. Accordingly,
while the NPV Analysis provides an indication of the Company's interest rate
risk exposure at a particular point in time, such measurements are not intended
to, and do not, provide a precise forecast of the effect of changes in market
interest rates on the Company's net interest income, and may very well differ
from actual results.
Liquidity and Capital Position
Liquidity
The Company manages its liquidity to ensure that its cash flows are
sufficient to support the Bank's operations and to compensate for any temporary
mismatches with regard to sources and uses of funds caused by erratic loan and
deposit demand.
As previously noted, the Bank's primary funding sources are deposits and
borrowings. Additional funding has stemmed from interest and principal payments
on loans, securities, and mortgage-backed securities, and the sale of
securities, loans, and foreclosed real estate. While borrowings and the
scheduled amortization of loans and securities are more predictable funding
sources, deposit flows and mortgage prepayments are subject to such external
factors as economic conditions, competition, and market interest rates.
The principal investing activities of the Bank are the origination of
mortgage loans (primarily secured by multi-family buildings) and, to a lesser
extent, the purchase of mortgage-backed and other investment securities. In
2001, the net cash used in investing activities totaled $3.9 billion, primarily
reflecting a $2.4 billion net increase in loans, the purchase of securities
available for sale totaling $2.7 billion, and proceeds from the redemption and
sales of securities available for sale totaling $685.1 million. In addition to
loans, net, of $1.8 billion acquired through the Richmond County merger (after
sales of $83.7 million), the net increase in loans reflects twelve-month
mortgage originations of $1.2 billion, offset by repayments and prepayments
totaling $765.6 million.
The net cash used in operating activities totaled $425.9 million,
including goodwill stemming from the Richmond County and Haven transactions, a
$143.6 million increase in other assets (primarily reflecting the Company's BOLI
investment), and the merger-related core deposit intangible of $60.0 million.
The Bank's investing and operating activities were funded by internal cash
flows generated by its financing activities. In 2001, the net cash provided by
financing activities totaled $4.2 billion, reflecting a $2.2 billion net
increase in deposits and a $1.5 billion net increase in borrowings. Reflected in
the latter amounts were $2.5 billion in deposits and $803.5 million in
borrowings stemming from the Richmond County merger.
The Bank monitors its liquidity position on a daily basis to ensure that
sufficient funds are available to meet its financial obligations, including
withdrawals from depository accounts, outstanding loan commitments, contractual
long-term debt payments, and operating leases. The Bank's most liquid assets are
cash and due from banks and money market investments, which collectively totaled
$178.6 million at December 31, 2001, as compared to $257.7 million at December
31, 2000. At the same time, the Bank's liquidity position was enhanced by a $2.1
billion increase in the portfolio of securities available for sale to $2.4
billion from $303.7 million. Additional liquidity is available through the
Bank's FHLB line of credit, which totaled $3.7 billion at December 31, 2001, and
a $10.0 million line of credit with a money center bank.
CDs due to mature in one year or less from December 31, 2001 totaled $1.9
billion; based upon recent retention rates as well as current pricing,
management believes that a significant portion of such deposits will either roll
over or be reinvested in annuities or mutual funds sold through the Bank's
branch offices.
As the following table indicates, the Bank's and the Company's
off-balance-sheet commitments at December 31, 2001 were limited to outstanding
loan commitments totaling $344.4 million and investment commitments in the
amount of $450.0 million.
(in thousands)
- --------------------------------------------------------------------------------
Multi-family mortgage loans $228,545
All other loans 115,869
Securities investments(1) 450,000
- --------------------------------------------------------------------------------
Total commitments $794,414
================================================================================
(1) Consists entirely of commitments to purchase mortgage-backed securities.
23
The following table summarizes the maturity profile of the Company's
consolidated contractual long-term debt payments and operating leases at
December 31, 2001:
================================================================================
(in thousands) Long-term debt(1) Operating leases
- --------------------------------------------------------------------------------
2002 $ 85,267 $ 5,375
2003 25,000 4,076
2004 22,000 3,512
2005 42,000 3,113
2006 65,500 2,698
2007 and thereafter 1,685,789 16,479
- --------------------------------------------------------------------------------
Total $1,925,556 $35,253
================================================================================
(1) Includes FHLB advances, trust preferred securities, and reverse repurchase
agreements.
Based upon the strength of the Bank's liquidity position, management
anticipates that the Bank and the Company will have sufficient funding to
fulfill these commitments when they are due.
The primary sources of funding for the Company are trust preferred
securities, dividend payments from the Bank, sales and maturities of investment
securities, and, to a lesser extent, earnings on investments and deposits held
by the Company. Trust preferred securities and dividend payments by the Bank
have primarily been used to fund stock repurchase programs, to pay dividends on
Company stock, and to pay the distributions on the trust preferred securities
issued by the Company which totaled $255.5 million at December 31, 2001.
The Bank's ability to pay dividends and other capital distributions to the
Company is generally limited by New York State banking law and regulations, and
by regulations of the Federal Deposit Insurance Corporation (the "FDIC"). In
addition, the New York State Superintendent of Banks and the FDIC may prohibit
the payment of dividends that are otherwise permissible by regulation for
reasons of safety and soundness.
Under New York State banking law, a New York State-chartered stock savings
bank may declare and pay dividends out of its net profits, unless there is an
impairment of capital, but approval of the Superintendent is required if the
total of all dividends declared in a calendar year would exceed the total of the
bank's net profits for that year combined with its retained net profits of the
preceding two years (subject to certain adjustments). As of December 31, 2001,
the Bank had $145.7 million of dividends or capital distributions it could pay
to the Company without regulatory approval, and the Company had $2.7 million of
securities available for sale and $107.1 million in cash deposits. Were the Bank
to apply to the Company for a dividend or capital distribution in excess of the
dividend amounts permitted under the regulations, no assurances could be made
that said application would be approved by the regulatory authorities.
Capital Position
The Company maintained an aggressive approach to capital management in
2001 and has already demonstrated a readiness to do so again in 2002.
In addition to increasing the quarterly cash dividend 20% in each of the
second and fourth quarters, the Company distributed a 50% stock dividend on
March 29 and September 20, pursuant to a 3-for-2 stock split on each of these
dates. The Company also allocated $121.0 million toward the repurchase of
6,254,437 shares over the course of four quarters at an average price of $19.35
per share. At December 31, 2001, a total of 1,066,787 shares remained available
for repurchase under the September 14, 2001 authorization; all of these had been
repurchased by February 19, 2002. Accordingly, on that date, the Board of
Directors authorized the Company to repurchase up to an additional 2,250,000
shares of stock. Of this number, 1,960,894 shares remained available for
repurchase at March 22, 2002.
The magnitude of the Company's share repurchase program serves as an
indication of management's confidence in the Company's capital strength.
Supported by cash earnings of $149.0 million and shares issued pursuant to the
Richmond County merger in the amount of $693.4 million, stockholders' equity
rose to $983.1 million at December 31, 2001, representing 10.68% of total assets
and a book value of $10.05 per share, based on 97,774,030 shares. At the prior
year-end, stockholders' equity totaled $307.4 million, representing 6.53% of
total assets and a book value of $4.94, based on 62,275,959 shares, as adjusted
for the 3-for-2 stock splits cited above. To calculate book value, the Company
subtracts the number of unallocated ESOP shares at the end of the period from
the number of shares outstanding at the same date. At December 31, 2001, the
number of unallocated ESOP shares was 4,071,246; at the prior year-end, the
split-adjusted number of unallocated ESOP shares was 4,279,320.
24 New York Community Bancorp, Inc. 2001 Annual Report
The level of stockholders' equity at December 31, 2001 was more than
sufficient to exceed the minimum federal requirements for a bank holding
company, which are considered on a consolidated basis. The following table sets
forth the Company's consolidated leverage, Tier 1 risk-based, and total
risk-based capital ratios at December 31, 2001 and 2000, and the respective
minimum requirements:
================================================================================
Minimum
At December 31, 2001 Actual Requirement
- --------------------------------------------------------------------------------
(dollars in thousands) Amount Ratio Ratio
- --------------------------------------------------------------------------------
Total risk-based capital $542,430 11.31% 10.0%
Tier 1 risk-based capital 497,184 10.37 6.0
Leverage capital 497,184 5.95 5.0
================================================================================
Minimum
At December 31, 2000 Actual Requirement
- --------------------------------------------------------------------------------
(dollars in thousands) Amount Ratio Ratio
- --------------------------------------------------------------------------------
Total risk-based capital $282,609 10.37% 10.0%
Tier 1 risk-based capital 264,545 9.70 6.0
Leverage capital 264,545 8.75 5.0
================================================================================
While the Company's regulatory capital was reduced by the addition of
$558.6 million in goodwill and core deposit intangibles in connection with the
Richmond County merger, the Company took steps to enhance its regulatory capital
in the fourth quarter with the issuance of $121.3 million in trust preferred
securities. As a result, the Company's regulatory Tier 1 risk-based capital
ratio rose to 10.37% at December 31, 2001 from 9.70% at the prior year-end.
The Company's capital strength is paralleled by the solid capital position
of the Bank, as reflected in the excess of its regulatory capital ratios over
the levels required by the FDIC for classification as a well capitalized
institution. At December 31, 2001, the Bank's Tier 1 leverage capital ratio
equaled 6.09% of average adjusted assets, as compared to the 5.00% required for
"well capitalized" classification, while its Tier 1 and total risk-based capital
ratios equaled 10.12% and 10.97%, respectively, of risk-weighted assets, as
compared to the 6.00% and 10.00% required.
RESULTS OF OPERATIONS
Earnings Summary
2001 and 2000 Comparison:
On July 31, 2001, the Company merged with Richmond County in a purchase
transaction calling for the exchange of 1.02 Company shares for each share of
Richmond County stock held at that date. Accordingly, the Company's 2001
earnings reflect five months of combined operations, and its earnings per share
reflect the issuance of 38,545,790 Company shares pursuant to the merger, as
adjusted for a 3-for-2 stock split on September 20, 2001.
The Company's 2001 earnings also reflect the full-year benefit of its
acquisition of Haven on November 30, 2000 in a purchase transaction that called
for the exchange of 1.04 Company shares for each share of Haven stock held. The
Company's 2000 earnings and earnings per share therefore reflect just one month
of combined operations and the addition of 22,112,424 shares, as adjusted for
the aforementioned stock split and an earlier 3-for-2 stock split on March 29,
2001.
Reflecting the Haven and Richmond County transactions, internal loan
growth, and the implementation of various strategic actions, the Company's net
income rose 326.8% from $24.5 million in 2000 to $104.5 million in 2001. The
Company's earnings also rose 139.3% on a diluted per share basis, from $0.56 to
$1.34. The extent of the Company's earnings growth was additionally reflected in
the returns provided on its average assets ("ROA") and average stockholders'
equity ("ROE"). The ROA rose to 1.63% in 2001 from 1.06% in 2000, while the ROE
rose to 18.16% from 13.24%.
In 2001, the Company's net income included $25.7 million in non-core
after-tax gains on the sale of loans and securities and two office locations
(see other operating income), offset by non-core after-tax charges totaling
$26.5 million, primarily reflecting $22.8 million stemming from the allocation
of Employee Stock Ownership Plan ("ESOP") shares in connection with the Richmond
County merger (see compensation and benefits) and $3.0 million stemming from a
tax adjustment (see income tax expense). The combined impact of these items on
the Company's 2001 earnings was a non-core after-tax charge of $836,000,
equivalent to $0.01 per share.
25
In the prior year, the Company's net income included a non-core after-tax
charge of $11.4 million, or $0.26 per share, the net effect of a $24.8 million
non-core charge on the allocation of ESOP shares pursuant to the Haven
acquisition (see compensation and benefits) and a $13.5 million non-core gain on
the sale of a Bank-owned property (see other income).
Excluding the respective charges, the Company's 2001 core earnings rose
$69.4 million, or 193.7%, to $105.3 million, signifying a 64.6% increase in
diluted core earnings per share to $1.35. In addition, the 2001 amount provided
a core ROA of 1.65% and a core ROE of 18.30%, as compared to 1.56% and 19.40%,
respectively, in the prior year.
The Company also recorded significant growth in its 2001 cash earnings,
which rose to $149.0 million from $58.5 million, a 154.7% increase. The 2001
amount provided a cash ROA and cash ROE of 2.33% and 25.90%, respectively, and
was equivalent to a 43.6% increase in diluted cash earnings per share from $1.33
to $1.91. The Company's cash earnings for the twelve months ended December 31,
2001 thus added $44.5 million, or 42.6%, more to tangible Tier 1 capital than
its comparable GAAP earnings. Readers are advised to see the Glossary on page 10
for a definition of cash earnings, and to see the cash earnings analysis that
appears on page 27 of this report.
The Company believes that its cash and core earnings, and the related cash
and core performance measures, enable investors to gain a better understanding
of its trends and results of operations than its GAAP results alone. Such
non-GAAP measures should be viewed in addition to, and not in lieu of, the
Company's GAAP results.
The growth in earnings was driven by the Haven and Richmond County
transactions, a record level of loan production, and the post-transaction
restructuring of the balance sheet. In addition, earnings were favorably
impacted by the steady decline in market interest rates and the steepening of
the yield curve, which created opportunities for leveraged asset growth.
While expenses rose, as one might expect, in the wake of two major
transactions, the benefits were far more significant. For example, the Company's
net interest income rose $132.7 million, or 181.6%, to $205.8 million, the net
effect of a $248.5 million rise in interest income to $423.3 million and a
$115.7 million rise in interest expense to $217.5 million. The favorable factors
that combined to create the increase in net interest income also supported a
38-basis point rise in interest rate spread and a 26-basis point rise in net
interest margin to 3.38% and 3.59%, respectively.
The Company's earnings were also fueled by a better than three-fold
increase in other operating income to $90.6 million, including $39.6 million in
non-core gains on the sale of loans and securities and the sale of two
Bank-owned properties. In the prior year, other operating income totaled $21.6
million, including a non-core gain of $13.5 million on the sale of the Bank's
former headquarters in Queens. Excluding these gains, core other operating
income rose to $51.0 million, reflecting a $30.5 million rise in fee income to
$35.1 million and a $12.5 million rise in core other income to $16.0 million.
While the growth in fee income largely reflects the expansion of the branch
network, the growth in other income also reflects the income derived from the
Company's investment in BOLI and from the sale of investment products in 86 of
the Company's banking offices.
The provision for loan losses had no impact on the Company's 2001 or 2000
earnings, as it was suspended in both years.
The $201.7 million increase in revenues from net interest and other
operating income was more than enough to offset the $71.4 million increase in
non-interest expense to $121.2 million. Reflected in the latter amount was a
$63.4 million rise in total operating expense to $112.8 million and a $7.9
million rise in the amortization of goodwill and core deposit intangible to $8.4
million.
Excluding the aforementioned non-core charges of $22.8 million and $24.8
million stemming from the Company's respective transaction-related ESOP share
allocations, core operating expense totaled $90.0 million and $24.5 million,
respectively, in 2001 and 2000. The higher operating expense level in 2001
largely reflects the costs of staffing and operating an expanded branch network
and, to a lesser extent, the post-transaction integration of data processing
systems in the first and fourth quarters of the year. The increase in goodwill
and core deposit intangible amortization reflects the full-year impact of the
Haven acquisition and the five-month impact of the Richmond County merger.
The growth in earnings was also partly offset by a $50.4 million increase
in income tax expense to $70.8 million, reflecting a $130.3 million rise in
pre-tax income to $175.2 million and an effective tax rate of 40.4%. The
increase in 2001 income tax expense also reflects a non-core tax rate adjustment
of $3.0 million.
Based on its accomplishments in 2001, and the implementation of certain
income-enhancing strategies, management currently anticipates that the Company's
2002 performance will reflect a better than 50% increase in diluted earnings per
share and a better than 20% increase in diluted cash earnings per share. These
earnings growth projections reflect management's current expectation that net
interest income, spread, and margin will continue to grow and that the provision
for loan losses will continue to be suspended; that other operating income will
continue to increase, while operating expense will stabilize and the effective
tax rate will be reduced. Estimates regarding cash earnings per share are based
on additional assumptions, including assumptions about the extent of share
repurchases.
Specific estimates for other operating income, operating expense, and the
effective tax rate are provided in the respective
26 New York Community Bancorp, Inc. 2001 Annual Report
line-item discussions that appear on pages 32-35, of this report. As actual
results may differ materially from current projections, readers are urged to
read the entire discussion, including the associated risk factors, and to refer
to the more general discussion of forward-looking statements and associated risk
factors that appears on pages 13-14.
2000 and 1999 Comparison:
The Company recorded net income of $24.5 million, or $0.56 per diluted
share, in 2000, as compared to $31.7 million, or $0.74 per diluted share, in
1999. Included in the 2000 amount was a non-core net charge of $11.4 million, or
$0.26 per share, incurred in connection with the Haven acquisition, which
consisted of two components: compensation and benefits expense of $24.8 million
stemming from the distribution of ESOP shares pursuant to the transaction, and
other operating income of $13.5 million stemming from the sale of the Company's
former headquarters in Queens. Included in the 1999 amount were a non-core net
benefit of $1.1 million, or $0.03 per share, stemming from the reversal of $2.0
million from the allowance for loan losses and a non-core net benefit of
$472,000 stemming from actions taken during the year to lower operating expense.
Per-share amounts for 2000 and 1999 have been adjusted to reflect the 3-for-2
stock splits in 2001.
Excluding these non-core items, the Company recorded core earnings of
$35.9 million, or $0.82 per diluted share (split-adjusted), in 2000, as compared
to core earnings of $30.1 million, or $0.71 per diluted share (split-adjusted),
in 1999. The 2000 amount provided a core ROA of 1.56% and a core ROE of 19.40%.
At the same time, the Company's cash earnings rose to $58.5 million, or
$1.33 per diluted share (split-adjusted), in 2000 from $44.3 million, or $1.04
per diluted share (split-adjusted), in the prior year. The Company's cash
earnings thus contributed $34.0 million, or 139.0%, more to capital in 2000 than
its reported earnings contributed alone. Similarly, while the Company recorded
an ROA and ROE of 1.06% and 13.24%, respectively, on a reported earnings basis,
its cash ROA and ROE were 2.52% and 31.38%.
Excluding the impact of the non-core items, the growth in core earnings
was primarily driven by a $5.6 million increase in core other operating income
to $8.1 million and a $4.2 million increase in net interest income to $73.1
million. Core other operating income was fueled by a $2.7 million rise in fee
income, primarily stemming from the sale of banking services and investment
products, and by a $2.9 million rise in core other income, including $2.1
million stemming from the Company's initial investment in BOLI on December 30,
1999.
The growth in net interest income was the net effect of a $31.7 million
rise in interest income to $174.8 million and a $27.5 million rise in interest
expense to $101.8 million. Pressured by a 100-basis point rise in market
interest rates and the increased use of short-term borrowings, the Company's
interest rate spread and net interest margin declined 41 and 46 basis points,
respectively, to 3.00% and 3.33%.
Earnings were further boosted by a $347,000 reduction in income tax
expense to $20.4 million, partly reflecting a $7.5 million reduction in pre-tax
income to $44.9 million.
The growth in core earnings was partly offset by a $2.7 million rise in
core operating expense to $24.5 million, or 1.06% of average assets, primarily
reflecting post-acquisition increases in compensation and benefits and occupancy
and equipment expense. Despite the higher levels of net interest income and core
other operating income, the core efficiency ratio rose to 30.20% from 28.70% in
the year-earlier period; however, the cash efficiency ratio improved to 24.47%
from 26.37%.
In addition, while the Company suspended the provision for loan losses
throughout 2000, the Company's 1999 results reflect the reversal of $2.0 million
from the loan loss allowance in the first quarter, which had a net benefit of
$1.1 million, or $0.03 per share.
Cash Earnings Analysis
For the Years Ended December 31,
=======================================================================================================
(in thousands, except per share data) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------
Net income $104,467 $24,477 $31,664
Additional contributions to tangible stockholders' equity:
Amortization and appreciation of stock-related benefit plans 22,775 24,795 2,559
Associated tax benefits 11,000 5,953 7,269
Dividends on unallocated ESOP shares 2,302 2,776 2,857
- -------------------------------------------------------------------------------------------------------
Total additional contributions to tangible stockholders' equity 36,077 33,524 12,685
Amortization of goodwill and core deposit intangible 8,428 494 --
- -------------------------------------------------------------------------------------------------------
Cash earnings $148,972 $58,495 $44,349
=======================================================================================================
Cash earnings per share(1) $ 1.94 $ 1.38 $ 1.06
Diluted cash earnings per share(1) 1.91 1.33 1.04
=======================================================================================================
(1) Per share amounts for 2000 and 1999 have been adjusted to reflect 3-for-2
stock splits on March 29 and September 20, 2001.
27
Interest Income
The level of interest income depends upon the average balance and mix of
the Company's interest-earning assets, the yields on said assets, and the
current level of market interest rates. These rates are influenced by the
Federal Open Market Committee (the "FOMC") of the Federal Reserve Board of
Governors, which reduces, maintains, or increases the federal funds rate (i.e.,
the rate at which banks borrow funds from one another), as it deems necessary.
The federal funds rate declined 475 basis points over the course of 2001 to
1.75% in December and, as of this writing, has been sustained at this rate.
2001 and 2000 Comparison:
The Haven and Richmond County transactions combined with a record level of
mortgage loan production to produce significant interest income growth in 2001.
The Company recorded 2001 interest income of $423.3 million, up $248.5 million,
or 142.1%, from the year-earlier amount.
The growth in interest income was driven by a $3.5 billion, or 161.4%,
rise in average interest-earning assets to $5.7 billion, which more than offset
a 59-basis point drop in the average yield to 7.38%. While the higher average
balance reflects internal loan growth and the benefit of the transactions, the
lower yield reflects the steady reduction in market interest rates over the
course of the year.
Loans generated $325.9 million, or 77.0%, of 2001 interest income, up from
$151.6 million, representing 86.7%, in the year-earlier twelve months. The
115.0% increase was driven by a $2.3 billion, or 122.2%, rise in the average
balance of loans to $4.2 billion, offsetting a 26-basis point decline in the
average yield to 7.71%. In addition to $1.9 billion in net loans acquired in the
Richmond County transaction, the higher average balance was bolstered by
twelve-month originations totaling $1.2 billion, nearly doubling the
year-earlier volume of $616.0 million. While the average yield was partly
reduced by the sale of assets acquired in the Haven and Richmond County
transactions, the structure of the loan portfolio served to limit the decline.
Notwithstanding the significant growth in the average balance, the
concentration of loans within the mix of average interest-earning assets
declined to 73.8% in 2001 from 86.8% in the prior year. The principal reason for
the decline was the merger-related infusion of mortgage-backed securities. In
2001, mortgage-backed securities represented 17.1% of average interest-earning
assets, a fairly significant increase from 1.9% in the prior year. Similarly, in
2001, mortgage-backed securities generated 14.5% of total interest income, up
from 2.2% of the total in the prior year. Mortgage-backed securities contributed
$61.3 million to 2001 interest income, up from $3.8 million in the year-earlier
twelve months. Reflecting $1.1 billion in mortgage-backed securities acquired in
the Richmond County merger, the average balance rose to $977.7 million from
$40.9 million, while generating an average yield of 6.27%, down 300 basis
points.
The interest income derived from securities grew to $30.1 million
year-over-year from $18.0 million, the result of a $148.3 million rise in the
average balance to $373.2 million and an eight-basis point rise in the average
yield to 8.07%. In 2001, securities represented 6.5% of average interest-earning
assets and generated 7.1% of interest income, down from 10.3% and 10.3%,
respectively, in the prior twelve-month period.
Money market investments generated interest income of $5.9 million, as
compared to $1.4 million in the prior year. The increase was the net effect of a
$128.8 million rise in the average balance to $153.2 million and a 201-basis
point decline in the average yield to 3.88%.
2000 and 1999 Comparison:
The Company recorded interest income of $174.8 million in 2000, a 22.2%
increase from $143.1 million in 1999. The $31.7 million increase stemmed from a
$372.8 million, or 20.5%, rise in average interest-earning assets to $2.2
billion, coupled with an 11-basis point rise in the average yield to 7.97%.
Fueled by mortgage originations of $616.0 million, mortgage and other
loans generated $151.6 million of interest income in 2000, up 15.2% from $131.6
million in 1999. The increase was the net effect of a $271.2 million, or 16.7%,
rise in the average balance to $1.9 billion, and a ten-basis point drop in the
average yield to 7.97%. Loans represented 86.7% of average interest-earning
assets and generated 86.7% of total interest income in 2000, as compared to
89.6% and 92.0%, respectively, in 1999.
Additional interest income stemmed from the Company's portfolios of
securities, mortgage-backed securities, and money market investments, which
increased significantly with the Haven acquisition. In connection with this
transaction, each of these portfolios was marked to market, which contributed to
the meaningful rise in average yields detailed below.
Securities generated interest income of $18.0 million in 2000, up 76.8%
from $10.2 million in 1999. The increase stemmed from a $58.2 million, or 34.9%,
rise in the average balance to $225.0 million, together with a 189-basis point
rise in the average yield to 7.99%. In 2000, securities represented 10.3% of
average interest-earning assets and generated 10.3% of total interest income, as
compared to 9.2% and 7.1%, respectively, in the prior year.
The interest income derived from mortgage-backed securities rose $2.9
million to $3.8 million, the result of a $27.9 million, or 213.0%, rise in the
average balance to $40.9 million and a 244-basis point rise in the average yield
to 9.27%. Mortgage-backed securities represented 1.9% of average
interest-earning assets and generated 2.2% of total interest income in 2000, up
from 0.7% and 0.6% in the prior year.
28 New York Community Bancorp, Inc. 2001 Annual Report
Money market investments contributed interest income of $1.4 million in
2000, up from $443,000 in 1999. The increase reflects a $15.1 million rise in
the average balance to $24.4 million and a 113-basis point rise in the average
yield to 4.89%.
Interest Expense
The level of interest expense is driven by the average balance and
composition of the Company's interest-bearing liabilities and by the respective
costs of the funding sources found within this mix. These factors are
influenced, in turn, by competition for deposits, the availability of
alternative funding sources, and the level of market interest rates.
2001 and 2000 Comparison:
In 2001, the level of interest expense was significantly impacted by the
infusion of core deposits acquired in the Haven and Richmond County transactions
and by the adoption of a wholesale leveraging strategy in the second half of the
year. While these factors combined to produce an increase in the average balance
of interest-bearing liabilities, the yearlong decline in market interest rates,
together with the greater concentration of core deposits, contributed to a
markedly lower cost of funds.
The Company recorded interest expense of $217.5 million in 2001, as
compared to $101.8 million in 2000. The 113.7% increase was fueled by a $3.4
billion, or 165.8%, rise in average interest-bearing liabilities to $5.4
billion, and partly offset by a 97-basis point drop in the average cost of funds
to 4.00%.
CDs accounted for $108.1 million, or 49.7%, of total interest expense in
the current twelve-month period, as compared to $41.2 million, representing
40.5%, in the year-earlier twelve months. The 2001 amount was the net effect of
a $1.3 billion rise in the average balance to $2.1 billion and a 34-basis point
decline in the average cost to 5.16%. The higher average balance was fueled by
CDs acquired in the transactions, while the lower cost corresponds to the
aforementioned decline in market interest rates. While CDs represented 38.5% and
36.5%, respectively, of average interest-bearing liabilities in 2001 and 2000,
the concentration declined steadily over the course of the year. In the fourth
quarter of 2001, the concentration of CDs declined to 33.4% of average
interest-earning liabilities and accounted for 42.2% of fourth quarter 2001
interest expense.
Other funding (NOW and money market accounts, savings accounts,
mortgagors' escrow, and non-interest-bearing deposits) generated combined 2001
interest expense of $33.7 million, up from $11.3 million in the prior year. The
increase was the net effect of a $1.5 billion rise in the average balance to
$2.1 billion, fueled by the Haven and Richmond County transactions, and a
46-basis point decline in the average cost to 1.62%, reflecting the drop in
market interest rates.
Specifically, NOW and money market accounts generated 2001 interest
expense of $15.2 million, up from $4.9 million in the prior year. The increase
was the net effect of a $641.5 million rise in the average balance to $803.5
million and a 113-basis point decline in the average cost to 1.89%. Savings
accounts generated 2001 interest expense of $18.5 million, up from $6.3 million,
the net effect of a $660.0 million rise in the average balance to $955.3 million
and a 22-basis point drop in the average cost to 1.93%. Mortgagors' escrow,
meanwhile, produced interest expense of $62,000, up $29,000, the result of a
$5.7 million rise in the average balance to $29.4 million and a seven-basis
point rise in the average cost to 21 basis points. The average balance of
non-interest-bearing deposits, meanwhile, rose to $298.8 million from $60.7
million, signifying an increase of 392.1%.
The significant funding provided by the Company's growing mix of deposits
was supplemented by an increase in borrowings as the Company capitalized on the
yield curve in the second half of the year. The interest expense produced by
borrowings thus rose 53.5% to $75.7 million in 2001 from $49.3 million in 2000,
the net effect of a $741.0 million rise in the average balance to $1.6 billion
and a 117-basis point decline in the average cost to 4.86%. Borrowings thus
represented 28.7% of average interest-bearing liabilities and generated 34.8% of
interest expense in 2001 as compared to 39.9% and 48.5%, respectively, in the
prior year.
2000 and 1999 Comparison:
The Company recorded interest expense of $101.8 million in 2000, a 37.1%
increase from $74.2 million in 1999. The increase stemmed from a $380.4 million
rise in the average balance of interest-bearing liabilities to $2.0 billion and
a 52-basis point rise in the average cost to 4.97%.
Borrowings generated interest expense of $49.3 million in 2000, up from
$30.3 million in 1999. The increase reflects a $247.7 million rise in the
average balance to $817.8 million, and a 72-basis point rise in the average cost
to 6.03%. The higher average balance reflects the Company's use of borrowings to
originate loans and repurchase shares in anticipation of the Haven acquisition;
while not reflected in the average balance for 2000, the volume of borrowings
for the combined company was reduced by $500.0 million at year-end. Borrowings
represented 39.9% of interest-bearing liabilities and generated 48.5% of total
interest expense in 2000, versus 34.2% and 40.8%, respectively, in the
year-earlier twelve months.
The interest expense produced by CDs rose $6.1 million to $41.2 million,
the result of a $33.6 million rise in the average balance to $748.1 million and
a 58-basis point rise in the average cost to 5.50%. CDs represented 36.5% of
average interest-bearing liabilities and generated 40.5% of total interest
expense in 2000, as compared to 42.9% and 47.3%, respectively, in 1999.
29
Other funding generated combined interest expense of $11.2 million in
2000, up $2.5 million from the 1999 amount. The increase was the net effect of a
$122.2 million rise in the combined average balance to $541.8 million and a
two-basis point drop in the average cost to 2.08%.
The interest expense produced by NOW and money market accounts rose $2.4
million year-over-year to $4.9 million, the result of a $78.1 million rise in
the average balance to $161.9 million and a nine-basis point rise in the average
cost to 3.02%. Savings accounts generated interest expense of $6.3 million,
comparable to the year-earlier figure, the net effect of a $21.0 million rise in
the average balance to $295.4 million and a 16-basis point reduction in the
average cost to 2.15%. Mortgagors' escrow generated interest expense of $33,000,
up $4,000 from the year-earlier level, reflecting a $41,000 rise in the average
balance to $23.8 million and a two-basis point rise in the average cost to
0.14%. In addition, the average balance of non-interest-bearing deposits rose to
$60.7 million in 2000 from $36.7 million in 1999.
Net Interest Income Analysis
For the Years Ended December 31,
===============================================================================================================================
2001 2000
- -------------------------------------------------------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(dollars in thousands) Balance Interest Cost Balance Interest Cost
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest-earning Assets:
Mortgage and other loans, net $4,227,982 $325,924 7.71% $1,902,821 $151,626 7.97%
Securities 373,229 30,114 8.07 224,969 17,974 7.99
Mortgage-backed securities 977,706 61,319 6.27 40,945 3,795 9.27
Money market investments 153,219 5,947 3.88 24,408 1,437 5.89
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 5,732,136 423,304 7.38 2,193,143 174,832 7.97
Non-interest-earning assets 664,749 108,202
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $6,396,885 $2,301,345
===============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing Liabilities:
NOW and money
market accounts $ 803,456 $ 15,171 1.89% $ 161,941 $ 4,892 3.02%
Savings accounts 955,343 18,473 1.93 295,370 6,346 2.15
Certificates of deposit 2,093,602 108,097 5.16 748,138 41,178 5.50
Borrowings 1,558,732 75,685 4.86 817,775 49,302 6.03
Mortgagors' escrow 29,449 62 0.21 23,777 33 0.14
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 5,440,582 217,488 4.00 2,047,001 101,751 4.97
Non-interest-bearing deposits 298,794 60,716
Other liabilities 82,218 8,795
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 5,821,595 2,116,512
Stockholders' equity 575,290 184,833
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $6,396,885 $2,301,345
===============================================================================================================================
Net interest income/interest
rate spread $205,816 3.38% $ 73,081 3.00%
Net interest-earning assets/net
interest margin $291,554 3.59% $146,142 3.33%
Ratio of interest-earning assets
to interest-bearing liabilities 1.05x 1.07x
===============================================================================================================================
For the Years Ended December 31,
======================================================================================
1999
- --------------------------------------------------------------------------------------
Average
Average Yield/
(dollars in thousands) Balance Interest Cost
- --------------------------------------------------------------------------------------
ASSETS
Interest-earning Assets:
Mortgage and other loans, net $1,631,168 $131,618 8.07%
Securities 166,761 10,169 6.10
Mortgage-backed securities 13,081 893 6.83
Money market investments 9,309 443 4.76
- --------------------------------------------------------------------------------------
Total interest-earning assets 1,820,319 143,123 7.86
Non-interest-earning assets 48,010
- --------------------------------------------------------------------------------------
Total assets $1,868,329
======================================================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing Liabilities:
NOW and money
market accounts $ 83,875 $ 2,456 2.93%
Savings accounts 274,402 6,329 2.31
Certificates of deposit 714,546 35,123 4.92
Borrowings 570,077 30,283 5.31
Mortgagors' escrow 23,736 29 0.12
- --------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,666,636 74,220 4.45
Non-interest-bearing deposits 37,596
Other liabilities 26,390
- --------------------------------------------------------------------------------------
Total liabilities 1,730,622
Stockholders' equity 137,707
- --------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $1,868,329
======================================================================================
Net interest income/interest
rate spread $ 68,903 3.41%
Net interest-earning assets/net
interest margin $153,683 3.79%
Ratio of interest-earning assets
to interest-bearing liabilities 1.09x
======================================================================================
30 New York Community Bancorp, Inc. 2001 Annual Report
Rate/Volume Analysis
The following table presents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) the changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) the changes attributable to changes in rate
(changes in rate multiplied by prior volume), and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
Year Ended Year Ended Year Ended
December 31, 2001 December 31, 2000 December 31, 1999
Compared to Year Ended Compared to Year Ended Compared to Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
================================================================================================================================
Increase/(Decrease) Increase/(Decrease) Increase/(Decrease)
- --------------------------------------------------------------------------------------------------------------------------------
Due to Due to Due to
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands) Volume Rate Net Volume Rate Net Volume Rate Net
- --------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS:
Mortgage and other loans,
net $179,270 $ (4,972) $174,298 $21,651 $(1,643) $20,008 $ 15,021 $(7,187) $ 7,834
Securities 11,965 175 12,140 4,651 3,154 7,805 2,938 (233) 2,705
Mortgage-backed securities 58,735 (1,211) 57,524 2,583 319 2,902 (1,619) 174 (1,445)
Money market investments 5,005 (495) 4,510 889 105 994 (229) (19) (248)
- --------------------------------------------------------------------------------------------------------------------------------
Total 254,975 (6,503) 248,472 29,774 1,935 31,709 16,111 (7,265) 8,846
- --------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
NOW and money market accounts 12,125 (1,846) 10,279 2,358 78 2,436 410 102 512
Savings accounts 12,737 (610) 12,127 451 (434) 17 135 (30) 105
Certificates of deposit 69,426 (2,507) 66,919 1,848 4,207 6,055 1,482 (2,610) (1,128)
Borrowings 36,011 (9,628) 26,383 14,936 4,083 19,019 9,147 (154) 8,993
Mortgagors' escrow 12 17 29 -- 4 4 1 (18) (17)
- --------------------------------------------------------------------------------------------------------------------------------
Total 130,310 (14,573) 115,737 19,593 7,938 27,531 11,175 (2,710) 8,465
- --------------------------------------------------------------------------------------------------------------------------------
Net change in interest income $124,664 $ 8,071 $132,735 $10,181 $(6,003) $ 4,178 $ 4,936 $(4,555) $ 381
================================================================================================================================
Net Interest Income
Net interest income is the Company's primary source of income. Its level
is a function of the average balance of interest-earning assets, the average
balance of interest-bearing liabilities, and the spread between the yield on
said assets and the cost of said liabilities. These factors are influenced, in
turn, by the volume, pricing, and mix of the Company's interest-earning assets;
the volume, pricing, and mix of its funding sources; and such external factors
as competition, economic conditions, and the monetary policy of the FOMC.
2001 and 2000 Comparison:
In 2001, the Company recorded net interest income of $205.8 million, up
$132.7 million from the year-earlier amount. The increase reflects the benefit
of the Haven and Richmond County transactions, the balance sheet restructuring
that followed, and the origination of $1.2 billion in mortgage loans over the
twelve-month period. The increase also reflects the implementation of a
wholesale leveraging program subsequent to the Richmond County merger that
capitalized on the yield curve to further bolster earnings growth.
The same factors that combined to support the rise in net interest income
combined to expand the Company's interest rate spread and net interest margin in
2001. The Company's spread rose to 3.38% from 3.00%, the year-earlier measure,
while its margin rose to 3.59% from 3.33%. The expansion is even more pronounced
when comparing the fourth quarter 2001 and 2000 measures: the Company's spread
rose to 3.68% from 2.93%, a 75-basis point increase, while its margin rose to
3.83% from 3.24%, a 59-basis point rise.
In 2002, the Company anticipates continued expansion of its net interest
income, spread, and margin, reflecting certain assumptions regarding the pricing
of its deposits, and the level of loan demand and production. With regard to the
first of these assumptions, the Company anticipates that $1.9 billion in CDs
with an average cost of 4.45% will reprice downward over the four quarters, with
the bulk of these repricing in the first half of the year. With regard to the
second of these assumptions, the Company will have originated approximately
$500.0 million in mortgage loans in the first quarter and have a pipeline of
approximately $600.0 million at quarter's end. Furthermore, the increase in
funding provided by the Richmond County merger and the subsequent leveraging
program have enhanced the Company's lending and investing capacity.
31
Among the factors that could cause a contraction in net interest income, a
decline in mortgage loan demand and production are paramount. The Company cannot
guarantee that all of the loans in its pipeline will be originated, or that a
record volume of loans will be generated over the course of the year. Loan
demand may be influenced by changes in market interest rates and other economic
conditions, as well as by changes in competition within the marketplace. In
addition, the ability to originate loans depends on the availability of funding,
which similarly may be influenced by changes in competition and market interest
rates. Other factors that could adversely impact the level of net interest
income include a decline in asset quality, a significant reduction in the volume
of multi-family mortgage loan refinancings, or a change in the deposit mix in
favor of higher cost funds. The Company's projections are partially based on the
expectation that interest rates will increase immaterially during the year.
2000 and 1999 Comparison:
Despite the steady rise in market interest rates over the course of 2000,
net interest income rose to $73.1 million from $68.9 million in 1999. The 6.1%
increase was driven by the significant growth of interest-earning assets, and
tempered by a substantial rise in the cost of funds.
At the same time, the Company's spread and margin declined to 3.00% and
3.33%, respectively, from 3.41% and 3.79% in the year-earlier twelve months.
While the rise in market interest rates had some impact on the 2000 measures,
the contraction in spread and margin was primarily due to the use of higher cost
sources of funding for both mortgage loan production and the acquisition-related
repurchase of Company shares.
Provision for Loan Losses
2001 and 2000 Comparison:
Notwithstanding the significant growth of its assets since year-end 2000,
the Company upheld its long-standing record of asset quality in 2001. While
non-performing assets rose to $17.7 million at December 31, 2001 from $9.1
million at December 31, 2000, the ratio to total assets held steady at 0.19%.
Similarly, while non-performing loans rose $8.4 million to $17.5 million, the
ratio of non-performing loans to loans, net, rose a modest eight basis points,
to 0.33%. In addition, the fourth quarter of 2001 was the Company's 29th
consecutive quarter without any net charge-offs being recorded.
Reflecting a $22.4 million addition in connection with the Richmond County
merger, the allowance for loan losses rose from $18.1 million at December 31,
2000 to $40.5 million at December 31, 2001. The 2001 amount was equivalent to
231.46% of non-performing loans and 0.76% of loans, net.
In view of the coverage provided, and the quality of its assets, the
Company suspended the provision for loan losses throughout 2001. The fourth
quarter of the year was, in fact, its 26th consecutive quarter without any
provisions being made.
Based on certain assumptions about the quality of the loan portfolio and
the adequacy of the coverage provided by the loan loss allowance, management
currently anticipates that the provision for loan losses will again be suspended
throughout 2002. Factors that could trigger a reversal of this position include
a deterioration in the quality of the Company's loans; an increase in loan
charge-offs; a downturn in the local real estate market; or a downturn in the
local, regional, or national economy.
For a detailed explanation of the factors considered by management in
determining the allowance for loan losses, please see "Asset Quality" beginning
on page 17 of this report.
2000 and 1999 Comparison:
The quality of the Company's assets at December 31, 2000 was consistent
with their quality at December 31, 1999. While the balance of non-performing
loans rose to $9.1 million from $3.1 million (primarily reflecting the Haven
acquisition), the ratio of non-performing loans to loans, net, rose a mere six
basis points to 0.25% from 0.19%. In addition, the fourth quarter of 2000 was
the Company's 25th consecutive quarter without any net charge-offs. Accordingly,
the provision for loan losses was suspended in all four quarters, consistent
with the Company's practice since the third quarter of 1995. Reflecting the
acquisition, the allowance for loan losses rose $11.0 million to $18.1 million
at December 31, 2000, representing 198.68% of non-performing loans and 0.50% of
loans, net.
In addition to suspending the loan loss provision in 1999, the Company
reversed $2.0 million from the allowance for loan losses, resulting in a net
benefit of $1.1 million, or $0.03 per share. An additional $400,000 was reversed
from the loan loss allowance in the fourth quarter to establish a recourse
reserve for loans sold to the FHLB-NY on December 29, 1999.
Other Operating Income
Other operating income consists of fee income (income derived from service
charges on loans and traditional banking products) and other income (primarily
income derived from the sale of alternative investment products such as
annuities and mutual funds). Also included in other income are gains on the sale
of securities, loans, and Bank-owned properties, and income from the Company's
investment in BOLI. Included on the balance sheet in "other assets," the
Company's BOLI investment rose to $123.3 million at December 31, 2001 from $62.4
million at December 31, 2000 and generated other income of $6.6 million and $2.1
million over the respective twelve-month periods.
32 New York Community Bancorp, Inc. 2001 Annual Report
2001 and 2000 Comparison:
Other operating income contributed substantially to the Company's 2001
earnings, as expected, reflecting a better than three-fold increase from the
year-earlier amount. Specifically, other operating income rose to $90.6 million
in 2001 from $21.6 million in 2000, representing 30.6% and 22.9% of total
revenues in the respective years. Included in the 2001 amount were $37.9 million
in non-core gains on the sale of loans and securities and $1.7 million in
non-core gains on the sale of two Bank-owned properties, for a total of $39.6
million. Included in the 2000 amount was a non-core gain of $13.5 million on the
sale of the Bank's former headquarters in Flushing, in connection with its
acquisition of Haven and subsequent move to Westbury, New York.
Excluding the respective non-core gains, and largely reflecting the
full-year effect of the Haven acquisition, core other operating income rose to
$51.0 million from $8.1 million, including a $30.5 million increase in fee
income to $35.1 million and a $12.5 million rise in core other income to $16.0
million. With the acquisition of Haven, the Company increased its franchise from
14 to 86 branches, and significantly expanded its customer base. In addition,
Haven was among the nation's leading distributors of alternative investment
products, generating significant income from the sale of annuities and mutual
funds. To supplement the income thereby produced through the former Haven
branches, the Company introduced the sale of such products in its original 14
branches during 2001. The increase in core other operating income also reflects
the income generated by BOLI and by the origination of one-to-four family
mortgage and consumer loans through third-party conduits.
In 2002, the Company anticipates recording other operating income in the
range of $62.0 million to $65.0 million, as it enjoys the full-year benefit of
the Richmond County merger and rolls out the sale of investment products in the
acquired banking offices. In addition, the Company opened one new traditional
and two new supermarket branches on Staten Island in the first quarter, further
expanding its customer base. BOLI is expected to contribute approximately $7.2
million in non-taxable other income, with additional 2002 income expected to
stem from gains on the sale of securities and loans. The Company also
anticipates a modest increase in fee income stemming from its first quarter 2002
acquisition of Peter B. Cannell & Co., Inc., an investment advisory firm with
assets under management of approximately $650.0 million at December 31, 2001.
Prior to the acquisition, the Company had a 47% equity interest in the firm.
Factors that could cause the level of other operating income to fall
materially below the range expected include an increase in competition for
financial products and services; a decline in the demand for one-to-four family
and consumer loans; an economic downturn in the markets served by the Company's
branches; and a significant increase in the level of market interest rates.
2000 and 1999 Comparison:
The Company recorded other operating income of $21.6 million in 2000, up
$19.1 million from the year-earlier amount. While the increase primarily
reflects the non-core gain of $13.5 million stemming from the sale of the
Company's former headquarters on December 30, 2000, core other operating income
rose a solid $5.6 million to $8.1 million, excluding the gain.
The $5.6 million increase reflects a $2.9 million rise in core other
income to $3.6 million (including $2.1 million derived from the Company's BOLI
investment) and a $2.7 million rise in fee income to $4.6 million (largely
reflecting income generated in connection with service charges on banking
products and loans).
Non-interest Expense
The Company's non-interest expense has two primary components: operating
expense, which itself consists of compensation and benefits, occupancy and
equipment, general and administrative ("G&A"), and other expenses; and the
amortization of goodwill and the core deposit intangible ("CDI") incurred in
connection with the Company's Haven and Richmond County transactions,
respectively.
Included in compensation and benefits expense are expenses associated with
the amortization and appreciation of shares held in the Company's stock-related
benefit plans ("plan-related expenses") which are added back to stockholders'
equity at the end of the year. In addition, plan-related expenses are among the
items added back to net income to calculate the cash earnings of the Company.
Reflecting the adoption of Statement of Financial Accounting Standards
("SFAS") Nos. 141 and 142 on January 1, 2002, the amortization of the goodwill
stemming from the Haven acquisition is no longer required; however, the
amortization of the CDI stemming from the Richmond County merger will be
amortized over a period of ten years.
2001 and 2000 Comparison:
The Company recorded non-interest expense of $121.2 million in 2001 and
$49.8 million in 2000. Operating expense accounted for $112.8 million of the
2001 figure and $49.3 million of the 2000 amount.
In connection with the allocation of ESOP shares pursuant to both the
Haven and Richmond County transactions, the Company incurred non-core charges of
$22.8 million and $24.8 million, respectively, in 2001 and 2000 that were
recorded in operating expense. Excluding the charges in each of these years, the
Company recorded core operating expense of $90.0 million,
33
representing 1.41% of average assets, in the current twelve-month period, and
$24.5 million, representing 1.06% of average assets, in the year-earlier twelve
months.
The increase in core operating expense reflects the full-year impact of
the Haven acquisition, which expanded the branch network from 14 to 86 branches
in November 2000 and the five-month impact of the Richmond County merger, which
added 34 more banking offices on July 31, 2001.
Compensation and benefits expense thus rose $24.1 million to $63.1 million
on a GAAP basis, including the aforementioned non-core charge. Excluding this
charge, core compensation and benefits expense rose to $40.3 million from $14.2
million, reflecting the increased staffing needs of a $9.2 billion company with
119 offices spanning three states. At December 31, 2001, the number of full-time
equivalent employees totaled 1,521, as compared to 908 at the prior year-end.
The increase in 2001 operating expense also includes a $14.7 million rise
in occupancy and equipment expense to $18.6 million; a $22.2 million rise in G&A
expense to $27.6 million; and a $2.4 million rise in other expense to $3.4
million. In addition to the expanded branch network, the increase in occupancy
and equipment expense reflects the costs incurred in integrating the data
processing systems of CFS Bank and Richmond County Savings Bank with those of
New York Community Bank in the first and fourth quarters of 2001, respectively.
The higher G&A expense likewise reflects the expansion of the franchise and the
costs of marketing the Bank's products and services to a substantially larger
customer base.
The growth in operating expense was partly offset by the growth in net
interest income and other operating income to produce a core efficiency ratio of
35.03% and a cash efficiency ratio of 27.51%. The comparable measures were
30.20% and 24.47%, respectively, in the prior year.
Reflecting ongoing cost controls and additional reductions in overlapping
resources, it is currently management's expectation that operating expense will
range from $123.0 million to $125.0 million in 2002. This estimate also reflects
the planned divestiture of 14 in-store branch offices early in the second
quarter, and the opening of three branches on Staten Island in the first quarter
of the year.
Among the factors that could cause actual operating expense to differ
materially from the range expected would be a delay in the divestiture of the 14
in-store branches, a delay in the reduction of overlapping resources, and
further expansion of the branch network, whether through transactions or de novo
branch development.
Reflecting the full-year impact of the Haven acquisition and the
five-month impact of the Richmond County merger, the amortization of goodwill
and CDI rose to $8.4 million in 2001 from $494,000 in the prior year. The 2001
amount included $5.9 million in goodwill amortization stemming from the Haven
acquisition and $2.5 million in CDI amortization stemming from the merger with
Richmond County. The 2000 amount reflected one month of goodwill amortization
stemming from the Haven acquisition.
As more fully discussed on page 35 under "Impact of Accounting
Pronouncements--Business Combinations, Goodwill, and Other Intangible Assets,"
the adoption of new accounting rules will result in the amortization of goodwill
stemming from the Haven acquisition being discontinued in 2002, resulting in an
annual savings of $5.9 million. The amortization of the CDI stemming from the
Richmond County merger will, however, continue, and is expected to approximate
$1.5 million per quarter or $6.0 million for the year.
2000 and 1999 Comparison:
The Company recorded non-interest expense of $49.8 million in 2000 and
$21.4 million in 1999. While the 2000 amount included $494,000 in goodwill
amortization stemming from the Haven acquisition, there was no comparable
expense in 1999.
Excluding the $24.8 million impact of the aforementioned ESOP allocation,
the Company recorded core operating expense of $24.5 million, or 1.06% of
average assets, as compared to core operating expense of $22.3 million, or 1.14%
of average assets, in 1999. The 1999 amount excluded a net gain of $865,000
pursuant to the freezing of the Company's defined benefit plan at September 30,
and the implementation of an early retirement plan in the fourth quarter of the
year. On a reported basis, operating expense totaled $49.3 million in 2000, as
compared to $21.4 million in 1999.
Core compensation and benefits expense totaled $14.2 million in 2000, as
compared to $13.5 million in the prior year. Including the non-core items
mentioned above, compensation and benefits expense totaled $39.0 million and
$13.5 million, respectively, in the corresponding periods. The 2000 amount
included plan-related expenses of $24.8 million, up from $2.6 million in 1999.
The higher level of operating expense in 2000 also reflects a $1.7 million
rise in occupancy and equipment expense to $4.0 million, a $642,000 rise in G&A
expense to $5.4 million, and a $78,000 rise in other operating expense to
$950,000. While the higher level of occupancy and equipment expense includes the
operation of the CFS Bank branches for the month of December, the higher levels
of G&A and other expense largely reflect other acquisition-related costs.
34 New York Community Bancorp, Inc. 2001 Annual Report
The rise in operating expense was partly offset by the higher levels of
net interest income and other operating income in 2000, producing a core
efficiency ratio of 30.20%, as compared to 28.70% in the prior year. On the
basis of cash earnings, the efficiency ratio improved to 24.47% from the
year-earlier measure of 26.37%.
Income Tax Expense
Income tax expense includes federal, New York State, and New York City
income taxes. In addition, the Company's income tax expense reflects certain
expenses stemming from the amortization and appreciation of shares held in its
stock-related benefit plans. While these plan-related tax expenses are recorded
as a charge against earnings, they are added back to stockholders' equity at the
end of the period, and are among the items added back to net income to determine
the cash earnings of the Company.
2001 and 2000 Comparison:
In 2001, the Company recorded income tax expense of $70.8 million, as
compared to $20.4 million in the year-earlier twelve months. Included in the
2001 amount was a non-core tax expense of $3.0 million pursuant to the
write-down of state deferred tax assets in connection with the Company's tax
planning strategies. The $50.4 million increase in income tax expense further
reflects a $130.3 million rise in pre-tax income to $175.2 million, offset by a
decline in the effective tax rate to 40.4% from 45.5%.
While the effective tax rate declined in 2001 from the rate recorded in
2000, it was unfavorably impacted in both of these years by the
non-deductibility of certain transaction-related ESOP expenses totaling $11.0
million and $6.0 million, respectively.
In connection with the implementation of certain tax planning strategies
in the fourth quarter of 2001, management is currently projecting an effective
tax rate of 32% to 33% in 2002.
2000 and 1999 Comparison:
The Company recorded income tax expense of $20.4 million in 2000, a
year-over-year reduction of $347,000, reflecting a $7.5 million decline in
pre-tax income to $44.9 million. The effective tax rate rose to 45.5% from
39.6%, the 1999 level, primarily due to non-deductible expenses stemming from
the acquisition-related allocation of ESOP shares.
Included in 2000 and 1999 income tax expense were plan-related expenses of
$6.0 million and $7.3 million, which were added back to stockholders' equity at
the respective year-ends.
IMPACT OF ACCOUNTING PRONOUNCEMENTS
Business Combinations, Goodwill, and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets," which are effective for fiscal years beginning after
December 15, 2001 and immediately applicable to business combinations occurring
after June 30, 2001. Under the new rules, all business combinations are to be
accounted for using the purchase method. In addition, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized, but will be
subject to annual impairment tests in accordance with the new standards. Other
intangible assets will continue to be amortized over their useful lives.
As previously stated, the Company acquired Haven in a purchase transaction
on November 30, 2000 and merged with Richmond County in a purchase transaction
on July 31, 2001. The Company will apply the new rules on accounting for
goodwill and other intangible assets with regard to the Haven acquisition on
January 1, 2002, at which time the amortization of goodwill stemming from this
acquisition will be discontinued, representing a savings of approximately $1.5
million per quarter, or approximately $5.9 million per year. The new rules were
applied on August 1, 2001 with regard to the Richmond County merger; as a
result, no goodwill is being amortized in connection with this transaction. The
amortization of the CDI stemming from the Richmond County merger amounted to
$2.5 million in 2001 and is expected to approximate $1.5 million per quarter, or
$6.0 million, in 2002. The Company expects to perform the required impairment
tests of its goodwill as of January 1, 2002 in the second quarter of the year.
It is not anticipated that these tests will have a material effect on the
consolidated financial statements of the Company.
Accounting for the Impairment or Disposal of Long-lived Assets
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-lived Assets." SFAS No. 144 establishes more
stringent criteria than those currently existing under GAAP for determining when
a long-lived asset is held for sale. While SFAS No. 144 also broadens the
definition of "discontinued operations," it does not allow for the accrual of
future operating losses as was previously permitted. The provisions of the new
standard are to be applied prospectively. The Company does not expect SFAS No.
144 to have a material impact on its consolidated financial statements when it
is adopted on January 1, 2002.
35
MARKET PRICE OF COMMON STOCK AND DIVIDENDS PAID PER COMMON SHARE
Shares of New York Community Bancorp, Inc. are traded on The Nasdaq
National Market(R) under the symbol "NYCB." At December 31, 2001, the number of
outstanding shares was 101,845,276 and the number of registered owners was
approximately 8,500. The latter figure does not include those investors whose
shares were held for them by a bank or broker at that date.
The table below sets forth the intra-day high/low price range and closing
prices for the Company stock, as reported by The Nasdaq Stock Market(R), and the
cash dividends paid per common share for each of the four quarters of 2001 and
2000. The 2000 amounts have been adjusted to reflect 3-for-2 stock splits on
March 29 and September 20, 2001.
Market Price(1)
Dividends Declared ---------------------------------
per Common Share(1) High Low Close
================================================================================
2001
1st Quarter $0.1111 $19.933 $14.667 $19.333
2nd Quarter 0.1333 26.660 19.293 25.100
3rd Quarter 0.1333 31.633 16.250 23.210
4th Quarter 0.1600 28.930 21.650 22.870
================================================================================
2000
1st Quarter $0.1111 $12.056 $ 7.722 $ 8.028
2nd Quarter 0.1111 9.417 7.667 8.194
3rd Quarter 0.1111 12.917 8.222 12.833
4th Quarter 0.1111 16.806 11.333 16.333
================================================================================
(1) Amounts shown have been adjusted to reflect 3-for-2 stock splits on March
29 and September 20, 2001.
36 New York Community Bancorp, Inc. 2001 Annual Report
Consolidated Statements of Condition
December 31,
======================================================================================================================
(in thousands, except share data) 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 168,449 $ 133,093
Money market investments 10,166 124,622
Securities held to maturity ($114,881 and $120,125 pledged at
December 31, 2001 and 2000, respectively) (note 4) 203,195 222,534
Mortgage-backed securities held to maturity ($50,801 and $0 pledged at
December 31, 2001 and 2000, respectively) (note 5) 50,865 1,923
Securities available for sale ($1,381,356 and $127,858 pledged at
December 31, 2001 and 2000, respectively) (note 6) 2,374,782 303,734
Mortgage loans, net (notes 7 and 11) 5,284,718 3,594,720
Other loans 116,969 39,730
Less: Allowance for loan losses (note 8) (40,500) (18,064)
- ----------------------------------------------------------------------------------------------------------------------
Loans, net (notes 7 and 8) 5,361,187 3,616,386
Premises and equipment, net 69,010 39,191
Goodwill, net (note 2) 614,653 118,070
Core deposit intangible, net (note 2) 57,500 --
Deferred tax asset, net (note 12) 40,396 42,360
Other assets (notes 9 and 14) 252,432 108,872
- ----------------------------------------------------------------------------------------------------------------------
Total assets $ 9,202,635 $ 4,710,785
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (note 10):
NOW and money market accounts $ 948,324 $ 719,420
Savings accounts 1,639,239 492,604
Certificates of deposit 2,407,906 1,873,810
Non-interest-bearing accounts 455,133 171,360
- ----------------------------------------------------------------------------------------------------------------------
Total deposits 5,450,602 3,257,194
- ----------------------------------------------------------------------------------------------------------------------
Official checks outstanding 87,647 41,239
Borrowings (note 11) 2,506,828 1,037,505
Mortgagors' escrow 21,496 11,291
Other liabilities (note 14) 152,928 56,146
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 8,219,501 4,403,375
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' equity (note 3):
Preferred stock at par $0.01 (5,000,000 shares authorized; none issued) -- --
Common stock at par $0.01 (150,000,000 shares authorized; 108,224,425 shares
issued; 101,845,276 and 66,555,279 shares outstanding at December 31, 2001
and 2000, respectively) 1,082 310
Paid-in capital in excess of par 898,830 174,450
Retained earnings (substantially restricted) (note 17) 167,511 146,514
Less: Treasury stock (6,379,149 and 3,128,780 shares, respectively) (78,294) (2,388)
Unallocated common stock held by ESOP (note 15) (6,556) (8,485)
Common stock held by SERP and Deferred Compensation Plans (notes 14 and 15) (3,113) (3,770)
Unearned common stock held by RRPs (note 15) (41) (41)
Accumulated other comprehensive income, net of tax effect 3,715 820
- ----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 983,134 307,410
- ----------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (note 13)
Total liabilities and stockholders' equity $ 9,202,635 $ 4,710,785
======================================================================================================================
See accompanying notes to consolidated financial statements.
37
Consolidated Statements of Income and Comprehensive Income
Years Ended December 31,
==============================================================================================================
(in thousands, except per share data) 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Mortgage and other loans (note 7) $325,924 $151,626 $ 131,618
Securities 30,114 17,974 10,169
Mortgage-backed securities 61,319 3,795 893
Money market investments 5,947 1,437 443
- --------------------------------------------------------------------------------------------------------------
Total interest income 423,304 174,832 143,123
- --------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
NOW and money market accounts 15,171 4,892 2,456
Savings accounts 18,473 6,346 6,329
Certificates of deposit 108,097 41,178 35,123
Borrowings (note 11) 75,685 49,302 30,283
Mortgagors' escrow 62 33 29
- --------------------------------------------------------------------------------------------------------------
Total interest expense 217,488 101,751 74,220
- --------------------------------------------------------------------------------------------------------------
Net interest income 205,816 73,081 68,903
Reversal of provision for loan losses (note 8) -- -- 2,400
- --------------------------------------------------------------------------------------------------------------
Net interest income after reversal of provision for loan losses 205,816 73,081 71,303
- --------------------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME:
Fee income 35,061 4,595 1,863
Other (note 7) 55,554 17,050 660
- --------------------------------------------------------------------------------------------------------------
Total other operating income 90,615 21,645 2,523
- --------------------------------------------------------------------------------------------------------------
OPERATING EXPENSE:
Compensation and benefits (notes 14 and 15) 63,140 39,014 13,458
Occupancy and equipment (note 13) 18,643 3,953 2,289
General and administrative 27,610 5,413 4,771
Other 3,364 950 872
- --------------------------------------------------------------------------------------------------------------
Total operating expense 112,757 49,330 21,390
Amortization of goodwill and core deposit intangible 8,428 494 --
- --------------------------------------------------------------------------------------------------------------
Total non-interest expense 121,185 49,824 21,390
Income before income taxes 175,246 44,902 52,436
Income tax expense (note 12) 70,779 20,425 20,772
- --------------------------------------------------------------------------------------------------------------
Net income $104,467 $ 24,477 $ 31,664
- --------------------------------------------------------------------------------------------------------------
Comprehensive income, net of tax:
Unrealized gains (losses) on securities 2,895 820 (34)
Comprehensive income $107,362 $ 25,297 $ 31,630
==============================================================================================================
Earnings per share $ 1.36 $ 0.58 $ 0.76
Diluted earnings per share $ 1.34 $ 0.56 $ 0.74
==============================================================================================================
See accompanying notes to consolidated financial statements.
38 New York Community Bancorp, Inc. 2001 Annual Report
Consolidated Statements of Changes in Stockholders' Equity
===============================================================================================================================
Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK (Par Value: $0.01):
Balance at beginning of year $ 310 $ 310 $ 310
Shares issued in the Richmond County merger 772 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 1,082 310 310
- -------------------------------------------------------------------------------------------------------------------------------
PAID-IN CAPITAL IN EXCESS OF PAR:
Balance at beginning of year 174,450 147,607 138,180
Tax benefit on stock plans 11,000 5,953 7,269
Allocation of ESOP stock 20,846 20,890 2,158
Shares issued in the Richmond County merger 692,534 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 898,830 174,450 147,607
- -------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of year 146,514 150,545 165,383
Net income 104,467 24,477 31,664
Dividends paid on common stock (43,955) (17,847) (18,563)
Exercise of stock options (3,004,071; 1,003,705; and 2,351,752 shares) (39,515) (10,661) (27,939)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 167,511 146,514 150,545
- -------------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK:
Balance at beginning of year (2,388) (145,122) (137,901)
Purchase of common stock (6,254,437; 3,833,714; and 2,893,482 shares) (121,048) (41,483) (38,352)
Shares issued in the Haven acquisition -- 174,283 --
Exercise of stock options (3,004,071; 1,003,705; and 2,351,752 shares) 45,142 9,934 31,131
- -------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (78,294) (2,388) (145,122)
- -------------------------------------------------------------------------------------------------------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN:
Balance at beginning of year (8,485) (12,388) (12,767)
Allocation of ESOP stock 1,929 3,903 379
- -------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (6,556) (8,485) (12,388)
- -------------------------------------------------------------------------------------------------------------------------------
SERP AND DEFERRED COMPENSATION PLANS:
Balance at beginning of year (3,770) (3,770) (3,770)
Allocation of SERP stock 657 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (3,113) (3,770) (3,770)
- -------------------------------------------------------------------------------------------------------------------------------
RECOGNITION AND RETENTION PLANS:
Balance at beginning of year (41) (41) (63)
Earned portion of RRPs -- -- 22
- -------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (41) (41) (41)
- -------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED COMPREHENSIVE INCOME, NET OF TAX:
Balance at beginning of year 820 -- 34
Unrealized gains (losses) on securities, net of tax of $4,398, $442, and $0 8,167 820 (34)
Less: Reclassification adjustment for gains included in net income,
net of tax of $2,839, $0, and $0 (5,272) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) in securities, net of tax 2,895 820 (34)
- -------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 3,715 820 --
- -------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $ 983,134 $ 307,410 $ 137,141
===============================================================================================================================
See accompanying notes to consolidated financial statements.
39
Consolidated Statements of Cash Flows
Years Ended December 31,
===========================================================================================================================
(in thousands) 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 104,467 $ 24,477 $ 31,664
- ---------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization 5,495 1,461 923
Reversal of provision for loan losses -- -- (2,400)
(Accretion of discounts) amortization of premiums, net (2,261) (1,818) 2
Amortization of net deferred loan origination fees 1,393 4,808 1,372
Amortization of goodwill and core deposit intangible 8,428 494 --
Net gain on redemption and sales of securities and
mortgage-backed securities (27,539) (704) (91)
Net gain on sale of loans (10,305) (121) (126)
Net gain on sale of Bank office buildings (1,484) (13,500) --
Tax benefit effect on stock plans 11,000 5,953 7,269
Earned portion of RRPs -- -- 22
Earned portion of ESOP 22,775 24,793 2,537
Earned portion of SERP 657 -- --
Changes in assets and liabilities:
Goodwill recognized in the Richmond County merger
and the Haven acquisition, respectively (502,511) (118,070) --
Core deposit intangible recognized in the Richmond
County merger (60,000) -- --
Acquired allowance 22,436 11,033 --
Decrease (increase) in deferred income taxes 1,964 (36,864) 421
Increase in other assets (143,560) (55,433) (32,569)
Increase (decrease) in official checks outstanding 46,408 10,050 (3,298)
Increase in other liabilities 96,782 40,325 7,256
- ---------------------------------------------------------------------------------------------------------------------------
Total adjustments (530,322) (127,593) (18,682)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (425,855) (103,116) 12,982
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from redemption and sales of securities and
mortgage-backed securities held to maturity 112,573 64,396 17,380
Proceeds from redemption and sales of securities available for sale 685,074 447,508 14,534
Purchase of securities held to maturity, net (93,234) (24,754) (48,041)
Purchase of mortgage-backed securities held to maturity, net (48,942) -- --
Purchase of securities available for sale, net (2,723,427) (738,436) (6,794)
Net increase in loans (2,379,211) (2,021,624) (329,480)
Proceeds from sale of loans 620,886 103,860 216,129
Acquisition or purchase of premises and equipment, net (33,830) (30,592) (584)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,860,111) (2,199,642) (136,856)
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in mortgagors' escrow 10,205 1,003 (2,796)
Net increase (decrease) in deposits 2,193,408 2,181,176 (26,267)
Net increase in borrowings 1,469,323 401,127 197,323
Cash dividends and stock options exercised (83,470) (28,508) (46,502)
Purchase of Treasury stock, net of stock options exercised (75,906) (31,549) (7,221)
Shares issued in the Richmond County merger 693,306 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 4,206,866 2,523,249 114,537
- ---------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (79,100) 220,491 (9,337)
Cash and cash equivalents at beginning of period 257,715 37,224 46,561
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 178,615 $ 257,715 $ 37,224
===========================================================================================================================
Supplemental information:
Cash paid for: Interest $ 217,958 $ 101,759 $ 74,177
Income taxes 3,541 11,754 14,582
- ---------------------------------------------------------------------------------------------------------------------------
Transfers to foreclosed real estate from loans 55 -- 223
- ---------------------------------------------------------------------------------------------------------------------------
Transfers to real estate held for investment from foreclosed real estate -- -- 457
===========================================================================================================================
See accompanying notes to consolidated financial statements.
40 New York Community Bancorp, Inc. 2001 Annual Report
Notes to the Consolidated Financial Statements
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
As more fully described in Note 3, New York Community Bank, formerly known
as Queens County Savings Bank (the "Bank" or the "Subsidiary"), converted from a
mutual savings bank to the capital stock form of ownership on November 23, 1993.
In anticipation of the conversion, New York Community Bancorp, Inc. (the
"Company" or the "Parent"), formerly known as Queens County Bancorp, Inc., was
formed on July 20, 1993.
On June 27, 2000, the Company entered into an agreement and plan of merger
with Haven Bancorp, Inc. ("Haven"), parent of CFS Bank, under which it would
acquire Haven in a purchase transaction valued at $174.3 million. On November
30, 2000, Haven was merged with and into the Company, and on January 31, 2001,
CFS Bank merged with and into the Bank.
On March 27, 2001, the Company and Richmond County Financial Corp.
("Richmond County") entered into an agreement, valued at $693.4 million, under
which the two companies would combine in a merger-of-equals. On July 31, 2001,
Richmond County merged with and into the Company. At the same time, Richmond
County Savings Bank, the primary subsidiary of Richmond County, merged with and
into the Bank.
At December 31, 2001, the Bank operated 119 banking offices (including 52
traditional and 66 in-store) in New York City, Long Island, Rockland and
Westchester counties, Connecticut, and New Jersey, through six divisions: Queens
County Savings Bank, Richmond County Savings Bank, CFS Bank, First Savings Bank
of New Jersey, Ironbound Bank, and South Jersey Bank. In the second quarter of
2002, the Company expects to complete the divestiture of 14 in-store branches in
Connecticut, Rockland County, New York, and New Jersey, and will have opened one
traditional and two in-store branches on Staten Island, bringing the total
number of banking offices to 108.
The following is a description of the significant accounting and reporting
policies that the Company and its wholly-owned subsidiaries follow in preparing
and presenting their consolidated financial statements, which conform to
accounting principles generally accepted in the United States of America
("GAAP") and to general practices within the banking industry. The preparation
of financial statements in conformity with GAAP requires the Company to make
estimates and judgments that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant inter-company
accounts and transactions are eliminated in consolidation. Certain
reclassifications have been made to prior-year financial statements to conform
to the 2001 presentation.
Securities and Mortgage-backed Securities Held to Maturity and Securities
Available for Sale
Securities and mortgage-backed securities that the Company has the
positive intent and ability to hold until maturity are carried at cost, adjusted
for amortization of premiums and accretion of discounts on a level-yield method
over the remaining period to contractual maturity, and adjusted, in the case of
mortgage-backed securities, for actual prepayments. Securities and
mortgage-backed securities to be held for indefinite periods of time and not
intended to be held to maturity are classified as "available for sale"
securities and are recorded at fair value, with unrealized appreciation and
depreciation, net of tax, reported as a separate component of stockholders'
equity. Gains and losses on sales of securities and mortgage-backed securities
are computed using the specific identification method.
Loans
Loans, net, are carried at unpaid principal balances, less unearned
discounts, net of deferred loan origination fees and the allowance for loan
losses.
The Company applies Statement of Financial Accounting Standards ("SFAS")
No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan/Income Recognition
and Disclosures" to all loans except smaller balance homogenous consumer loans
(including one-to-four family mortgage loans), loans carried at fair value or
the lower of cost or fair value, debt securities, and leases. SFAS No. 114
requires the creation of a valuation allowance for impaired loans based on the
present value of expected future cash flows, discounted at the loan's effective
interest rate, the loan's observable market price, or the fair value of the
collateral. Under SFAS No. 114, a loan is impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due under the contractual terms of the loan. SFAS No. 114 also
provides that in-substance foreclosed loans should not be included in foreclosed
real estate for financial reporting purposes but, rather, in the loan portfolio.
The allowance for loan losses is increased by the provision for loan
losses charged to operations and reduced by reversals or by charge-offs, net of
recoveries. Management establishes the allowance for loan losses through a
process that begins with estimates of probable loss inherent in the portfolio
based on various statistical analyses. These analyses consider historical and
projected default rates and loss severities; internal risk ratings;
41
geographic, industry, and other environmental factors; and model imprecision. In
addition, management considers the Company's current business strategy and
credit process, including compliance with stringent guidelines it has
established with regard to credit limitations, credit approvals, loan
underwriting criteria, and loan workout procedures. While management uses
available information to recognize losses on loans, future additions may be
necessary, based on changes in economic conditions beyond management's control.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses.
Accordingly, the Bank may be required to take certain charge-offs and/or
recognize additions to the allowance based on regulators' judgments concerning
information available to them during their examinations. Based upon all relevant
and available information, management believes that the current allowance for
loan losses is adequate.
Fees are charged for originating mortgage loans at the time the loans are
granted. Loan origination fees, partially offset by certain expenses associated
with loans originated, are amortized to interest on loans over a 12-month
period, using the straight-line method, which approximates the interest method.
Adjustable rate mortgages that have a lower rate during the introductory period
(usually one year) will reflect the amortization of a substantial portion of the
net deferred fee as a yield adjustment during the introductory period.
Loans are classified as "in foreclosure," and the accrual of interest and
amortization of origination fees discontinued, when management considers
collection to be doubtful.
Premises and Equipment
Premises, furniture and fixtures, and equipment are carried at cost less
the accumulated depreciation computed on a straight-line basis over the
estimated useful lives of the respective assets (generally five to twenty
years). Leasehold improvements are carried at cost less the accumulated
amortization computed on a straight-line basis over the shorter of the related
lease term or the estimated useful life of the improvement.
Depreciation and amortization included in occupancy and equipment expense
for the years ended December 31, 2001, 2000, and 1999 amounted to approximately
$5.5 million, $1.5 million, and $923,000, respectively.
Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, foreclosure are to
be sold or rented, and are initially recorded at fair value at the date of
foreclosure, establishing a new cost basis. After foreclosure, valuations are
periodically performed by management and the real estate is carried at the lower
of carrying amount or fair value, less the estimated selling costs. Revenue and
expenses from operations and changes in the valuation allowance are included in
other operating expense.
Income Taxes
Income tax expense consists of income taxes that are currently payable and
deferred income taxes. Deferred income tax expense (benefit) is determined by
recognizing deferred tax assets and liabilities for future tax consequences,
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. The realization
of deferred tax assets is assessed and a valuation allowance provided for that
portion of the asset for which the allowance is more likely than not to be
realized. Deferred tax assets and liabilities are measured using enacted tax
rates that are expected to apply to taxable income in years in which those
temporary differences are expected to be recovered or settled.
Stock Option Plans
In October 1995, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 123, "Accounting for Stock-based Compensation." SFAS No. 123
defines a fair value-based method of accounting for an employee stock option or
similar equity instrument. It also allows an entity to continue to measure
compensation cost for stock options using the intrinsic value-based method of
accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Entities electing to remain with the
accounting method prescribed by APB Opinion No. 25 must make pro forma
disclosures of net income and earnings per share as if the fair value-based
method of accounting had been applied. SFAS No. 123 is effective for
transactions entered into in fiscal years beginning after December 31, 1995. Pro
forma disclosures required for entities that elect to continue measuring
compensation cost using APB Opinion No. 25 must include the effects of all
awards granted in fiscal years beginning after December 15, 1994.
The Company had five stock option plans at December 31, 2001, including
two plans for directors and employees of New York Community Bank; two plans for
directors and employees of the former CFS Bank, and a plan for directors and
employees of the former Richmond County Savings Bank. The Bank applies APB
Opinion No. 25 and the related interpretations in accounting for its plans;
accordingly, no compensation cost has been recognized.
Retirement Plans
The Company maintains three pension plans: one for employees of the former
Queens County Savings Bank, a second for employees of the former CFS Bank, and a
third for employees of the former Richmond County Savings Bank, covering
substantially all employees who had attained minimum service requirements at the
time the plans were frozen on September 30, 1999, December 29, 2000, and March
31, 1999, respectively.
Post-retirement benefits were recorded on an accrual basis with an annual
provision that recognized the expense over the service life of the employee,
determined on an actuarial basis.
42 New York Community Bancorp, Inc. 2001 Annual Report
Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents are
defined to include cash and due from banks and federal funds sold, with original
maturities of less than 90 days.
Earnings per Share (Basic and Diluted)
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share,"
simplifying the standards for computing earnings per share previously found in
APB Opinion No. 15, "Earnings per Share" and replacing the presentation of
primary EPS with a presentation of basic EPS. SFAS No. 128 requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income available
to common stockholders by the weighted average number of shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that would then
share in the earnings of the entity.
For the years ended December 31, 2001, 2000, and 1999, the weighted
average number of common shares outstanding used in the computation of basic EPS
was 76,727,717; 42,402,771; and 41,685,503, respectively. The weighted average
number of common shares outstanding used in the computation of diluted EPS was
78,054,538; 43,946,073; and 42,614,701 for the corresponding periods. The
differential in the weighted average number of common shares outstanding used in
the computation of basic and diluted EPS represents the average common stock
equivalents of stock options. Share amounts for 2000 and 1999 have been adjusted
to reflect 3-for-2 stock splits on March 29 and September 20, 2001.
Accounting Changes: Business Combinations
Effective July 1, 2001, the Company adopted the provisions of SFAS No. 141
and certain provisions of SFAS No. 142 as required for goodwill and intangible
assets resulting from business combinations consummated after June 30, 2001. The
new rules require that all business combinations initiated after June 30, 2001
be accounted for under the purchase method. The non-amortization provisions of
the new rules affecting goodwill and intangible assets deemed to have indefinite
lives are effective for all purchase business combinations completed after June
30, 2001.
NOTE 2:
BUSINESS COMBINATIONS
On July 31, 2001, the Company completed a merger-of-equals with Richmond
County, parent of Richmond County Savings Bank, which operated 34 banking
offices in Staten Island, Brooklyn, and New Jersey. At the date of the merger,
Richmond County had consolidated assets of $3.7 billion, including loans, net,
of $1.9 billion, and consolidated liabilities of $3.4 billion, including
deposits of $2.5 billion. Under the terms of the plan and agreement of merger,
holders of Richmond County common stock received 1.02 shares of the Company's
common stock for each share of Richmond County common stock held at the merger
date. In connection therewith, the Company issued 38,545,791 shares of common
stock (split-adjusted) with a value of $693.4 million. The excess of cost over
fair value of net assets acquired was $498.6 million. On August 1, 2001, the
Company applied certain provisions of SFAS No. 142 as required for goodwill and
intangible assets; as a result, no goodwill is being amortized in connection
with this transaction. A core deposit intangible of $60.0 million was also
recognized in connection with the merger, which is being amortized on a
straight-line basis over ten years. The results of operations of Richmond County
were included in the Consolidated Statements of Income and Comprehensive Income
subsequent to July 31, 2001.
On November 30, 2000, the Company acquired Haven, parent of CFS Bank,
which operated 70 branch offices in New York City, Nassau, Suffolk, Westchester,
and Rockland counties, New Jersey, and Connecticut. At the date of acquisition,
Haven had consolidated assets of $2.7 billion, including loans, net, of $2.2
billion, and consolidated liabilities of $2.6 billion, including deposits of
$2.1 billion. In accordance with the plan and agreement of merger, holders of
Haven common stock received 1.04 shares of the Company's common stock for each
share of Haven common stock held at the date of the acquisition. In connection
therewith, the Company issued 22,112,424 shares of common stock (split-adjusted)
from Treasury with a value of $174.3 million. The excess of cost over fair value
of net assets acquired was $118.6 million. In accordance with the adoption of
SFAS No. 142 on January 1, 2002, the Company has suspended the amortization of
goodwill generated by the Haven acquisition.
In further accordance with SFAS No. 142, the goodwill resulting from the
Richmond County merger and the Haven acquisition will be assessed for impairment
as of January 1, 2002 in the second quarter of the year. It is not anticipated
that these tests will have a material effect on the consolidated financial
statements of the Company.
43
NOTE 3:
CONVERSION TO STOCK FORM OF OWNERSHIP
On July 13, 1993, the Board of Trustees of the Bank (now the Board of
Directors of the Company) adopted a Plan of Conversion to convert the Bank from
a state-chartered mutual savings bank to a state-chartered capital stock form
savings bank. In connection with the conversion, the Company was organized under
Delaware law for the purpose of acquiring all of the capital stock of the Bank.
On November 23, 1993, the Company became a public company and issued its
initial offering of 4,588,500 shares of common stock (par value $0.01 per share)
at a price of $25.00 per share, resulting in net proceeds of $110.6 million.
Concurrent with the issuance of the common stock, 50 percent of the net proceeds
were used to purchase all of the outstanding capital stock of the Bank. Parent
company-only financial information is presented in Note 18.
As a result of seven stock splits (a 3-for-2 stock split on September 30,
1994; a 4-for-3 stock split on August 22, 1996; and 3-for-2 stock splits on
April 10 and October 1, 1997, September 29, 1998, and March 29 and September 20,
2001), the initial offering price adjusts to $1.65 per share. The number of
shares outstanding at December 31, 2001 was 101,845,276.
NOTE 4:
SECURITIES HELD TO MATURITY
Securities held to maturity at December 31, 2001 and 2000 are summarized
as follows:
December 31, 2001
=======================================================================================================
Gross Gross Estimated
(in thousands) Cost Unrealized Gain Unrealized Loss Market Value
- -------------------------------------------------------------------------------------------------------
Corporate bonds $ 37,870 $ -- $390 $ 37,480
- -------------------------------------------------------------------------------------------------------
Capital trust notes 45,444 1,289 462 46,271
- -------------------------------------------------------------------------------------------------------
FHLB stock 114,881 -- -- 114,881
Corporate stock 5,000 15 -- 5,015
- -------------------------------------------------------------------------------------------------------
Total stock 119,881 15 -- 119,896
- -------------------------------------------------------------------------------------------------------
Total securities held to maturity $203,195 $1,304 $852 $203,647
=======================================================================================================
December 31, 2000
=======================================================================================================
Gross Gross Estimated
(in thousands) Cost Unrealized Gain Unrealized Loss Market Value
- -------------------------------------------------------------------------------------------------------
U.S. Government and agencies $125,325 $ -- $ (833) $124,492
- -------------------------------------------------------------------------------------------------------
Capital trust notes 25,191 -- (1,299) 23,892
- -------------------------------------------------------------------------------------------------------
FHLB stock 72,016 -- -- 72,016
FNMA stock 2 206 -- 208
- -------------------------------------------------------------------------------------------------------
Total stock 72,018 206 -- 72,224
- -------------------------------------------------------------------------------------------------------
Total securities held to maturity $222,534 $ 206 $(2,132) $220,608
=======================================================================================================
The following is a summary of the amortized cost and estimated market
value of securities held to maturity at December 31, 2001 by remaining term to
maturity:
================================================================================
Corporate Capital Trust Estimated
(in thousands) Bonds Notes Market Value
- --------------------------------------------------------------------------------
Up to 30 years $37,870 $45,444 $83,751
================================================================================
Because the sale of Federal Home Loan Bank ("FHLB") and Federal National
Mortgage Association ("FNMA") stock is restricted by the respective governmental
agencies, these securities are not considered marketable equity securities. FHLB
stock is carried at cost, which approximates value at redemption.
44 New York Community Bancorp, Inc. 2001 Annual Report
NOTE 5:
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
Mortgage-backed securities held to maturity at December 31, 2001 and 2000
are summarized as follows:
December 31,
================================================================================
(in thousands) 2001 2000
- --------------------------------------------------------------------------------
Principal balance $50,801 $1,926
Unamortized premium 103 --
Unamortized discount (39) (3)
- --------------------------------------------------------------------------------
Mortgage-backed securities, net 50,865 1,923
Gross unrealized gains 254 56
- --------------------------------------------------------------------------------
Estimated market value $51,119 $1,979
================================================================================
The amortized cost and estimated market value of mortgage-backed
securities held to maturity, all of which have prepayment provisions, are
distributed to a maturity category based on the estimated average life of said
securities, as shown below. Principal prepayments are not scheduled over the
life of the investment, but are reflected as adjustments to the final maturity
distribution. The following is a summary of the amortized cost and estimated
market value of mortgage-backed securities held to maturity at December 31, 2001
by remaining term to maturity:
================================================================================
Estimated
(in thousands) Cost Basis Market Value
- --------------------------------------------------------------------------------
Over 5 years $50,865 $51,119
- --------------------------------------------------------------------------------
Mortgage-backed securities, net $50,865 $51,119
================================================================================
There were no sales of mortgage-backed securities held to maturity during
the years ended December 31, 2001, 2000, or 1999.
NOTE 6:
SECURITIES AVAILABLE FOR SALE
Securities available for sale at December 31, 2001 and 2000 are summarized
as follows:
December 31, 2001
=========================================================================================================================
Amortized Gross Gross Estimated
(in thousands) Cost Unrealized Gain Unrealized Loss Market Value
- -------------------------------------------------------------------------------------------------------------------------
Debt and equity securities available for sale:
U.S. Government and agency obligations $ 25,113 $ -- $ 230 $ 24,883
Corporate bonds 13,387 182 2 13,567
Capital trust notes 120,171 4,809 722 124,258
Preferred stock 79,857 392 78 80,171
Common stock 9,137 1,575 256 10,456
- -------------------------------------------------------------------------------------------------------------------------
Total $ 247,665 $ 6,958 $1,288 $ 253,335
- -------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities available for sale:
GNMA certificates $ 143,179 $ 667 $ 4 $ 143,842
FNMA certificates 78,258 468 2 78,724
FHLMC certificates 47,528 418 -- 47,946
CMOs and REMICs 1,841,727 10,140 932 1,850,935
- -------------------------------------------------------------------------------------------------------------------------
Total $2,110,692 $11,693 $ 938 $2,121,447
- -------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $2,358,357 $18,651 $2,226 $2,374,782
=========================================================================================================================
45
December 31, 2000
=========================================================================================================================
Amortized Gross Gross Estimated
(in thousands) Cost Unrealized Gain Unrealized Loss Market Value
- -------------------------------------------------------------------------------------------------------------------------
Debt and equity securities available for sale:
U.S. Government and agency obligations $ 59,669 $ -- $ -- $ 59,669
Corporate bonds 61,140 -- -- 61,140
Preferred stock 15,203 -- -- 15,203
Common stock 8,065 -- -- 8,065
- -------------------------------------------------------------------------------------------------------------------------
Total $144,077 $ $ -- $144,077
- -------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities available for sale:
GNMA certificates $ 1,059 $ 8 $ -- $ 1,067
FNMA certificates 80,286 -- -- 80,286
FHLMC certificates 4,963 -- -- 4,963
CMOs and REMICs 73,341 -- -- 73,341
- -------------------------------------------------------------------------------------------------------------------------
Total $159,649 $ 8 $ -- $159,657
- -------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $303,726 $ 8 $ -- $303,734
=========================================================================================================================
The gross proceeds, gross realized gains, and gross realized losses from
the sale of available-for-sale securities for the year ended December 31, 2001
were as follows:
(in thousands)
================================================================================
Gross proceeds $685,074
Gross realized gains 37,207
Gross realized losses 9,668
================================================================================
The impact of the respective data for the years ended December 31, 2000
and 1999 on the Consolidated Statements of Income and Comprehensive Income was
immaterial.
The following table presents information regarding securities available
for sale at December 31, 2001, based on contractual maturity:
======================================================================================================================
Due
Due Within Due
Within One to After Total Fair
(in thousands) One Year Five Years Five Years Cost Value
- ----------------------------------------------------------------------------------------------------------------------
U.S. Government and agency obligations $ -- $ -- $ 25,113 $ 25,113 $ 24,883
Corporate bonds 3,461 4,731 5,195 13,387 13,567
Capital trust notes -- -- 120,171 120,171 124,257
Preferred stock 79,857 -- -- 79,857 80,171
Common stock 9,137 -- -- 9,137 10,456
GNMA certificates -- -- 143,179 143,179 143,842
FNMA certificates -- -- 78,258 78,258 78,724
FHLMC certificates -- -- 47,528 47,528 47,947
CMOs and REMICs -- -- 1,841,727 1,841,727 1,850,935
- ----------------------------------------------------------------------------------------------------------------------
Total securities available for sale $ 92,455 $ 4,731 $2,261,171 $2,358,357 $2,374,782
======================================================================================================================
At December 31, 2001, the Company had commitments to purchase securities
available for sale of $450.0 million, all of which were expected to settle
within 60 days. The Company had no such commitments at December 31, 2000.
46 New York Community Bancorp, Inc. 2001 Annual Report
NOTE 7:
LOANS
The composition of the loan portfolio at December 31, 2001 and 2000 is
summarized as follows:
December 31,
================================================================================
(in thousands) 2001 2000
- --------------------------------------------------------------------------------
MORTGAGE LOANS:
Multi-family $3,255,167 $ 1,945,656
1-4 family 1,318,295 1,267,080
Commercial real estate 561,944 324,068
Construction 152,367 59,469
- --------------------------------------------------------------------------------
Total mortgage loans 5,287,773 3,596,273
Less: Net deferred loan origination fees 3,055 1,553
- --------------------------------------------------------------------------------
Mortgage loans, net 5,284,718 3,594,720
- --------------------------------------------------------------------------------
OTHER LOANS:
Home equity 87,274 12,240
Cooperative apartment -- 3,726
Passbook savings 1,777 779
Other 27,827 23,003
- --------------------------------------------------------------------------------
Total other loans 116,878 39,748
Unearned premiums (discounts) 91 (18)
- --------------------------------------------------------------------------------
Other loans, net 116,969 39,730
Less: Allowance for loan losses 40,500 18,064
- --------------------------------------------------------------------------------
Loans, net $5,361,187 $ 3,616,386
================================================================================
The Bank has a diversified loan portfolio as to type and borrower
concentration. At December 31, 2001 and 2000, approximately $4.4 billion and
$3.1 billion, respectively, of the Bank's mortgage loans were secured by
properties located in New York State. Accordingly, economic conditions in the
State of New York may have a significant impact on the market value of the real
estate collateralizing such loans and on the ability of the Bank's borrowers to
honor their contracts.
On December 1, 2000, the Bank adopted a policy of originating one-to-four
family mortgage loans on a conduit basis in order to minimize its exposure to
credit and interest rate risk. Since then, applications have been taken and
processed by a third party and the loans sold to said party, service-released.
Under this program, the Bank sold one-to-four family mortgage loans totaling
$67.0 million and $1.7 million in 2001 and 2000, respectively.
During the year ended December 31, 2001, the Bank sold $610.6 million in
one-to-four family mortgage loans that were primarily acquired in the Haven
transaction. On December 28, 2000, the Bank sold one-to-four family mortgage
loans totaling $105.7 million that it had acquired in the Haven transaction,
while retaining the servicing rights.
During 1999, the Bank sold a $211.6 million interest in multi-family
mortgage loans from its portfolio to the Federal Home Loan Bank of New York
("FHLB-NY"), while retaining the servicing rights. In connection with this
transaction, the Bank provided additional collateral of $75.8 million in loans
to the FHLB-NY.
The Bank services mortgage loans for various third parties, including the
FHLB-NY, Savings Bank Life Insurance ("SBLI"), FNMA, and the State of New York
Mortgage Agency ("SONYMA"). The unpaid principal balance of serviced loans
amounted to $1.7 billion, $1.1 billion, and $224.8 million at December 31, 2001,
2000, and 1999, respectively. Custodial escrow balances maintained in connection
with such loans amounted to $5.5 million, $3.4 million, and $1.9 million at the
corresponding dates.
At December 31, 2001 and 2000, loan commitments amounted to approximately
$344.4 million and $180.1 million, respectively. Substantially all of the
commitments at December 31, 2001 were expected to close within 90 days.
47
NOTE 8:
ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses for the years ended December 31,
2001, 2000, and 1999 is summarized as follows:
December 31,
================================================================================
(in thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Balance, beginning of year $18,064 $ 7,031 $ 9,431
Acquired allowance 22,436 11,033 --
Reversal of provision for loan losses -- -- (2,400)
- --------------------------------------------------------------------------------
Balance, end of year $40,500 $18,064 $ 7,031
================================================================================
The allowance for loan losses was increased by $22.4 million in 2001
pursuant to the Richmond County merger, and by $11.0 million in 2000 pursuant to
the Haven acquisition. In 1999, the Company reversed $2.0 million from the
allowance for loan losses in the first quarter and, in the fourth
quarter, reversed an additional $400,000 in connection with the sale of $211.6
million in loans to the FHLB-NY.
Mortgage loans in foreclosure amounted to approximately $10.6 million,
$6.0 million, and $2.9 million, at December 31, 2001, 2000, and 1999,
respectively. The interest income that would have been recorded under the
original terms of such loans and the interest income actually recognized for the
years ended December 31, 2001, 2000, and 1999, are summarized below:
December 31,
================================================================================
(in thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Interest income that would have been recorded $ 651 $ 435 $ 641
Interest income recognized (42) (51) (70)
- --------------------------------------------------------------------------------
Interest income foregone $ 609 $ 384 $ 571
================================================================================
The Company defines impaired loans as those loans in foreclosure that are
not one-to-four family mortgage loans. Impaired loans for which the discounted
cash flows, collateral value, or market price equals or exceeds the carrying
value of the loan do not require an allowance. The allowance for impaired loans
for which the discounted cash flows, collateral value, or market price is less
than the carrying value of the loan is included in the Bank's overall allowance
for loan losses. The Bank generally recognizes interest income on these loans to
the extent that it is received in cash. There were no impaired loans in 2001,
2000, or 1999.
NOTE 9:
FORECLOSED REAL ESTATE
The following table summarizes transactions in foreclosed real estate,
which is included in "other assets," for the years ended December 31, 2001 and
2000:
December 31,
====================================================================================================
(in thousands) 2001 2000
- ----------------------------------------------------------------------------------------------------
Balance, beginning of year $ 12 $ 66
Acquired in the Richmond County merger and the Haven acquisition, respectively 204 12
Transfers in 55 --
Sales (22) (66)
- ----------------------------------------------------------------------------------------------------
Balance, end of year $ 249 $ 12
====================================================================================================
Foreclosed real estate is carried at fair market value. There were no
valuation allowances at December 31, 2001 or 2000, and no provisions for the
years ended December 31, 2001, 2000, or 1999.
48 New York Community Bancorp, Inc. 2001 Annual Report
NOTE 10:
DEPOSITS
The following is a summary of weighted average interest rates at December
31, 2001 and 2000 for each type of deposit:
December 31,
=======================================================================================================================
2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Percent Weighted Percent Weighted
(dollars in thousands) Amount of Total Average Rate Amount of Total Average Rate
- -----------------------------------------------------------------------------------------------------------------------
Non-interest-bearing demand accounts $ 455,133 8.35% 0.00% $ 171,360 5.26% 0.00%
NOW and money market accounts 948,324 17.40 1.40 719,420 22.09 2.87
Savings accounts 1,639,239 30.07 1.61 492,604 15.12 1.87
Certificates of deposit 2,407,906 44.18 4.18 1,873,810 57.53 6.05
- -----------------------------------------------------------------------------------------------------------------------
Total deposits $5,450,602 100.00% 2.57% $3,257,194 100.00% 4.40%
- -----------------------------------------------------------------------------------------------------------------------
The following is a summary of certificates of deposit in amounts of $100,000
or more at December 31, 2001 by remaining term to maturity:
CDs of $100,000 or More Maturing Within
================================================================================
0-3 3-6 6-12 Over 12
(in thousands) Months Months Months Months Total
- --------------------------------------------------------------------------------
Total maturities $101,770 $92,771 $123,299 $90,606 $408,446
================================================================================
At December 31, 2001 and 2000, the aggregate amount of certificates of
deposit of $100,000 or more was approximately $408.4 million and $320.7 million,
respectively.
NOTE 11:
BORROWINGS
Borrowings totaled $2.5 billion and $1.0 billion at December 31, 2001 and
2000, respectively, and consisted of the following:
Federal Home Loan Bank of New York ("FHLB-NY") Advances
=============================================================================================
2001 2000
- ---------------------------------------------------------------------------------------------
(dollars in thousands) Weighted Average Weighted Average
Contractual Maturity Amount Interest Rate Amount Interest Rate
- ---------------------------------------------------------------------------------------------
2001 $ -- --% $ 20,000 5.29%
2002 124,267(1) 4.15 51,609 5.72
2003 25,000 5.49 20,000 5.62
2004 22,000 5.32 -- --
2005 42,000 5.82 20,000 6.21
2006 65,500 4.78 -- --
2007 -- -- -- --
2008 501,400 5.24 34,000 5.47
2009 429,300 5.79 346,800 5.89
2010 567,300 6.08 455,700 6.16
- ---------------------------------------------------------------------------------------------
$1,776,767(1) 5.57% $948,109 5.98%
=============================================================================================
(1) Includes $54.0 million of FHLB-NY overnight line of credit advances at
December 31, 2001. The rate is based on the federal funds rate at the time of
takedown plus 10 basis points. Principal and interest are due on the next
succeeding business day. The Company had an overnight line of credit with the
FHLB-NY for a maximum of $100.0 million at December 31, 2001.
The advances received were all fixed rate under the FHLB-NY convertible
advance program, which grants the FHLB-NY the option to call the advance after
an initial lock-out period of one to three or five years and quarterly
thereafter, until maturity. At December 31, 2001 and 2000, the convertible
advances were collateralized by mortgage-backed securities with a carrying value
of approximately $924.6 million and $248.0 million; pledges of FHLB-NY stock of
$114.9 million and $72.0 million; and a blanket assignment of the Company's
unpledged, qualifying mortgage loans.
The Company maintains a line of credit with the FHLB-NY that totaled $3.7
billion and $1.9 billion at December 31, 2001 and 2000, respectively. The credit
line is collateralized by stock in the FHLB and by certain mortgage loans under
a blanket pledge agreement in an amount equal to 110% of outstanding borrowings.
49
Reverse Repurchase Agreements
The contractual maturities of outstanding reverse repurchase agreements at
December 31, 2001 were as follows:
- --------------------------------------------------------------------------------
(dollars in thousands) Weighted Average
Contractual Maturity Amount Interest Rate
- --------------------------------------------------------------------------------
January 2002 $514,743 1.84%
December 2002(1) 15,000 5.90
- --------------------------------------------------------------------------------
$529,743(1) 1.96%
================================================================================
(1) Callable commencing December 2000 and quarterly thereafter, until maturity.
The above agreements are collateralized by mortgage-backed securities with
a carrying value of approximately $507.5 million at December 31, 2001. The
Company had no repurchase agreements outstanding as of December 31, 2000.
Trust Preferred Securities
Haven Capital Trust I, Haven Capital Trust II, Queens Capital Trust I,
Queens Statutory Trust I, NYCB Capital Trust I, New York Community Statutory
Trust I, and New York Community Statutory Trust II (the "Trusts") are Delaware
business trusts of which all the common securities are owned by the Company. The
Trusts were formed for the purpose of issuing Company Obligated Mandatorily
Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Junior
Subordinated Debentures ("Trust Preferred Securities"). The Trust Preferred
Securities are described below. Dividends on the Trust Preferred Securities are
payable either quarterly or semi-annually and are deferrable, at the Company's
option, for up to five years. As of December 31, 2001, all dividends were
current. As each one was issued, the Trusts used the proceeds from the Trust
Preferred Securities offerings to purchase a like amount of Junior Subordinated
Deferrable Interest Debentures (the "Debentures") of the Company. The Debentures
bear the same terms and interest rates as the related Trust Preferred
Securities. The Debentures are the sole assets of the Trusts and are eliminated,
along with the related income statement effects, in the consolidated financial
statements. The Company has fully and unconditionally guaranteed all of the
obligations of the Trusts. Under applicable regulatory guidelines, a portion of
the Trust Preferred Securities qualify as Tier I capital, and the remaining
qualify as Tier II Capital.
The following Trust Preferred Securities were outstanding at December 31,
2001:
=================================================================================================
(in thousands) Amount Date of
Security Title Issuer Outstanding Original Issue
- -------------------------------------------------------------------------------------------------
10.46% Capital Securities Haven Capital Trust I $ 18,174 February 12, 1997
- -------------------------------------------------------------------------------------------------
10.25% Capital Securities Haven Capital Trust II 23,333 May 26, 1999
- -------------------------------------------------------------------------------------------------
11.045% Capital Securities Queens Capital Trust I 10,000 July 26, 2000
- -------------------------------------------------------------------------------------------------
10.60% Capital Securities Queens Statutory Trust I 15,000 September 7, 2000
- -------------------------------------------------------------------------------------------------
6.007% Floating Rate NYCB Capital Trust I
Capital Securities 36,000 November 28, 2001
- -------------------------------------------------------------------------------------------------
5.60% Floating Rate New York Community
Capital Securities Statutory Trust I 35,032 December 18, 2001
- -------------------------------------------------------------------------------------------------
5.58% Floating Rate New York Community
Capital Securities Statutory Trust II 50,250 December 28, 2001
- -------------------------------------------------------------------------------------------------
$187,789
=================================================================================================
===================================================================================
Security Title Optional
(in thousands) Stated Maturity Redemption Date
- -----------------------------------------------------------------------------------
10.46% Capital Securities February 1, 2027 February 1, 2007
- -----------------------------------------------------------------------------------
10.25% Capital Securities September 30, 2029 June 30, 2009
- -----------------------------------------------------------------------------------
11.045% Capital Securities July 19, 2030 July 19, 2010
- -----------------------------------------------------------------------------------
10.60% Capital Securities September 7, 2030 September 7, 2010
- -----------------------------------------------------------------------------------
6.007% Floating Rate
Capital Securities December 8, 2031 December 8, 2006
- -----------------------------------------------------------------------------------
5.60% Floating Rate
Capital Securities December 18, 2031 December 18, 2006
- -----------------------------------------------------------------------------------
5.58% Floating Rate
Capital Securities December 28, 2031 December 28, 2006
- -----------------------------------------------------------------------------------
===================================================================================
50 New York Community Bancorp, Inc. 2001 Annual Report
The Trust Preferred Securities issued by Haven Capital Trust I, Haven
Capital Trust II, Queens Capital Trust I, and Queens Statutory Trust I accrue
interest at an annual rate of 10.46%, 10.25%, 11.045%, and 10.60%, respectively.
The NYCB Capital Trust I accrues interest at a variable rate, adjustable
semi-annually, equal to 3.75% over the six-month LIBOR, with an initial rate of
6.007%, and an interest rate cap of 11.00% effective through December 8, 2006.
The New York Community Statutory Trust I accrues interest at a variable rate,
adjustable quarterly, equal to 3.60% over the three-month LIBOR, with an initial
rate of 5.60%, and an interest rate cap of 12.50% effective through December 18,
2006. The New York Community Statutory Trust II accrues interest at a variable
rate, adjustable semi-annually, equal to 3.60% over the six-month LIBOR, with an
initial rate of 5.58%, and an interest rate cap of 10.00% effective through
December 28, 2006.
The total amount of Trust Preferred Securities outstanding at December 31,
2001 and 2000 was $187.8 million and $76.9 million, respectively.
For the twelve months ended December 31, 2001, the weighted average
balance of total borrowings was approximately $1.6 billion, with a weighted
average interest rate of 4.86%. In the year-earlier period, the weighted average
balance was approximately $817.8 million, with an average interest rate of
6.03%. The maximum amount of borrowings outstanding at any month-end during 2001
was $2.3 billion; in 2000, the maximum month-end amount was $958.7 million.
Accrued interest of $12.5 million was included in the balance of borrowings at
each of December 31, 2001 and 2000.
The Company also maintains a $10.0 million line of credit with a money
center bank, which had not been drawn upon at December 31, 2001.
NOTE 12:
FEDERAL, STATE, AND LOCAL TAXES
The components of the net deferred tax asset at December 31, 2001 and 2000
are summarized as follows:
December 31,
================================================================================
(in thousands) 2001 2000
- --------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Financial statement loan loss allowance $ 15,188 $ 7,699
Accrual for post-retirement benefits 3,178 2,507
Mark to market on securities available for sale -- 18,413
Mark to market on loans 2,760 8,883
Mark to market on borrowings 17,823 3,178
Charitable contributions 8,099 --
Merger-related costs 2,331 --
Loan origination costs -- 2,831
SERP and deferred compensation 1,577 2,623
Other 1,867 302
- --------------------------------------------------------------------------------
Total deferred tax assets 52,823 46,436
- --------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Tax reserve in excess of base year reserve (1,645) (1,296)
Prepaid pension cost (3,428) (2,008)
Mark to market on securities available for sale (6,060) --
Other (1,294) (772)
- --------------------------------------------------------------------------------
Total deferred tax liabilities (12,427) (4,076)
- --------------------------------------------------------------------------------
Net deferred tax asset $ 40,396 $ 42,360
================================================================================
The net deferred tax asset at December 31, 2001 and 2000 represents the
anticipated federal, state, and local tax benefits that are expected to be
realized in future years upon the utilization of the underlying tax attributes
comprising this balance. Based upon current facts, management believes it is
more likely than not that the results of future operations will generate
sufficient taxable income to realize the deferred tax assets. However, there can
be no assurances about the level of future earnings.
51
Income tax expense for the years ended December 31, 2001, 2000, and 1999 is
summarized as follows:
December 31,
================================================================================
(in thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Federal--current $33,123 $15,362 $ 16,792
State and local--current 1,905 1,913 3,559
- --------------------------------------------------------------------------------
Total current 35,028 17,275 20,351
- --------------------------------------------------------------------------------
Federal--deferred 32,815 3,040 518
State and local--deferred 2,936 110 (97)
- --------------------------------------------------------------------------------
Total deferred 35,751 3,150 421
- --------------------------------------------------------------------------------
Total income tax expense $70,779 $20,425 $ 20,772
================================================================================
The following is a reconciliation of statutory federal income tax expense
to combined effective income tax expense for the years ended December 31, 2001,
2000, and 1999:
December 31,
===========================================================================================================
(in thousands) 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------
Statutory federal income tax expense $ 61,336 $ 15,716 $ 18,352
State and local income taxes, net of federal income tax benefit 3,147 1,315 5,805
ESOP 6,250 5,865 84
Amortization of intangibles 2,950 173 --
BOLI (2,294) (735) --
Other, net (610) (1,909) (3,469)
- -----------------------------------------------------------------------------------------------------------
Total income tax expense $ 70,779 $ 20,425 $ 20,772
===========================================================================================================
The Company, the Bank, and their non-REIT subsidiaries, file a
consolidated federal income tax return on a calendar year basis.
As a savings institution, the Bank is subject to special provisions in the
federal and New York State tax laws regarding its allowable tax bad debt
deductions and related tax bad debt reserves. Tax bad debt reserves consist of a
defined base year amount plus additional amounts, or excess reserves,
accumulated after the base year. Deferred tax liabilities are recognized with
respect to such excess reserves, as well as any portion of the base year amount
that is expected to become taxable, or recaptured, in the foreseeable future.
Federal tax laws include a requirement to recapture into taxable income, over a
six-year period, the federal bad debt reserves in excess of the base year
amounts. The Bank has established a deferred tax liability with respect to such
excess federal reserves. New York State tax laws designate all State bad debt
reserves as the base year amount.
The Bank's base year tax bad debt reserves at December 31, 2001 and 2000
were $27.3 million (including $9.6 million from Richmond County Savings Bank),
and $17.7 million, respectively. Associated deferred tax liabilities have not
been recognized since the Company does not expect that the base year reserves
will become taxable in the foreseeable future. Under the tax laws, events that
would result in taxation of certain of these reserves include (1) redemptions of
the Bank's stock or certain excess distributions by the Bank to the Company, and
(2) failure of the Bank to maintain a specified qualifying assets ratio or meet
other thrift definition tests for New York State tax purposes.
NOTE 13:
COMMITMENTS AND CONTINGENCIES
Pledged Assets
At December 31, 2001, the Company had pledged $1.04 billion of investment
securities as collateral for its FHLB advances and $507.5 million of investment
securities as collateral for its reverse repurchase agreements. At December 31,
2000, $250.0 million of investment securities were pledged as collateral for
FHLB advances; the Company had no reverse repurchase agreements at that date.
Lease and License Commitments
At December 31, 2001, the Company was obligated under seventy-nine
non-cancelable operating lease and license agreements with renewal options on
properties used principally for branch operations. The Company expects to renew
such agreements at expiration in the normal course of business. The agreements
contain escalation clauses commencing at various times during the lives of the
agreements. Such clauses provide for increases in the annual rental.
At December 31, 2001, the Company had entered into several non-cancelable
operating lease and license agreements for the rental of Bank properties. The
agreements contain escalation clauses that provide for periodic increases in the
annual rental.
52 New York Community Bancorp, Inc. 2001 Annual Report
The projected minimum annual rental commitments under these agreements,
exclusive of taxes and other charges, are summarized as follows:
(in thousands) Rental Income Rental Expense
- --------------------------------------------------------------------------------
2002 $ 691 $ 5,375
2003 686 4,076
2004 571 3,512
2005 567 3,113
2006 579 2,698
2007 and thereafter 1,791 16,479
- --------------------------------------------------------------------------------
Total minimum future rentals $4,885 $35,253
================================================================================
Included in "occupancy and equipment expense," the rental expense under
these leases and licenses was approximately $5.7 million, $1.1 million, and
$485,000 for the years ended December 31, 2001, 2000, and 1999, respectively.
Rental income on Bank properties, netted in occupancy and equipment expense, was
approximately $1.2 million, $1.1 million, and $1.3 million for the corresponding
periods.
On December 15, 2000, the Company relocated its corporate headquarters to
the former headquarters of Haven in Westbury, New York. Haven had purchased the
office building and land in December 1997 under a lease agreement and
Payment-in-lieu-of-Tax ("PILOT") agreement with the Town of Hempstead Industrial
Development Agency ("IDA"). Under the IDA and PILOT agreements, which were
assumed by the Company, the Company assigned the building and land to the IDA,
is subleasing it for $1.00 per year for a 10-year period, and will repurchase
the building for $1.00 upon expiration of the lease term in exchange for IDA
financial assistance.
Legal Proceedings
In the normal course of the Company's business, there are various
outstanding legal proceedings. In the opinion of management, based on
consultation with legal counsel, the financial position of the Company will not
be affected materially as a result of the outcome of such legal proceedings.
In February 1983, a burglary of the contents of safe deposit boxes
occurred at a branch office of CFS Bank. At December 31, 2001, the Bank has a
lawsuit pending, whereby the plaintiffs are seeking recovery of approximately
$12.4 million in actual damages. This amount does not include any statutory
pre-judgment interest that could be awarded. The ultimate liability, if any,
that might arise from the disposition of these claims cannot presently be
determined. Management believes it has meritorious defenses against this action
and continues to defend its position.
NOTE 14:
EMPLOYEE BENEFITS
Retirement Plans
The Company maintains three pension plans, all of which are presently
frozen: one for employees of the former Queens County Savings Bank, one for
employees of the former CFS Bank, and one for employees of the former Richmond
County Savings Bank. The plans cover substantially all employees who had
attained minimum service requirements prior to the date on which each plan was
frozen. Once "frozen," the plans ceased to accrue additional benefits, service,
and compensation factors, and became closed to employees who would have met
eligibility requirements after the "freeze" date. The Queens County Savings Bank
Retirement Plan was frozen at September 30, 1999, while the CFS Bank Retirement
Plan was frozen on June 30, 1996 and reactivated on November 30, 2000, with a
subsequent refreeze on December 29, 2000. The Richmond County Savings Bank
Retirement Plan was frozen on March 31, 1999. The plans are subject to the
provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"), as
amended. Post-retirement benefits were recorded on an accrual basis with an
annual provision that recognized the expense over the service life of the
employee, determined on an actuarial basis. Since all plans were frozen prior to
2001, there was no service cost or employer contribution for the current year.
53
The following tables set forth the disclosures required under SFAS No. 132,
"Employers' Disclosures about Pensions and Other Post-retirement Benefits," for
all three benefit plans, combined, in 2001; for the Queens County Savings Bank
and CFS Bank plans combined, in 2000; and for the Queens County Savings Bank
plan, alone, in 1999:
Pension Benefits
================================================================================
(in thousands) 2001 2000
- --------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 32,612 $ 22,051
Interest cost 1,832 1,683
Actuarial loss (1,898) (728)
Benefits paid (1,390) (2,881)
Settlement (832) --
Plan amendments 2,014 --
- --------------------------------------------------------------------------------
Benefit obligation at end of year $ 32,338 $ 20,125
- --------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS:
Fair value of assets at beginning of year $ 40,014 $ 26,758
Actual return on plan assets (3,181) 1,943
Benefits paid (1,390) (2,881)
Settlement (832) --
- --------------------------------------------------------------------------------
Fair value of assets at end of year $ 34,611 $ 25,820
- --------------------------------------------------------------------------------
FUNDED STATUS:
Funded status $ 8,115 $ 5,695
Unrecognized net actuarial (gain) loss 1,151 (982)
- --------------------------------------------------------------------------------
Prepaid benefit cost $ 9,266 $ 4,713
================================================================================
Years Ended December 31,
================================================================================
2001 2000 1999
- --------------------------------------------------------------------------------
WEIGHTED-AVERAGE ASSUMPTIONS:
Discount rate 7.50% 8.00% 7.75%
Expected rate of return on plan assets 9.00 8.00 8.00
Rate of compensation increase N.A. 4.00 5.50
================================================================================
Years Ended December 31,
================================================================================
(in thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $ -- $ -- $ 641
Interest cost 1,832 1,683 1,024
Expected return on plan assets (2,630) (2,192) (1,203)
Amortization of prior service cost 161 (56) (1,906)
- --------------------------------------------------------------------------------
Net periodic benefit $ (637) $ (565) $(1,444)
================================================================================
At December 31, 2001, the CFS Bank Retirement Plan, on a stand-alone
basis, had a benefit obligation that exceeded plan assets by $2.7 million. The
aggregate benefit obligation and the aggregate fair value of plan assets for the
CFS Bank Retirement Plan were $11.0 million and $8.3 million, respectively, as
of December 31, 2001.
Qualified Savings Plans
The Company maintains three defined contribution Qualified Savings Plans
in which all regular salaried employees were able to participate after one year
of service and having attained age 21. Other eligibility criteria included being
salaried and/or hourly-paid, depending on the Plan. Pursuant to the Bank's
conversion from mutual to stock form in 1993 and the adoption of the Employee
Stock Ownership Plan ("ESOP"), all matching contributions to the Thrift
Incentive Plan for employees of the former Queens County Savings Bank were
suspended, in order to comply with the limitations set forth by the Internal
Revenue Code. In connection with the Richmond County merger and the Haven
acquisition, respectively, all matching contributions to the Richmond County
Savings Bank Plan were suspended effective January 1, 2002 and all matching
contributions to the CFS Bank Plan were suspended effective January 1, 2001.
Accordingly, there were five months of Company contributions relating to the
Richmond County Savings Bank Plan for the year ended December 31, 2001, one
month of Company contributions relating to the CFS Bank Plan for the year ended
December 31, 2000, and no Company contributions for the year ended December 31,
1999.
54 New York Community Bancorp, Inc. 2001 Annual Report
Other Compensation Plans
To ensure that the Bank will be able to call on their service in the
future, the Company maintains an unfunded non-qualified plan to provide
retirement benefits to directors who are neither officers nor employees of the
Bank. The unfunded balance of approximately $779,000 at December 31, 2001 is
reflected in "other liabilities" on the Company's Consolidated Statements of
Condition; no such balance existed at December 31, 2000.
Deferred Compensation Plan
The Company maintains a deferred compensation plan for directors who are
neither officers nor employees of the Bank. The remaining balances of
approximately $588,000 and $1.4 million at December 31, 2001 and 2000,
respectively, are unfunded and, as such, are reflected in "other liabilities" on
the Company's Consolidated Statements of Condition.
Post-Retirement Health and Welfare Benefits
The Company offers certain post-retirement benefits, including medical,
dental, and life insurance, to retired employees, depending on age and years of
service at the time of retirement, and accrues the cost of such benefits during
the years that an employee renders the necessary service.
The following tables set forth the disclosures required under SFAS No. 132
for the plans benefiting employees of the former Queens County Savings Bank, the
former CFS Bank, and the former Richmond County Savings Bank, combined, in 2001;
for the Queens County Savings Bank and CFS Bank plans, combined, in 2000; and
for the Queens County Savings Bank plan, alone, in 1999:
Post-retirement Benefits
================================================================================
(in thousands) 2001 2000
- --------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 6,994 $ 4,535
Service cost 53 226
Interest cost 377 347
Actuarial loss (gain) 203 (98)
Benefits paid (546) (122)
Plan amendments (288) --
Curtailment (3) --
- --------------------------------------------------------------------------------
Benefit obligation at end of year $ 6,790 $ 4,888
================================================================================
CHANGE IN PLAN ASSETS:
Fair value of assets at beginning of year $ -- $ --
Employer contribution 546 184
Benefits paid (546) (184)
- --------------------------------------------------------------------------------
Fair value of assets at end of year $ -- $ --
================================================================================
FUNDED STATUS:
Accrued post-retirement benefit cost $(8,476) $(6,181)
Employer contribution 993 184
Total net periodic benefit cost (credit) (213) 548
- --------------------------------------------------------------------------------
Accrued post-retirement benefit cost $(7,696) $(5,449)
================================================================================
Years Ended December 31,
================================================================================
2001 2000 1999
- --------------------------------------------------------------------------------
WEIGHTED-AVERAGE ASSUMPTIONS:
Discount rate 7.50% 8.00% 7.75%
Current medical trend rate 9.00 6.50 6.50
Rate of compensation increase 4.25 5.50 5.50
================================================================================
Years Ended December 31,
================================================================================
(in thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $ 53 $ 226 $ 89
Interest cost 377 347 205
Expected return on plan assets -- -- (61)
Amortization of prior service cost (217) (25) (63)
- --------------------------------------------------------------------------------
Net periodic benefit cost $ 213 $ 548 $ 170
================================================================================
55
Increasing the assumed health care cost trend rate by 1% in each year
would have increased the accumulated post-retirement benefit obligation as of
December 31, 2001 by $391,992, and the aggregate of the benefits earned and
interest components of 2001 net post-retirement benefit expense by $24,761.
Decreasing the assumed health care cost trend rate by 1% in each year would have
decreased the accumulated post-retirement benefit obligation as of December 31,
2001 by $366,406 and the aggregate of the benefits earned and interest
components of 2001 net post-retirement benefit expense by $24,193.
NOTE 15:
STOCK-RELATED BENEFIT PLANS
Stock Plans
At the time of its conversion to stock form, the Bank established the
following stock plans for eligible employees who have at least 12 consecutive
months of credited service, have attained age 21, and are of salaried full-time
employment status:
Employee Stock Ownership Plan ("ESOP") and Supplemental Employee Retirement Plan
("SERP")
In connection with the conversion, the Company lent $19.4 million to the
ESOP to purchase 10,453,185 shares (as adjusted for the seven stock splits
discussed in Note 3). The loan is being repaid, principally from the Bank's
discretionary contributions to the ESOP, over a period of time not to exceed 60
years. The Bank's obligation to make such contributions is reduced to the extent
of any investment earnings realized on such contributions and any dividends paid
on shares held in the unallocated stock account. At December 31, 2001, the loan
had an outstanding balance of $5.0 million and a fixed interest rate of 6.0%.
Interest expense for the obligation was approximately $422,500 for the year
ended December 31, 2001.
Shares purchased with the loan proceeds are held in a suspense account for
allocation among participants as the loan is paid. Contributions to the ESOP and
shares released from the suspense account are allocated among participants on
the basis of compensation, as described in the plan, in the year of allocation.
Contributions to the ESOP were approximately $2.5 million for the year ended
December 31, 2001. Dividends and investment income received on ESOP shares used
for debt service amounted to approximately $658,800 for the year.
Benefits vest on a seven-year basis, starting with 20% in the third year
of employment and continuing each year thereafter, and are payable upon death,
retirement, disability, or separation from service, and may be payable in cash
or stock. However, in the event of a change in control, as defined in the plan,
any unvested portion of benefits shall vest immediately.
In connection with the Richmond County merger and the Haven acquisition,
respectively, the Company allocated 973,071 and 875,053 ESOP shares to
participants in 2001 and 2000. At December 31, 2001, there were 3,306,249 shares
remaining for future allocation, with a market value of $75.6 million. The Bank
recognizes compensation expense for the ESOP based on the average market price
of the common stock during the year at the date of allocation. The Company
recorded ESOP-related compensation expense of $22.8 million, $24.8 million, and
$2.5 million for the years ended December 31, 2001, 2000, and 1999,
respectively.
In 1993, the Bank also established a Supplemental Employee Retirement Plan
("SERP"), which provided additional unfunded, non-qualified benefits to certain
participants in the ESOP in the form of common stock. The SERP was frozen in
1999. The plan maintained $3.1 million and $3.8 million of trust-held assets at
December 31, 2001 and 2000, respectively, based upon the cost of said assets at
the time of purchase. Trust-held assets consist entirely of Company common stock
and amounted to 480,604 and 582,053 shares at December 31, 2001 and 2000. The
cost of such shares is reflected as contra-equity and additional paid-in capital
in the accompanying Consolidated Statements of Condition. The Company recorded
no SERP-related compensation expense in 2001 or 2000.
Recognition and Retention Plans and Trusts ("RRPs")
The RRPs were established to provide employees, officers, and directors of
the Bank with a proprietary interest in the Company in a manner designed to
encourage such persons to remain with the Bank. The Bank contributed a total of
$5.5 million to the RRPs to enable them to acquire an aggregate of 3,318,469
shares (split-adjusted) of the common stock in the conversion, substantially all
of which have been awarded. The $5.5 million represents deferred compensation
and has been accounted for as a reduction in stockholders' equity. Awards vest
at a rate of 33 1/3% per year for directors and at a rate of 20% per year for
officers and employees. Awards become 100% vested upon termination of employment
due to death, disability, or normal retirement, or following a change in control
of the Bank or the Company. The Bank recognizes expense based on the original
cost of the common stock at the date of vesting for the RRP. The Company
recorded no compensation expense for the RRPs in 2001 or 2000; in 1999, the
compensation expense recorded for the RRPs was $22,000.
56 New York Community Bancorp, Inc. 2001 Annual Report
Stock Option Plans
At December 31, 2001, the Company had five stock option plans: the 1993
and 1997 Queens County Bancorp, Inc. Stock Option Plans, the 1993 and 1996 Haven
Bancorp, Inc. Stock Option Plans, and the 1998 Richmond County Financial Corp.
Stock Compensation Plan. As the Company applies APB Opinion No. 25 and related
interpretations in accounting for these plans, no compensation cost has been
recognized.
Under these plans, each stock option granted entitles the holder to
purchase shares of the Company's common stock at an exercise price equal to 100%
of the fair market value of the stock on the date of grant. Options vest in
whole or in part over two to five years from the date of issuance, and expire
ten years from the date on which they were granted. However, all options become
100% exercisable in the event that employment is terminated due to death,
disability, normal retirement, or in the event of a change in control of the
Bank or the Company.
The Company primarily utilizes common stock held in Treasury to satisfy
the exercise of options. The difference between the average cost of Treasury
shares and the exercise price is recorded as an adjustment to retained earnings
on the date of exercise. At December 31, 2001, 2000, and 1999, the number of
options that were outstanding under the 1993 Queens County Bancorp, Inc. Stock
Option Plan was 89,935; 552,445; and 1,787,321, respectively; under the 1997
Queens County Bancorp, Inc. Stock Option Plan, the number of options that were
outstanding at those dates was 2,943,509; 3,200,063; and 1,511,156,
respectively. The number of options that were outstanding under the 1993 and
1996 Haven Bancorp, Inc. Stock Option Plans at December 31, 2001 and 2000 were
288,489 and 1,748,439, respectively. The number of options that were outstanding
under the Richmond County Financial Corp. 1998 Stock Compensation Plan at
December 31, 2001 was 3,238,034. At December 31, 2001, there was a total of
3,707,322 shares reserved for future issuance under the Company's five stock
option plans.
The status of the five stock option plans at December 31, 2001, 2000, and
1999, and changes during the years ending on those dates, are summarized below:
Years Ended December 31,
================================================================================================================================
2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Stock Exercise of Stock Exercise of Stock Exercise
Options(1) Price(1) Options(1) Price(1) Options(1) Price(1)
- --------------------------------------------------------------------------------------------------------------------------------
Stock options outstanding, beginning of year 5,500,946 $ 7.96 3,298,478 $ 7.08 5,389,776 $ 4.29
Granted 1,525,565 15.37 1,749,656 8.92 1,511,156 13.49
Assumed in acquisition 3,586,934 18.35 1,748,439 4.00 -- --
Exercised (4,053,478) 6.96 (1,295,627) 1.65 (3,602,455) 5.60
- --------------------------------------------------------------------------------------------------------------------------------
Stock options outstanding, end of year 6,559,967 $15.98 5,500,946 $ 7.96 3,298,478 $ 7.08
================================================================================================================================
Options exercisable at year-end 4,759,493 3,751,290 1,787,322
Weighted average grant-date fair value
of options granted during the year $10.78 $7.70 $0.97
================================================================================================================================
(1) Amounts have been adjusted to reflect 3-for-2 stock splits on March 29 and
September 20, 2001.
The following table summarizes information about stock options outstanding
at December 31, 2001:
========================================================================================================
Weighted
Average
Number Remaining Weighted Weighted
Range of of Options Contractual Life Average Options Average
Exercise Outstanding at of Options Exercise Exercisable at Exercise
Price December 31, 2001 Outstanding Price December 31, 2001 Price
- --------------------------------------------------------------------------------------------------------
$ 1 - $ 4 89,935 1.92 years $ 1.65 89,935 $ 1.65
$ 5 - $10 416,452 1.50 8.30 416,452 8.30
$11 - $15 954,322 7.00 13.30 954,322 13.30
$16 - $20 5,038,509 7.10 17.31 3,238,034 9.75
$21 - $25 60,750 9.08 21.85 -- 21.85
- --------------------------------------------------------------------------------------------------------
6,559,967 6.67 years $15.98 4,759,493 $ 9.79
========================================================================================================
57
Because stock options granted under all of these plans have
characteristics significantly different from those of traded options, and
because changes in the subjective assumptions can materially affect the
estimated fair values, the Company used a Black-Scholes option-pricing model
with the following weighted average assumptions used for grants in 2001, 2000,
and 1999:
Years Ended December 31,
================================================================================
2001 2000 1999
- --------------------------------------------------------------------------------
Dividend yield 2.82% 2.68% 3.69%
Expected volatility 33.03 10.02 9.24
Risk-free interest rate 4.83 4.00 4.83
Expected option lives 6.7 years 9.5 years 9.5 years
================================================================================
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the date of grant for awards made under those plans,
consistent with the method set forth in SFAS No. 123, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
Years Ended December 31,
================================================================================
(in millions, except per share data) 2001 2000 1999
- --------------------------------------------------------------------------------
Net income
As reported $ 104.5 $ 24.48 $ 31.70
Pro forma 84.1 17.75 23.49
Diluted earnings per share(1)
As reported $ 1.34 $ 0.56 $ 0.75
Pro forma 1.07 0.41 0.56
================================================================================
(1) Per share amounts for 2000 and 1999 have been adjusted to reflect 3-for-2
stock splits on March 29 and September 20, 2001.
NOTE 16:
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about its on- and
off-balance-sheet financial instruments. Quoted market prices, when available,
are used as the measure of fair value. In cases where quoted market prices are
not available, fair values are based on present value estimates or other
valuation techniques. These derived fair values are significantly affected by
assumptions used, the timing of future cash flows, and the discount rate.
Because assumptions are inherently subjective in nature, the estimated
fair values cannot be substantiated by comparison to independent market quotes
and, in many cases, the estimated fair values would not necessarily be realized
in an immediate sale or settlement of the instrument.
The following table summarizes the carrying values and estimated fair
values of the Company's on-balance-sheet financial instruments at December 31,
2001 and 2000:
December 31,
=============================================================================================================
2001 2000
- -------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
(in thousands) Value Fair Value Value Fair Value
- -------------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS:
Cash and cash equivalents $ 178,615 $ 178,615 $ 257,715 $ 257,715
Securities held to maturity 203,195 203,647 222,534 220,608
Mortgage-backed securities held to maturity 50,865 51,119 1,923 1,979
Securities available for sale 2,374,782 2,374,782 303,734 303,734
Loans, net 5,361,187 5,432,025 3,616,386 3,702,138
FINANCIAL LIABILITIES:
Deposits $5,450,602 $5,492,533 $3,257,194 $3,278,831
Borrowings 2,506,828 2,609,560 1,037,505 1,037,505
Mortgagors' escrow 21,496 21,496 11,291 11,291
=============================================================================================================
58 New York Community Bancorp, Inc. 2001 Annual Report
The methods and significant assumptions used to estimate fair values
pertaining to the Company's financial instruments are as follows:
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks and federal
funds sold. The estimated fair values of cash and cash equivalents are assumed
to equal their carrying values, as these financial instruments are either due on
demand or have short-term maturities.
Securities and Mortgage-backed Securities Held to Maturity and Securities
Available for Sale
Estimated fair values are based on independent dealer quotations and
quoted market prices.
Loans
The loan portfolio is segregated into various components for valuation
purposes in order to group loans based on their significant financial
characteristics, such as loan type (mortgages or other) and payment status
(performing or non-performing). Fair values are estimated for each component
using a valuation method selected by management.
The estimated fair values of mortgage and other loans are computed by
discounting the anticipated cash flows from the respective portfolios. The
discount rates reflect current market rates for loans with similar terms to
borrowers of similar credit quality.
The estimated fair values of non-performing mortgage and other loans are
based on recent collateral appraisals.
The above technique of estimating fair value is extremely sensitive to the
assumptions and estimates used. While management has attempted to use
assumptions and estimates that are the most reflective of the Company's loan
portfolio and the current market, a greater degree of subjectivity is inherent
in these values than in those determined in formal trading marketplaces.
Accordingly, readers are cautioned in using this information for purposes of
evaluating the financial condition and/or value of the Company in and of itself
or in comparison with any other company.
Deposits
The fair values of deposit liabilities with no stated maturity (NOW, money
market, savings accounts, and non-interest-bearing accounts) are equal to the
carrying amounts payable on demand. The fair values of certificates of deposit
represent contractual cash flows, discounted using interest rates currently
offered on deposits with similar characteristics and remaining maturities. These
estimated fair values do not include the intangible value of core deposit
relationships, which comprise a significant portion of the Bank's deposit base.
Management believes that the Bank's core deposit relationships represent a
relatively stable, low-cost source of funding that has a substantial intangible
value separate from the value of the deposit balances.
Borrowings
The estimated fair value of borrowings is based on the discounted value of
contractual cash flows with interest rates currently in effect for borrowings
with similar maturities and collateral requirements.
Other Receivables and Payables
The fair values are estimated to equal the carrying values of short-term
receivables and payables.
Off-Balance-Sheet Financial Instruments
The fair values of commitments to extend credit and unadvanced lines of
credit are estimated based on an analysis of the interest rates and fees
currently charged to enter into similar transactions, considering the remaining
terms of the commitments and the creditworthiness of the potential borrowers.
The fair value of commitments to purchase securities available for sale is based
on the estimated cost to terminate them or otherwise settle the obligations with
the counterparties. The estimated fair values of these off-balance-sheet
financial instruments resulted in no unrealized gain or loss at December 31,
2001 or 2000.
NOTE 17:
RESTRICTIONS ON THE BANK
Various legal restrictions limit the extent to which the Bank can supply
funds to the parent company and its non-bank subsidiaries. As a converted stock
form savings bank, the Bank requires the approval of the Superintendent of the
New York State Banking Department if dividends declared in any calendar year
exceed the total of its net profits for that year combined with its retained net
profits for the preceding two calendar years, less any required transfer to
paid-in capital. "Net profits" is defined as the remainder of all earnings from
current operations plus actual recoveries on loans and investments and other
assets, after deducting from the total thereof all current operating expenses,
actual losses, if any, and all federal and local taxes.
59
NOTE 18:
PARENT COMPANY-ONLY FINANCIAL INFORMATION
Following are the condensed financial statements for New York Community
Bancorp, Inc. (parent company-only):
CONDENSED STATEMENTS OF CONDITION
December 31,
====================================================================================================================
(in thousands) 2001(1) 2000
- --------------------------------------------------------------------------------------------------------------------
ASSETS
Cash $ 168 $ 7,422
Money market investments 107,076 5,143
Securities held to maturity 10,000 --
Securities available for sale 2,676 1,444
Investments in and advances to subsidiary banks, net 1,068,967 127,742
Goodwill -- 118,071
Other assets 6,877 26,762
- --------------------------------------------------------------------------------------------------------------------
Total assets $1,195,764 $286,584
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 306,604 $ 18,639
Stockholders' equity 889,160 267,945
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,195,764 $286,584
====================================================================================================================
(1) In accordance with regulatory requirements, push-down accounting from the
parent company to its primary subsidiary was applied to reflect the
Richmond County merger and the Haven acquisition in 2001.
CONDENSED STATEMENTS OF INCOME
Years Ended December 31,
====================================================================================================================
(in thousands) 2001(1) 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Interest income from subsidiary bank $ 754 $ -- $ --
Other interest income 189 56 78
Dividends from subsidiary bank -- 88,800 33,100
- --------------------------------------------------------------------------------------------------------------------
Total income 943 88,856 33,178
Interest expense to subsidiary bank -- 1,808 1,683
Operating expense 129 275 301
- --------------------------------------------------------------------------------------------------------------------
Income before income tax and equity in undistributed earnings 814 86,773 31,194
Income tax expense 268 150 150
- --------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed earnings of subsidiary bank 546 86,623 31,044
Equity in (excess dividends)/undistributed earnings of subsidiary bank 103,921 (62,146) 620
- --------------------------------------------------------------------------------------------------------------------
Net income $104,467 $ 24,477 $31,664
====================================================================================================================
(1) In accordance with regulatory requirements, push-down accounting from the
parent company to its primary subsidiary was applied to reflect the
Richmond County merger and the Haven acquisition in 2001.
60 New York Community Bancorp, Inc. 2001 Annual Report
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31,
================================================================================================================
(in thousands) 2001(1) 2000 1999
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 104,467 $ 24,477 $ 31,664
Equity in undistributed earnings of the Bank not provided for (103,921) 62,146 (620)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 546 86,623 31,044
================================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities (11,232) -- --
Payments for investments in and advances to subsidiaries, net (428,565) (105,933) (36,277)
Cash dividends from subsidiaries -- 88,800 60,505
- ----------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (439,797) (17,133) 24,228
================================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Shares issued in the Richmond County merger 693,306 -- --
Purchase of Treasury stock (121,048) (41,483) (38,352)
Dividends paid (43,955) (17,847) (18,563)
Exercise of stock options 5,627 (727) 3,192
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 533,930 (60,057) (53,723)
- ----------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 94,679 9,433 1,549
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 12,565 3,132 1,583
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 107,244 $ 12,565 $ 3,132
================================================================================================================
(1) In accordance with regulatory requirements, push-down accounting from the
parent company to its primary subsidiary was applied to reflect the
Richmond County merger and the Haven acquisition in 2001.
NOTE 19:
REGULATORY MATTERS
The Bank is subject to regulation, examination, and supervision by the New
York State Banking Department and the Federal Deposit Insurance Corporation (the
"Regulators"). The Bank is also governed by numerous federal and state laws and
regulations, including the FDIC Improvement Act of 1991 ("FDICIA"), which
established five capital categories ranging from well capitalized to critically
undercapitalized. Such classifications are used by the FDIC to determine various
matters, including prompt corrective action and each institution's semi-annual
FDIC deposit insurance premium assessments. The Bank's capital amounts and
classification are also subject to qualitative judgments by the Regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier 1 capital to average assets (as defined). At December 31, 2001, the
Bank met all capital adequacy requirements to which it was subject.
As of December 31, 2001, the most recent notification from the FDIC
categorized the Bank as "well capitalized" under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage
capital ratios. In the opinion of management, no conditions or events have
transpired since said notification that have changed the institution's category.
61
The following table presents the Bank's actual capital amounts and ratios
as well as the minimum amounts and ratios required for capital adequacy purposes
and for categorization as a well capitalized institution:
==========================================================================================================================
To Be Well Capitalized
For Capital Under Prompt Corrective
At December 31, 2001 Actual Adequacy Purposes Action Provisions
- --------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------------------------------------------
Total capital (to risk-weighted assets) $536,737 10.97% $391,413 8.0% $489,266 10.0%
Tier 1 capital (to risk-weighted assets) 495,037 10.12 195,706 4.0 293,559 6.0
Tier 1 leverage capital (to average assets) 495,037 6.09 324,934 4.0 406,167 5.0
==========================================================================================================================
==========================================================================================================================
To Be Well Capitalized
For Capital Under Prompt Corrective
At December 31, 2000 Actual Adequacy Purposes Action Provisions
- --------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------------------------------------------
Total capital (to risk-weighted assets) $333,159 13.02% $204,642 8.0% $255,802 10.0%
Tier 1 capital (to risk-weighted assets) 309,806 12.11 102,321 4.0 153,481 6.0
Tier 1 leverage capital (to average assets) 309,806 6.38 145,637 3.0 242,729 5.0
==========================================================================================================================
Under this framework, and based upon the Bank's capital levels, no prior
approval from the Regulators is necessary to accept brokered deposits.
NOTE 20:
QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the fiscal years ended December 31,
2001 and 2000 follows:
===========================================================================================================================
2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 4th 3rd 2nd 1st 4th 3rd 2nd 1st
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income $75,044 $59,439 $36,203 $35,130 $24,041 $16,278 $16,319 $16,443
Provision for loan losses -- -- -- -- -- -- -- --
Other operating income 18,983 32,023 11,128 28,481 18,021 1,264 1,249 1,111
Operating expense 26,027 49,742 17,567 19,421 32,486 5,684 5,520 5,638
Amortization of goodwill and
core deposit intangible 2,982 2,482 1,482 1,482 494 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Income before income tax expense 65,018 39,238 28,282 42,708 9,082 11,858 12,048 11,916
Income tax expense 22,497 23,631 9,587 15,064 7,753 4,073 4,278 4,322
- ---------------------------------------------------------------------------------------------------------------------------
Net income $42,521 $15,607 $18,695 $27,644 $ 1,329 $ 7,785 $ 7,770 $ 7,594
===========================================================================================================================
Diluted earnings per common share(1) $ 0.43 $ 0.18 $ 0.31 $ 0.44 $ 0.03 $ 0.20 $ 0.20 $ 0.19
===========================================================================================================================
Cash dividends declared per
common share(1) $ 0.16 $ 0.13 $ 0.13 $ 0.11 $ 0.11 $ 0.11 $ 0.11 $ 0.11
===========================================================================================================================
Dividend payout ratio 37% 72% 42% 24% 417% 56% 57% 60%
===========================================================================================================================
Average common shares and
equivalents outstanding(1) 99,411 87,668 61,336 62,361 48,366 39,362 40,041 40,826
===========================================================================================================================
Stock price per common share(1):
High(2) $ 28.23 $ 31.37 $ 24.98 $ 19.13 $ 16.67 $ 12.83 $ 9.19 $ 11.93
Low(2) 21.83 19.12 19.33 14.72 11.69 8.31 7.97 7.89
Close 22.87 23.21 25.10 19.33 16.33 12.83 8.19 8.03
===========================================================================================================================
(1) Amounts for the year 2000 have been adjusted to reflect 3-for-2 stock
splits on March 29 and September 20, 2001.
(2) Reflects closing prices.
62 New York Community Bancorp, Inc. 2001 Annual Report
- --------------------------------------------------------------------------------
Management's Responsibility for Financial Reporting
================================================================================
TO OUR SHAREHOLDERS:
Management has prepared, and is responsible for, the consolidated
financial statements and related financial information included in this annual
report. The consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America, and
reflect management's judgments and estimates with respect to certain events and
transactions. Financial information included elsewhere in this annual report is
consistent with the consolidated financial statements.
Management is responsible for maintaining a system of internal controls
and has established such a system to provide reasonable assurance that
transactions are recorded properly to permit preparation of financial
statements; that they are executed in accordance with management's
authorizations; and that assets are safeguarded from significant loss or
unauthorized use. Management believes that during fiscal year 2001, this system
of internal controls was adequate to accomplish the intended objectives.
/s/ Joseph R. Ficalora /s/ Robert Wann
Joseph R. Ficalora Robert Wann
President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
January 23, 2002
- --------------------------------------------------------------------------------
Independent Auditors' Report
================================================================================
The Board of Directors
New York Community Bancorp, Inc.
We have audited the accompanying consolidated statements of condition of
New York Community Bancorp, Inc. and subsidiaries as of December 31, 2001 and
2000 and the related consolidated statements of income and comprehensive income,
changes in stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 2001. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of New York
Community Bancorp, Inc. and subsidiaries as of December 31, 2001 and 2000, and
the results of their operations and cash flows for each of the years in the
three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, in 2001,
the Company changed its methods of accounting for goodwill and intangible assets
resulting from business combinations consummated after June 30, 2001.
New York, New York
January 23, 2002
63