UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2002
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Commission File Number 0-22278
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NEW YORK COMMMUNITY BANCORP, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1377322
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
615 Merrick Avenue, Westbury, New York 11590
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(Address of principal executive offices)
(Registrant's telephone number, including area code)
516: 683-4100
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Securities registered pursuant to Section
12(b) of the Act:
Common Stock, $0.01 par value
-----------------------------
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: None
----
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X Yes No
102,107,546
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Number of shares outstanding at
May 3, 2002
NEW YORK COMMUNITY BANCORP, INC.
FORM 10-Q
Quarter Ended March 31, 2002
INDEX Page No.
- ----- --------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Condition as of March 31,
2002 (unaudited) and December 31, 2001 1
Consolidated Statements of Income and Comprehensive
Income for the Three Months Ended March 31, 2002
and 2001 (unaudited) 2
Consolidated Statement of Changes in Stockholders'
Equity for the Three Months Ended March 31, 2002
(unaudited) 3
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2002 and 2001 (unaudited) 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 23
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
Exhibits 27
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
March 31, December 31,
2002 2001
(in thousands) (unaudited)
------------------ -----------------
Assets
Cash and due from banks $ 165,191 $ 168,449
Money market investments 1,162 10,166
Securities held to maturity ($131,601 and $114,881 pledged at
March 31, 2002 and December 31, 2001, respectively) 209,188 203,195
Mortgage-backed securities held to maturity ($47,155 and $50,801
pledged at March 31, 2002 and December 31, 2001, respectively) 47,010 50,865
Securities available for sale ($1,826,511 and $1,381,356 pledged at
March 31, 2002 and December 31, 2001, respectively) 2,349,191 2,374,782
Mortgage loans:
Multi-family 3,520,659 3,255,167
1-4 family 1,204,509 1,318,295
Commercial real estate 480,716 561,944
Construction 151,727 152,367
------------------ -----------------
Total mortgage loans 5,357,611 5,287,773
Other loans 178,631 116,968
Less: Unearned loan fees (4,541) (3,054)
Allowance for loan losses (40,500) (40,500)
------------------ -----------------
Loans, net 5,491,201 5,361,187
Premises and equipment, net 68,310 69,010
Goodwill, net 625,112 614,653
Core deposit intangible, net 56,000 57,500
Deferred tax asset, net 38,285 40,396
Other assets 219,724 252,432
------------------ -----------------
Total assets $9,270,374 $9,202,635
================== =================
Liabilities and Stockholders' Equity
Deposits:
NOW and money market accounts $1,039,933 $ 948,324
Savings accounts 1,680,962 1,639,239
Certificates of deposit 2,167,830 2,407,906
Non-interest-bearing accounts 483,547 455,133
------------------ -----------------
Total deposits 5,372,272 5,450,602
------------------ -----------------
Official checks outstanding 54,621 87,647
Borrowings 2,699,280 2,506,828
Mortgagors' escrow 48,528 21,496
Other liabilities 99,511 152,928
------------------ -----------------
Total liabilities 8,274,212 8,219,501
------------------ -----------------
Stockholders' equity:
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; 102,182,204 and 101,845,276
shares outstanding at March 31, 2002 and December 31, 2001,
respectively) 1,082 1,082
Paid-in capital in excess of par 914,881 898,830
Retained earnings (substantially restricted) 154,013 167,511
Less: Treasury stock (6,042,221 and 6,379,149
shares, respectively) (69,491) (78,294)
Unallocated common stock held by ESOP (6,451) (6,556)
Common stock held by SERP (3,113) (3,113)
Unearned common stock held by RRPs (41) (41)
Accumulated other comprehensive income, net of tax effect 5,282 3,715
------------------ -----------------
Total stockholders' equity 996,162 983,134
------------------ -----------------
Total liabilities and stockholders' equity $9,270,374 $9,202,635
================== =================
See accompanying notes to unaudited consolidated financial statements.
1
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
For the
Three Months Ended
March 31,
------------------------------------
(in thousands, except per share data) 2002 2001
--------------- --------------
Interest Income:
Mortgage and other loans $100,452 $70,509
Securities 8,242 8,903
Mortgage-backed securities 32,313 2,792
Money market investments 123 2,154
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Total interest income 141,130 84,358
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Interest Expense:
NOW and money market accounts 3,527 3,936
Savings accounts 5,827 2,139
Certificates of deposit 19,612 27,180
Borrowings 29,097 15,969
Mortgagors' escrow 5 4
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Total interest expense 58,068 49,228
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Net interest income 83,062 35,130
Provision for loan losses -- --
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Net interest income after
provision for loan losses 83,062 35,130
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Other Operating Income:
Fee income 11,161 7,933
Other 8,634 20,548
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Total other operating income 19,795 28,481
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Non-interest Expense:
Operating expense:
Compensation and benefits 16,487 9,714
Occupancy and equipment 6,093 3,372
General and administrative 9,561 5,662
Other 1,521 672
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Total operating expense 33,662 19,420
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Amortization of goodwill and
core deposit intangible 1,500 1,482
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Total non-interest expense 35,162 20,902
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Income before income taxes 67,695 42,709
Income tax expense 21,374 15,065
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Net income $ 46,321 $27,644
=============== ==============
Comprehensive income, net of tax:
Unrealized gain on securities 1,567 6,169
--------------- --------------
Comprehensive income $ 47,888 $33,813
=============== ==============
Earnings per share $0.47 $0.45
Diluted earnings per share $0.47 $0.44
=============== ==============
See accompanying notes to unaudited consolidated financial statements.
2
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended
March 31, 2002
(in thousands, except per share data) (unaudited)
- -------------------------------------------------------------------------------
Common Stock (Par Value: $0.01):
Balance at beginning of year $ 1,082
Shares issued --
---------------
Balance at end of period 1,082
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Paid-in Capital in Excess of Par:
Balance at beginning of year 898,830
Shares issued and fractional shares --
Tax benefit effect on stock plans 14,727
Allocation of ESOP stock 1,324
---------------
Balance at end of period 914,881
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Retained Earnings:
Balance at beginning of year 167,511
Net income 46,321
Dividends paid on common stock (15,822)
Exercise of stock options (1,716,524 shares) (43,997)
---------------
Balance at end of period 154,013
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Treasury Stock:
Balance at beginning of year (78,294)
Purchase of common stock (1,379,596 shares) (37,403)
Exercise of stock options (1,716,524 shares) 46,206
---------------
Balance at end of period (69,491)
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Employee Stock Ownership Plan:
Balance at beginning of year (6,556)
Allocation of ESOP stock 105
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Balance at end of period (6,451)
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SERP Plan:
Balance at beginning of year (3,113)
Common stock acquired by SERP --
---------------
Balance at end of period (3,113)
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Recognition and Retention Plans:
Balance at beginning of year (41)
Earned portion of RRPs --
---------------
Balance at end of period (41)
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Accumulated Comprehensive Income, Net of Tax:
Balance at beginning of year 3,715
Net unrealized appreciation in securities, net of tax 1,567
---------------
Balance at end of year 5,282
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Total stockholders' equity $996,162
===============
See accompanying notes to unaudited consolidated financial statements.
3
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
2002 2001
(in thousands) (unaudited)
- ------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 46,321 $ 27,644
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,677 1,197
Amortization of premiums (accretion of discounts), net 2,404 (4,832)
Amortization of net deferred loan origination fees 1,515 1,021
Amortization of core deposit intangible and goodwill 1,500 1,482
Net gain on redemption and sales of securities
and mortgage-backed securities (1,529) (3,695)
Net gain on sale of loans -- (7,408)
Tax benefit effect on stock plans 14,727 2,500
Earned portion of ESOP 1,429 103
Changes in assets and liabilities:
Goodwill recognized in the Peter B. Cannell & Co., Inc.
acquisition and reclassification of other goodwill (10,459) --
Decrease in deferred income taxes 2,111 13,153
Decrease (increase) in other assets 32,708 (16,581)
Decrease in official checks outstanding (33,026) (8,641)
Decrease in other liabilities (53,417) (17,754)
----------------- -----------------
Total adjustments (40,360) (39,455)
----------------- -----------------
Net cash provided by (used in) operating activities 5,961 (11,811)
----------------- -----------------
Cash Flows from Investing Activities:
Proceeds from redemption and sales of mortgage-backed securities
held to maturity 3,836 42
Proceeds from redemption and sales of securities held to maturity 35,867 --
Proceeds from redemption and sales of securities available for sale 512,116 140,906
Purchase of securities held to maturity (45,660) --
Purchase of securities available for sale (482,014) (88,264)
Net increase in loans (131,529) (109,362)
Proceeds from sale of loans -- 528,402
Acquisition or purchase of premises and equipment, net (977) (173)
----------------- -----------------
Net cash (used in) provided by investing activities (108,361) 471,551
----------------- -----------------
Cash Flows from Financing Activities:
Net increase in mortgagors' escrow 27,032 18,828
Net decrease in deposits (78,330) (43,380)
Net increase (decrease) in borrowings 192,452 (4,283)
Cash dividends and stock options exercised (59,819) (31,019)
Purchase of Treasury stock, net of stock options exercised 8,803 (27,237)
----------------- -----------------
Net cash provided by (used in) financing activities 90,138 (87,091)
----------------- -----------------
Net (decrease) increase in cash and cash equivalents (12,262) 372,649
Cash and cash equivalents at beginning of period 178,615 257,715
----------------- -----------------
Cash and cash equivalents at end of period $166,353 $630,364
================= =================
Supplemental information:
Cash paid for:
Interest $58,022 $49,167
Income taxes 12,585 3,500
Transfers to foreclosed real estate from loans -- 150
See accompanying notes to unaudited consolidated financial statements.
4
NEW YORK COMMUNITY BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of New York Community Bancorp, Inc. (the "Company") and its
wholly-owned subsidiary, New York Community Bank (the "Bank").
The statements reflect all normal recurring adjustments that, in the opinion of
management, are necessary to present a fair statement of the results for the
periods presented. There are no other adjustments reflected in the accompanying
consolidated financial statements. The results of operations for the three
months ended March 31, 2002 are not necessarily indicative of the results of
operations that may be expected for all of 2002.
Certain information and note disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted, pursuant to the
rules and regulations of the Securities and Exchange Commission (the "SEC").
These unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in
the Company's 2001 Annual Report to Shareholders and incorporated by reference
into the Company's 2001 Annual Report on Form 10-K.
Note 2. Impact of Accounting Pronouncements
Business Combinations, Goodwill, and Other Intangible Assets
The Company acquired Haven Bancorp, Inc. ("Haven") in a purchase transaction on
November 30, 2000 and merged with Richmond County Financial Corp. ("Richmond
County") in a purchase transaction on July 31, 2001.
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. Accordingly, no goodwill is being amortized in connection with the
Richmond County transaction.
The Company adopted the remaining provisions of SFAS No. 142 when the rules
became effective for calendar year companies on January 1, 2002. Under the new
rules, effective January 1, 2002, goodwill and intangible assets deemed to have
indefinite lives are no longer amortized, but are subject to annual impairment
tests. Other intangible assets will continue to be amortized over their useful
lives. The Company applied 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, in the
amount of $1.5 million per quarter or $5.9 million per year, was discontinued.
The Company did not have indefinite lived intangible assets other than goodwill
as of March 31, 2002. The Company will perform the required impairment tests of
its goodwill as of January 1, 2002 in the second quarter of the year. These
tests are not expected to have a material effect on the consolidated financial
statements of the Company.
5
Net income and earnings per share for the first quarter of 2002 and 2001, as
adjusted to exclude amortization expense (net of taxes) related to goodwill,
are as follows:
For the Three Months Ended
March 31,
-------------------------------------
(in thousands, except per share data) 2002 2001
---------- -----------
Net income
Reported net income $46,321 $27,644
Add back: goodwill amortization -- 963
---------- -----------
Adjusted net income $46,321 $28,607
========== ===========
Basic earnings per share
Reported basic earnings per share $0.47 $0.45
Add back: goodwill amortization -- 0.02
---------- -----------
Adjusted basic earnings per share $0.47 $0.47
========== ===========
Diluted earnings per share
Reported diluted earnings per share $0.47 $0.44
Add back: goodwill amortization -- 0.02
---------- -----------
Adjusted diluted earnings per share $0.47 $0.46
========== ===========
Goodwill
The changes in the carrying amount of goodwill for the three months ended March
31, 2002 are as follows:
(in thousands)
Balance as of January 1, 2002 $614,653
Goodwill acquired in the Peter
B. Cannell & Co., Inc. acquisition 9,737
Reclassification of other intangible
assets to goodwill 722
--------------
Balance as of March 31, 2002 $625,112
==============
In connection with the adoption of SFAS No. 142, the Company reviewed the
classification of intangible assets and determined that approximately $722,000
in intangible assets related to a branch purchase should be reclassified as
goodwill at January 1, 2002.
Acquired Intangible Assets
The Company has core deposit intangible ("CDI") and mortgage servicing rights
stemming from the Richmond County merger. Mortgage servicing rights are included
in "other assets" in the Consolidated Statements of Condition as of March 31,
2002. The following table summarizes the gross carrying and accumulated
amortization amounts of the Company's intangible assets as of March 31, 2002.
Gross Carrying Accumulated
Amount Amortization
--------------------- ------------------
(in thousands)
Amortizing intangible assets
Core deposit intangible $60,000 $(4,000)
Mortgage servicing rights 2,640 (104)
----------- -----------
Total $62,640 $(4,104)
=========== ===========
6
As of March 31, 2002, the Company had no indefinite lived intangible
assets. Aggregate amortization expense related to the CDI was $1.5 million for
the three months ended March 31, 2002. Aggregate amortization expense related to
the mortgage servicing rights was $77,638 for the three months ended March 31,
2002, and is included as a yield adjustment to "interest income from mortgage
and other loans" in the Consolidated Statements of Income and Comprehensive
Income. The CDI and mortgage servicing rights are being amortized over periods
of ten years and eight years, respectively. The Company assessed the
appropriateness of the useful lives of the intangible assets as of January 1,
2002 and determined them to be adequate. No residual value is estimated for
these intangible assets.
Estimated future amortization expense related to the CDI and mortgage servicing
rights is as follows:
Core Deposit Mortgage
Intangible Servicing Rights Total
---------------- -------------------- --------------
(in thousands)
2002 $ 4,500 $ 234 $ 4,734
2003 6,000 311 6,311
2004 6,000 311 6,311
2005 6,000 311 6,311
2006 6,000 311 6,311
2007 and thereafter 27,500 1,058 28,558
---------- --------- ----------
Total remaining intangible assets $56,000 $2,536 $58,536
========== ========= ==========
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 established more stringent criteria
than those then in existence under generally accepted accounting principles
("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 adoption
of SFAS No. 144 on January 1, 2002 did not have a material impact on the
Company's consolidated financial statements.
7
NEW YORK COMMUNITY BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
New York Community Bancorp, Inc. (the "Company") is the holding company for New
York Community Bank (the "Bank"), a New York State-chartered financial
institution with 114 banking offices serving customers in New York City, Long
Island, Westchester and Rockland counties, and New Jersey. In addition to
operating the largest supermarket banking franchise in the region, with 60
in-store branches, the Bank is the second largest producer of multi-family
mortgage loans in the City of New York. The Bank operates its branches through
six community divisions: Queens County Savings Bank, Richmond County Savings
Bank, CFS Bank, First Savings Bank of New Jersey, Ironbound Bank, and South
Jersey Bank.
The Company's first quarter 2002 performance reflects the benefit of its
merger-of-equals with Richmond County Financial Corp. ("Richmond County") on
July 31, 2001, a record level of mortgage loan production, and the ongoing
restructuring of the balance sheet. In addition, the Company continued to
capitalize on the favorable yield curve and to benefit from the year-over-year
reduction in market interest rates. First quarter 2002 earnings rose to $46.3
million, or $0.47 per diluted share, providing a 2.00% return on average assets
("ROA") and an 18.88% return on average stockholders' equity ("ROE").
Among the assets acquired in the Richmond County merger was a 47% equity
interest in the investment advisory firm, Peter B. Cannell & Co., Inc. ("PBC").
On January 3, 2002, the Company acquired the remaining 53% equity interest in
order to derive the full benefit of the revenues generated by the firm. The
acquisition of PBC contributed $1.5 million to other operating income in the
current first quarter, more than offsetting a corresponding $1.1 million
contribution to operating expense. The firm had approximately $700.0 million in
assets under management at March 31, 2002.
On April 5, 2002, the Company completed the divestiture of seven in-store
branches it had acquired on November 30, 2000 as part of its acquisition of
Haven Bancorp, Inc. ("Haven"). The Company expects to complete the sale of seven
additional in-store branches (five in New Jersey and two in Rockland County, New
York) to The Trust Company of New Jersey on May 17, 2002, which will bring the
number of banking offices to 107. Included in that number are two branches that
were opened on Staten Island during the first quarter; a third Staten
Island-based branch is expected to open in July 2002. The Company has also filed
an application to open a traditional branch in Elmont (Nassau County), New York
at a location that was previously operated by a commercial bank. The branch is
expected to open in June.
On April 22, 2002, the Company filed with the SEC a universal shelf registration
on Form S-3 to enable it to raise capital through the issuance of debt
securities, common stock, trust preferred securities, or a combination of trust
preferred securities and warrants to purchase common stock, depending on market
conditions and its capital needs. On April 29, 2002, the Company filed a
supplemental prospectus for the offering of 5,100,000 shares of common stock
with an estimated value of approximately $150.0 million, based upon the $29.43
per share closing price of its common stock on April 25, 2002. Assuming that the
offering proceeds will be invested in 100% risk-weighted assets, the Company's
leverage, Tier 1 risk-based, and total risk-based capital ratios are expected to
adjust to 7.29%, 12.72%, and 13.56%.
Forward-looking Statements and Associated Risk Factors
This filing contains certain forward-looking statements with regard to the
Company's prospective performance and strategies within the meaning of Section
27A of the Securities Act of 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
8
Reform Act of 1995, and is including this statement for purposes of said safe
harbor provisions. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies, and expectations of the
Company, are generally identified by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," or similar expressions. The
Company's ability to predict results or the actual effects of its plans or
strategies is inherently uncertain. Accordingly, actual results may differ
materially from anticipated results. 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 in the quality or composition of the loan or investment
portfolios; changes in deposit flows, competition, and demand for loan products
and financial services in the Company's market area; changes in real estate
values in the Company's local markets; 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.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this filing. Except as required
by applicable law or regulation, the Company undertakes no obligation to update
these forward-looking statements to reflect events or circumstances that occur
after the date on which such statements were made.
Financial Condition
The Company recorded total assets of $9.3 billion at March 31, 2002, up $67.7
million from the December 31, 2001 amount. Mortgage loans represented $5.4
billion, or 57.8%, of total assets, having risen $69.8 million from the level
recorded at December 31, 2001.
Mortgage originations totaled $511.6 million, establishing a new Company record,
and included $398.5 million of multi-family mortgage loans. While multi-family
mortgage loans outstanding rose $265.5 million to $3.5 billion, the increase was
tempered by strategic reductions in the remaining three types of mortgage loans.
At the same time, the portfolio of other loans rose $61.7 million to $178.6
million.
Non-performing assets declined to $14.9 million, or 0.16% of total assets, from
$17.7 million, or 0.19% of total assets, the year-end 2001 amount.
Non-performing loans represented $14.6 million and $17.5 million of the
respective totals, and were equivalent to 0.27% and 0.33% of loans, net.
The loan loss allowance was maintained at $40.5 million, representing 277.38% of
non-performing loans and 0.74% of loans, net, at March 31, 2002.
The portfolio of securities available for sale declined $25.6 million to $2.3
billion, while the portfolio of mortgage-backed securities held to maturity fell
$3.9 million to $47.0 million. These reductions were largely offset by a $6.0
million increase in securities held to maturity to $209.2 million.
Primarily as a result of the PBC acquisition, goodwill, net, rose to $625.1
million from $614.7 million at December 31, 2001. Reflecting the adoption of
SFAS Nos.141 and 142, as mentioned in Note 2, "Impact of Accounting
Pronouncements," the goodwill stemming from the Haven acquisition is no longer
being amortized.
Deposits totaled $5.4 billion at March 31, 2002, down $78.3 million from the
year-end 2001 amount. While core deposits rose $161.7 million to $3.2 billion,
the balance of CDs declined $240.1 million to $2.2 billion. The decline in CDs
and the shift toward core deposits were consistent with the Company's emphasis
on attracting lower cost deposits while, at the same time, placing an emphasis
on revenue-producing products such as annuities and mutual funds.
Additional funding stemmed from a $192.5 million increase in borrowings to $2.7
billion, a result of the Company's ongoing releveraging of the balance sheet.
Supported by cash earnings of $64.5 million, stockholders' equity rose to $996.2
million, representing 10.75% of total assets and a book value of $10.07 per
share, based on 98,929,130 shares. In addition to distributing cash
9
dividends totaling $15.8 million during the quarter, the Company allocated $37.4
million toward the repurchase of 1,379,596 shares. Under the current Board
authorization, there were 1,937,191 shares still available for repurchase at
March 31, 2002.
At quarter's end, the Company's leverage capital equaled 5.74% of adjusted
average assets, while its Tier 1 and total risk-based capital equaled 10.18% and
11.04%, respectively, of risk-weighted assets. All three ratios exceeded the
minimum levels required by the Federal Deposit Insurance Corporation (the
"FDIC").
Loans
Largely reflecting the benefit of the funding acquired in the Richmond County
merger, the Company originated a record level of mortgage loans in the first
quarter of 2002. Mortgage originations totaled $511.6 million in the three
months ended March 31, 2002, as compared to $257.6 million in the year-earlier
three months.
Indicative of management's emphasis on multi-family mortgage lending,
multi-family loans represented $398.5 million, or 77.8%, of first quarter 2002
originations and $3.5 billion, or 65.7%, of total mortgage loans at quarter's
end. The average multi-family mortgage loan had a principal balance of $1.5
million at the end of the quarter, and a loan-to-value ratio of 59.6%.
Reflecting originations, net of loan repayments, the balance of multi-family
mortgage loans was $265.5 million higher at March 31, 2002 than the December 31,
2001 balance, offsetting a reduction of $195.6 million in the combined balance
of the three remaining mortgage loan portfolios.
The balance of one-to-four family mortgage loans declined $113.8 million to $1.2
billion, after first quarter 2002 originations of $68.6 million; commercial real
estate loans declined $81.2 million to $480.7 million, after originations of
$18.8 million; and construction loans declined $640,000 to $151.7 million, after
originations of $25.7 million. The net effect of these reductions and the
increase in multi-family mortgage loans outstanding was a $69.8 million rise in
total mortgage loans to $5.4 billion, representing 57.8% of total assets at
March 31, 2002.
While the reduction in one-to-four family mortgage loans generally reflects
prepayments, it also reflects management's ongoing practice of originating
one-to-four family mortgage loans on a conduit basis, meaning that such loans
are processed through a third-party vendor and sold to such vendor shortly after
the loans are closed.
Other loans totaled $178.6 million at March 31, 2002, up $61.7 million from the
year-end 2001 figure, boosted by a $68.4 million rise in home equity loans and
lines of credit to $155.7 million.
Consistent with management's focus on shortening the maturity of its assets and
reducing its credit risk exposure, the Company is in the process of securitizing
approximately $575.0 million of its one-to-four family mortgage loans. Upon
completion of this process in the second quarter, the one-to-four family
mortgage loan portfolio will be substantially reduced, and the portfolio of
securities available for sale correspondingly increased.
The Company will continue to emphasize multi-family mortgage loan
production in the coming quarters, as is evident in its pipeline at April 16,
2002. Of the $728.0 million of loans in the pipeline, approximately $673.0
million were loans on multi-family buildings.
While management currently expects the bulk of such loans to close in the
current quarter, the Company's ability to close such loans could be compromised
by several factors beyond management's control. Such factors include, but are
not limited to, an unexpected economic downturn, an increase in competition, or
an unexpected change in the direction of market interest rates.
10
Asset Quality
Non-performing assets declined to $14.9 million at March 31, 2002 from $17.7
million at December 31, 2001, representing 0.16% and 0.19% of total assets,
respectively. Included in the 2002 and 2001 amounts were non-performing loans of
$14.6 million and $17.5 million, representing 0.27% and 0.33% of loans, net,
respectively. The improvements stemmed from a $3.6 million reduction in loans 90
days or more delinquent to $3.3 million, which was partly offset by a $664,000
increase in mortgage loans in foreclosure to $11.3 million. Foreclosed real
estate totaled $249,000 at both March 31, 2002 and December 31, 2001 and
consisted of five one-to-four family homes.
Reflecting the quality of the Company's assets and the coverage provided, the
allowance for loan losses was maintained at $40.5 million, representing 277.38%
of non-performing loans and 0.74% of loans, net, at quarter's end.
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
type of loan. The performing loan categories are also assigned quantified risk
factors, which result in allocations to the allowance that correspond to the
individual types of loans in the portfolio.
In order to determine its overall adequacy, the allowance for loan losses is
reviewed quarterly by management, through its Classification of Assets
Committee, and by the Mortgage and Real Estate Committee of the Board.
Various factors are considered in determining the appropriate level of the
allowance for loan losses. These factors include, but are not limited to:
1) End-of-period levels and observable trends in non-performing loans;
2) Charge-offs experienced over prior periods, including an analysis of the
underlying factors leading to the delinquencies and subsequent charge-offs
(if any);
3) Analysis of the portfolio in the aggregate as well as on an individual loan
basis, which analysis considers:
i. payment history;
ii. underwriting analysis based upon current financial information; and
iii. current inspections of the loan collateral by qualified in-house
property appraisers/inspectors.
11
4) Bi-weekly meetings of executive management with the Mortgage and Real
Estate Committee (which committee includes five outside directors, each
possessing over 30 years of complementary real estate experience), during
which observable trends in the local economy and their effect on the real
estate market are discussed;
5) Discussions with, and periodic review by, various governmental regulators
(e.g., the Federal Deposit Insurance Corporation, the New York State
Banking Department); and
6) Full Board assessment of all of the preceding factors when making a
business judgment regarding the impact of anticipated changes on the future
level of the allowance for loan losses.
While management uses available information to recognize losses on loans, future
additions to the allowance may be necessary, based on changes in economic and
local market conditions beyond management's control. In addition, various
regulatory agencies periodically review the Bank's loan loss allowance as an
integral part of the examination process. Accordingly, the Bank may be required
to take certain charge-offs and/or recognize additions to the allowance based on
the judgment of regulators with regard to information provided to them during
their examinations.
Based upon all relevant and presently available information, management believes
that the current allowance for loan losses is adequate.
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 21 of this report.
Asset Quality Analysis
At or For the At or For the
Three Months Ended Year Ended
March 31, 2002 December 31, 2001
(dollars in thousands) (unaudited)
- ------------------------------------------------------------------------------------------------------
Allowance for Loan Losses:
Balance at beginning of period $40,500 $18,064
Acquired allowance -- 22,436
------------- --------------
Balance at end of period $40,500 $40,500
============= ==============
Non-performing Assets at Period-end:
Mortgage loans in foreclosure $11,268 $10,604
Loans 90 days or more delinquent 3,333 6,894
------------- --------------
Total non-performing loans 14,601 17,498
Foreclosed real estate 249 249
------------- --------------
Total non-performing assets $14,850 $17,747
============= ==============
Ratios:
Non-performing loans to loans, net 0.27% 0.33%
Non-performing assets to total assets 0.16 0.19
Allowance for loan losses to non-performing loans 277.38 231.46
Allowance for loan losses to loans, net 0.74 0.76
============= ==============
12
Securities, Mortgage-backed Securities, and Money Market Investments
In keeping with the Company's emphasis on multi-family mortgage lending, the
portfolio of securities available for sale declined at March 31, 2002.
Securities available for sale totaled $2.3 billion at quarter's end, down $25.6
million from the balance recorded at December 31, 2001. Included in the 2002
amount were mortgage-backed securities of $2.1 billion and trust-preferred
securities of $150.0 million; the remainder of the quarter-end balance consisted
of U.S. government and agency obligations, corporate debt instruments, and
equities.
The portfolio of mortgage-backed securities held to maturity also declined, to
$47.0 million, from $50.9 million at December 31, 2001. The reduction was
primarily due to repayments and the classification of any new such investments
as available for sale. At March 31, 2002 and December 31, 2001, the market
values of the portfolio were $47.2 million and $51.1 million, equivalent to
100.3% and 100.6% of carrying value, respectively.
The declines in these portfolios were largely offset by a $6.0 million
increase in securities held to maturity to $209.2 million, partly reflecting a
$16.7 million net increase in Federal Home Loan Bank stock to $131.6 million.
The remainder of the portfolio consisted of corporate bonds, capital trust
notes, and preferred stock. At March 31, 2002 and December 31, 2001, the market
values of the portfolio were $209.6 million and $203.6 million, each equivalent
to 100.2% of carrying value at the respective dates.
The balance of money market investments, meanwhile, declined $9.0 million to
$1.2 million, as the Company invested more of its funding into higher yielding
investments, including multi-family mortgage loans.
Sources of Funds
The Company's primary sources of funds are the deposits it gathers and the
line of credit it maintains with the Federal Home Loan Bank of New York (the
"FHLB"). The Company's line of credit is collateralized by stock in the FHLB and
by certain securities and mortgage loans under a blanket pledge agreement in an
amount equal to 110% of outstanding borrowings. Additional funding stems from
interest and principal payments on loans and the interest on, and maturity of,
mortgage-backed and other investment securities.
With the acquisition of Haven and the merger with Richmond County, the Company
realized a significant shift in its mix of deposits that continued in the first
quarter of 2002. At March 31, 2002, core deposits rose $161.7 million from the
year-end 2001 amount to $3.2 billion, representing 59.6% of total deposits,
while CDs declined $240.1 million to $2.2 billion, representing 40.4%. The net
effect was a $78.3 million decline in total deposits to $5.4 billion at March
31, 2002.
The increase in core deposits consisted of a $91.6 million rise in NOW and money
market accounts to $1.0 billion; a $41.7 million rise in savings accounts to
$1.7 billion; and a $28.4 million rise in non-interest-bearing accounts to
$483.5 million. In addition to management's efforts to enhance the appeal of its
core deposit products, the higher quarter-end balance reflects the lesser appeal
of CDs at a time of comparatively low interest rates.
The decline in CDs was also consistent with management's emphasis on the sale of
alternative investment products in lieu of higher cost CDs. The Company
generates other income through the sale of such third-party products, and is
among the leading producers of revenues through annuity and mutual fund sales
among all U.S. banks.
The Company gathers deposits through a network of traditional and in-store
branches that extends throughout New York City, Long Island, Westchester County,
and New Jersey. On April 5, 2002, the Company completed the divestiture of its
seven Connecticut in-store branches and is expected to complete the sale of
seven more, in New Jersey and Rockland County, New York, on May 17, 2002.
Management expects that the modest decline in deposits resulting from these
actions will be tempered by the recent opening of two branches, and by the
anticipated opening of two additional branches in June and July.
13
The funding provided by the Company's deposits was supplemented by a $192.5
million increase in borrowings to $2.7 billion, as the Company continued to take
advantage of the favorable yield curve in the first quarter of 2002. Included in
the quarter-end amount were FHLB advances of $1.7 billion, reverse repurchase
agreements of $775.0 million, and trust-preferred securities of $190.6 million.
Asset and Liability Management and the Management of Interest Rate Risk
The primary component of the Company's market risk is interest rate volatility.
Accordingly, 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's approved guidelines.
In the process of managing its interest rate risk, the Company has pursued the
following strategies: (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 the majority of one-to-four family mortgage
loans it originates to a third party, 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 stability of the Company's core deposit base.
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.
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. In a rising interest rate environment, an institution with a negative gap
would generally be expected, absent the effects of other factors, to experience
a greater increase in its cost of interest-bearing liabilities relative to its
yield on interest-earning assets, and a decline in its net interest income.
In the first quarter of 2002, the Company took a variety of actions to further
minimize its interest rate exposure and further match its interest-earning
assets and interest-bearing liabilities. First, the Company originated a record
level of mortgage loans, primarily secured by multi-family buildings and, to a
lesser extent, by commercial real estate properties. Such loans are specifically
structured to minimize interest rate risk exposure and typically refinance
within four to five years. Second, the Company continued to realize an increase
in core deposits and a decline in higher cost CDs.
As a result of these actions, the Company's exposure to interest rate risk at
March 31, 2002 was comparable to that discussed in its 2001 Annual Report on
Form 10-K. The Company's one-year interest rate sensitivity gap was a negative
8.87% at the close of the quarter, as compared to a negative 8.69% at December
31, 2001.
The Company also monitors changes in the net present value of the expected
future cash flows of its assets and liabilities, which is referred to as the net
portfolio value, or NPV. The NPV ratio is the NPV divided by the estimated
market value of total assets, and can be viewed as a corollary to the Company's
capital ratios. To monitor its overall sensitivity to changes in interest rates,
the Company models the effect of instantaneous increases and decreases in
interest rates of 200 basis points on its assets and liabilities. As of March
31, 2002, a 200-basis
14
point increase in interest rates would have reduced the NPV by approximately
12.28% (as compared to 14.36%, the year-end 2001 impact); a 200-basis point
reduction would have increased the NPV by 5.00% (as compared to 6.74% at
December 31, 2001). There can be no assurances that future changes in the
Company's mix of assets and liabilities will not result in greater changes to
the NPV and NPV ratio.
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 indicated, the Company's primary funding sources are deposits and
borrowings. Additional funding stems from interest and principal payments on
loans, securities, and mortgage-backed securities, and the sale of securities,
loans, and foreclosed real estate. While borrowings and scheduled amortization
of loans and securities are predictable funding sources, deposit flows and
mortgage prepayments are subject to such external factors as economic
conditions, competition, and market interest rates, and are therefore less
predictable.
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 the first
quarter of 2002, the net cash used in investing activities totaled $108.4
million, primarily reflecting a $131.5 million net increase in loans, the
purchase of securities available for sale totaling $482.0 million, and proceeds
from the redemption and sales of securities available for sale totaling $512.1
million. The net increase in loans primarily stemmed from first quarter mortgage
loan originations of $511.6 million, offset by repayments and prepayments
totaling $442.5 million.
The Bank's investing activities were funded by internal cash flows generated by
its operating and financing activities. In the first quarter of 2002, the net
cash provided by operating activities totaled $6.0 million, while the net cash
provided by financing activities totaled $90.1 million, primarily reflecting a
$192.5 million net increase in borrowings.
The Company monitors its liquidity 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 Company's most liquid assets are cash
and due from banks and money market investments, which collectively totaled
$166.4 million at March 31, 2002, as compared to $178.6 million at December 31,
2001. Additional liquidity stems from the Company's portfolio of securities
available for sale, which totaled $2.3 billion at the end of the current first
quarter, and from the Bank's approved line of credit with the FHLB, which
totaled $3.7 billion.
CDs due to mature in one year or less from March 31, 2002 totaled $1.8 billion;
based upon recent retention rates as well as current pricing, management
believes that a substantial portion of such deposits will either roll over or be
reinvested in annuities or mutual funds sold through the branch network.
The Company's off-balance-sheet commitments at March 31, 2002 consisted of
outstanding loan commitments of $677.5 million and commitments to purchase
mortgage-backed securities in the amount of $218.0 million.
Capital Position
Supported by first quarter 2002 cash earnings of $64.5 million, stockholders'
equity totaled $996.2 million at March 31, 2002, representing 10.75% of total
assets and a book value of $10.07 per share, based on 98,929,130 shares. At
December 31, 2001, the Company recorded stockholders' equity of $983.1 million,
representing 10.68% of total assets and a book value of $10.05 per share, based
on 97,774,030 shares.
15
The March 31, 2002 amount reflects the distribution of cash dividends totaling
$15.8 million and the allocation of $37.4 million toward the repurchase of
1,379,596 shares. On February 19, 2002, the Board of Directors authorized the
repurchase of up to 2,250,000 shares of Company stock; at quarter's end,
1,937,191 shares were still available for repurchase under said authorization.
At March 31, 2002, the level of stockholders' equity was more than sufficient to
exceed the minimum federal requirements for a bank holding company. The
Company's leverage capital totaled $491.7 million, or 5.74% of adjusted average
assets; its Tier 1 and total risk-based capital amounted to $491.7 million and
$533.2 million, representing 10.18% and 11.04% of risk-weighted assets,
respectively. At December 31, 2001, the Company's leverage capital, Tier 1
risk-based capital, and total risk-based capital amounted to $497.2 million,
$497.2 million, and $542.4 million, representing 5.95% of adjusted average
assets, 10.37% of risk-weighted assets, and 11.31% of risk-weighted assets,
respectively.
The following regulatory capital analyses set forth the Company's and the
Bank's leverage, Tier 1 risk-based, and total risk-based capital levels in
comparison with the minimum federal requirements.
Regulatory Capital Analysis (Company)
At March 31, 2002
Risk-Based Capital
Leverage Capital Tier 1 Total
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
------------ ------------- ------------ ------------- ------------ ----------
Total equity $491,669 5.74% $491,669 10.18% $533,236 11.04%
Regulatory capital requirement 428,450 5.00 289,900 6.00 483,167 10.00
------------ ------------- ------------ ------------- ------------ ----------
Excess $63,219 0.74% $201,769 4.18% $50,069 1.04%
============ ============= ============ ============= ============ ==========
Regulatory Capital Analysis (Bank Only)
At March 31, 2002
Risk-Based Capital
Leverage Capital Tier 1 Total
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
------------ ------------- ------------ ------------- ------------ ----------
Total savings bank equity $519,184 6.07% $519,184 10.58% $560,751 11.42%
Regulatory capital requirement 256,662 3.00 196,340 4.00 392,681 8.00
------------ ------------- ------------ ------------- ------------ ----------
Excess $262,522 3.07% $322,844 6.58% $168,070 3.42%
============ ============= ============ ============= ============ ==========
On April 22, 2002, the Company filed with the SEC a universal shelf registration
on Form S-3 to enable it to raise capital through the issuance of debt
securities, common stock, trust preferred securities, or a combination of trust
preferred securities and warrants to purchase common stock, depending on market
conditions and its capital needs. On April 29, 2002, the Company filed a
supplemental prospectus for the offering of 5,100,000 shares of common stock
with an estimated value of approximately $150.0 million, based upon the $29.43
per share closing price of its common stock on April 25, 2002. Assuming that the
offering proceeds will be invested in 100% risk-weighted assets, the Company's
leverage, Tier 1 risk-based, and total risk-based capital ratios would adjust to
7.29%, 12.72%, and 13.56%.
16
Comparison of the Three Months Ended March 31, 2002 and March 31, 2001
Earnings Summary
The Company's first quarter 2002 performance was driven by a combination of
factors, including the Richmond County merger, the record level of loan
production, and the ongoing restructuring of the balance sheet during a period
of comparatively lower market interest rates.
Net income rose to $46.3 million, or $0.47 per diluted share, in the current
first quarter from $27.6 million, or $0.44 per diluted share, in the first
quarter of 2001. The 2001 amount included a non-core after-tax gain of $10.3
million on the sale of loans and securities acquired in the Haven transaction;
absent this gain, the Company's first quarter 2001 core earnings totaled $17.4
million, or $0.28 per diluted share.
The Company's first quarter 2002 core earnings thus rose 67.9% on a diluted per
share basis, and generated a 2.00% ROA and an 18.88% ROE.
The Company's cash earnings, meanwhile, rose to $64.5 million from $33.0
million, equivalent to a 22.6% increase in diluted cash earnings per share to
$0.65 from $0.53. The Company's cash earnings thus added $18.2 million, or
39.3%, more to regulatory tangible capital than its reported earnings, while
generating an ROA and ROE of 2.79% and 26.29%.
Net interest income rose $47.9 million year-over-year to $83.1 million, the net
effect of a $56.8 million, or 67.3%, rise in interest income to $141.1 million
and an $8.8 million, or 18.0%, rise in interest expense to $58.1 million. The
higher level of interest income stemmed from a $3.8 billion rise in the average
balance of interest-earning assets to $8.8 billion, which more than offset a
73-basis point drop in the average yield to 7.08%. The higher level of interest
expense stemmed from a $3.5 billion rise in the average balance of
interest-bearing liabilities to $7.6 billion, tempered by a 175-basis point
reduction in the average cost of funds to 3.08%. The growth in net interest
income was paralleled by a 102-basis point rise in interest rate spread to 4.00%
and a 91-basis point rise in net interest margin to 4.16%.
Other operating income totaled $19.8 million in the current first quarter,
as compared to $28.5 million in the year-earlier three months. Included in the
2001 amount are $15.7 million in pre-tax gains on the sale of loans and
securities in connection with the Haven acquisition; excluding these gains, core
other operating income totaled $12.8 million in the first quarter of 2001. The
resultant $7.0 million increase stemmed from a $3.2 million rise in fee income
to $11.2 million and a $3.8 million rise in core other income to $8.6 million.
The growth in other operating income stemmed from several sources, including the
expansion of the franchise pursuant to the Richmond County merger and the
acquisition of the remaining 53% equity interest in PBC.
Operating expense rose to $33.7 million in the current first quarter from $19.4
million in the first quarter of 2001. The increase stemmed from the addition of
the Richmond County branches and, to a lesser extent, from the acquisition of
PBC. The growth in operating expense was sufficiently offset by the growth in
net interest income and core other operating income to produce an improvement in
the core efficiency ratio to 32.73%.
Reflecting the adoption of SFAS Nos. 141 and 142 on January 1, 2002, the Company
discontinued the amortization of goodwill that stemmed from the Haven
acquisition but continued to amortize the CDI stemming from the Richmond County
merger. In the first quarter of 2002, the amortization of CDI totaled $1.5
million, comparable to the goodwill amortization recorded in the first quarter
of 2001.
Income tax expense rose $6.3 million to $21.4 million, a function of a $25.0
million increase in pre-tax income to $67.7 million and a decline in the
effective tax rate to 31.57% from 35.27%.
The provision for loan losses was once again suspended, reflecting the coverage
provided by the loan loss allowance and the ongoing quality of the Company's
loan portfolio.
Based on the Company's first quarter results, the current pipeline, and other
strategic actions, management updated its guidance to reflect an increase in its
diluted earnings per share estimates. Management currently anticipates that
17
the Company's 2002 diluted earnings per share will range from $2.04 to $2.08 and
that its diluted cash earnings per share will range from $2.30 to $2.35. These
estimates do not take into consideration the prospective impact of the common
stock offering now in progress.
For a discussion of factors that could adversely impact the Company's ability to
fulfill these expectations, please see the discussion of forward-looking
statements and associated risk factors beginning on page 8 of this filing and
the specific discussions of net interest income, other operating income,
non-interest expense, and income tax expense on pages 20 to 23.
Cash Earnings Analysis
For the Three Months Ended
March 31,
----------------------------------------
(in thousands, except per share data) 2002 2001
----------- -----------
Net income $46,321 $27,644
Additional contributions to tangible stockholders' equity:
Amortization and appreciation of stock-related benefit plans 1,429 894
Tax benefit effect on stock plans 14,727 2,500
Dividends on unallocated ESOP shares 530 475
----------- ----------
Total additional contributions to tangible stockholders' equity 16,686 3,869
Amortization of core deposit intangible and goodwill 1,500 1,482
----------- -----------
Cash earnings $64,507 $32,995
=========== ===========
Cash earnings per share $0.65 $0.54
Diluted cash earnings per share $0.65 $0.53
=========== ===========
The Company calculates cash earnings by adding back to net income certain
operating and income tax expenses stemming from the amortization and
appreciation of shares held in the Company's stock-related benefit plans, as
well as the CDI stemming from the Richmond County merger. The Company believes
that its cash earnings, and the related cash 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. In addition, the way in
which the Company calculates cash earnings may differ from that of companies
reporting similarly-named measures.
Interest Income
The level of interest income in any given period depends upon the average
balance and mix of the Company's interest-earning assets, the yield on said
assets, and the current level of market interest rates.
In the first quarter of 2002, the average balance of interest-earning assets was
substantially increased by loans and securities acquired in the Richmond County
merger, and by the record level of mortgage loans produced. At the same time,
the Company's yields moved lower in response to the year-over-year decline in
market interest rates. The decline in yields was greatly offset by the higher
average balance, producing a significant increase in interest income.
The Company recorded interest income of $141.1 million in the current first
quarter, as compared to $84.4 million in the year-earlier three months. The
$56.8 million, or 67.3%, rise was fueled by a $3.8 billion increase in the
average balance of interest-earning assets to $8.1 billion, which more than
offset a 73-basis point drop in the average yield to 7.08%.
Mortgage and other loans generated $100.5 million, or 71.2%, of total interest
income, up from $70.5 million, or 83.6%, in the first quarter of 2001. The 42.5%
increase was the net effect of a $1.8 billion rise in the average balance to
$5.4 billion and a 20-basis point decline in the average yield to 7.54%.
Notwithstanding the significant rise in the average balance, mortgage and other
loans represented 66.8% of average interest-earning assets in the current first
quarter, as compared to 84.3% in the year-earlier three months.
18
Largely in connection with the Richmond County merger, the average balance
of mortgage-backed securities rose to $2.2 billion from $163.7 million, thus
representing 26.9% and 3.8%, respectively, of average interest-earning assets in
the first quarter of 2002 and 2001. While the average yield dropped to 6.03%
from 6.82%, the higher average balance was sufficient to generate a $29.5
million increase in interest income to $32.3 million, representing 22.9% of
total interest income for the current three-month period.
The higher levels of interest income produced by loans and mortgage-backed
securities were only slightly tempered by reductions in the interest income from
securities and money market investments. In the first quarter of 2002, the
interest income generated by securities fell $661,000 to $8.2 million, as a
$129.3 million rise in the average balance to $479.1 million was offset by a
320-basis point decline in the average yield to 6.98%. The interest income
generated by money market investments, meanwhile, fell $2.0 million to $123,000,
the result of a $135.0 million reduction in the average balance to $29.1 million
and a 357-basis point decline in the average yield to 1.71%.
Interest Expense
The level of interest expense is a function of the average balance and
composition of the Company's interest-bearing liabilities and the respective
costs of the funding sources found within this mix. These factors are
influenced, in turn, by competition for deposits and by the level of market
interest rates.
Reflecting the Richmond County merger and its subsequent releveraging program,
the Company recorded interest expense of $58.1 million in the current first
quarter as compared to $49.2 million in the first quarter of 2001. The 18.0%
increase was the net effect of a $3.5 billion, or 84.8%, rise in the average
balance of interest-bearing liabilities to $7.6 billion, and a 175-basis point
decline in the average cost of funds to 3.08%.
Borrowings generated $29.1 million, or 50.1%, of total interest expense in the
current first quarter, as compared to $16.0 million, or 32.4%, in the
year-earlier three months. The $13.1 million increase was the net effect of a
$1.6 billion rise in the average balance to $2.6 billion, and a 180-basis point
decline in the average cost to 4.46%. While the lower cost was a function of the
prevailing interest rate environment, the higher balance reflects the
releveraging program implemented in the third quarter of 2001. Borrowings
represented 34.7% of average interest-bearing liabilities in the current first
quarter, as compared to 25.0% in the first quarter of 2001.
CDs generated interest expense of $19.6 million, or 33.8% of the first quarter
2002 total, down from $27.2 million, or 55.2%, in the first quarter of 2001.
While the average balance of CDs rose $448.6 million, in connection with the
Richmond County merger, the increase was largely offset by a 251-basis point
decline in the average cost to 3.46%. The reduction in cost reflects the
downward repricing of CDs in a lower interest rate environment and the
comparatively low growth rate of CDs as compared to the growth rate of other
types of accounts within the deposit mix. CDs thus represented 30.1% of average
interest-bearing liabilities in the current first quarter, down from 44.7% in
the year-earlier three months.
Largely reflecting deposits acquired in the Richmond County merger, other
funding (NOW and money market accounts, savings accounts, mortgagors' escrow,
and non-interest-bearing deposits) generated combined interest expense of $9.4
million, as compared to $6.1 million in the year-earlier three months. The
increase was the net effect of a $1.7 billion rise in the combined average
balance to $3.1 billion, and a 51-basis point decline in the average cost to
1.21%.
The interest expense generated by NOW and money market accounts dropped $409,000
to $3.5 million, the net effect of a $263.3 million rise in the average balance
to $994.6 million and a 74-basis point reduction in the average cost to 1.44%.
Savings accounts generated interest expense of $5.8 million, up $3.7 million,
the net effect of a $1.2 billion rise in the average balance to $1.7 billion and
a 33-basis point decline in the average cost to 1.42%. The interest expense
produced by mortgagors' escrow rose $1,000 to $5,000, the net effect of a $13.4
million rise in the average balance to $37.1 million and a two-basis point
reduction in the average cost to five basis points. In addition, the average
balance of non-interest-bearing deposits rose $283.4 million to $446.7 million
in the first quarter of 2002.
19
Net Interest Income Analysis
Three Months Ended March 31,
-----------------------------------------------------------------------------
2002 2001
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------------ --------- ------------ ----------- -------- --------
(dollars in thousands)
Assets:
Interest-earning assets:
Mortgage and other loans, net $5,406,223 $100,452 7.54% $3,642,448 $70,509 7.74%
Securities 479,123 8,242 6.98 349,820 8,903 10.18
Mortgage-backed securities 2,173,978 32,313 6.03 163,722 2,792 6.82
Money market investments 29,133 123 1.71 164,101 2,154 5.28
------------ --------- ------------ ----------- -------- --------
Total interest-earning assets 8,088,457 141,130 7.08 4,320,091 84,358 7.81
Non-interest-earning assets 1,161,647 305,741
------------ -----------
Total assets $9,250,104 $4,625,832
============ ===========
Liabilities and Stockholders' Equity:
Interest-bearing deposits:
NOW and money market accounts $ 994,633 $ 3,527 1.44% $ 731,373 $ 3,936 2.18%
Savings accounts 1,661,027 5,827 1.42 495,212 2,139 1.75
Certificates of deposit 2,296,377 19,612 3.46 1,847,767 27,180 5.97
Borrowings 2,647,000 29,097 4.46 1,035,057 15,969 6.26
Mortgagors' escrow 37,110 5 0.05 23,733 4 0.07
------------ --------- ------------ ----------- -------- --------
Total interest-bearing liabilities 7,636,147 58,068 3.08 4,133,142 49,228 4.83
Non-interest-bearing deposits 446,712 163,278
Other liabilities 185,833 49,365
------------ -----------
Total liabilities 8,268,692 4,345,785
Stockholders' equity 981,412 280,047
------------ -----------
Total liabilities and stockholders' equity $9,250,104 $4,625,832
============ ===========
Net interest income/interest rate spread $83,062 4.00% $35,130 2.98%
========= ============ ======== ========
Net interest-earning assets/net interest
margin $452,310 4.16% $186,949 3.25%
============ ============ =========== ========
Ratio of interest-earning assets to
interest-bearing liabilities 1.06x 1.05x
============ ========
Net Interest Income
Net interest income is the Company's primary source of income. Its level is a
function of the average balance of interest-earning assets, the average balance
of interest-bearing liabilities, and the spread between the yield on said assets
and the cost of said liabilities. These factors are influenced by the pricing
and mix of the Company's interest-earning assets and interest-bearing
liabilities which, in turn, may be impacted by such external factors as economic
conditions, competition for loans and deposits, and the monetary policy of the
FOMC. The FOMC reduces, maintains, or increases the federal funds rate (the rate
at which banks borrow funds from one another), as it deems necessary. The
federal funds rate held steady at 1.75% in the current first quarter; in the
year-earlier quarter, the rate ranged from a high of 6.50% to a low of 5.00%.
The Company recorded net interest income of $83.1 million in the current first
quarter, up 10.7% from $75.1 million in the trailing quarter and up 136.4% from
$35.1 million in the first quarter of 2001. The year-over-year increase was
fueled by the $3.8 billion rise in average interest-earning assets and supported
by the 175-basis point decline in the average cost of funds.
The growth in the Company's first quarter 2002 net interest income was
paralleled by the expansion of its interest rate spread and net interest margin.
At 4.00%, the Company's spread was 32 and 102 basis points wider than the
trailing- and year-earlier measures; at 4.16%, its margin was 33 and 91 basis
points wider than the measures in the corresponding periods.
20
It is management's expectation that the Company's net interest income, interest
rate spread, and net interest margin in 2002 will continue to reflect the
benefit of the Richmond County merger and the record level of mortgage loans
being produced. Yields are likely to increase as market interest rates move
higher, and as more loans are originated at such higher rates. In addition,
management anticipates that $1.6 million in CDs with an average cost of 4.00%
will reprice downward over the next three quarters, further supporting an
increase in net interest income and the expansion of the Company's spread and
margin over the course of the year.
Among the factors that could cause net interest income, interest rate spread,
and net interest margin to fall short of anticipated levels would be a more
significant increase in market interest rates than has already been considered;
increased competition for loans and deposits; and a decline in the demand for
multi-family mortgage loans. 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, and a change
in the deposit mix in favor of higher cost funds.
Provision for Loan Losses
The provision for loan losses is based on management's periodic assessment of
the adequacy of the loan loss allowance which, in turn, is based on such
interrelated factors as the composition of the loan portfolio and its inherent
risk characteristics; the level of non-performing loans and charge-offs, both
current and historic; local economic conditions; the direction of real estate
values; and current trends in regulatory supervision.
While the Company's loan portfolio has grown dramatically through merger
transactions and internal loan production, the quality of its assets improved in
the first quarter of 2002. At March 31, 2001, non-performing loans totaled $14.6
million, representing 0.27% of loans, net; at December 31, 2001, non-performing
loans totaled $17.5 million, representing 0.33% of loans, net.
Reflecting the quality of the Company's loans and the coverage provided by the
loan loss allowance, the provision for loan losses was suspended in the current
first quarter, as it was throughout 2001. The allowance for loan losses was
maintained at $40.5 million, representing 277.38% of non-performing loans and
0.74% of loans, net, at March 31, 2002.
Absent a significant downturn in the economy or in the quality of the Company's
assets, an increase in loan delinquencies or charge-offs, or a requirement of
the Company's regulators, management anticipates that it will suspend the
provision for loan losses for the remainder of 2002. For additional information
about the allowance for loan losses, please see the discussion of asset quality
beginning on page 11 of this report.
Other Operating Income
The Company has traditionally supplemented its net interest income with other
operating income derived from service fees and fees charged on loans and
depository accounts. Since the Haven acquisition, these income sources have been
augmented by income from the Company's increased investment in Bank-owned Life
Insurance ("BOLI") and by the sale of banking and investment services in a
vastly expanded branch network. More recently, the level of other operating
income has been bolstered by revenues derived from PBC and from routine sales of
securities available for sale.
Other operating income totaled $19.8 million in the current first quarter and
$28.5 million in the first quarter of 2001. Included in the latter amount were
non-core pre-tax gains of $15.7 million on the sale of loans and securities,
specifically in connection with the post-Haven acquisition restructuring of the
balance sheet. Excluding these gains, core other operating income totaled $12.8
million in the first quarter of 2001.
Core other operating income thus rose $7.0 million in the current first quarter,
including a $3.2 million, or 40.7%, rise in fee income to $11.2 million, and a
$3.8 million, or 78.1%, rise in core other income to $8.6 million. While the
higher level of fee income largely reflects the expansion of the franchise and
customer base pursuant to the Richmond County merger, the higher level of core
other income reflects revenues from four primary sources:
21
BOLI, which accounted for $1.8 million; PBC, which accounted for $1.5 million;
and third-party product sales and gains on the sale of securities, which
accounted for the rest.
Notwithstanding the divestiture of 14 in-store branches in the second quarter,
the Company continues to anticipate that other operating income will range from
$62.0 million to $65.0 million in 2002. These projections include other
operating income expected to stem from the addition of four new branches,
including two now scheduled to open in June and July.
Non-Interest Expense
Non-interest expense has two primary components: operating expense, consisting
of compensation and benefits, occupancy and equipment, general and
administrative ("G&A"), and other expenses; and the amortization of the CDI
stemming from the Company's merger of equals with Richmond County. The
amortization of the goodwill stemming from the acquisition of Haven was
discontinued on January 1, 2002 in connection with the Company's adoption of
SFAS Nos. 141 and 142.
In the first quarter of 2002, non-interest expense rose to $35.2 million from
$20.9 million in the first quarter of 2001, largely reflecting a $14.2 million
increase in operating expense.
Reflecting the impact of the Richmond County merger and, to a far lesser extent,
the PBC acquisition, the Company recorded operating expense of $33.7 million in
the current first quarter, as compared to $19.4 million in the first quarter of
2001. Notwithstanding the $14.2 million increase, and reflecting the growth in
average assets, the ratio of operating expense to average assets improved to
1.46% in the current first quarter from 1.68% in the year-earlier three months.
The increase in operating expense stemmed from a $6.8 million rise in
compensation and benefits expense to $16.5 million; a $2.7 million rise in
occupancy and equipment expense to $6.1 million; a $3.9 million rise in G&A
expense to $9.6 million; and an $849,000 rise in other expense to $1.5 million.
The across-the board increase largely reflects the costs of staffing and
operating a branch network that grew from 86 to 119 locations pursuant to the
Richmond County merger, and the costs of promoting the Company's products and
services to a much larger customer base. In addition, the acquisition of PBC
added to compensation and benefits and occupancy and equipment expense.
Also reflected 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 were added back to stockholders'
equity at the end of the quarter and to net income as part of the cash earnings
calculation for the three-month period. In the first quarter of 2002, such
plan-related expenses totaled $1.4 million, as compared to $894,000 in the
year-earlier three months.
The growth in operating expense was sufficiently offset by the growth in net
interest income and in core other operating income to produce an improvement in
the core efficiency ratio to 32.73% from 40.59%. On a cash earnings basis, the
efficiency ratio equaled 31.34% and 29.12%, respectively, in the three months
ended March 31, 2002 and 2001.
As stated above, the Company discontinued the amortization of goodwill stemming
from the Haven acquisition on January 1, 2002, but continues to amortize the CDI
stemming from the Richmond County merger. In the first quarter of 2002, the
amortization of CDI totaled $1.5 million; in the first quarter of 2001, the
amortization of goodwill from the Haven acquisition totaled a near-equivalent
amount.
Notwithstanding the increase in first quarter 2002 operating expense, it is
currently management's expectation that operating expense will range between
$123.0 million and $125.0 million for the year. Cost savings are expected to
stem from the divestiture of seven in-store branches in Connecticut on April 5th
and from the sale of seven other in-store branches in Rockland County, New York,
and New Jersey on or about May 17, 2002. In addition, the Company continues to
realize savings through the reduction of overlapping resources pursuant to the
Richmond County merger, and from the imposition of further cost controls.
22
The amortization of CDI from the Richmond County merger is expected to stabilize
at $1.5 million per quarter. In the second quarter of 2002, the Company will
test the goodwill stemming from the Haven and Richmond County transactions for
impairment; management does not anticipate that the outcome of these tests will
have a material impact on the consolidated financial statements of the Company.
The number of full-time equivalent employees at March 31, 2002 was 1,554.
Income Tax Expense
The Company recorded first quarter 2002 income tax expense of $21.4 million, as
compared to $15.1 million in the year-earlier three months. The $6.3 million
increase was the net effect of a $25.0 million rise in pre-tax income to $67.7
million and a decline in the effective tax rate to 31.57% from 35.27%.
The reduction in the effective tax rate reflects the benefit of tax planning
strategies implemented in the trailing quarter, including the restructuring of a
Bank subsidiary at year-end. As the restructuring is expected to provide a
recurring tax benefit, management anticipates that the effective tax rate will
stabilize at 32% for the remainder of the year.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about the Company's market risk were
presented in the discussion and analysis of Asset and Liability Management and
the Management of Interest Rate Risk that appear on pages 20 - 23 of the
Company's 2001 Annual Report to Shareholders, filed on April 1, 2002. At this
writing, there has been no material change in the Company's market risk profile
since the 2001 Annual Report was filed. See the discussion of Asset and
Liability Management and the Management of Interest Rate Risk that begins on
page 14 of this report.
23
NEW YORK COMMUNITY BANCORP, INC.
PART 2 - OTHER INFORMATION
Item 1. Legal Proceedings
The Bank is involved in various legal actions arising in the ordinary course of
its business. All such actions, in the aggregate, involve amounts that are
believed by management to be immaterial to the financial condition and results
of operations of the Bank.
Item 2. Changes in Securities and Use of Proceeds
On November 28, 2001, the Company's wholly-owned subsidiary, NYCB Capital Trust
I ("Trust I"), issued $36.0 million in floating rate capital securities in an
offering exempt from registration under Section 4(2) of the Securities Act of
1933, as amended (the "Act"). The principal underwriter of the transaction was
Sandler O'Neill & Partners, L.P. The aggregate offering price of the capital
securities was $36.0 million. The aggregate commission paid to the underwriters
was approximately $1.1 million. In exchange for the proceeds from the offering
of the capital securities and the proceeds from the sale of Trust I's common
securities, the Company issued Trust I $37.1 million aggregate principal amount
of junior subordinated debentures in an offering exempt from registration under
Section 4(2) of the Act.
On December 18, 2001, the Company's wholly-owned subsidiary, New York Community
Statutory Trust I ("Statutory Trust I"), issued $35.0 million in floating rate
capital securities in an offering exempt from registration under Section 4(2) of
the Act. The principal underwriters of the transaction were Keefe, Bruyette &
Woods, Inc. and First Tennessee Capital Markets. The aggregate offering price of
the capital securities was $35.0 million. The aggregate commission paid to the
underwriters was approximately $1.1 million. In exchange for the proceeds of the
offering of the capital securities and the proceeds from the sale of Statutory
Trust I's common securities, the Company issued Statutory Trust I $36.1 million
aggregate principal amount of junior subordinated debentures in an offering
exempt from registration under Section 4(2) of the Act.
On December 28, 2001, the Company's wholly-owned subsidiary, New York Community
Statutory Trust II ("Statutory Trust II"), issued $50.3 million in floating rate
capital securities in an offering exempt from registration under Section 4(2) of
the Act. No underwriter was used in this transaction. The aggregate offering
price of the capital securities was $50.3 million. In exchange for the proceeds
of the offering of the capital securities and the proceeds from the sale of
Statutory Trust II's common securities, the Company issued $51.8 million
aggregate principal amount of junior subordinated debentures to Statutory Trust
II in an offering exempt from registration under Section 4(2) of the Act.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
On April 16, 2002, the Board of Directors declared a quarterly cash dividend of
$0.20 per share, payable on May 15, 2002 to shareholders of record at the close
of business on May 1, 2002.
On April 22, 2002, the Company filed a shelf registration on SEC Form S-3 to
enable it to periodically offer and sell debt or equity securities.
24
On April 29, 2002, the Company announced that it had filed an amendment to the
SEC Form S-3 registration statement that was filed on April 22, 2002. The
amendment includes a preliminary prospectus supplement for the offering of
5,100,000 shares of common stock.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3.2: Bylaws*
Exhibit 11: Statement re: Computation of Per Share Earnings
- filed herewith
(b) Reports on Form 8-K
On January 2, 2002, the Company filed a Current Report on Form 8-K
regarding the date of the Company's 2002 Annual Meeting of Shareholders and
the related voting record date.
On April 17, 2002, the Company filed a Current Report on Form 8-K reporting
its earnings for the three months ended March 31, 2002 and also announcing
a 25% increase in its quarterly cash dividend to $0.20 per share.
On April 23, 2002, the Company filed a Current Report on Form 8-K regarding
the filing of its form of amended and restated declaration of trust and
opinion of Morris, James, Hitchens, & Williams as incorporated by reference
to its registration statement on Form S-3.
* Incorporated by reference to the Exhibits filed with the Company's Form 10-K
for the year ended December 31, 2001, File No. 0-22278.
25
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
New York Community Bancorp, Inc.
--------------------------------
(Registrant)
DATE: May 6, 2002 BY: /s/ Joseph R. Ficalora
----------------------
Joseph R. Ficalora
President and
Chief Executive Officer
(Duly Authorized Officer)
DATE: May 6, 2002 BY: /s/ Robert Wann
---------------
Robert Wann
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
26
Exhibit 11
NEW YORK COMMUNITY BANCORP, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Three Months Ended
March 31,
(in thousands, except per share data) 2002 2001
- --------------------------------------------------------------------------------
Net income $46,321 $27,644
Weighted average common shares outstanding 98,547 61,334
=========== ==========
Earnings per common share $0.47 $0.45
=========== ==========
Weighted average common shares outstanding 98,547 61,334
Additional dilutive shares using average market
value for the period when utilizing the treasury
stock method regarding stock options 979 1,027
----------- ----------
Total shares for diluted earnings per share 99,526 62,361
=========== ==========
Diluted earnings per common share
and common share equivalents $0.47 $0.44
=========== ==========
27