Financial Section
Contents
10 Financial Summary
11 Glossary
12 Cash Earnings
13 Management's Discussion and Analysis of Financial Condition and Results of
Operations
13 Overview
13 Forward-looking Statements and Associated Risk Factors
14 Financial Condition:
14 Balance Sheet Summary
15 Loans
17 Asset Quality
18 Securities and Mortgage-backed Securities
19 Sources of Funds
20 Asset and Liability Management and the Management of Interest Rate
Risk
22 Liquidity and Capital Position
25 Results of Operations:
25 Earnings Summary
26 Interest Income
27 Interest Expense
28 Net Interest Income
30 Provision for Loan Losses
30 Other Operating Income
31 Non-interest Expense
32 Income Tax Expense
33 Impact of Accounting Pronouncements
33 Market Price of Common Stock and Dividends Paid per Common Share
34 Consolidated Financial Statements
34 Consolidated Statements of Condition
35 Consolidated Statements of Income and Comprehensive Income
36 Consolidated Statements of Changes in Stockholders' Equity
37 Consolidated Statements of Cash Flows
38 Notes to the Consolidated Financial Statements
63 Management's Responsibility for Financial Reporting and Internal Controls
63 Independent Auditors' Report
NEW YORK COMMUNITY BANCORP, INC. PAGE 10
FINANCIAL SUMMARY
At or For the Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except share data) 2002 2001(1) 2000(2) 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
EARNINGS SUMMARY
Net interest income $373,256 $205,816 $73,081 $68,903 $68,522
Reversal of provision for loan losses -- -- -- (2,400) --
Other operating income 101,820 90,615 21,645 2,523 2,554
Non-interest expense 139,062 121,185 49,824 21,390 25,953
Income tax expense 106,784 70,779 20,425 20,772 18,179
Net income(3) 229,230 104,467 24,477 31,664 26,944
Basic earnings per share(3)(4) $2.25 $1.36 $0.58 $0.76 $0.63
Diluted earnings per share(3)(4) 2.22 1.34 0.56 0.74 0.60
SELECTED RATIOS
Return on average assets(3) 2.29% 1.63% 1.06% 1.69% 1.62%
Return on average stockholders' equity(3) 19.95 18.16 13.24 22.99 17.32
Operating expenses to average assets 1.33 1.76 2.16 1.14 1.57
Efficiency ratio 25.32 38.04 52.08 29.95 36.51
Interest rate spread 4.12 3.38 3.00 3.41 3.76
Net interest margin 4.31 3.59 3.33 3.79 4.24
Dividend payout ratio 34.23 39.55 78.57 60.00 50.00
BALANCE SHEET SUMMARY
Total assets $11,313,092 $9,202,635 $4,710,785 $1,906,835 $1,746,882
Loans, net 5,443,572 5,361,187 3,616,386 1,601,079 1,486,519
Allowance for loan losses 40,500 40,500 18,064 7,031 9,431
Securities held to maturity 699,445 203,195 222,534 184,637 152,280
Securities available for sale 3,952,130 2,374,782 303,734 12,806 4,656
Deposits 5,256,042 5,450,602 3,257,194 1,076,018 1,102,285
Borrowings 4,592,069 2,506,828 1,037,505 636,378 439,055
Stockholders' equity 1,323,512 983,134 307,410 137,141 149,406
Common shares outstanding(4) 105,664,464 101,845,276 66,555,279 47,272,785 47,814,518
Book value per share(4)(5) $12.97 $10.05 $4.94 $3.34 $3.61
Stockholders' equity to total assets 11.70% 10.68% 6.53% 7.19% 8.55%
ASSET QUALITY RATIOS
Non-performing loans to loans, net 0.30% 0.33% 0.25% 0.19% 0.42%
Non-performing assets to total assets 0.15 0.19 0.19 0.17 0.38
Allowance for loan losses to
non-performing loans 247.83 231.46 198.68 226.22 152.28
Allowance for loan losses to loans, net 0.74 0.76 0.50 0.44 0.63
===============================================================================================================================
(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 2002 amount includes net securities gains of $17.0 million recorded
in other operating income, resulting in an after-tax net gain of $11.0
million, or $0.11 per diluted share. The 2001 amount includes a gain of
$39.6 million recorded in other operating income and charges of $23.5
million and $3.0 million, respectively, recorded in operating expenses and
income tax expense, resulting in an after-tax net charge of $836,000, or
$0.01 per diluted 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
operating expenses, resulting in a net charge of $11.4 million, or $0.26 per
diluted 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 expenses
and resulted in an after-tax net gain of $1.5 million, or $0.04 per diluted
share.
(4) Amounts have been adjusted to reflect shares issued as a result of
3-for-2 stock splits on March 29 and September 20, 2001.
(5) Excludes unallocated ESOP shares.
NEW YORK COMMUNITY BANCORP, INC. PAGE 11
GLOSSARY
BOOK VALUE PER SHARE
For New York Community Bancorp, Inc. (the "Company"), book value per share
indicates the amount of stockholders' equity attributable to each outstanding
share of common stock, after the unallocated shares held by the Company's
Employee Stock Ownership Plan ("ESOP") are subtracted from the total number of
shares outstanding. Book value per share is determined by dividing total
stockholders' equity at the end of a period by said number of shares at the same
date. To determine its tangible book value per share, the Company first
subtracts from total stockholders' equity the amount of goodwill and core
deposit intangible at the same date.
CORE DEPOSIT INTANGIBLE
Refers to the excess of the fair market value over the book value of core
deposit accounts acquired in a merger or acquisition. The core deposit
intangible ("CDI") incurred in the Company's merger with Richmond County is
reflected on the balance sheet and will continue to be amortized through July
31, 2011.
CORE DEPOSITS
Refers to deposits held in NOW and money market accounts, savings accounts,
and non-interest-bearing accounts.
COST OF FUNDS
The interest expense associated with interest-bearing liabilities, typically
expressed as a ratio of interest expense to the average balance of
interest-bearing liabilities for a given period.
EFFICIENCY RATIO
Measures total operating expenses as a percentage of the sum of net interest
income and other operating income. To calculate its cash efficiency ratio, the
Company subtracts from total operating expenses the amortization and
appreciation of shares held in its stock-related benefit plans. (See "cash
earnings" on page 12.)
GAAP
Abbreviation used to refer to accounting principles generally accepted in the
United States of America, on the basis of which financial statements are
prepared and presented.
GOODWILL
Refers to the difference between the purchase price and the fair market value
of an acquired company's assets, net of the liabilities assumed. Goodwill is
reflected on the balance sheet and, since January 1, 2002, has been required to
undergo annual testing for impairment.
INTEREST RATE SENSITIVITY
Refers to the likelihood that the interest earned on assets and the interest
paid on liabilities will change as a result of fluctuations in market interest
rates.
INTEREST RATE SPREAD
The difference between the yield earned on the Company's average
interest-earning assets and the cost of its average interest-bearing
liabilities.
MULTI-FAMILY LOAN
A mortgage loan made on a rental apartment building or to an association that
owns an apartment building structured as a cooperative corporation. Such loans
are secured by the underlying property.
NET CHARGE-OFFS
The difference between loan balances that have been written off against the
allowance for loan losses and loan balances that have been recovered after
having been written off, resulting in a net cost.
NET INTEREST INCOME
The difference between the interest and dividends earned on the Company's
interest-earning assets and the interest paid on its interest-bearing
liabilities.
NET INTEREST MARGIN
Measures net interest income as a percentage of average interest-earning
assets.
NON-PERFORMING ASSETS
Consists of mortgage loans in foreclosure, loans 90 days or more delinquent
(as to the combined payment of principal and interest), and foreclosed real
estate.
PAYOUT RATIO
The percentage of the Company's earnings that is paid out to shareholders in
the form of dividends, determined by dividing the dividend paid per share during
a period by the Company's diluted earnings per share during the same period of
time.
PURCHASE ACCOUNTING
The accounting method used in a business combination whereby the acquiring
company treats the acquired company as an investment and adds the acquired
company's assets and liabilities to its own at their fair market value. The
difference between the purchase price and the fair market value of the acquired
company's assets, net of the liabilities assumed, is referred to as "goodwill."
The excess of the fair market value over the book value of core deposit accounts
acquired is recognized as an intangible asset, referred to as the "core deposit
intangible" or "CDI."
RENT-CONTROLLED/RENT-STABILIZED BUILDINGS
In New York City, where the vast majority of the properties securing the
Company's multi-family loans are located, the amount of rent that tenants may be
charged by owners of certain buildings is restricted under certain
"rent-control" or "rent-stabilization" laws. The same laws that limit the degree
to which the rent on an apartment may be increased also set forth requirements
with regard to the provision of certain services. To qualify as rent-controlled
or -stabilized, the apartments in a building must meet certain specifications,
generally having to do with the age of the building and the length of tenancy.
Because of the rent restrictions and the guarantees of service, such buildings
tend to be more
NEW YORK COMMUNITY BANCORP, INC. PAGE 12
affordable and attractive to live in, and are therefore less
likely to experience vacancies during times of economic adversity.
RETURN ON AVERAGE ASSETS
A measure of profitability determined by dividing net income by average
assets. To determine its cash return Cash Earningson average assets, the Company
divides its cash earnings (as defined below) by its average assets.
RETURN ON AVERAGE STOCKHOLDERS' EQUITY
A measure of profitability determined by dividing net income by average
stockholders' equity. To determine its cash return on average stockholders'
equity, the Company divides its cash earnings (as defined below) by its average
stockholders' equity.
REVENUES
Refers to net interest income and other operating income, combined.
YIELD
The interest income associated with interest-earning assets, typically
expressed as a ratio of interest income to the average balance of
interest-earning assets for a given period.
YIELD CURVE
A graph that illustrates the difference between the yields on long-term and
short-term interest rates over a period of time, considered a key economic
indicator. The greater the difference, the steeper the yield curve.
CASH EARNINGS
Although cash earnings are not a measure of performance calculated in
accordance with generally accepted accounting principles ("GAAP"), the Company
believes that cash earnings are an important measure because of their
contribution to tangible stockholders' equity.
The Company calculates cash earnings by adding back to net income certain
items that have been charged against earnings, net of income taxes, but have
been added back to tangible stockholders' equity. These items fall into two
primary categories: expenses related to the amortization and appreciation of
shares held in the Company's stock-related benefit plans; and the amortization
of the core deposit intangible stemming from the Company's merger with Richmond
County Financial Corp. ("Richmond County") on July 31, 2001. In 2001 and 2000,
the calculation of cash earnings also included the amortization of the goodwill
stemming from the Company's acquisition of Haven Bancorp, Inc. on November 30,
2000. Unlike other expenses incurred by the Company, the aforementioned charges
do not reduce the Company's tangible stockholders' equity.
For this reason, the Company believes that cash earnings are useful to
investors seeking to evaluate its operating performance and to compare its
performance with other companies in the banking industry that also report cash
earnings. Cash earnings should not be considered in isolation or as a substitute
for operating income, cash flows from operating activities, or other income or
cash flow statement data prepared in accordance with GAAP. Moreover, the manner
in which the Company calculates cash earnings may differ from that of other
companies reporting measures with similar names.
A reconciliation of the Company's cash and GAAP earnings for the twelve
months ended December 31, 2002, 2001, and 2000 follows:
Cash Earnings Reconciliation
For the Years Ended December 31,
- --------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------
Net income $229,230 $104,467 $24,477
Add back:
Amortization and appreciation of stock-related benefit plans 5,902 22,775 24,795
Associated tax benefits 15,860 11,000 5,953
Dividends on unallocated ESOP shares 2,718 2,302 2,776
Amortization of core deposit intangible and goodwill 6,000 8,428 494
- --------------------------------------------------------------------------------------------------------------
Total additional contributions to tangible stockholders' equity 30,480 44,505 34,018
- --------------------------------------------------------------------------------------------------------------
Cash earnings $259,710 $148,972 $58,495
==============================================================================================================
Basic cash earnings per share(1) $2.55 $1.94 $1.38
Diluted cash earnings per share(1) 2.52 1.91 1.33
==============================================================================================================
(1) Per share amounts for 2000 have been adjusted to reflect 3-for-2 stock
splits on March 29 and September 20, 2001.
NEW YORK COMMUNITY BANCORP, INC. PAGE 13
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 seventh largest thrift in the
nation, based on market capitalization at March 31, 2003. The Bank currently
serves its customers through a network of 110 banking offices in New York City,
Long Island, Westchester County (New York), and New Jersey, and operates through
six divisions with strong local identities: Queens County Savings Bank, CFS
Bank, Richmond County Savings 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 the
leading producers of multi-family mortgage loans in the city of New York.
As it stands today, the Company combines the strengths of three financial
institutions: Queens County Bancorp, Inc.; Haven Bancorp, Inc. ("Haven"); and
Richmond County Financial Corp. ("Richmond County"). The Company changed its
name from Queens County Bancorp, Inc. on November 21, 2000 in anticipation of
its acquisition of Haven on November 30, 2000. Eight months later, on July 31,
2001, the Company completed a merger-of-equals with Richmond County. Reflecting
both organic growth and the ongoing benefit of these merger transactions, the
Company had total assets of $11.3 billion and total deposits of $5.3 billion at
December 31, 2002.
The Company's balance sheet at year-end 2002 reflects the implementation of
two strategic programs: the restructuring of the balance sheet to create a more
risk-averse mix of assets, and the profitable use of borrowed funds to grow the
balance sheet. The first of these was achieved through a record level of
multi-family loan originations--$2.1 billion--and through a $1.1 billion
reduction in the portfolio of one-to-four family loans through securitizations,
prepayments, and sales. Multi-family loans rose to $4.5 billion at December 31,
2002, representing 83.1% of total mortgage loans outstanding; one-to-four family
loans declined to $265.7 million, representing 4.9%. The mortgage mix was thus
essentially restored to its pre-merger transaction status, when 86.1% of the
portfolio consisted of multi-family loans.
Capitalizing on the yield curve and favorable market conditions, the Company
increased its borrowings $2.1 billion year-over-year to $4.6 billion, and
deployed these funds into short-term securities with attractive yields.
Securities available for sale rose $1.6 billion to $4.0 billion (including
one-to-four family loans securitized in the second quarter), while securities
held to maturity rose $496.3 million to $699.4 million at year-end 2002.
Additional funding stemmed from a $264.2 million, or 8.7%, rise in core
deposits to $3.3 billion--despite the divestiture during the year of 14 in-store
branches--and from the net proceeds of two capital-raising initiatives. On May
14, 2002, the Company issued 5.9 million shares of common stock in a secondary
offering that generated net proceeds of $147.5 million. On November 4, 2002, the
Company issued 5.5 million Bifurcated Option Note Unit SecuritiES (BONUSES(SM)
Units), a hybrid instrument that combines a trust preferred security and a
warrant to purchase common stock. The warrant portion of the offering generated
net proceeds of $89.9 million, included in "paid-in capital"; the $182.5 million
of net proceeds generated by the trust preferred portion are included in
"borrowings."
Reflecting these initiatives and a significant increase in earnings,
stockholders' equity rose $340.4 million to $1.3 billion, equivalent to a 29.1%
increase in book value per share to $12.97. Tangible stockholders' equity rose
$336.5 million to $647.5 million, equivalent to a 99.5% rise in tangible book
value per share to $6.34.
Fueled by interest-earning asset growth, and the full-year effect of the
Richmond County merger, the Company's 2002 earnings rose $124.8 million, or
119.4%, year-over-year to $229.2 million, equivalent to a 66.0% increase in
diluted earnings per share to $2.22. Based on the strength of its financial
results, the Company increased its quarterly cash dividend 25% in the second
quarter and another 25%, more recently, on January 21, 2003.
Another sign of management's confidence in the Company's prospects has been
its approach to share repurchases. In 2002, the Company allocated $120.0 million
toward the repurchase of 4,337,534 shares over the course of four quarters,
including 1,020,747 shares repurchased under the Board of Director's five
million-share authorization on November 25, 2002. Of the 3,979,253 shares still
available for repurchase at the end of December, approximately 1.1 million were
repurchased in the first quarter of 2003.
With the balance sheet restructuring now complete, and considering
management's current revenue and expense projections, the Company anticipates
that its diluted earnings per share will continue to grow in 2003.
The Company routinely evaluates opportunities to expand through acquisition,
and frequently conducts due diligence activities in connection with such
opportunities. As a result, acquisition discussions and, in some cases,
negotiations may take place in the future, and acquisitions involving cash,
debt, or equity securities may occur. The impact of an acquisition would likely
be reflected in the Company's financial condition and results of operations.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK FACTORS
This report, like other written and oral communications issued from time to
time by the Company and its authorized officers, 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
NEW YORK COMMUNITY BANCORP, INC. PAGE 14
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 "plan," "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 in the quality or composition of the
Company's portfolios of loans and investments; changes in deposit flows,
competition, and demand for financial services and loan, deposit, and investment
products in the Company's local markets; 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 2003 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
In 2002, the Company completed a strategic balance sheet restructuring
program designed to strengthen the quality of the Company's asset mix. In
addition to reducing the Company's exposure to interest rate volatility and
adverse economic conditions, the restructuring restored multi-family loans to
their pre-merger transaction prominence within the mix of assets, and
established a solid foundation on which to grow the portfolio in 2003 and
beyond.
The balance sheet restructuring was achieved through a $1.1 billion reduction
in one-to-four family loans outstanding and through the simultaneous production
of $2.1 billion of multi-family loans. Total mortgage originations equaled $2.6
billion, exceeding the prior-year's record level by 122.6%. Capitalizing on the
yield curve and favorable market conditions, the Company also pursued a
profitable leveraged growth strategy. Acting opportunistically, the Company
parlayed a $2.1 billion increase in borrowings into securities investments;
reflecting the securitization of one-to-four family loans totaling $572.5
million, securities rose $2.1 billion year-over-year. Additional funding stemmed
from an increase in core deposits, loan and securities prepayments, and the
Company's aforementioned public offerings.
Reflecting the record volume of loans produced and new securities
investments, the Company's assets rose 22.9% year-over-year to $11.3 billion
from $9.2 billion at December 31, 2001. Multi-family loans accounted for $4.5
billion of the year-end 2002 total, having grown $1.2 billion from the
year-earlier amount. Securities available for sale, primarily in the form of
short-term mortgage-backed securities, rose $1.6 billion to $4.0 billion, while
held-to-maturity securities rose $496.3 million to $699.4 million. The growth in
assets was partly offset by the aforementioned strategic reduction in the
balance of one-to-four family loans.
Validating its emphasis on the production of risk-averse assets, the
Company's record of asset quality was sustained in 2002. In addition to marking
its 33rd consecutive quarter without any net charge-offs, the Company realized a
$1.2 million reduction in non-performing assets to $16.5 million at the end of
the year. The reduction stemmed from a $74,000 decline in foreclosed real estate
to $175,000 and from a $1.2 million decline in non-performing loans to $16.3
million. While mortgage loans in foreclosure rose $1.3 million year-over-year to
$11.9 million, loans 90 days or more delinquent declined $2.5 million to $4.4
million. The Company's asset quality ratios underscored the improvement, with
non-performing assets declining four basis points to 0.15% of total assets and
non-performing loans declining three basis points to 0.30% of loans, net.
In the absence of any net charge-offs or provisions for loan losses, the loan
loss allowance was maintained at $40.5 million, representing 247.83% of
non-performing loans and 0.74% of loans, net, at year-end.
Goodwill totaled $624.5 million at year-end 2002, up $9.9 million, primarily
reflecting the goodwill stemming from the Company's 100% equity interest in
Peter B. Cannell & Co., Inc. ("PBC"), an investment advisory firm. The Company
acquired a 47% equity interest in PBC in the Richmond County merger and acquired
the remaining 53% on January 3, 2002. At the same time, the core deposit
intangible ("CDI") stemming from the Richmond County merger declined $6.0
million to $51.5 million, reflecting amortization at a rate of $1.5 million per
quarter.
Other assets rose $70.9 million year-over-year to $323.3 million. The
increase was primarily due to a $79.6 million rise in the Company's investment
in Bank-owned Life Insurance ("BOLI") to $203.0 million at December 31, 2002.
The significant shift in the asset mix was paralleled by a shift in deposits,
with core deposits exceeding certificates of deposit ("CDs") for the second
consecutive year. Core deposits totaled $3.3 billion at December 31, 2002,
representing 62.9% of total deposits, up from $3.0 billion, representing 55.8%,
at December 31, 2001. The increase was achieved despite the divestiture of 14
in-store branches in the second quarter, which was partly offset by the opening
of four new banking offices during the year.
NEW YORK COMMUNITY BANCORP, INC. PAGE 15
The balance of CDs, meanwhile, declined to $1.9 billion, representing 37.1%
of total deposits, from $2.4 billion, representing 44.2%, at the prior year-end.
Customers, already reluctant to invest in CDs paying low market rates of
interest, were encouraged to purchase the third-party investment products sold
through the Bank. In addition to generating revenues, which are recorded in
"other income," the sale of such products has proved conducive to the
establishment of multi-faceted banking relationships.
In addition to the aforementioned securitization of one-to-four family loans
totaling $572.5 million, the increase in the securities portfolio reflects the
benefit of the Company's leveraged growth strategy. Funding was primarily
provided by Federal Home Loan Bank of New York ("FHLB-NY") advances and reverse
repurchase agreements, which, together, accounted for $4.2 billion of the $4.6
billion year-end balance of borrowings. The remainder of the balance consisted
of trust preferred securities totaling $368.8 million, including $182.5 million
in connection with the Company's offering of BONUSES Units in the fourth quarter
of the year. At December 31, 2001, by comparison, borrowings totaled $2.5
billion; FHLB advances and reverse repurchase agreements accounted for $1.8
billion and $529.7 million, respectively, of the total, while trust preferred
securities accounted for $187.8 million.
Stockholders' equity rose $340.4 million, or 34.6%, to $1.3 billion,
equivalent to a 29.1% rise in book value per share to $12.97. The increase was
fueled by a $110.7 million rise in cash earnings to $259.7 million (as presented
in the cash earnings reconciliation that appears on page 12 of this filing), and
by two highly successful offerings to the investment community: the secondary
offering of common stock in the second quarter, and the BONUSES Units offering
in the fourth quarter of the year. On May 14, 2002, the Company issued 5.9
million shares of common stock, generating net proceeds of $147.5 million; on
November 4, 2002, the Company issued 5.5 million BONUSES Units, generating net
proceeds of $267.3 million; $89.9 million of this amount was attributed to the
warrant portion of the Units, and included in "paid-in capital" at December 31,
2002. The benefits of these initiatives are also conveyed by a 108.2% increase
in tangible stockholders' equity to $647.5 million and by a 99.5% increase in
tangible book value per share to $6.34.
At December 31, 2002, the number of outstanding shares totaled 105,664,464,
the net effect of the secondary offering and option exercises, and the
repurchase of 4,337,534 shares over the course of the year. On November 25,
2002, the Board of Directors authorized the repurchase of up to an additional
5,000,000 shares outstanding; of these, 3,979,253 were still available for
repurchase at year-end 2002.
Loans
The magnitude of the Company's multi-family market niche was significantly
expanded by the volume of loans produced in 2002. The Company originated
multi-family loans totaling $2.1 billion, exceeding the prior-year volume by
$1.3 billion, or 160.3%. At December 31, 2002, multi-family loans represented
83.1% of total mortgage loans outstanding, and represented 80.4% of production
for the year. At the prior year-end, multi-family loans represented 61.6% of
mortgage loans outstanding, and accounted for 68.8% of total mortgage loans
produced. The Company's multi-family market niche is centered in the metro New
York region and is primarily comprised of buildings that are rent-controlled or
rent-stabilized.
The origination of multi-family mortgage loans was the central component of
the Company's balance sheet restructuring. By restoring multi-family loans to
their pre-merger transaction prominence, the Company has created a mix of assets
believed to be less susceptible to credit and interest rate risk. The quality of
multi-family loans is one of the reasons for the Company's preference for such
assets: the Company has not had a loss on a multi-family loan within its local
market since the mid-1980s, at least.
The approval process for multi-family loans is also 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 visibility of other multi-family
lenders and the entry of new competitors into the marketplace.
The Company's multi-family loans generally feature a term of ten years, with
a fixed rate of interest for the first five years of the mortgage and a rate
that adjusts annually in each of years six through ten. However, as multi-family
lending is, essentially, a refinancing business, the Company's typical
multi-family loan has an average life of four years. Loans that refinance within
years one through five are subject to a stringent prepayment penalty schedule;
depending on the remaining term of the loan at the time of prepayment, the
penalties range from five percentage points to one in years one through five.
While such penalties represent a potential source of income, they also serve as
an enhancement to the Company's negotiations with borrowers seeking to refinance
with the Bank. Because the majority of loans in portfolio tend to stay with the
Bank upon refinancing, the potential for future portfolio growth is enhanced
with every new loan that is made.
In keeping with its restructuring plan, and management's emphasis on
risk-averse assets, the Company took steps to substantially reduce its portfolio
of one-to-four family loans in 2002. The Company securitized $572.5 million of
such loans in the second quarter and sold another $215.9 million from the
portfolio over the course of the year. The latter amount excludes loans sold in
connection with the Company's conduit program, as described below.
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, which pays the
NEW YORK COMMUNITY BANCORP, INC. PAGE 16
Company a fee for every loan that is closed and delivered. The benefits of this
arrangement are apparent in the contribution to other income, and in the reduced
exposure of the Company 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 conduit relationship, the securitization and sale of loans,
and a significant volume of prepayments, the portfolio of one-to-four family
loans declined to $265.7 million at December 31, 2002 from $1.3 billion at
year-end 2001. As a result of the $1.1 billion decline, the concentration of
one-to-four family loans fell to 4.9% of mortgage loans outstanding from 24.9%.
In 2003, the concentration of one-to-four family mortgage loans is expected to
decline further through attrition, reflecting both repayments and the Company's
conduit approach to originating such loans.
To complement its portfolio of loans secured by multi-family buildings, the
Company maintains a portfolio of commercial real estate and construction loans.
Commercial real estate loans totaled $533.3 million at December 31, 2002, down
$28.6 million from the year-earlier balance, after twelve-month originations of
$159.3 million, as compared to $130.7 million in 2001. Construction loans
totaled $117.0 million at year-end 2002, down $35.4 million, after twelve-month
originations of $89.2 million, as compared to $91.2 million in the prior
twelve-month period.
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.
Prepayment penalties also apply, with five points being charged on loans that
refinance in the first year of the mortgage, scaling down to one point on loans
that refinance in year five. The majority of commercial real estate loans are
secured by office or retail buildings in the city of New York.
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 index and a minimum floor.
The strategic reduction in the portfolio of one-to-four family loans,
together with the lesser declines in commercial real estate and construction
loans outstanding, limited the growth of the total mortgage loan portfolio in
2002. Notwithstanding the $1.2 billion increase in multi-family loans, the total
portfolio of mortgage loans rose $122.6 million year-over-year to $5.4 billion
at December 31st.
Other loans totaled $78.8 million at year-end 2002, down from $117.0 million,
primarily reflecting the sale of $71.4 million of home equity and installment
loans in the second quarter of the year. Because of the higher credit and
interest rate risk inherent in such lending, the Company originates other loans
on a conduit basis only; as a result, the portfolio is likely to decline as such
loans are repaid.
With the restructuring of the balance sheet now complete, the Company
anticipates that its 2003 loan production will result in an increase in total
multi-family loans by year-end. With first quarter 2003 originations of
approximately $652 million, and approximately $599 million now in the pipeline,
management believes that the Company is on track to achieve this goal.
Loan Portfolio Analysis
At December 31,
- --------------------------------------------------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Percent Percent Percent
(dollars in thousands) Amount of Total Amount of Total Amount of Total
- --------------------------------------------------------------------------------------------------------------------------
MORTGAGE LOANS:
Multi-family $4,494,332 81.88% $3,255,167 60.23% $1,945,656 53.51%
1-4 family 265,724 4.84 1,318,295 24.40 1,267,080 34.85
Commercial real estate 533,327 9.71 561,944 10.40 324,068 8.91
Construction 117,013 2.13 152,367 2.82 59,469 1.64
- --------------------------------------------------------------------------------------------------------------------------
Total mortgage loans 5,410,396 98.56 5,287,773 97.85 3,596,273 98.91
- --------------------------------------------------------------------------------------------------------------------------
Other loans 78,787 1.44 116,878 2.15 39,748 1.09
- --------------------------------------------------------------------------------------------------------------------------
Total mortgage and other loans 5,489,183 100.00% 5,404,651 100.00% 3,636,021 100.00%
- --------------------------------------------------------------------------------------------------------------------------
Unearned premiums (discounts) 19 91 (18)
Less: Net deferred loan origination fees 5,130 3,055 1,553
Allowance for loan losses 40,500 40,500 18,064
- --------------------------------------------------------------------------------------------------------------------------
Loans, net $5,443,572 $5,361,187 $3,616,386
==========================================================================================================================
NEW YORK COMMUNITY BANCORP, INC. PAGE 17
Asset Quality
The record of asset quality that supported the Company's past performance was
once again in evidence in 2002. In addition to achieving its 33rd consecutive
quarter without any net charge-offs, the Company realized year-over-year
reductions in its balance of non-performing assets and non-performing loans.
Non-performing assets declined $1.2 million year-over-year to $16.5 million,
while the ratio of non-performing assets to total assets fell four basis points
to 0.15%. Non-performing loans accounted for $16.3 million of the year-end 2002
total, having declined $1.2 million, and were equivalent to 0.30% of loans, net,
down three basis points.
Mortgage loans in foreclosure represented $11.9 million of the year-end 2002
total, signifying a $1.3 million increase, while loans 90 days or more
delinquent declined $2.5 million to $4.4 million year-over-year. Included in the
latter balance was the Company's first non-performing multi-family loan in
nearly a decade, in the amount of $2.3 million. In the first quarter of 2003,
the loan was sold without any loss of principal or interest.
The reduction in non-performing assets at year-end 2002 also stemmed from a
$74,000 decline in foreclosed real estate to $175,000; the balance was comprised
of four loans secured by one-to-four family homes, two of which were sold
without any loss of principal or interest in the first quarter of 2003.
While the quality of the Company's loans reflects the relative 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 first at the consistency of the
cash flow being generated, and then at the appraised value of the property that
collateralizes the loan.
The condition of the property is another critical factor: every building is
inspected from rooftop to basement as a prerequisite to approval by executive
management and the Mortgage and Real Estate Committee of the Board. In addition
to approving all loans, the Committee participates in inspections on every loan
in excess of $2.0 million. 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 primarily lending in a market that is home
to the Bank and its lending officers. The Company's multi-family and commercial
real estate loans are brought to the Bank by a select group of mortgage brokers
who, for the most part, have worked with the Bank or its acquirees for more than
thirty years.
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 the appraised value on multi-family
buildings and up to 65% on commercial properties, the average loan-to-value
ratio of such credits at December 31, 2002 was 58.2% and 52.1%, respectively.
The average multi-family loan in the portfolio at that date had a principal
balance of $1.9 million; the average commercial real estate loan had a principal
balance of $852,700.
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 construction 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 and/or consulting engineers.
While the Company is no longer originating one-to-four family loans for
portfolio, and reduced the balance of such loans in 2002 through sales and
securitizations, a small balance of one-to-four family loans remained at
December 31st. The remaining portfolio will be further reduced over time through
repayments; the Company does not anticipate that it will begin to originate
one-to-four family loans for portfolio.
The restructuring of the balance sheet and the aforementioned conduit program
were designed to reduce the Company's exposure to the credit and interest rate
risk inherent in one-to-four family loans. Because the majority of the Company's
multi-family loans are short-term loans, and are secured by rent-controlled and
rent-stabilized buildings, it is believed that the portfolio is better insulated
against credit and interest rate risk. The Company's multi-family loans have,
historically, outperformed its one-to-four family credits; accordingly, the
portfolio of multi-family loans is expected to grow as a means of making the
Company increasingly risk-averse.
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, which may be increased by the loan loss
provision charged to operations or reduced by reversals or by net charge-offs.
In the absence of any net charge-offs or provisions for loan losses, the
allowance was maintained at $40.5 million, equivalent to 247.83% of
non-performing loans and 0.74% of loans, net, at December 31, 2002. In 2001, the
allowance for loan losses was increased to its current level by the addition of
$22.4 million in connection with the Richmond County merger.
Management establishes the allowance for loan losses through a process that
begins with estimates of probable loss inherent in the portfolio, based on
various statistical analyses. These analyses consider historical and projected
default rates and loss severities; internal risk ratings; and geographic,
industry, and other environmental factors. In establishing the allowance for
loan losses, management also considers the Company's current business strategy
and credit process, including compliance with stringent guidelines it has
established with regard to credit limitations, credit approvals, loan
underwriting criteria, and loan workout procedures.
NEW YORK COMMUNITY BANCORP, INC. PAGE 18
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 loan loss allowance 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 allowance is also
discussed in Note 1 to the Consolidated Financial Statements, "Summary of
Significant Accounting Policies." For more information regarding asset quality
and the coverage provided by the loan loss allowance, please see the Asset
Quality Analysis that follows and the discussion of the provision for loan
losses on page 30 of this report.
Asset Quality Analysis
- -------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of year $40,500 $18,064 $ 7,031 $ 9,431 $9,431
Allowance acquired in merger transactions -- 22,436 11,033 -- --
Reversal of provision for loan losses -- -- -- (2,400) --
- -------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $40,500 $40,500 $18,064 $ 7,031 $9,431
===============================================================================================================================
NON-PERFORMING ASSETS:
Mortgage loans in foreclosure $11,915 $10,604 $6,011 $2,886 $5,530
Loans 90 days or more delinquent 4,427 6,894 3,081 222 663
- -------------------------------------------------------------------------------------------------------------------------------
Total non-performing loans 16,342 17,498 9,092 3,108 6,193
Foreclosed real estate 175 249 12 66 419
- -------------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $16,517 $17,747 $9,104 $3,174 $6,612
===============================================================================================================================
RATIOS:
Non-performing loans to loans, net 0.30% 0.33% 0.25% 0.19% 0.42%
Non-performing assets to total assets 0.15 0.19 0.19 0.17 0.38
Allowance for loan losses to non-performing loans 247.83 231.46 198.68 226.22 152.28
Allowance for loan losses to loans, net 0.74 0.76 0.50 0.44 0.63
===============================================================================================================================
Securities and Mortgage-backed Securities
The Company selects its investments to support three primary objectives:
minimizing exposure to credit, prepayment, 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 significant liquidity for multi-family lending, as
well as for the Bank's general operating activities. At the same time, they
provide management with the flexibility to hold or sell, as needed, depending on
changing circumstances and current market opportunities.
While multi-family loans are, unquestionably, the Company's principal asset,
its securities grew significantly over the course of 2002. Capitalizing on the
marketplace, and the steepest yield curve in more than a decade, the Company
deployed its borrowings into high yielding short-term investments that did much
to support its earnings growth.
NEW YORK COMMUNITY BANCORP, INC. PAGE 19
At December 31, 2002, the portfolio of securities available for sale totaled
$4.0 billion, up 66.4% from $2.4 billion at December 31, 2001. The 2002 balance
represented 34.9% of total assets, in contrast to the 2001 balance, which
represented 25.8%. Mortgage-backed securities represented $3.6 billion, or
91.0%, of securities available for sale at December 31, 2002, and featured a
weighted average life of 2.4 years. In addition to new investments, the $3.6
billion reflects the securitization of one-to-four family loans in the second
quarter of the year. Debt and equity securities accounted for the remaining
$355.0 million of the year-end 2002 available-for-sale balance, including
capital trust notes of $216.1 million.
Securities held to maturity rose to $699.4 million from $203.2 million,
representing 6.2% and 2.2% of total assets at December 31, 2002 and 2001,
respectively. The 2002 amount primarily consisted of capital trust notes
totaling $273.9 million, corporate bonds totaling $233.7 million, and FHLB stock
totaling $186.9 million.
The portfolio of mortgage-backed securities held to maturity, meanwhile,
declined $13.9 million to $36.9 million, reflecting prepayments.
Reflecting management's stated preference for multi-family lending, it is
expected that the Company's portfolios of securities and mortgage-backed
securities will be reduced over time. The cash flows generated by securities
sales and repayments are expected to be invested in multi-family loan
originations depending on market conditions and other investment opportunities.
Sources of Funds
The restructuring of the balance sheet reflected in the changing mix of
assets was mirrored in the changing mix of liabilities. The growth in core
deposits that began with, and was bolstered by, the Company's successive merger
transactions, continued in 2002. Core deposits totaled $3.3 billion at year-end,
representing 62.9% of total deposits, as compared to $3.0 billion, representing
55.8%, at year-end 2001.
The growth in core deposits reflects a $249.7 million rise in NOW and money
market accounts to $1.2 billion; a $4.5 million rise in savings accounts to $1.6
billion; and a $10.0 million rise in non-interest-bearing accounts to $465.1
million. NOW and money market accounts thus represented 22.8% of total deposits,
while savings accounts and non-interest-bearing accounts represented 31.3% and
8.8%, respectively, at December 31, 2002. The increase in core deposits was
achieved despite the divestiture of 14 branches in the second quarter, and
conveys the Bank's ability to attract deposits in a highly competitive
marketplace, as further discussed below.
In keeping with management's emphasis on core deposits, the balance of CDs
declined to $1.9 billion from $2.4 billion at December 31, 2001. The 2002 amount
represented 37.1% of total deposits, down from 44.2% at the prior year-end. The
decline in CDs also reflects a deliberate reduction in "hot money" deposits as a
means of controlling funding costs, and management's policy of encouraging the
placement of such funds into alternative investment products, when appropriate.
The Company earns other operating income on the sale of such third-party
products, and ranks among the thrift industry's top producers of revenues from
investment product sales.
In addition, the reduction in CDs reflects the aforementioned divestiture of
14 in-store branches, which was partly offset by the addition of three branches
on Staten Island and one in Nassau County during 2002. With the opening of
another traditional branch currently slated for the second quarter of 2003, the
Company expects to have 111 banking offices serving the metro New York region
and New Jersey by the end of June. The Company currently expects to open four
new branches in all by the end of December, including two in-store banking
offices.
The significant level of asset growth was, in large part, supported by
leveraged funding in the form of FHLB-NY advances, reverse repurchase
agreements, and the issuance of trust preferred securities. At December 31,
2002, the Company recorded total borrowings of $4.6 billion, up from $2.5
billion at December 31, 2001. FHLB-NY advances accounted for $2.3 billion of the
year-end 2002 total, as compared to $1.8 billion of the year-end 2001 amount.
Reverse repurchase agreements and trust preferred securities accounted for $2.0
billion and $368.8 million, respectively, of the year-end 2002 total, as
compared to $529.7 million and $187.8 million, respectively, at year-end 2001.
The increase in trust preferred securities includes $182.5 million stemming from
the issuance of BONUSES Units in the fourth quarter of 2002. The Company's
leveraging strategy is expected to continue in 2003, depending on the steepness
of the yield curve and the availability of investments providing attractive
yields.
While borrowings fueled a fair portion of the growth in interest-earning
assets, loan growth was also supported by the capital raised through the
Company's secondary offering of common stock in May 2002. The offering, which
was oversubscribed, generated net proceeds of $147.5 million. An additional
$89.9 million in funding was derived from the warrant portion of the BONUSES
Units offering.
In 2002, additional funding stemmed from a robust level of prepayments, in
both the mortgage-backed securities and one-to-four family loan portfolios. The
funding provided by deposits, borrowings, and prepayments was further
supplemented by interest payments on loans and other investments, and by the
maturities of securities and mortgage-backed securities. In 2003, management
expects to deploy the funds derived through its various funding sources
primarily into the origination of multi-family mortgage loans.
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
extensive menu of financial products and services. In addition to traditional
checking and savings accounts, the Company offers a full range of third-party
investment products, including insurance, annuities, and mutual funds.
NEW YORK COMMUNITY BANCORP, INC. PAGE 20
The Company operates its branch network through six community divisions, each
one enjoying a strong local identity. The Queens County Savings Bank Division is
the largest, with 27 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 on
Staten Island.
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 third-party investment product sales.
While the Company's in-store branches are primarily located on Long Island
and in the five boroughs of New York City, its 55 traditional banking offices
are primarily concentrated in Queens and Richmond counties and New Jersey. The
Bank enjoys the second largest share of thrift deposits in the two boroughs and
a substantial portion of deposits in several densely populated New Jersey
communities.
With a total network of 110 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 appropriate level of risk, 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 market risk lies in its
exposure to 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.
In the process of managing 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 one-to-four family and consumer loans on a
conduit basis, without recourse; and (3) investing in mortgage-backed and
mortgage-related securities with estimated average lives of two to seven years.
These strategies take into consideration the relative stability of the Company's
core deposits and its non-aggressive pricing policy with regard to CDs.
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 2002, the Company took a variety of actions to further minimize its
exposure to interest rate risk. First, the Company securitized $572.5 million of
one-to-four family loans, and sold another $215.9 million from the portfolio to
other financial institutions (i.e., excluding loans sold through the conduit
program). In addition, the Company sold $71.4 million of home equity and
installment loans. Second, the Company continued to strengthen its funding base
by increasing both the balance and concentration of core deposits. The increase
in funding provided support for the record level of mortgage loan production and
for the increased balance of loans specifically structured to minimize interest
rate risk. Third, the Company increased its investment in readily saleable
mortgage-backed and mortgage-related securities with leveraged funds. The
increase in multi-family loans and in securities available for sale is
indicative of a more flexible institution, one better equipped to address
changes in market interest rates.
Interest Rate Sensitivity Gap
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. Reflecting the leveraged growth of the balance sheet, the Company's
one-year gap at December 31, 2002 was a negative 16.03%, as compared to a
negative 8.69% at December 31, 2001.
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
NEW YORK COMMUNITY BANCORP, INC. PAGE 21
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 following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 2002, 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 (1) the term to repricing, or (2) 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, 2002 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 up to 40% 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.
Interest Rate Sensitivity Analysis
At December 31, 2002
- ---------------------------------------------------------------------------------------------------------------------------------
Three Four to More Than More Than More than More
Months Twelve One Year to Three Years Five Years than
(dollars in thousands) or Less Months Three Years to Five Years to 10 Years 10 Years Total
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS:
Mortgage and other loans(1) $ 330,059 $ 902,649 $2,009,285 $1,497,835 $ 707,179 $ 25,833 $ 5,472,840
Securities(2) 113,850 -- 92,065 87,692 133,373 627,454 1,054,434
Mortgage-backed securities(2)(3) 474,863 1,118,441 1,232,022 404,631 336,859 67,272 3,634,088
Money market investments 1,148 -- -- -- -- -- 1,148
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 919,920 2,021,090 3,333,372 1,990,158 1,177,411 720,559 10,162,510
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Savings accounts 20,546 61,639 171,218 157,521 1,232,772 -- 1,643,696
NOW and Super NOW accounts 22,804 68,413 190,036 174,833 -- -- 456,086
Money market accounts 92,748 278,243 370,990 -- -- -- 741,981
Certificates of deposit 690,106 882,490 306,917 54,694 14,931 -- 1,949,138
Borrowings 2,340,808 296,282 64,000 145,500 1,498,000 247,479 4,592,069
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 3,167,012 1,587,067 1,103,161 532,548 2,745,703 247,479 9,382,970
- ---------------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap per period(4) $(2,247,092) $ 434,023 $2,230,211 $1,457,610 $(1,568,292) $473,080 $ 779,540
- ---------------------------------------------------------------------------------------------------------------------------------
Cumulative interest sensitivity gap $(2,247,092) $(1,813,069) $417,142 $1,874,752 $306,460 $779,540
- ---------------------------------------------------------------------------------------------------------------------------------
Cumulative interest sensitivity gap
as a percentage of total assets (19.86)% (16.03)% 3.69% 16.57% 2.71% 6.89%
Cumulative net interest-earning
assets as a percentage of net
interest-bearing liabilities 29.05 61.86 107.12 129.34 103.35 108.31
=================================================================================================================================
(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.
NEW YORK COMMUNITY BANCORP, INC. PAGE 22
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. 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. Furthermore, 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 on page 21. The following table sets forth
the Company's NPV as of December 31, 2002:
Net Portfolio Value Analysis
(dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in Change in Change in Portfolio Market
Interest Rates Market Value Market Value Net Portfolio Net Value Projected %
(in basis points) of Assets of Liabilities Value Change Change to Base
- ---------------------------------------------------------------------------------------------------------------------------------
-200 $12,145,932 $10,621,962 $1,523,970 $ 140,694 10.17%
-100 11,792,987 10,339,759 1,453,229 69,953 5.06
-- 11,472,979 10,089,703 1,383,276 -- --
+100 11,210,471 9,856,061 1,354,410 (28,866) (2.09)
+200 10,919,605 9,649,331 1,270,274 (113,002) (8.17)
=================================================================================================================================
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
above 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.
The Bank's primary sources of funding have been its deposits and, in recent
years, a growing balance of borrowings in the form of FHLB-NY advances, reverse
repurchase agreements, and trust preferred securities. In 2002, additional
funding stemmed from a robust level of loan and mortgage-backed and -related
securities prepayments in a year when market interest rates were unusually low.
Funding also stemmed from scheduled interest and principal payments and from the
sale of securities and loans. While borrowings and the scheduled amortization of
loans and mortgage-backed and -related securities are more predictable funding
sources, deposit flows and mortgage and securities 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
2002, the net cash used in investing activities totaled $2.1 billion, primarily
reflecting the purchase of securities available for sale totaling $3.7 billion
and a $1.2 billion net increase in loans, offset, in part, by proceeds from the
redemption and sale of securities available for sale totaling $2.7 billion. The
net increase in loans reflects twelve-month mortgage originations of $2.6
billion, offset by loan repayments and prepayments totaling $1.5 billion; the
securitization of one-to-four family loans totaling $572.5 million; mortgage
loan sales totaling $417.5 million (including $201.6 million of one-to-four
family loans sold in connection with the Company's conduit program and $215.9
million of one-to-four family loans sold from the portfolio); and other loan
sales totaling $71.4 million.
NEW YORK COMMUNITY BANCORP, INC. PAGE 23
The net cash provided by operating activities totaled $88.4 million,
primarily reflecting net income of $229.2 million, which was offset by various
changes in assets and liabilities.
The Bank's investing and operating activities were funded by internal cash
flows generated by its financing activities. In 2002, the net cash provided by
financing activities totaled $1.9 billion, primarily reflecting a $2.1 billion
net increase in borrowings.
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 and investment
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 $97.6 million at December 31, 2002, as
compared to $178.6 million at December 31, 2001. At the same time, the Bank's
liquidity position was enhanced by a $1.6 billion increase in the portfolio of
securities available for sale to $4.0 billion. Additional liquidity is available
through the Bank's FHLB-NY line of credit, which totaled $4.5 billion at
December 31, 2002, and through various repurchase agreements with several major
Wall Street brokerage firms.
CDs due to mature in one year or less from December 31, 2002 totaled $1.6
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 were limited to outstanding loan commitments, investment
commitments, and standby letters of credit at December 31, 2002:
(in thousands)
- --------------------------------------------------------------------
Mortgage and other loans $ 478,733
Securities investments(1) 1,184,462
Standby letters of credit 386
- --------------------------------------------------------------------
Total commitments $1,663,581
====================================================================
(1) Consists entirely of commitments to purchase mortgage-backed and
mortgage-related securities.
The following table summarizes the maturity profile of the Company's
consolidated contractual long-term debt payments and operating leases at
December 31, 2002:
- --------------------------------------------------------------------
(in thousands) Long-Term Debt(1) Operating Leases
- --------------------------------------------------------------------
2003 $ 25,000 $ 6,173
2004 22,000 5,622
2005 42,000 5,229
2006 65,500 4,822
2007 80,000 3,390
2008 and thereafter 1,866,761 17,586
- --------------------------------------------------------------------
Total $2,101,261 $42,822
====================================================================
(1) Includes FHLB-NY advances and trust preferred securities.
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.
In 2002, the primary sources of funds for the Parent (i.e., the Company on an
unconsolidated basis) were the net proceeds of the secondary offering of common
stock in the second quarter and the net proceeds of the BONUSES Units offering
in the fourth quarter of the year. These funds were used to make a $100.0
million contribution to the Bank for deployment into interest-earning assets, to
fund share repurchases, and for other general corporate purposes. In previous
years, the Parent's primary funding sources included dividend payments from the
Bank and sales and maturities of investment securities.
The Bank's ability to pay dividends and other capital distributions to the
Parent 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 (the "Superintendent") and
the FDIC may prohibit, for reasons of safety and soundness, the payment of
dividends that are otherwise permissible by regulation.
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. However, the 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
for the preceding two years (subject to certain adjustments). As of December 31,
2002, the Bank had $407.8 million of dividends or capital distributions it could
pay to the Parent without regulatory approval, and the Parent had $3.3 million
of securities available for sale and $124.1 million in cash deposits. Were the
Bank to apply to the Superintendent 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.
NEW YORK COMMUNITY BANCORP, INC. PAGE 24
Capital Position
The Company manages its capital to enhance shareholder value and to enable
management to act opportunistically in a changing marketplace. In 2002, the
strategic approach to capital management that has long been a Company standard
was demonstrated once again, with measurable results.
In addition to increasing the dividend and extending its share repurchase
program, the Company took decisive action to enhance its capital strength over
the course of the year. Twice the Company went to the capital markets, and twice
the Company succeeded with oversubscribed public offerings. The secondary
offering of common stock contributed to an increase in capital on both a
regulatory and GAAP basis; the BONUSES Units offering contributed to an increase
in GAAP capital, as more fully discussed below.
The Company increased its quarterly cash dividend in the second quarter of
2002, the 14th time it had done so during its nine-year history. During the
year, the Company deployed $78.4 million of its capital into cash dividend
payments, as compared to $44.0 million in 2001. In 2003, the Company will
allocate more of its capital toward dividend payments, having declared a 25%
increase in the first quarter of 2003, to $0.25 per share. Based on a closing
price of $29.93 per share at March 21st, the yield on the annualized 2003
dividend was 3.34%.
Next, the Company extended its long-standing share repurchase program,
allocating $120.0 million toward the repurchase of 4,337,534 shares over the
course of the year. The shares were repurchased under three successive
authorizations: 1.1 million shares were repurchased under the Board of
Directors' September 17, 2001 authorization and 2.25 million under the Board's
authorization on February 19, 2002. On November 25, 2002, the Board authorized
an additional five-million share repurchase; of these, 3,979,253 shares were
still available for repurchase at December 31, 2002. At the time of this filing,
approximately 2.9 million shares were still available under the November 2002
authorization, reflecting the repurchase of approximately 1.1 million shares in
the first quarter of 2003. Repurchased shares are held in the Company's Treasury
account, and may be utilized for general corporate purposes.
The magnitude of the Company's share repurchase program speaks to
management's confidence in the Company's capital strength. At December 31, 2002,
stockholders' equity totaled $1.3 billion, up 34.6% from $983.1 million at
December 31, 2001. The 2002 amount was equivalent to 11.70% of total assets and
a book value of $12.97 per share, based on 102,058,843 shares. The 2001 amount
was equivalent to 10.68% of total assets, and a book value of $10.05 per share,
based on 97,774,030 shares. 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, 2002, the number of
unallocated ESOP shares was 3,605,621; at the prior year-end, the number of
unallocated ESOP shares was 4,071,246.
The increase in stockholders' equity reflects a $110.7 million increase in
cash earnings to $259.7 million (as presented in the cash earnings
reconciliation on page 12 of this filing), and the success of the Company's
capital raising strategies. On May 14, 2002, the Company issued 5,865,000 shares
of common stock, generating net proceeds of $147.5 million; on November 4, 2002,
the Company generated an additional $89.9 million through the issuance of 5.5
million BONUSES Units, which combine a trust preferred security with a warrant
to purchase common stock. The $89.9 million represents the portion of the net
proceeds that were allocated to the warrant; the $182.5 million generated by the
trust preferred securities portion were recorded as borrowings.
As a result of these initiatives, the Company also realized a
significant year-over-year increase in its tangible stockholders' equity.
Tangible stockholders' equity more than doubled to $647.5 million, signifying a
99.5% increase in tangible book value per share to $6.34.
The level of stockholders' equity at December 31, 2002 was more than
sufficient to exceed the minimum federal requirements for a bank holding
company. The following table sets forth the Company's consolidated leverage,
Tier 1 risk-based, and total risk-based capital amounts and ratios at December
31, 2002 and 2001, and the respective minimum requirements, which are considered
on a consolidated basis:
Minimum
At December 31, 2002 Actual Requirement
- ---------------------------------------------------------------------
(dollars in thousands) Amount Ratio Ratio
- ---------------------------------------------------------------------
Total risk-based capital $749,044 14.71% 10.0%
Tier 1 risk-based capital 707,834 13.90 6.0
Leverage capital 707,834 7.03 5.0
=====================================================================
Minimum
At December 31, 2002 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
=====================================================================
While the Federal Reserve determined that, for regulatory capital purposes,
the proceeds of the BONUSES Units offering did not qualify for Tier 1 capital
treatment, the Company's Tier 1 leverage capital ratio nonetheless rose 108
basis points year-over-year to 7.03%.
NEW YORK COMMUNITY BANCORP, INC. PAGE 25
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, 2002, the Bank's Tier 1 leverage capital ratio
equaled 8.18% 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 16.20% and 17.01%, respectively, of risk-weighted assets, as
compared to the required levels of 6.00% and 10.00%.
RESULTS OF OPERATIONS
Earnings Summary
2002 and 2001 Comparison:
The Company's earnings capacity was overtly demonstrated by its solid
performance in 2002. Net income rose $124.8 million, or 119.4%, year-over-year
to $229.2 million, equivalent to a 65.7% increase in diluted earnings per share
to $2.22 from $1.34. The $229.2 million provided a 2.29% return on average
assets ("ROA") and a 19.95% return on average stockholders' equity ("ROE"). In
addition, the Company's tangible ROE rose to 48.44% from 43.24% over the course
of the year.
The growth in the Company's 2002 earnings primarily stemmed from the
successful implementation of two key business strategies: the restructuring of
its mix of interest-earning assets and the simultaneous leveraging of its
balance sheet. In addition, the Company enjoyed the full-year benefit of the
Richmond County merger, as compared to five months in 2001.
The restructuring of the asset mix had two primary components: a $1.1 billion
reduction in one-to-four family mortgage loans to $265.7 million, and the
replenishment of the asset mix with a record volume of multi-family loans and
securities. Funded by wholesale borrowings, core deposit growth, and the cash
flows produced by sales and repayments, the Company's average interest-earning
assets rose $2.9 billion, or 51.0%, to $8.7 billion, more than offsetting a
46-basis point decline in the average yield to 6.92%. While average
interest-bearing liabilities rose $2.6 billion, or 48.6%, year-over-year, to
$8.1 billion, the cost of funds fell 120 basis points to 2.80%. The lower cost
of funds was supported by the decline in CDs and the rise in core deposits, in
tandem with the year-over-year reduction in market interest rates.
The net effect was a $167.4 million, or 81.4%, increase in net interest
income to $373.3 million, and the year-over-year expansion of the Company's
interest rate spread and net interest margin. At 4.12%, the Company's spread
expanded 74 basis points from the prior-year measure; at 4.31%, its margin
expanded 72 basis points.
While net interest income was the primary source of 2002 earnings, other
operating income also contributed a meaningful amount. Other operating income
rose $11.2 million, or 12.4%, to $101.8 million, fueled by a $12.4 million, or
35.3%, rise in fee income to $47.4 million and by a $9.4 million, or 33.5%, rise
in other income to $37.4 million. The combined increase more than offset a $10.6
million reduction in net securities gains to $17.0 million.
The Company's 2002 earnings were further supported by the quality of its
assets, as reflected in the performance of its loan portfolio at December 31st.
Non-performing loans declined $1.2 million year-over-year to $16.3 million,
equivalent to 0.30% of loans, net, an improvement of three basis points. In
addition, the Company recorded no net charge-offs for the 33rd consecutive
quarter; its last net charge-off was recorded in the third quarter of 1994.
Based on its asset quality and management's assessment of the allowance for loan
losses, the Company suspended the provision for loan losses for the 30th
consecutive quarter since the third quarter of 1995.
The significant level of revenue growth was more than sufficient to offset a
$17.9 million increase in non-interest expense to $139.1 million. Operating
expenses accounted for $133.1 million of the 2002 total, as compared to $112.8
million in 2001. The increase reflects the costs of staffing, operating, and
marketing a branch network with 110 locations, including four new banking
offices that opened in 2002. To a lesser extent, the increase reflects the
Company's aforementioned 100% equity interest in PBC. The degree to which the
Company's revenue growth exceeded the growth in expenses is reflected in its
efficiency ratio. At 25.32%, the 2002 efficiency ratio was 1,272 basis points
lower than the efficiency ratio recorded in 2001.
The remaining $6.0 million of 2002 non-interest expense reflects the
amortization of the CDI stemming from the Richmond County merger; the remaining
$8.4 million in 2001 reflects the amortization of the goodwill stemming from the
Haven acquisition and the amortization of the Richmond County merger-related
CDI.
Reflecting a $160.8 million increase in pre-tax income to
$336.0 million, income tax expense rose $36.0 million to $106.8 million in 2002.
At the same time, the Company's effective tax rate declined to 31.8% from 40.4%,
partly reflecting the implementation of various tax planning strategies. In
addition, the higher rate in 2001 reflected the non-deductibility of certain
merger-related expenses and a non-recurring tax charge.
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 reflected five months of combined operations, and its 2001 earnings per
share reflected 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 reflected 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 at
that date. The Company's 2000 earnings and earnings per share therefore
reflected 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.
NEW YORK COMMUNITY BANCORP, INC. PAGE 26
The extent of the Company's earnings growth was additionally reflected in its
ROA and 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 after-tax gains
on the sale of loans and securities and two office locations, offset by
after-tax charges totaling $26.5 million, primarily reflecting $22.8 million
stemming from the allocation of ESOP shares in connection with the Richmond
County merger and $3.0 million stemming from a tax rate adjustment. The combined
impact of these items on the Company's 2001 earnings was an after-tax charge of
$836,000, equivalent to $0.01 per diluted share.
In 2000, the Company's net income included an after-tax charge of $11.4
million, or $0.26 per diluted share, the net effect of a $24.8 million charge on
the allocation of ESOP shares pursuant to the Haven acquisition and a $13.5
million gain on the sale of a Bank-owned property.
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 merger
transactions, the benefits were far more significant. 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 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 gain
of $13.5 million on the sale of the Bank's former headquarters in Queens. While
the growth in fee income largely reflected the expansion of the branch network,
the growth in other income also reflected 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 in 2001. Reflected in the latter amount were a $63.4
million rise in total operating expenses to $112.8 million and a $7.9 million
rise in the amortization of goodwill and CDI to $8.4 million.
Included in 2001 and 2000 operating expenses were the aforementioned charges
of $22.8 million and $24.8 million stemming from the Company's merger
transaction-related allocation of ESOP shares. The higher level of operating
expenses in 2001 otherwise reflected 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 CDI amortization reflected 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 reflected a tax rate adjustment of $3.0 million.
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 significantly 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.
While the federal funds rate declined 475 basis points over the course of 2001
to 1.75% in December, the latter rate was maintained well into 2002. On November
6, 2002, the rate was dropped to 1.25%, the lowest rate in more than four
decades, where it currently remains.
2002 and 2001 Comparison:
The Company recorded interest income of $599.5 million in 2002, signifying a
$176.2 million, or 41.6%, increase from the level recorded in 2001. The rise in
interest income was driven by a $2.9 billion, or 51.0%, increase in the average
balance of interest-earning assets to $8.7 billion, and tempered by a 46-basis
point reduction in the average yield to 6.92%. The increase reflects the
dramatic rise in mortgage loan production and the leveraged growth of the
Company's mortgage-backed securities.
In connection with the restructuring of the balance sheet, the Company
substantially reduced its portfolios of certain assets while significantly
increasing other portfolios during the same time. In 2002, the Company
securitized one-to-four family loans totaling $572.5 million, which were
subsequently reclassified as available-for-sale securities, and sold another
$215.9 million outright from the portfolio. In addition, the Company sold $71.4
million of home equity and installment loans, which were included in its
portfolio of "other loans." At the same time, the Company increased its
production of multi-family loans, with $2.1 billion of originations, and
substantially increased the balance of its securities portfolio. The
replenishment of the asset mix with multi-family loans and securities yielding
market rates of interest contributed to both the higher average balance of
interest-earning assets and to the lower average yield.
Mortgage and other loans, net, generated interest income of $403.4 million in
2002, up $77.5 million, or 23.8%, from the 2001 amount. The increase was fueled
by a $1.2 billion, or 27.4%, rise in the average balance to $5.4 billion, and
tempered by a 22-basis point drop in the average yield to 7.49%. The higher
average balance stemmed primarily from the record volume of multi-family loan
originations, which was tempered by the reduction in one-to-four family loans
through securitizations, prepayments, and sales. The modest decline in the
average yield, despite the substantial
NEW YORK COMMUNITY BANCORP, INC. PAGE 27
reduction in one-to-four family credits yielding above-market rates of interest,
is indicative of the favorable rate structure of the multi-family loan
portfolio. Mortgage and other loans, net, accounted for 62.2% of average
interest-earning assets in 2002 and generated 67.3% of total interest income, as
compared to 73.8% and 77.0%, respectively, in 2001.
Mortgage-backed securities generated 2002 interest income of $151.7 million,
up $90.4 million from the year-earlier amount. The increase was fueled by a $1.6
billion rise in the average balance to $2.6 billion and tempered by a 42-basis
point decline in the average yield to 5.85%. The higher balance reflects the
securitization of one-to-four family loans in the second quarter, the
redeployment of funds generated by the restructuring of assets, and the
leveraged growth of the portfolio. The lower yield is indicative of the lower
interest rate environment and the surge in prepayments over the course of the
year. Reflecting the shift in the asset mix, mortgage-backed securities
represented 30.0% of average interest-earning assets in 2002, as compared to
17.1% in the year-earlier period, and generated 25.3% of total interest income,
up from 14.5%.
The rise in interest income also stemmed from the leveraged growth of the
Company's portfolio of investment securities, primarily reflecting investments
in capital trust notes and corporate bonds. The interest income generated by
investment securities rose $13.3 million year-over-year to $43.4 million, the
net effect of a $265.2 million rise in the average balance to $638.4 million and
a 127-basis point decline in the average yield to 6.80%.
Consistent with the Company's deployment of funds into multi-family loans and
other high yielding assets, the interest income produced by money market
investments declined $4.9 million to $1.0 million, the result of a $114.4
million reduction in the average balance to $38.8 million and a 125-basis point
drop in the average yield to 2.63%.
2001 and 2000 Comparison:
The Haven and Richmond County transactions combined with a record level of
mortgage loan production to generate 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 reflected organic loan growth and the interest-earning asset growth
fueled by the merger transactions, the lower yield reflected 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% 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 2001 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%.
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.
2002 and 2001 Comparison:
The Company recorded 2002 interest expense of $226.3 million, as compared to
$217.5 million in 2001. The $8.8 million, or 4.0%, increase was attributable to
a $2.6 billion, or 48.6%, rise in the average balance of interest-bearing
liabilities to $8.1 billion, and was significantly offset by a 120-basis point
decline in the average cost of funds to 2.80%. The average balance was boosted
by a meaningful rise in core deposits and by a substantial increase in
borrowings in connection with the Company's leveraged growth strategy. The cost
of funds was reduced by a combination of factors, including the growth in core
deposits, the shift of funds from CDs into alternative investment products, and
the lower market interest rates that prevailed throughout the year.
The significant interest-earning asset growth reflected in interest income
was substantially funded by the significant growth in leveraged funds reflected
in interest expense. In 2002, borrowings
NEW YORK COMMUNITY BANCORP, INC. PAGE 28
generated total interest expense of $130.4 million, up 72.3% from $75.7 million
in 2001. The increase was the net effect of a $1.7 billion rise in the average
balance of borrowings to $3.3 billion, and an 85-basis point decline in the
average cost of such funds to 4.01%. Borrowings thus represented 40.3% of
average interest-bearing liabilities in 2002, as compared to 28.7% in the
year-earlier period, and accounted for 57.6% of total interest expense, as
compared to 34.8%.
While the concentration of borrowings grew over the course of the year, the
mix of deposits reflected a steady shift of funds out of CDs and into lower-cost
core deposit accounts. CDs represented 25.0% of average interest-bearing
liabilities in 2002, down from 38.5% in the year-earlier period, and generated
25.8% and 49.7%, respectively, of total interest expense. Specifically, CDs
generated 2002 interest expense of $58.4 million, down $49.7 million, or 46.0%,
from the level recorded in 2001. The reduction was the combined result of a
$70.9 million decline in the average balance to $2.0 billion and a 227-basis
point decline in the average cost of such funds to 2.89%. While the reduction in
cost is indicative of the lower interest rate environment, the lower balance is
indicative of the Company's focus on core deposits and the sale of investment
products through its banking offices. In addition, the Company's pricing
policies in the current interest rate environment are designed to discourage
"hot money" deposits, and therefore serve as an effective means of controlling
funding costs.
Core deposits, including mortgagors' escrow accounts, generated combined
interest expense of $37.4 million, up from $33.7 million in 2001. The increase
was the net effect of a $1.2 billion rise in the combined average balance to
$3.3 billion and a 48-basis point decline in the average cost to 1.14%. In
addition to a $164.3 million, or 55.0%, rise in the average balance of
non-interest-bearing deposits to $463.1 million, the higher average balance of
core deposits reflects an increase in the average balances of NOW and money
market accounts and savings accounts.
NOW and money market accounts generated interest expense of $15.9 million in
2002, up $713,000, the net effect of a $298.2 million rise in the average
balance to $1.1 billion and a 45-basis point decline in the average cost of such
funds to 1.44%. At the same time, the interest expense produced by savings
accounts rose $3.1 million year-over-year to $21.5 million, the net effect of a
$705.0 million rise in the average balance to $1.7 billion and a 63-basis point
decline in the average cost of such funds to 1.30%.
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
2001, as compared to $41.2 million, representing 40.5%, in the prior year. 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 corresponded to the aforementioned decline in market interest rates.
CDs represented 38.5% and 36.5%, respectively, of average interest-bearing
liabilities in 2001 and 2000.
Core deposits, including mortgagors' escrow accounts, generated combined
interest expense of $33.7 million in 2001, 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%. 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
steepening yield curve in the second half of the year. The interest expense
produced by borrowings 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 generated 34.8% of interest expense and represented 28.7% of average
interest-bearing liabilities in 2001, as compared to 48.5% and 39.9%,
respectively, in the prior year.
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.
NEW YORK COMMUNITY BANCORP, INC. PAGE 29
2002 and 2001 Comparison:
In 2002, the Company recorded net interest income of $373.3 million,
signifying a year-over-year increase of $167.4 million, or 81.4%. The increase
speaks to the merits of the Company's balance sheet restructuring and leveraging
programs: the Company produced a record volume of loans secured by multi-family
buildings while deploying its borrowings, profitably, into securities. The
growth in these portfolios was sufficiently large to offset the strategic
reductions in one-to-four family loans and consumer credits, and to generate the
significant level of net interest income growth.
Supported by the lowest market interest rates since the late 1950s, the
increase in net interest income was paralleled by significant expansion of the
Company's spread and margin. At 4.12% and 4.31%, respectively, the Company's
2002 spread and margin were 74 and 72 basis points wider than the year-earlier
measures, and 109 and 92 basis points wider than the 2002 industry averages.
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 reflected the
interest-earning asset growth fueled by 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 reflected 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%.
Net Interest Income Analysis
For the Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
(dollars in thousands) Balance Interest Cost Balance Interest Cost Balance Interest Cost
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest-earning Assets:
Mortgage and other loans, net $ 5,386,479 $403,407 7.49% $4,227,982 $325,924 7.71% $1,902,821 $151,626 7.97%
Securities 638,424 43,407 6.80 373,229 30,114 8.07 224,969 17,974 7.99
Mortgage-backed securities 2,593,767 151,670 5.85 977,706 61,319 6.27 40,945 3,795 9.27
Money market investments 38,838 1,023 2.63 153,219 5,947 3.88 24,408 1,437 5.89
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 8,657,508 599,507 6.92 5,732,136 423,304 7.38 2,193,143 174,832 7.97
Non-interest-earning assets 1,358,579 664,749 108,202
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $10,016,087 $6,396,885 $2,301,345
===================================================================================================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing Liabilities:
NOW and money market
accounts $ 1,101,701 $ 15,884 1.44% $ 803,456 $ 15,171 1.89% $ 161,941 $ 4,892 3.02%
Savings accounts 1,660,327 21,534 1.30 955,343 18,473 1.93 295,370 6,346 2.15
Certificates of deposit 2,022,691 58,425 2.89 2,093,602 108,097 5.16 748,138 41,178 5.50
Borrowings 3,255,407 130,394 4.01 1,558,732 75,685 4.86 817,775 49,302 6.03
Mortgagors' escrow 45,449 14 0.03 29,449 62 0.21 23,777 33 0.14
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 8,085,575 226,251 2.80 5,440,582 217,488 4.00 2,047,001 101,751 4.97
Non-interest-bearing deposits 463,059 298,795 60,716
Other liabilities 318,222 82,218 8,795
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 8,866,856 5,821,595 2,116,512
Stockholders' equity 1,149,231 575,290 184,833
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $10,016,087 $6,396,885 $2,301,345
===================================================================================================================================
Net interest income/interest
rate spread $373,256 4.12% $205,816 3.38% $73,081 3.00%
Net interest-earning assets/net
interest margin $571,933 4.31% $291,554 3.59% $146,142 3.33%
Ratio of interest-earning assets
to interest-bearing liabilities 1.07x 1.05x 1.07x
===================================================================================================================================
NEW YORK COMMUNITY BANCORP, INC. PAGE 30
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, 2002 December 31, 2001 December 31, 2000
Compared to Year Ended Compared to Year Ended Compared to Year Ended
December 31, 2001 December 31, 2000 December 31, 1999
- --------------------------------------------------------------------------------------------------------------------------------
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 $ 86,771 $ (9,288) $ 77,483 $179,270 $ (4,972) $174,298 $21,651 $(1,643) $20,008
Securities 18,033 (4,740) 13,293 11,965 175 12,140 4,651 3,154 7,805
Mortgage-backed securities 94,540 (4,189) 90,351 58,735 (1,211) 57,524 2,583 319 2,902
Money market investments (3,008) (1,916) (4,924) 5,005 (495) 4,510 889 105 994
- --------------------------------------------------------------------------------------------------------------------------------
Total 196,336 (20,133) 176,203 254,975 (6,503) 248,472 29,774 1,935 31,709
- --------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
NOW and money market accounts 4,295 (3,582) 713 12,125 (1,846) 10,279 2,358 78 2,436
Savings accounts 9,165 (6,104) 3,061 12,737 (610) 12,127 451 (434) 17
Certificates of deposit (2,049) (47,623) (49,672) 69,426 (2,507) 66,919 1,848 4,207 6,055
Borrowings 68,037 (13,328) 54,709 36,011 (9,628) 26,383 14,936 4,083 19,019
Mortgagors' escrow 5 (53) (48) 12 17 29 -- 4 4
- --------------------------------------------------------------------------------------------------------------------------------
Total 79,453 (70,690) 8,763 130,311 (14,574) 115,737 19,593 7,938 27,531
- --------------------------------------------------------------------------------------------------------------------------------
Change in net interest income $116,883 $ 50,557 $167,440 $124,664 $ 8,071 $132,735 $10,181 $(6,003) $ 4,178
================================================================================================================================
Provision for Loan Losses
2002 and 2001 Comparison:
The provision for loan losses is based upon management's assessment of the
allowance for loan losses which, in large part, depends upon the quality of the
Company's loan portfolio. In 2002, the Company's record of asset quality was
supported by the continued absence of any net charge-offs, and by year-over-year
improvements in the balance of non-performing assets and non-performing loans.
Non-performing assets declined $1.2 million to $16.5 million, representing 0.15%
of total assets, signifying a year-over-year improvement of four basis points.
Non-performing loans declined $1.2 million from the prior year-end amount to
$16.3 million, representing 0.30% of loans, net, down three basis points.
The provision for loan losses was, accordingly, suspended, consistent with
management's practice since the third quarter of 1995. In the absence of any net
charge-offs or provisions for loan losses, the allowance for loan losses was
maintained at $40.5 million, equivalent to 247.83% of non-performing loans and
0.74% of loans, net, at December 31, 2002.
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.
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.
Other Operating Income
The Company derives other operating income from several sources, which are
classified into three categories: fee income, which is generated by service
charges on loans and traditional
NEW YORK COMMUNITY BANCORP, INC. PAGE 31
banking products; net gains on the sale of securities; and other income, which
includes revenues derived from the sale of third-party investment products and
through the Company's 100% equity interest in PBC. Also included in other income
is the income derived from the Company's investment in BOLI and net gains on the
sale of one-to-four family and consumer loans.
2002 and 2001 Comparison:
The Company recorded other operating income of $101.8 million in 2002, up
$11.2 million, or 12.4%, from the level recorded in 2001. The increase was
fueled by a combined increase of $21.8 million in fee and other income, which
served to offset a $10.6 million decline in net securities gains.
Notwithstanding the mid-year reduction in the number of branches, fee income
contributed $47.4 million to 2002 other operating income, up 35.3% from $35.1
million in 2001. At the same time, other income rose $9.4 million, or 33.5%, to
$37.4 million, primarily reflecting a $3.8 million rise in revenues from the
sale of third-party investment products to $10.6 million; a $3.1 million
increase in BOLI income to $9.6 million; and $5.9 million in revenues derived
from PBC. Net gains on the sale of loans (including gains on the sale of loans
originated on a conduit basis) contributed $6.6 million to other income in 2002,
down from $10.3 million in the prior year. In 2001, the Company's other income
also included net gains on the sale of two Bank-owned properties totaling $1.5
million.
After-tax gains on the sale of securities contributed $11.0 million, or $0.11
per diluted share, to the Company's 2002 net income and $17.9 million, or $0.23
per diluted share, to net income in 2001.
With the restructuring of the balance sheet now complete, net gains on the
sale of loans will be primarily limited to the net gains generated in connection
with the Bank's origination of one-to-four family and consumer loans through
third-party conduits. Net gains on the sale of securities will continue to be an
important source of cash flows for loan production and other investments, and
will depend, in part, on market conditions during the year.
2001 and 2000 Comparison:
Other operating income contributed substantially to the Company's 2001
earnings, 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 net securities gains of $27.5
million; there were no net securities gains in 2000.
The growth in other operating income also reflected a $30.5 million rise in
fee income to $35.1 million and an $11.7 million rise in other income to $28.0
million. Included in the latter amount were net gains on the sale of loans and
Bank-owned properties, as mentioned in the 2002 and 2001 discussion above. In
2000, the Company recorded a net gain of $13.5 million on the sale of its former
headquarters in Queens, in connection with its acquisition of Haven and
subsequent move to Westbury, New York.
Apart from the net gains on the sale of loans and properties, the increase in
2001 other income reflected the full-year benefit of the Haven transaction. 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 produced through the former Haven branches, the Company
introduced the sale of such products in its original 14 branches during 2001.
The increase in other income also reflected the income generated by the
Company's BOLI investment and the revenues generated through the origination of
one-to-four family and consumer loans through third-party conduits.
Non-interest Expense
The Company's non-interest expense has two primary components: operating
expenses, which consist 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. In
2001, the Company's non-interest expense also included the amortization of the
goodwill incurred in connection with the Haven acquisition; in 2002, the
amortization of goodwill was discontinued pursuant to the Company's adoption of
Statement of Financial Accounting Standards ("SFAS") Nos. 141 and 142 on January
1st of that year.
2002 and 2001 Comparison:
The Company recorded non-interest expense of $139.1 million in 2002, as
compared to $121.2 million in 2001. The amortization of CDI accounted for $6.0
million of the 2002 total, while the amortization of CDI and goodwill accounted
for $8.4 million of the 2001 amount. The discontinuation of the goodwill
amortization stemming from the Haven acquisition resulted in a year-over-year
savings of $5.9 million.
Operating expenses totaled $133.1 million in 2002, representing 1.33% of
average assets, as compared to $112.8 million, representing 1.76% of average
assets, in 2001. The $20.3 million increase stemmed from all four expense
categories, and largely reflected the full-year effect of staffing, operating,
and marketing a branch network with 110 banking offices.
Compensation and benefits accounted for $8.9 million of the $20.3 million
increase, having risen to $72.1 million from $63.1 million in the prior year.
Included in the 2001 amount was a merger-related charge of $22.8 million; the
after-tax impact of this charge on the Company's 2001 earnings was $14.8
million, or $0.19 per diluted share. In addition to normal salary increases and
the twelve-month effect of the Richmond County merger, the higher level of
compensation and benefits expense in 2002 reflects the
NEW YORK COMMUNITY BANCORP, INC. PAGE 32
addition of certain management-level positions befitting a growing financial
institution, and the addition of PBC's management and staff. At December 31,
2002, the number of full-time equivalent employees was 1,465, as compared to
1,521 at year-end 2001.
Also included in compensation and benefits expense are the 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 2002, such expenses
totaled $5.9 million, as compared to $22.8 million (reflecting the
merger-related charge) in 2001.
Occupancy and equipment expense rose $4.6 million year-over-year to $23.2
million, despite the divestiture of 14 in-store branches in the second quarter
and the consolidation of two in-store branches in the third quarter of 2002. The
reduction in the number of branch offices was offset by the addition of PBC's
office in Manhattan and by the opening of four new branch offices during the
first three quarters of the year.
G&A expense rose $4.2 million to $31.8 million, largely reflecting marketing
expenses, while other expenses rose $2.5 million to $5.9 million. The latter
increase reflects miscellaneous costs that are consistent with the operation of
a financial institution with assets of $11.3 billion and 110 banking offices.
The year-over-year growth in operating expenses was offset by the growth of
net interest income and other operating income to produce an improvement in the
efficiency ratio to 25.32%. In 2001, the Company recorded an efficiency ratio of
38.04%, reflecting the impact of the $22.8 million merger-related charge in
compensation and benefits expense.
2001 and 2000 Comparison:
The Company recorded non-interest expense of $121.2 million in 2001 and $49.8
million in 2000. Operating expenses 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
Richmond County and Haven transactions, the Company incurred charges of $22.8
million and $24.8 million, respectively, in 2001 and 2000 that were recorded in
operating expenses. The increase in operating expenses otherwise reflected the
full-year impact of the Haven acquisition, which expanded the branch network
from 14 to 86 branches on November 30, 2000, and the five-month impact of the
Richmond County merger, which added 34 more banking offices on July 31, 2001.
In 2001, compensation and benefits expense rose $24.1 million to $63.1
million, including the aforementioned charge. The increase reflected the
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 expenses also included 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 expenses to $3.4
million. In addition to the expanded branch network, the increase in occupancy
and equipment expense reflected 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 reflected 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 expenses was partly offset by the growth in net
interest income and other operating income to produce an efficiency ratio of
38.04%. In 2000, the Company recorded an efficiency ratio of 52.08%, largely
reflecting the impact of the aforementioned merger-related ESOP charge.
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.
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 reporting period.
2002 and 2001 Comparison:
The Company recorded income tax expense of $106.8 million in 2002, up $36.0
million from the level recorded in 2001. The increase reflects a $160.8 million
rise in pre-tax income to $336.0 million and a decline in the effective tax rate
to 31.8% from 40.4%.
The year-over-year reduction in the effective tax rate was partly due to the
implementation of certain tax planning strategies in the fourth quarter of 2001
and in the latter half of 2002. In addition, the higher rate in 2001 stemmed
from the non-deductibility of certain plan-related expenses in connection with
the Richmond County merger and from a tax rate adjustment in the amount of $3.0
million.
NEW YORK COMMUNITY BANCORP, INC. PAGE 33
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 tax charge of $3.0 million pursuant to the write-down of state
deferred tax assets in connection with the implementation of certain tax
planning strategies. The $50.4 million increase in income tax expense further
reflected 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. The Company implemented certain tax planning strategies
in the fourth quarter of 2001 that were designed to result in a lower effective
tax rate in 2002.
IMPACT OF ACCOUNTING PRONOUNCEMENTS
Please refer to Note 1, "Summary of Significant Accounting Policies" on pages
38-41 of this filing for a discussion of the impact of recent accounting
pronouncements on the Company's financial condition and results of operations.
MARKET PRICE OF COMMON STOCK AND DIVIDENDS PAID PER COMMON SHARE
The common stock of New York Community Bancorp, Inc. has been traded on the
New York Stock Exchange under the symbol "NYB" since December 20, 2002. Prior to
that date, the Company's common stock was traded on the Nasdaq National
Market(R) under the symbol "NYCB."
At December 31, 2002, the number of outstanding shares was 105,664,464 and
the number of registered owners was approximately 8,140. 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 New York Stock Exchange (from
December 20 through December 31, 2002) and by the Nasdaq Stock Market(R) (from
January 1, 2001 through December 19, 2002), and the cash dividends paid per
common share for each of the four quarters of 2002 and 2001.
Market Price
Dividends Declared --------------------------------------
per Common Share High Low Close
- ---------------------------------------------------------------------------------------------------------------
2002
1st Quarter $0.1600 $30.000 $22.650 $27.650
2nd Quarter 0.2000 30.250 24.151 26.680
3rd Quarter 0.2000 32.020 23.190 28.170
4th Quarter 0.2000 30.220 24.250 28.880
- ---------------------------------------------------------------------------------------------------------------
2001(1)
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
- ---------------------------------------------------------------------------------------------------------------
(1) Amounts have been adjusted to reflect 3-for-2 stock splits on March 29 and
September 20, 2001.
NEW YORK COMMUNITY BANCORP, INC. PAGE 34
CONSOLIDATED STATEMENTS OF CONDITION
December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share data) 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 96,497 $ 168,449
Money market investments 1,148 10,166
Securities held to maturity (market value of $214,486 and $114,881 pledged at
December 31, 2002 and 2001, respectively) (notes 3 and 12) 699,445 203,195
Mortgage-backed securities held to maturity (market value of $38,489 and $51,119
pledged at December 31, 2002 and 2001, respectively) (notes 4 and 12) 36,947 50,865
Securities available for sale ($2,522,419 and $1,381,356 pledged at December 31, 2002
and 2001, respectively) (notes 5 and 12) 3,952,130 2,374,782
Mortgage loans, net (notes 6 and 10) 5,405,266 5,284,718
Other loans, net 78,806 116,969
Less: Allowance for loan losses (note 7) (40,500) (40,500)
- ---------------------------------------------------------------------------------------------------------------------------------
Loans, net (notes 6 and 7) 5,443,572 5,361,187
Premises and equipment, net 74,531 69,010
Goodwill, net (note 2) 624,518 614,653
Core deposit intangible, net (note 2) 51,500 57,500
Deferred tax asset, net (note 11) 9,508 40,396
Other assets (notes 2, 8, and 13) 323,296 252,432
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $11,313,092 $9,202,635
=================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (note 9):
NOW and money market accounts $ 1,198,068 $ 948,324
Savings accounts 1,643,696 1,639,239
Certificates of deposit 1,949,138 2,407,906
Non-interest-bearing accounts 465,140 455,133
- ---------------------------------------------------------------------------------------------------------------------------------
Total deposits 5,256,042 5,450,602
- ---------------------------------------------------------------------------------------------------------------------------------
Official checks outstanding 11,544 87,647
Borrowings (note 10) 4,592,069 2,506,828
Mortgagors' escrow 13,749 21,496
Other liabilities (note 13) 116,176 152,928
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities 9,989,580 8,219,501
- ---------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity (note 1):
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; 105,664,464 and 101,845,276 shares outstanding at December 31, 2002
and 2001, respectively) 1,082 1,082
Paid-in capital in excess of par 1,104,899 898,830
Retained earnings (substantially restricted) (note 16) 275,097 167,511
Less: Treasury stock (2,559,961 and 6,379,149 shares, respectively) (69,095) (78,294)
Unallocated common stock held by ESOP (note 14) (20,169) (6,556)
Common stock held by SERP and Deferred Compensation Plans (notes 13 and 14) (3,113) (3,113)
Unearned common stock held by RRPs (note 14) (41) (41)
Accumulated other comprehensive income, net of tax effect 34,852 3,715
- ---------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,323,512 983,134
- ---------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (note 12)
Total liabilities and stockholders' equity $11,313,092 $9,202,635
=================================================================================================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME AND COMPHRENSIVE INCOME
NEW YORK COMMUNITY BANCORP, INC. PAGE 35
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Mortgage and other loans (note 6) $403,407 $325,924 $151,626
Securities 43,407 30,114 17,974
Mortgage-backed securities 151,670 61,319 3,795
Money market investments 1,023 5,947 1,437
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest income 599,507 423,304 174,832
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
NOW and money market accounts 15,884 15,171 4,892
Savings accounts 21,534 18,473 6,346
Certificates of deposit 58,425 108,097 41,178
Borrowings (note 10) 130,394 75,685 49,302
Mortgagors' escrow 14 62 33
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest expense 226,251 217,488 101,751
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income 373,256 205,816 73,081
Provision for loan losses (note 7) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 373,256 205,816 73,081
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME:
Fee income 47,443 35,061 4,595
Net securities gains (note 5) 16,986 27,539 704
Other (note 6) 37,391 28,015 16,346
- ---------------------------------------------------------------------------------------------------------------------------------
Total other operating income 101,820 90,615 21,645
- ---------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE:
Operating expenses:
Compensation and benefits (notes 13 and 14) 72,084 63,140 39,014
Occupancy and equipment (note 12) 23,230 18,643 3,953
General and administrative 31,841 27,610 5,413
Other 5,907 3,364 950
- ---------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 133,062 112,757 49,330
Amortization of core deposit intangible and goodwill (note 2) 6,000 8,428 494
- ---------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 139,062 121,185 49,824
Income before income taxes 336,014 175,246 44,902
Income tax expense (note 11) 106,784 70,779 20,425
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $229,230 $104,467 $ 24,477
- ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income, net of tax:
Unrealized gain on securities 31,137 2,895 820
- ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income $260,367 $107,362 $ 25,297
=================================================================================================================================
Basic earnings per share $2.25 $1.36 $0.58
Diluted earnings per share $2.22 $1.34 $0.56
=================================================================================================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NEW YORK COMMUNITY BANCORP, INC. PAGE 36
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK (Par Value: $0.01):
Balance at beginning of year $ 1,082 $ 310 $ 310
Shares issued -- 772 --
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 1,082 1,082 310
- ---------------------------------------------------------------------------------------------------------------------------------
PAID-IN CAPITAL IN EXCESS OF PAR:
Balance at beginning of year 898,830 174,450 147,607
Tax benefit effect of stock plans 15,860 11,000 5,953
Stock warrants issued in connection with BONUSESSM Units 89,915 -- --
Allocation of ESOP stock 4,725 20,846 20,890
Shares issued in secondary offering and the Richmond County merger, respectively 95,569 692,534 --
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 1,104,899 898,830 174,450
- ---------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of year 167,511 146,514 150,545
Net income 229,230 104,467 24,477
Dividends paid on common stock (78,359) (43,955) (17,847)
Exercise of stock options (2,291,722; 3,004,071; and 1,003,705 shares) (43,285) (39,515) (10,661)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 275,097 167,511 146,514
- ---------------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK:
Balance at beginning of year (78,294) (2,388) (145,122)
Purchase of common stock (4,337,534; 6,254,437; and 3,833,714 shares) (119,980) (121,048) (41,483)
Shares issued in secondary offering and the Haven acquisition, respectively 67,303 -- 174,283
Exercise of stock options (2,291,722; 3,004,071; and 1,003,705 shares) 61,876 45,142 9,934
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (69,095) (78,294) (2,388)
- ---------------------------------------------------------------------------------------------------------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN (note 14):
Balance at beginning of year (6,556) (8,485) (12,388)
Common stock acquired by ESOP (14,790) -- --
Allocation of ESOP stock 1,177 1,929 3,903
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (20,169) (6,556) (8,485)
- ---------------------------------------------------------------------------------------------------------------------------------
SERP AND DEFERRED COMPENSATION PLANS (notes 13 and 14):
Balance at beginning of year (3,113) (3,770) (3,770)
Allocation of SERP stock -- 657 --
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (3,113) (3,113) (3,770)
- ---------------------------------------------------------------------------------------------------------------------------------
RECOGNITION AND RETENTION PLANS (note 14):
Balance at beginning of year (41) (41) (41)
Earned portion of RRPs -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (41) (41) (41)
- ---------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED COMPREHENSIVE INCOME, NET OF TAX:
Balance at beginning of year 3,715 820 --
Unrealized gains on securities, net of tax of $18,281; $4,398; and $442 33,951 8,167 820
Less: Reclassification adjustment for gains included in net income, net of tax
of $1,515; $2,839; and $0 (2,814) (5,272) --
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation in securities, net of tax 31,137 2,895 820
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 34,852 3,715 820
- ---------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $1,323,512 $ 983,134 $ 307,410
=================================================================================================================================
See accompanying notes to consolidated financial statements.
NEW YORK COMMUNITY BANCORP, INC. PAGE 37
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands) 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 229,230 $ 104,467 $ 24,477
- ---------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 6,759 5,495 1,461
Amortization of premiums (accretion of discounts), net 8,728 (2,261) (1,818)
Amortization of net deferred loan origination fees 2,147 1,393 4,808
Amortization of core deposit intangible and goodwill 6,000 8,428 494
Net securities gains (16,986) (27,539) (704)
Net gain on sale of loans (6,564) (10,305) (121)
Net gain on sale of Bank-owned properties -- (1,484) (13,500)
Tax benefit effect of stock plans 15,860 11,000 5,953
Earned portion of ESOP 5,902 22,775 24,793
Earned portion of SERP -- 657 --
Changes in assets and liabilities:
Goodwill recognized in the Peter B. Cannell & Co., Inc. acquisition and other
goodwill addition (9,865) -- --
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) --
Allowance acquired in the Richmond County merger and the Haven acquisition, respectively -- 22,436 11,033
Decrease (increase) in deferred income taxes 30,888 1,964 (36,864)
Increase in other assets (70,864) (143,560) (55,433)
(Decrease) increase in official checks outstanding (76,103) 46,408 10,050
(Decrease) increase in other liabilities (36,752) 96,782 40,325
- ---------------------------------------------------------------------------------------------------------------------------------
Total adjustments (140,850) (530,322) (127,593)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 88,380 (425,855) (103,116)
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from redemption and sales of securities and mortgage-backed securities held
to maturity 75,459 112,573 64,396
Proceeds from redemption and sales of securities available for sale 2,698,721 685,074 447,508
Purchase of securities held to maturity, net (561,378) (93,234) (24,754)
Purchase of mortgage-backed securities held to maturity, net -- (48,942) --
Purchase of securities available for sale, net (3,656,057) (2,723,427) (738,436)
Net increase in loans (1,150,477) (2,379,211) (2,021,624)
Proceeds from sale of loans 495,479 620,886 103,860
Purchase or acquisition of premises and equipment, net (12,280) (33,830) (30,592)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,110,533) (3,860,111) (2,199,642)
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in mortgagors' escrow (7,747) 10,205 1,003
Net (decrease) increase in deposits (194,560) 2,193,408 2,181,176
Net increase in borrowings 2,085,241 1,469,323 401,127
Cash dividends and stock options exercised (121,644) (83,470) (28,508)
Purchase of Treasury stock, net of stock options exercised (58,104) (75,906) (31,549)
Shares issued in secondary offering and the Richmond County merger, respectively 95,569 693,306 --
Stock warrants issued in connection with BONUSESSM Units 89,915 -- --
Treasury stock issued in secondary offering 67,303 -- --
Common stock acquired by ESOP (14,790) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,941,183 4,206,866 2,523,249
- ---------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (80,970) (79,100) 220,491
Cash and cash equivalents at beginning of period 178,615 257,715 37,224
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 97,645 $ 178,615 $ 257,715
=================================================================================================================================
Supplemental information:
Cash paid for:
Interest $210,578 $217,958 $101,759
Income taxes 49,858 3,541 11,754
Non-cash investing activities:
Securitization of mortgage loans to mortgage-backed securities 569,554 -- --
Transfer of securities from available for sale to held to maturity 1,010 -- --
Reclassification from other loans to securities available for sale 460 -- --
Transfers to foreclosed real estate from loans 213 55 --
=================================================================================================================================
See accompanying notes to consolidated financial statements.
NEW YORK COMMUNITY BANCORP, INC. PAGE 38
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Formerly known as Queens County Bancorp, Inc., New York Community Bancorp,
Inc. (the "Company" or the "Parent") was organized under Delaware law on July
20, 1993 to serve as the holding company for New York Community Bank (the "Bank"
or the "Subsidiary"), formerly known as Queens County Savings Bank. The Bank
converted from a state-chartered mutual savings bank to the capital stock form
of ownership on November 23, 1993, at which date the Company 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 information is presented in Note 17.
Reflecting 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. Reflecting the stock splits,
a secondary offering of 5,865,000 shares on May 14, 2002, and the impact of
share repurchases and option exercises, the number of shares outstanding was
105,664,464 at December 31, 2002.
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. In
anticipation of the acquisition, the name of the Company was changed to New York
Community Bancorp, Inc. on November 21, 2000. 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. The Bank changed its name to New York Community Bank on
December 14, 2000.
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, 2002, the Bank had a network of 110 banking offices
(including 55 traditional branches, 54 in-store branches, and one customer
service center) serving customers in New York City, Long Island, Westchester
County (New York), and New Jersey. The Bank operates its branch network through
six local divisions: Queens County Savings Bank, Richmond County Savings Bank,
CFS Bank, First Savings Bank of New Jersey, Ironbound Bank, and South Jersey
Bank.
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 consolidated financial statements
to conform to the 2002 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.
NEW YORK COMMUNITY BANCORP, INC. PAGE 39
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; and
geographic, industry, and other environmental factors. 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 made 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 that 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 are 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 forty 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 are included in "occupancy and equipment
expense" on the Company's Consolidated Statements of Income and Comprehensive
Income, and amounted to approximately $6.8 million, $5.5 million, and $1.5
million, respectively, for the years ended December 31, 2002, 2001, and 2000.
Transfers and Servicing of Financial Assets
On May 31, 2002, the Company securitized $572.5 million of one-to-four family
loans into mortgage-backed securities. The transaction was accounted for in
accordance with SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," which replaced SFAS No.
125 of the same name. SFAS No. 140 is based on consistent application of a
"financial-components" approach that focuses on control. Under said approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred; de-recognizes
financial assets when control has been surrendered; and de-recognizes
liabilities when extinguished. A transfer of financial assets in which the
transferring entity surrenders control shall be accounted for as a sale to the
extent that consideration other than beneficial interests in the transferred
assets is received in exchange.
Under SFAS No. 140, the transaction on May 31, 2002 qualified as a guaranteed
mortgage securitization, which requires a substantive guarantee by a third
party. In a guaranteed mortgage securitization, no part of the beneficial
interests needs to be sold to outsiders because the guarantor provides
legitimacy to the transaction. When no proceeds are raised, these
securitizations need not be accounted for as a sale or a financing under SFAS
No. 140. In a guaranteed mortgage securitization, the historical carrying value
of the loans, net of any unamortized fees, costs, discounts, premiums, and loan
loss allowance plus any accrued interest, is allocated to the converted
mortgage-backed securities and capitalized mortgage servicing rights, in
proportion to their relative fair values.
The retained interests in the securitization were initially measured at their
allocated carrying amount, based upon the relative fair values of the retained
interests received at the date of securitization. Capitalized mortgage servicing
rights are reflected in "other assets" in the Company's Consolidated Statements
of Condition and amortized into "other operating income" in proportion to, and
over the period of, the estimated future net servicing income of the underlying
loans. Servicing assets are periodically evaluated for impairment based upon the
fair value of the rights compared to amortized cost.
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 expenses.
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 temporary 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
NEW YORK COMMUNITY BANCORP, INC. PAGE 40
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.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-based
Compensation--Transition and Disclosure," an amendment to SFAS No. 123. SFAS No.
148 provides alternative methods of transition for an entity that voluntarily
changes to the fair value-based method of accounting for stock-based employee
compensation. It also amends the disclosure provisions of SFAS No. 123 to
require more prominent disclosure about the effects on reported net income of an
entity's accounting policy decisions with respect to stock-based employee
compensation. SFAS No. 148 is effective for financial statements for fiscal
years ending after December 15, 2002.
The Company had five stock option plans at December 31, 2002, including two
plans for directors and employees of the former Queens County Savings 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 a combined pension plan, which is currently frozen, for
the benefit of employees of the former Queens County Savings Bank, the former
CFS Bank, and the former Richmond County Savings Bank. The plan covers
substantially all employees who had attained minimum service requirements prior
to the date on which each plan of the former bank of origin was frozen. The
former Queens County Savings Bank, CFS Bank, and Richmond County Savings Bank
Retirement 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.
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, 2002, 2001, and 2000, the weighted average
number of common shares outstanding used in the computation of basic EPS was
101,752,638; 76,727,717; and 42,402,771, respectively. The weighted average
number of common shares outstanding used in the computation of diluted EPS was
103,064,607; 78,054,538; and 43,946,073 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 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,
"Business Combinations," and certain provisions of SFAS No. 142, "Goodwill and
Other Intangible Assets," as required for goodwill and intangible assets
resulting from business combinations consummated after June 30, 2001. These
rules require that all business combinations consummated after June 30, 2001 be
accounted for under the purchase method. In addition, the non-amortization
provisions of the 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 merger.
The Company adopted the remaining provisions of SFAS No. 142 when the rules
became effective for calendar-year companies on January 1, 2002. Under these
rules, goodwill and intangible assets deemed to have indefinite lives are no
longer amortized, but are subject to annual impairment tests. Other intangible
assets continue to be amortized over their useful lives. The Company applied the
new rules on accounting for goodwill
NEW YORK COMMUNITY BANCORP, INC. PAGE 41
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 $5.9 million per year, was discontinued.
Additionally, SFAS No. 142 requires that the Company complete an initial
impairment assessment on all goodwill recognized in its consolidated financial
statements within six months of the statement's adoption to determine if a
transition impairment charge needs to be recognized. In the second quarter of
2002, management completed the initial assessment as of January 1, 2002 and
determined that no impairment charge was required.
The Company had no indefinite-lived intangible assets other than goodwill at
December 31, 2002.
Financial Guarantees
In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." This interpretation elaborates
on the disclosures to be made by a guarantor in its financial statements about
its obligations under certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. Furthermore, this interpretation incorporates, without change, the
guidance in FIN 34, "Disclosure of Indirect Guarantees of Indebtedness of
Others," which is being superseded. The initial recognition and initial
measurement provisions of FIN 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. The related disclosure requirements are effective
for financial statements ending after December 15, 2002. At December 31, 2002,
the Company had standby letters of credit of approximately $386,000, with
expiration dates ranging from 30 days to three-and-one-half years, that are not
reflected in the Consolidated Statements of Condition. These instruments are
performance letters of credit that require the Bank to pay its customers'
beneficiaries should the customers fail to perform a contractual obligation. It
is not expected that the recognition and measurement provisions of FIN 45 will
have a material impact on the Company's financial condition or results of
operations.
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 previously in existence 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 were to be applied prospectively. The adoption of SFAS No. 144 on
January 1, 2002 has not had a material impact on the Company's consolidated
financial statements.
Rescission of FASB Statements Nos. 4, 44, and 64--Amendment of FASB Statement
No. 13 and Technical Corrections
In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
Nos. 4, 44, and 64--Amendment of FASB Statement No. 13 and Technical
Corrections," which was effective as of May 15, 2002. SFAS No. 145 rescinds SFAS
No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an
amendment of that statement, SFAS No. 64, "Extinguishments of Debt Made to
Satisfy Sinking-fund Requirements." SFAS No. 145 also amends SFAS No. 13,
"Accounting for Leases," to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. In addition, SFAS No. 145 amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The adoption
of SFAS No. 145 has not had a material impact on the Company's consolidated
financial condition or results of operations.
NOTE 2:
BUSINESS COMBINATIONS, GOODWILL, AND OTHER INTANGIBLE ASSETS
Goodwill
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 with the merger, 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
are 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 York), New Jersey, and Connecticut. At the acquisition
date, 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
NEW YORK COMMUNITY BANCORP, INC. PAGE 42
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. The
results of operations of Haven are included in the Consolidated Statements of
Income and Comprehensive Income subsequent to November 30, 2000.
In further accordance with SFAS No. 142, the Company was required to complete
an initial impairment assessment on all goodwill recognized in its consolidated
financial statements within six months of the statement's adoption to determine
if a transition impairment charge needed to be recognized. In the second quarter
of 2002, management completed the initial assessment as of January 1, 2002 and
determined that no impairment charge was needed.
Net income and earnings per share for years ended December 31, 2002, 2001,
and 2000, as adjusted to exclude amortization expense (net of taxes) related to
goodwill, are as follows:
- --------------------------------------------------------------------------------
(in thousands, except per share data) 2002 2001 2000
- --------------------------------------------------------------------------------
NET INCOME
Reported net income $229,230 $104,467 $24,477
Add back: Goodwill amortization -- 3,853 321
- --------------------------------------------------------------------------------
Adjusted net income $229,230 $108,320 $24,798
================================================================================
BASIC EARNINGS PER SHARE
Reported basic earnings per share $2.25 $1.36 $0.58
Add back: Goodwill amortization -- 0.05 0.01
- --------------------------------------------------------------------------------
Adjusted basic earnings per share $2.25 $1.41 $0.59
================================================================================
DILUTED EARNINGS PER SHARE
Reported diluted earnings per share $2.22 $1.34 $0.56
Add back: Goodwill amortization -- 0.05 0.01
- --------------------------------------------------------------------------------
Adjusted diluted earnings per share $2.22 $1.39 $0.57
================================================================================
The changes in the carrying amount of goodwill for the twelve months ended
December 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 9,753
Other addition 112
- --------------------------------------------------------------------------------
Balance as of December 31, 2002 $624,518
================================================================================
Acquired Intangible Assets
The Company has a core deposit intangible ("CDI") and mortgage servicing
rights stemming from the Richmond County merger. In addition, the Company has
other identifiable intangibles of approximately $655,000 related to the purchase
of a branch office. The mortgage servicing rights and other identifiable
intangibles are included in "other assets" on the Consolidated Statements of
Condition as of December 31, 2002. The following table summarizes the gross
carrying and accumulated amortization amounts of the Company's acquired
intangible assets as of December 31, 2002:
- --------------------------------------------------------------------------------
Gross Carrying Accumulated
(in thousands) Amount Amortization
- --------------------------------------------------------------------------------
ACQUIRED INTANGIBLE ASSETS
Core deposit intangible $60,000 $(8,500)
Mortgage servicing rights 2,640 (337)
Other intangible assets 1,325 (670)
- --------------------------------------------------------------------------------
Total $63,965 $(9,507)
================================================================================
Aggregate amortization expense related to the CDI, mortgage servicing rights,
and other identifiable intangibles for the year ended December 31, 2002 was $6.0
million, $311,000, and $88,000, respectively. The CDI, mortgage servicing
rights, and other intangibles are being amortized over periods of ten years,
eight-and-a-half years, and fifteen years, respectively. The Company assessed
the appropriateness of the useful lives of its intangible assets as of January
1, 2002 and determined them to be appropriate. No residual value is estimated
for these intangible assets.
NEW YORK COMMUNITY BANCORP, INC. PAGE 43
Estimated future amortization expense related to the CDI, merger-related
mortgage servicing rights, and other identifiable intangibles is as follows:
- ---------------------------------------------------------------------------------------------------------------------------------
Core Deposit Mortgage Other
(in thousands) Intangible Servicing Rights Intangibles Total
- ---------------------------------------------------------------------------------------------------------------------------------
2003 $ 6,000 $ 311 $ 88 $ 6,399
2004 6,000 311 88 6,399
2005 6,000 311 88 6,399
2006 6,000 311 88 6,399
2007 6,000 311 88 6,399
2008 and thereafter 21,500 748 215 22,463
- ---------------------------------------------------------------------------------------------------------------------------------
Total remaining intangible assets $51,500 $2,303 $655 $54,458
=================================================================================================================================
NOTE 3:
SECURITIES HELD TO MATURITY
Securities held to maturity at December 31, 2002 and 2001 are summarized as
follows:
December 31, 2002
- ---------------------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
(in thousands) Cost Unrealized Gain Unrealized Loss Market Value
- ---------------------------------------------------------------------------------------------------------------------------------
Corporate bonds $233,653 $ 4,168 $-- $237,821
- ---------------------------------------------------------------------------------------------------------------------------------
Capital trust notes 273,932 13,799 48 287,683
- ---------------------------------------------------------------------------------------------------------------------------------
FHLB stock 186,860 -- -- 186,860
Preferred stock 5,000 200 -- 5,200
- ---------------------------------------------------------------------------------------------------------------------------------
Total stock 191,860 200 -- 192,060
- ---------------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity $699,445 $18,167 $48 $717,564
=================================================================================================================================
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
Preferred 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
=================================================================================================================================
The following is a summary of the amortized cost and estimated market value
of the corporate bonds and capital trust notes included in securities held to
maturity at December 31, 2002 by remaining term to maturity:
- ---------------------------------------------------------------------------------------------------------------------------------
Amortized Cost
- ---------------------------------------------------------------------------------------------------------------------------------
Corporate Capital Trust Estimated
(in thousands) Bonds Notes Market Value
- ---------------------------------------------------------------------------------------------------------------------------------
Under 2 years $ 83,197 $ -- $ 84,435
2 to 5 years 65,863 -- 66,090
Over 5 years 84,593 273,931 374,979
- ---------------------------------------------------------------------------------------------------------------------------------
Total $233,653 $273,931 $525,504
=================================================================================================================================
Because the sale of Federal Home Loan Bank ("FHLB") stock is restricted by
the governmental agency, this security is not considered a marketable equity
security. FHLB stock is therefore carried at cost, which approximates value at
redemption.
NEW YORK COMMUNITY BANCORP, INC. PAGE 44
NOTE 4:
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
Mortgage-backed securities held to maturity at December 31, 2002 and 2001 are
summarized as follows:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 2002 2001
- --------------------------------------------------------------------------------
Principal balance $ 36,919 $ 50,801
Unamortized premium 57 103
Unaccreted discount (29) (39)
- --------------------------------------------------------------------------------
Mortgage-backed securities, net 36,947 50,865
Gross unrealized gains 1,542 254
- --------------------------------------------------------------------------------
Estimated market value $ 38,489 $ 51,119
================================================================================
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, 2002 by remaining
term to maturity:
December 31, 2002
- --------------------------------------------------------------------------------
Amortized Estimated
(in thousands) Cost Market Value
- --------------------------------------------------------------------------------
Over 5 years $36,947 $38,489
- --------------------------------------------------------------------------------
Mortgage-backed securities held to maturity $36,947 $38,489
================================================================================
There were no sales of mortgage-backed securities held to maturity during the
years ended December 31, 2002 or 2001.
NOTE 5:
SECURITIES AVAILABLE FOR SALE
Securities available for sale at December 31, 2002 and 2001 are summarized as
follows:
December 31, 2002
- ----------------------------------------------------------------------------------------------------------------------------------
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 $ 20,092 $ 38 $ 180 $ 19,950
Corporate bonds 56,605 632 8 57,229
Capital trust notes 210,236 6,396 534 216,098
Preferred stock 43,932 1,306 3 45,235
Common stock 16,300 2,794 2,617 16,477
- ----------------------------------------------------------------------------------------------------------------------------------
Total $ 347,165 $11,166 $3,342 $ 354,989
- ----------------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE:
GNMA certificates $ 68,608 $ 2,339 $-- $ 70,947
FNMA certificates 85,185 2,021 -- 87,206
FHLMC certificates 845,016 25,611 -- 870,627
CMOs and REMICs 2,552,534 18,359 2,532 2,568,361
- ----------------------------------------------------------------------------------------------------------------------------------
Total $3,551,343 $48,330 $2,532 $3,597,141
- ----------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $3,898,508 $59,496 $5,874 $3,952,130
==================================================================================================================================
NEW YORK COMMUNITY BANCORP, INC. PAGE 45
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
==================================================================================================================================
The gross proceeds, gross realized gains, and gross realized losses from the
sale of available-for-sale securities for the years ended December 31, 2002 and
2001 were as follows:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 2002 2001
- --------------------------------------------------------------------------------
Gross proceeds $537,784 $685,074
Gross realized gains 17,484 37,207
Gross realized losses 498 9,668
================================================================================
The following table presents information regarding securities available for
sale at December 31, 2002, based on contractual maturity.
- ---------------------------------------------------------------------------------------------------------------------------------
Due From
Due Within One to Due After Total Fair
(in thousands) One Year Five Years Five Years Cost Value
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Government and agency obligations $ -- $ -- $ 20,092 $ 20,092 $ 19,950
Corporate bonds -- 46,687 9,918 56,605 57,229
Capital trust notes -- 1,020 209,216 210,236 216,098
Preferred stock 43,932 -- -- 43,932 45,235
Common stock 16,300 -- -- 16,300 16,477
GNMA certificates -- -- 68,608 68,608 70,947
FNMA certificates -- -- 85,185 85,185 87,206
FHLMC certificates -- -- 845,016 845,016 870,627
CMOs and REMICs -- -- 2,552,534 2,552,534 2,568,361
- ---------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $60,232 $47,707 $3,790,569 $3,898,508 $3,952,130
=================================================================================================================================
At December 31, 2002 and 2001, the Company had commitments to purchase
securities available for sale of $1.2 billion and $450.0 million, respectively,
all of which were expected to settle within 90 days of year-end.
NEW YORK COMMUNITY BANCORP, INC. PAGE 46
Transfers of Financial Assets
On May 31, 2002, the Company securitized $572.5 million of one-to-four family
loans into mortgage-backed securities. At the transaction date, this amount
represented the historical carrying amount of the loans, net of any unamortized
fees, plus accrued interest. Of the $572.5 million, $569.6 million was allocated
to mortgage-backed securities and $2.9 million to capitalized mortgage servicing
rights, in proportion to their relative fair values. In connection with the
securitization, the Company recognized mortgage servicing rights under SFAS No.
140, as discussed in Note 1, "Summary of Significant Accounting Policies."
According to SFAS No. 140, the retained interests in a securitization are
initially measured at their allocated carrying amount, based upon the relative
fair values of the retained interests received at the date of securitization.
Capitalized servicing rights are reported in other assets and amortized into
other operating income in proportion to, and over the period of, the estimated
future net servicing income of the underlying financial assets. Servicing assets
are periodically evaluated for impairment based upon the fair value of the
rights as compared to amortized cost. Impairment is determined by stratifying
servicing assets by predominant risk characteristics, such as interest rates and
terms. Fair value is determined using prices for similar assets with similar
characteristics, when available, or based upon discounted cash flows using
market-based assumptions. Impairment is recognized through a valuation allowance
for an individual stratum. The amount of impairment recognized is the amount by
which the carrying amount of servicing assets for a stratum exceeds its fair
value. The valuation allowance is adjusted to reflect changes in the measurement
of impairment subsequent to the initial measurement and charged to earnings.
The mortgage servicing portfolio was segregated into valuation tranches based
on the predominant risk characteristics of the underlying mortgages, such as
loan type and interest rate. Those tranches were further segregated between
performing loans and non-performing loans. The fair value of the servicing
portfolio was determined by estimating the future cash flows associated with
the servicing rights and discounting the cash flows using market discount
rates. The portfolio was valued using all relevant positive and negative cash
flows including service fees, miscellaneous income and float, marginal costs of
servicing, the cost of carry on advances, and foreclosure losses. The following
table summarizes the key assumptions used at the time of valuation:
- --------------------------------------------------------------------------------
Prepayment speed 33.63%
Discount rate 10.08
Cost of carry 1.75
================================================================================
As of December 31, 2002, the remaining carrying value of the mortgage
servicing rights stemming from the second quarter 2002 securitization of
one-to-four family loans was $2,389,924. The mortgage servicing rights are
included in "other assets" on the Consolidated Statements of Condition as of
December 31, 2002. Aggregate amortization expense for the year ended December
31, 2002 was $516,492.
Estimated future amortization expense associated with securitization-related
mortgage servicing rights is as follows:
- --------------------------------------------------------------------------------
Mortgage
(in thousands) Servicing Rights
- --------------------------------------------------------------------------------
2003 $ 773
2004 523
2005 349
2006 236
2007 160
2008 and thereafter 349
- --------------------------------------------------------------------------------
Total remaining $2,390
================================================================================
Combining the mortgage servicing rights acquired in the Richmond County
merger and the mortgage servicing rights stemming from the second quarter 2002
securitization of one-to-four family loans, the Company had total mortgage
servicing rights of $4.7 million at December 31, 2002.
NEW YORK COMMUNITY BANCORP, INC. PAGE 47
NOTE 6:
LOANS
The composition of the loan portfolio at December 31, 2002 and 2001 is
summarized as follows:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 2002 2001
- --------------------------------------------------------------------------------
MORTGAGE LOANS:
Multi-family $4,494,332 $3,255,167
1-4 family 265,724 1,318,295
Commercial real estate 533,327 561,944
Construction 117,013 152,367
- --------------------------------------------------------------------------------
Total mortgage loans 5,410,396 5,287,773
Less: Net deferred loan origination fees 5,130 3,055
- --------------------------------------------------------------------------------
Mortgage loans, net 5,405,266 5,284,718
- --------------------------------------------------------------------------------
Other loans 78,787 116,878
Unearned premiums 19 91
- --------------------------------------------------------------------------------
Other loans, net 78,806 116,969
Less: Allowance for loan losses 40,500 40,500
- --------------------------------------------------------------------------------
Loans, net $5,443,572 $5,361,187
================================================================================
The Bank is one of the leading multi-family lenders in the metro New York
region. At December 31, 2002, $4.5 billion, or 81.9%, of total loans were
secured by multi-family buildings, the vast majority of which were located in
the five boroughs of New York City.
On December 1, 2000, the Bank adopted a policy of originating one-to-four
family loans on a conduit basis in order to minimize its 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 loans totaling $201.6 million and
$67.0 million in 2002 and 2001, respectively. During 2002, the Bank also sold to
various third parties one-to-four family loans totaling $35.5 million that were
previously purchased from two financial institutions. The Company has
discontinued the practice of purchasing one-to-four family loans for portfolio.
During the year ended December 31, 2002, the Bank sold an additional $180.4
million of one-to-four family loans from portfolio and $71.4 million of home
equity and installment loans. In addition, $572.5 million of one-to-four family
loans were securitized into mortgage-backed securities, as more fully discussed
in Note 5, "Securities Available for Sale."
During the years ended December 31, 2001 and 2000, the Bank sold $610.6
million and $105.7 million, respectively, of one-to-four family loans that were
primarily acquired in the Haven transaction.
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 $694.9 million and $1.7 billion at December 31, 2002 and 2001,
respectively. Custodial escrow balances maintained in connection with such loans
amounted to $3.9 million and $5.5 million at the corresponding dates.
At December 31, 2002 and 2001, commitments to originate loans amounted to
approximately $478.7 million and $344.4 million, respectively. Substantially all
of the commitments at December 31, 2002 were expected to close within 90 days.
In addition, the Company had approximately $386,000 of performance standby
letters of credit outstanding on December 31, 2002 that are not reflected in the
Consolidated Statements of Condition. These letters of credit have expiration
dates ranging from 30 days to three-and-one-half years.
NOTE 7:
ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses for the years ended December 31,
2002, 2001, and 2000 is summarized as follows:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 2002 2001 2000
- --------------------------------------------------------------------------------
Balance, beginning of year $40,500 $18,064 $ 7,031
Acquired allowance -- 22,436 11,033
- --------------------------------------------------------------------------------
Balance, end of year $40,500 $40,500 $18,064
================================================================================
NEW YORK COMMUNITY BANCORP, INC. PAGE 48
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.
Mortgage loans in foreclosure amounted to approximately $11.9 million, $10.6
million, and $6.0 million, respectively, at December 31, 2002, 2001, and 2000;
loans 90 days or more delinquent amounted to approximately $4.4 million, $6.9
million, and $3.1 million, respectively, at the corresponding dates. 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, 2002, 2001, and 2000, are summarized below:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 2002 2001 2000
- --------------------------------------------------------------------------------
Interest income that would have been recorded $ 429 $ 651 $ 435
Interest income recognized(1) (355) (42) (51)
- --------------------------------------------------------------------------------
Interest income foregone $ 74 $ 609 $ 384
================================================================================
(1) At December 31, 2002, the principal balance of non-accrual mortgage loans
generating interest income was $9.6 million. The principal balance of such
loans at December 31, 2001 was immaterial.
The Company defines impaired loans as those loans in foreclosure that are not
one-to-four family 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 2002, 2001,
or 2000.
NOTE 8:
FORECLOSED REAL ESTATE
The following table summarizes transactions in foreclosed real estate, which
is included in "other assets," for the years ended December 31, 2002 and 2001:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 2002 2001
- --------------------------------------------------------------------------------
Balance, beginning of year $ 249 $ 12
Acquired in the Richmond County merger -- 204
Transfers in 213 55
Sales (287) (22)
- --------------------------------------------------------------------------------
Balance, end of year $ 175 $ 249
================================================================================
Foreclosed real estate is carried at fair market value. There were no
valuation allowances at December 31, 2002 or 2001, and no provisions for the
years ended December 31, 2002, 2001, or 2000.
NOTE 9:
DEPOSITS
The following is a summary of weighted average interest rates at December 31,
2002 and 2001 for each type of deposit:
December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
2002 2001
- ----------------------------------------------------------------------------------------------------------------------------------
Percent Weighted Percent Weighted
(dollars in thousands) Amount of Total Average Rate Amount of Total Average Rate
- ----------------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing accounts $ 465,140 8.85% 0.00% $ 455,133 8.35% 0.00%
NOW and money market accounts 1,198,068 22.80 1.18 948,324 17.40 1.40
Savings accounts 1,643,696 31.27 0.93 1,639,239 30.07 1.61
Certificates of deposit 1,949,138 37.08 2.17 2,407,906 44.18 4.18
- ----------------------------------------------------------------------------------------------------------------------------------
Total deposits $5,256,042 100.00% 1.36% $5,450,602 100.00% 2.57%
==================================================================================================================================
NEW YORK COMMUNITY BANCORP, INC. PAGE 49
The following is a summary of certificates of deposit ("CDs") in amounts of
$100,000 or more at December 31, 2002 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 $220,152 $162,140 $137,629 $95,804 $615,725
===========================================================================================
At December 31, 2002 and 2001, the aggregate amount of CDs of $100,000 or
more was approximately $615.7 million and $408.4 million, respectively.
NOTE 10:
BORROWINGS
Borrowings totaled $4.6 billion and $2.5 billion, respectively, at December
31, 2002 and 2001, and consisted of Federal Home Loan Bank of New York
("FHLB-NY") advances, reverse repurchase agreements, and trust preferred
securities, as described below.
Whereas accrued interest of $15.6 million on borrowings was included in
"other liabilities" at December 31, 2002, accrued interest of $12.5 million on
borrowings was included in the balance of borrowings at December 31, 2001.
The following is a summary of the three components of the Company's
borrowings at December 31, 2002 and 2001:
Federal Home Loan Bank of New York ("FHLB-NY") Advances
FHLB-NY advances totaled $2.3 billion and $1.8 billion, respectively, at
December 31, 2002 and 2001. The contractual maturities of the outstanding
FHLB-NY advances at December 31, 2002 were as follows:
- --------------------------------------------------------------------------------
(dollars in thousands)
Contractual Weighted Average
Maturity Amount Interest Rate
- --------------------------------------------------------------------------------
2003 $ 543,700(1) 1.59%
2004 22,000 5.32
2005 42,000 5.82
2006 65,500 4.78
2007 80,000 1.45
2008 501,400 5.24
2009 429,300 5.79
2010 567,300 6.08
- --------------------------------------------------------------------------------
Total $2,251,200(1) 4.54%
================================================================================
(1)Includes $18.7 million of FHLB-NY overnight line of credit advances at
December 31, 2002. The rate was based on the federal funds rate at the time
of takedown plus 10 basis points. Principal and interest were 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, 2002.
The Company's line of credit with the FHLB-NY totaled $4.5 billion and $3.7
billion at December 31, 2002 and 2001, respectively.
The FHLB-NY advances are either straight fixed-rate advances or fixed-rate
advances 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 five
years and quarterly thereafter, until maturity. At December 31, 2002 and 2001,
the advances were collateralized by securities with a market value of
approximately $828.0 million and $924.6 million; pledges of FHLB-NY stock of
$186.9 million and $114.9 million; and a blanket assignment of the Company's
unpledged, qualifying mortgage loans.
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, 2002.
NEW YORK COMMUNITY BANCORP, INC. PAGE 50
Reverse Repurchase Agreements
Reverse repurchase agreements totaled $2.0 billion and $529.7 million,
respectively, at December 31, 2002 and 2001. The contractual maturities of
reverse repurchase agreements at December 31, 2002 were as follows:
- --------------------------------------------------------------------------------
(dollars in thousands) Weighted Average
Contractual Maturity Amount Interest Rate
- --------------------------------------------------------------------------------
Up to 30 days 669,779 1.39%
30 to 90 days 1,152,329 1.38
Over 90 days 150,000 1.39
- --------------------------------------------------------------------------------
Total $1,972,108 1.39%
================================================================================
The above agreements were collateralized by securities with market values of
approximately $1.8 billion and $507.5 million at December 31, 2002 and 2001,
respectively.
For the twelve months ended December 31, 2002, the average balance of
short-term borrowings (consisting of reverse repurchase agreements) was
approximately $1.4 billion, with a weighted average interest rate of 1.76%. The
maximum amount of short-term borrowings (consisting of reverse repurchase
agreements) outstanding at any month-end during 2002 was $2.0 billion. Reverse
repurchase agreements represented an immaterial percentage of the Company's
total borrowings throughout 2001 and 2000.
Trust Preferred Securities
Trust preferred securities totaled $368.8 million and $187.8 million,
respectively, at December 31, 2002 and 2001.
The following trust preferred securities were outstanding at December 31,
2002:
- ----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Current Interest Rate Amount Date of Optional
and Security Title Issuer Outstanding Original Issue Stated Maturity Redemption Date
- ----------------------------------------------------------------------------------------------------------------------------------
10.460% Capital Securities Haven Capital Trust I $ 17,400 February 12, 1997 February 1, 2027 February 1, 2007
- ----------------------------------------------------------------------------------------------------------------------------------
10.250% Capital Securities Haven Capital Trust II 22,550 May 26, 1999 June 30, 2029 June 30, 2009
- ----------------------------------------------------------------------------------------------------------------------------------
11.045% Capital Securities Queens Capital Trust I 10,000 July 26, 2000 July 19, 2030 July 19, 2010
- ----------------------------------------------------------------------------------------------------------------------------------
10.600% Capital Securities Queens Statutory Trust I 15,000 September 7, 2000 September 7, 2030 September 7, 2010
- ----------------------------------------------------------------------------------------------------------------------------------
5.173% Floating Rate
Capital Securities NYCB Capital Trust I 36,000 November 28, 2001 December 8, 2031 December 8, 2006
- ----------------------------------------------------------------------------------------------------------------------------------
5.010% Floating Rate New York Community
Capital Securities Statutory Trust I 35,032 December 18, 2001 December 18, 2031 December 18, 2006
- ----------------------------------------------------------------------------------------------------------------------------------
5.000% Floating Rate New York Community
Capital Securities Statutory Trust II 50,250 December 28, 2001 December 28, 2031 December 28, 2006
- ----------------------------------------------------------------------------------------------------------------------------------
6.000% Fixed Rate
Bifurcated Option Note
Unit SecuritiES New York Community
(BONUSES(SM) Units) Capital Trust V 275,000 November 4, 2002 November 1, 2051 November 4, 2007
Less: Original issue discount,
net of accretion (92,471)
--------
182,529
- ----------------------------------------------------------------------------------------------------------------------------------
Total trust preferred securities $368,761
==================================================================================================================================
On November 4, 2002, the Company completed a public offering of 5,500,000
Bifurcated Option Note Unit SecuritiES (BONUSES(SM) Units), including 700,000
that were sold pursuant to the exercise of the underwriters' over-allotment
option, at a public offering price of $50.00 per share. The Company realized net
proceeds from the offering of approximately $267.3 million. Each BONUSES Unit
consists of a trust preferred security issued by New York Community Capital
Trust V, a trust formed by the Company, and a warrant to purchase 1.4036 shares
of the common stock of the Company at an effective exercise price of $35.62 per
share. Each trust preferred security has a maturity of 49 years, with a coupon,
or distribution rate, of 6.00% on the $50.00 per share liquidation amount. The
warrants and preferred securities are non-callable for five years.
NEW YORK COMMUNITY BANCORP, INC. PAGE 51
The gross proceeds of the BONUSES Units totaled $275.0 million and were
allocated between the trust preferred security and the warrant comprising such
units, in proportion to their relative values at the time of issuance. The value
assigned to the warrants was $92.5 million, and was recorded as a component of
additional "paid-in capital" in the Company's consolidated financial statements.
The value assigned to the trust preferred security component was $182.5 million
and is included in "borrowings" in the Consolidated Statements of Condition. The
difference between the assigned value and the stated liquidation amount of the
trust preferred securities is treated as an original issue discount and
amortized to "interest expense" over the life of the preferred securities on a
level-yield basis. Issuance costs related to the BONUSES Units totaled $7.7
million, of which $5.1 million was allocated to the trust preferred security,
reflected in "other assets" in the Company's Consolidated Statements of
Condition, and amortized on a straight-line basis over five years. The portion
of issuance costs allocated to the warrants totaled $2.6 million and was treated
as a reduction in paid-in capital.
In addition, the Company has established seven other Delaware business trusts
of which it owns all of the common 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"). 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"), which are described in the table on page 50. 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,
2002, 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 qualifies as Tier I
capital, and the remainder qualifies as Tier II capital.
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 10.460%, 10.250%, 11.045%, and 10.600%, 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 BONUSES Units accrue interest at an annual rate of 6.00%.
NOTE 11:
FEDERAL, STATE, AND LOCAL TAXES
The components of the net deferred tax asset at December 31, 2002 and 2001
are summarized as follows:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 2002 2001
- --------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Financial statement loan loss allowance $ 15,188 $ 15,188
Accrual for post-retirement benefits 2,922 3,178
Mark to market on loans 1,720 2,760
Mark to market on borrowings 10,501 17,823
Charitable contributions -- 8,099
Merger-related costs -- 2,331
SERP and deferred compensation plans 1,606 1,577
Other 57 1,867
- --------------------------------------------------------------------------------
Total deferred tax assets 31,994 52,823
- --------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Tax reserve in excess of base-year reserve (822) (1,645)
Prepaid pension cost (5,868) (3,428)
Mark to market on securities available for sale (14,060) (6,060)
Other (1,736) (1,294)
- --------------------------------------------------------------------------------
Total deferred tax liabilities (22,486) (12,427)
- --------------------------------------------------------------------------------
Net deferred tax asset $ 9,508 $ 40,396
================================================================================
NEW YORK COMMUNITY BANCORP, INC. PAGE 52
The net deferred tax asset at December 31, 2002 and 2001 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.
Income tax expense for the years ended December 31, 2002, 2001, and 2000 is
summarized as follows:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 2002 2001 2000
- --------------------------------------------------------------------------------
Federal--current $ 78,892 $33,123 $15,362
State and local--current 5,004 1,905 1,913
- --------------------------------------------------------------------------------
Total current 83,896 35,028 17,275
- --------------------------------------------------------------------------------
Federal--deferred 20,822 32,815 3,040
State and local--deferred 2,066 2,936 110
- --------------------------------------------------------------------------------
Total deferred 22,888 35,751 3,150
- --------------------------------------------------------------------------------
Total income tax expense $106,784 $70,779 $20,425
================================================================================
The following is a reconciliation of statutory federal income tax expense to
combined effective income tax expense for the years ended December 31, 2002,
2001, and 2000:
December 31,
- --------------------------------------------------------------------------------
(in thousands) 2002 2001 2000
- --------------------------------------------------------------------------------
Statutory federal income tax expense $117,605 $61,336 $15,716
State and local income taxes, net of
federal income tax benefit 4,595 3,147 1,315
ESOP (874) 6,250 5,865
Amortization of intangibles -- 2,950 173
BOLI (3,367) (2,294) (735)
Change in tax status of subsidiary (9,943) -- --
Other, net (1,232) (610) (1,909)
- --------------------------------------------------------------------------------
Total income tax expense $106,784 $70,779 $20,425
================================================================================
The Company and its subsidiaries, including the Bank, 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 tax laws regarding its tax bad debt reserves, and for New
York purposes, its allowable tax bad debt deduction. At December 31, 2002 and
2001, the Bank's federal, New York State, and New York City tax bad debt
base-year reserves were $27.3 million, $144.7 million, and $146.8 million,
respectively (including $9.6 million, $53.2 million, and $54.8 million,
respectively, from the former Richmond County Savings Bank). Related deferred
tax liabilities have not been recognized since the Bank does not expect that
these reserves, which constitute base-year amounts as set forth in the
applicable tax laws, 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 tax
purposes.
NOTE 12:
COMMITMENTS AND CONTINGENCIES
Pledged Assets
At December 31, 2002 and 2001, the Company had pledged securities held to
maturity with a market value of $214.5 million and $114.9 million, respectively.
The carrying values of the pledged securities were $214.4 million and $114.9
million at the corresponding dates.
The Company also had pledged mortgage-backed securities held to maturity with
a market value of $38.5 million and $51.1 million, respectively, at December 31,
2002, and 2001. The carrying values of the pledged mortgage-backed securities
held to maturity were $36.9 million and $50.9 million, respectively.
In addition, the Company had pledged securities available for sale with a
market value and carrying value of $2.5 billion at December 31, 2002 and a
market value and carrying value of $1.4 billion at December 31, 2001.
NEW YORK COMMUNITY BANCORP, INC. PAGE 53
Lease and License Commitments
At December 31, 2002, the Company was obligated under 84 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, 2002, 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.
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
- --------------------------------------------------------------------------------
2003 $ 824 $ 6,173
2004 711 5,622
2005 631 5,229
2006 604 4,822
2007 591 3,390
2008 and thereafter 1,162 17,586
- --------------------------------------------------------------------------------
Total minimum future rentals $4,523 $42,822
================================================================================
Included in "occupancy and equipment expense," the rental expense under these
leases and licenses was approximately $6.8 million, $5.7 million, and $1.1
million for the years ended December 31, 2002, 2001, and 2000, respectively.
Rental income on Bank properties, netted in occupancy and equipment expense, was
approximately $1.0 million, $1.2 million, and $1.1 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 the former CFS Bank. At December 31, 2002, the Bank had a
lawsuit pending, whereby the plaintiffs are seeking recovery of approximately
$12.4 million in actual damages. This amount does not include any statutory
pre-judgment interest that could be awarded. The ultimate liability, if any,
that might arise from the disposition of these claims cannot presently be
determined. Management believes it has meritorious defenses against this action
and continues to defend its position.
NOTE 13:
EMPLOYEE BENEFITS
Retirement Plans
On April 1, 2002, three separate pension plans for employees of the former
Queens County Savings Bank, the former CFS Bank, and the former Richmond County
Savings Bank merged together and were renamed the New York Community Bank
Retirement Plan. The plan covers substantially all employees who had attained
minimum service requirements prior to the date on which each plan from the
former bank of origin was frozen. Once frozen, the plan 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 former Queens County Savings Bank Retirement Plan was frozen at September
30, 1999, while the former CFS Bank Retirement Plan was frozen on June 30, 1996,
reactivated on November 30, 2000, and subsequently refrozen on December 29,
2000. The former Richmond County Savings Bank Retirement Plan was frozen on
March 31, 1999. The New York Community Bank Retirement Plan is 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 for the years ended December 31, 2002 or 2001.
NEW YORK COMMUNITY BANCORP, INC. PAGE 54
The following tables set forth the disclosures required under SFAS No. 132,
"Employers' Disclosures about Pensions and Other Post-retirement Benefits," for
the New York Community Bank Retirement Plan in 2002; for the three former banks'
benefit plans, combined, in 2001; and for the former Queens County Savings Bank
and CFS Bank plans, combined, in 2000:
- --------------------------------------------------------------------------------
Pension Benefits
- --------------------------------------------------------------------------------
(in thousands) 2002 2001
- --------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 32,338 $ 32,612
Interest cost 2,322 1,832
Actuarial loss (gain) 2,483 (1,898)
Benefits paid (2,024) (1,390)
Settlement (1,112) (832)
Plan amendments -- 2,014
- --------------------------------------------------------------------------------
Benefit obligation at end of year $ 34,007 $ 32,338
================================================================================
CHANGE IN PLAN ASSETS:
Fair value of assets at beginning of year $ 34,611 $ 40,014
Actual return on plan assets (2,158) (3,181)
Benefits paid (2,024) (1,390)
Settlement (1,112) (832)
Employer contributions 6,000 --
- --------------------------------------------------------------------------------
Fair value of assets at end of year $ 35,317 $ 34,611
================================================================================
FUNDED STATUS:
Funded status $ 1,310 $ 8,115
Unrecognized net actuarial loss 12,678 1,151
Unrecognized past service liability 1,660 --
- --------------------------------------------------------------------------------
Prepaid benefit cost $ 15,648 $ 9,266
================================================================================
Years Ended December 31,
- --------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE ASSUMPTIONS:
Discount rate 6.75% 7.50% 8.00%
Expected rate of return on plan assets 9.00 9.00 8.00
Rate of compensation increase N.A. N.A. 4.00
================================================================================
Years Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 2002 2001 2000
- --------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST:
Interest cost $2,322 $1,832 $1,683
Expected return on plan assets (3,031) (2,630) (2,192)
Amortization of prior service cost 202 161 (56)
Amortization of unrecognized loss 126 -- --
- --------------------------------------------------------------------------------
Net periodic benefit credit $(381) $(637) $(565)
================================================================================
At December 31, 2002, the aggregate benefit obligation and the aggregate fair
value of plan assets for the New York Community Bank Retirement Plan were $34.0
million and $35.3 million, respectively.
Qualified Savings Plans
The Company maintains a defined contribution Qualified Savings Plan named the
New York Community Bank Employee Savings Plan, previously named the Queens
County Savings Bank Thrift Incentive Plan, in which all regular salaried
employees are 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 former Richmond County Savings Bank 401(k) Savings Plan
were suspended effective January 1, 2002, and all matching contributions to the
former CFS Bank 401(k) Thrift Incentive Savings Plan were suspended effective
January 1, 2001. Accordingly, there were no Company contributions relating to
the New York Community Bank Employee Savings Plan for the year ended December
31, 2002; five months
NEW YORK COMMUNITY BANCORP, INC. PAGE 55
of Company contributions relating to the Richmond County Savings Bank Plan for
the year ended December 31, 2001; and one month of Company contributions
relating to the CFS Bank Plan for the year ended December 31, 2000.
Other Compensation Plans
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 $397,000 and $779,000 at December 31, 2002 and
2001, respectively, is reflected in "other liabilities" on the Company's
Consolidated Statements of Condition.
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 $466,000 and $588,000 at December 31, 2002 and 2001, 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 2002
and 2001; and for the Queens County Savings Bank and CFS Bank plans, combined,
in 2000.
- --------------------------------------------------------------------------------
Post-retirement Benefits
- --------------------------------------------------------------------------------
(in thousands) 2002 2001
- --------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 6,790 $ 6,994
Service cost 40 53
Interest cost 476 377
Actuarial loss 638 203
Benefits paid (751) (546)
Plan amendments -- (288)
Curtailment -- (3)
- --------------------------------------------------------------------------------
Benefit obligation at end of year $ 7,193 $ 6,790
================================================================================
CHANGE IN PLAN ASSETS:
Fair value of assets at beginning of year $-- $--
Employer contribution 751 546
Benefits paid (751) (546)
- --------------------------------------------------------------------------------
Fair value of assets at end of year $-- $--
================================================================================
FUNDED STATUS:
Accrued post-retirement benefit cost $(7,696) $(8,476)
Employer contribution 752 993
Total net periodic benefit credit (450) (213)
- --------------------------------------------------------------------------------
Accrued post-retirement benefit cost $(7,394) $(7,696)
================================================================================
Years Ended December 31,
- --------------------------------------------------------------------------------
2002 2001 2000
- -------------------------------------------------------------------------------
WEIGHTED AVERAGE ASSUMPTIONS:
Discount rate 6.75% 7.50% 8.00%
Current medical trend rate 9.00 9.00 6.50
Rate of compensation increase 4.00 4.25 5.50
================================================================================
Years Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 2002 2001 2000
- --------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $ 40 $ 53 $ 226
Interest cost 476 377 347
Amortization of prior service cost (56) (217) (25)
Amortization of unrecognized gain (10) -- --
- --------------------------------------------------------------------------------
Net periodic benefit credit $ 450 $ 213 $ 548
================================================================================
NEW YORK COMMUNITY BANCORP, INC. PAGE 56
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, 2002 by $360,617, and the aggregate of the benefits earned and interest
components of 2002 net post-retirement benefit expense by $26,328. 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, 2002 by
$356,069, and the aggregate of the benefits earned and interest components of
2002 net post-retirement benefit expense by $25,287.
NOTE 14:
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")
In connection with the conversion, the Company loaned $19.4 million to the
ESOP to purchase 10,453,185 shares (as adjusted for the stock splits discussed
in Note 1, "Summary of Significant Accounting Policies"). In the second quarter
of 2002, the Company loaned an additional $14.8 million to the ESOP for the
purchase of 510,000 shares of the common stock that were sold in the secondary
offering on May 14th. The loans are being repaid, principally from the Bank's
discretionary contributions to the ESOP, over a period of time not to exceed 30
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, 2002, the loans
had a combined outstanding balance of $18.9 million and a fixed interest rate of
4.75%. 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 $708,000; $422,500; and $751,000 for the years ended December 31,
2002, 2001, and 2000, respectively.
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 $1.7 million for the year ended
December 31, 2002. Dividends and investment income received on ESOP shares that
were used for debt service amounted to approximately $1.7 million; $658,800; and
$1.0 million for the years ended December 31, 2002, 2001, and 2000,
respectively.
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 2002 and 2001, the Company allocated 210,628 and 973,071 ESOP shares,
respectively, to participants. At December 31, 2002, there were 3,605,621 shares
remaining for future allocation, with a market value of $104.1 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. For the years
ended December 31, 2002, 2001, and 2000, the Company recorded ESOP-related
compensation expense of $5.9 million, $22.8 million, and $24.8 million,
respectively.
Supplemental Employee Retirement Plan ("SERP")
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 of trust-held assets at December 31, 2002
and 2001, respectively, based upon the cost of said assets at the time of
purchase. Trust-held assets, consisting entirely of Company common stock,
amounted to 480,604 shares at both December 31, 2002 and 2001. 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 2002 or 2001.
Recognition and Retention Plans and Trusts ("RRPs")
At the time of the conversion, 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), 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 331/3% 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 RRPs. The Company recorded no compensation expense for the RRPs in 2002
or 2001.
Stock Option Plans
At December 31, 2002, the Company had five stock option plans: the 1993 and
1997 New York Community 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 granted stock option 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.
NEW YORK COMMUNITY BANCORP, INC. PAGE 57
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, 2002, 2001, and 2000, the number of
outstanding options under the 1993 New York Community Bancorp, Inc. Stock Option
Plan was 68,108; 89,935; and 552,445, respectively; under the 1997 New York
Community Bancorp, Inc. Stock Option Plan, the number of outstanding options at
the corresponding dates was 8,328,347; 2,943,509; and 3,200,063. The number of
outstanding options under the 1993 and 1996 Haven Bancorp, Inc. Stock Option
Plans at December 31, 2002 and 2001 was 155,303 and 288,489, respectively. Under
the Richmond County Financial Corp. 1998 Stock Compensation Plan, the number of
outstanding options at December 31, 2002 and 2001 was 2,371,043 and 3,238,034,
respectively. At December 31, 2002, there was a total of 1,726,194 shares
reserved for future issuance under the Company's five stock option plans.
The status of the Company's five stock option plans at December 31, 2002,
2001, and 2000, and changes during the years ending on those dates, are
summarized below:
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Stock Exercise of Stock Exercise of Stock Exercise
Options Price Options Price Options(1) Price(1)
- ---------------------------------------------------------------------------------------------------------------------------------
Stock options outstanding, beginning of year 6,559,967 $15.98 5,500,946 $ 7.96 3,298,478 $7.08
Granted 6,128,881 25.73 1,525,565 15.37 1,749,656 8.92
Assumed in merger transactions -- -- 3,586,934 18.35 1,748,439 4.00
Exercised (1,766,047) 7.76 (4,053,478) 6.96 (1,295,627) 1.65
- ---------------------------------------------------------------------------------------------------------------------------------
Stock options outstanding, end of year 10,922,801 $22.78 6,559,967 $15.98 5,500,946 $7.96
=================================================================================================================================
Options exercisable at year-end 6,011,201 4,759,493 3,751,290
Weighted average grant-date fair value of
options granted during the year $6.66 $10.78 $7.70
=================================================================================================================================
(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, 2002:
- ---------------------------------------------------------------------------------------------------------------------------------
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, 2002 Outstanding Price December 31, 2002 Price
- ---------------------------------------------------------------------------------------------------------------------------------
$ 1-$ 5 68,108 0.89 years $ 1.65 68,108 $ 1.65
$ 6-$10 212,144 5.51 8.13 212,144 8.13
$11-$15 64,920 6.14 11.93 64,920 11.93
$16-$20 2,536,887 5.95 18.15 2,536,887 18.15
$21-$25 5,581,862 9.35 23.79 670,262 22.20
$26-$30 2,458,880 9.07 27.41 2,458,881 27.41
- ---------------------------------------------------------------------------------------------------------------------------------
10,922,801 8.35 years $22.78 6,011,202 $21.78
=================================================================================================================================
Because the stock options granted under all of these plans have
characteristics that are significantly different from those of traded options,
and because changes in the subjective assumptions can materially affect the
estimated fair values, the Company employed a Black-Scholes option-pricing
model, with the following weighted average assumptions used for grants in 2002,
2001, and 2000:
Years Ended December 31,
- --------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
Dividend yield 2.84% 2.82% 2.68%
Expected volatility 13.32 33.03 10.02
Risk-free interest rate 5.04 4.83 4.00
Expected option lives 9.4 years 6.7 years 9.5 years
================================================================================
NEW YORK COMMUNITY BANCORP, INC. PAGE 58
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 (as discussed in Note 1,
"Summary of Significant Accounting Policies"), 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) 2002 2001 2000(1)
- ---------------------------------------------------------------------------------------------------
Net income
As reported $229.2 $104.5 $24.5
Deduct: Stock-based employee compensation expense determined
under fair value-based method, net of related tax
effects 15.9 20.4 6.7
- ---------------------------------------------------------------------------------------------------
Pro forma $213.3 $84.1 $17.8
===================================================================================================
Basic earnings per share
As reported $2.25 $1.36 $0.58
Pro forma 2.10 1.10 0.42
===================================================================================================
Diluted earnings per share
As reported $2.22 $1.34 $0.56
Pro forma 2.07 1.07 0.41
===================================================================================================
(1) Per share amounts have been adjusted to reflect 3-for-2 stock splits on
March 29 and September 20, 2001.
NOTE 15:
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about the Company's 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. In
addition, 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, 2002 and
2001:
December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
2002 2001
- ----------------------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
(in thousands) Value Fair Value Value Fair Value
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS:
Cash and cash equivalents $ 97,645 $ 97,645 $ 178,615 $ 178,615
Securities held to maturity 699,445 717,564 203,195 203,647
Mortgage-backed securities held to maturity 36,947 38,489 50,865 51,119
Securities available for sale 3,952,130 3,952,130 2,374,782 2,374,782
Loans, net 5,443,572 5,511,132 5,361,187 5,432,025
FINANCIAL LIABILITIES:
Deposits $5,256,042 $5,225,380 $5,450,602 $5,492,533
Borrowings 4,592,069 4,882,223 2,506,828 2,609,560
Mortgagors' escrow 13,749 13,749 21,496 21,496
==================================================================================================================================
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
NEW YORK COMMUNITY BANCORP, INC. PAGE 59
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 best reflect 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 CDs 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,
2002 or 2001.
NOTE 16:
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. The term "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.
NOTE 17:
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) 2002 2001
- --------------------------------------------------------------------------------
ASSETS
Cash $ 490 $ 168
Money market investments 123,621 107,076
Securities held to maturity 10,000 10,000
Securities available for sale 3,257 2,676
Investments in and advances to subsidiaries, net 1,394,723 1,068,967
Other assets 19,499 6,877
- --------------------------------------------------------------------------------
Total assets $1,551,590 $1,195,764
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 459,890 $ 306,604
Stockholders' equity 1,091,700 889,160
================================================================================
Total liabilities and stockholders' equity $1,551,590 $1,195,764
================================================================================
NEW YORK COMMUNITY BANCORP, INC. PAGE 60
Condensed Statements of Income
Years Ended December 31,
- ---------------------------------------------------------------------------------------------------------------
(in thousands) 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------
Interest income from subsidiaries $ 1,829 $ 754 $ --
Other interest income 1,248 189 56
Dividends from subsidiaries -- -- 88,800
- ---------------------------------------------------------------------------------------------------------------
Total income 3,077 943 88,856
Interest expense to subsidiaries -- -- 1,808
Operating expenses 17,189 129 275
- ---------------------------------------------------------------------------------------------------------------
(Loss) income before income tax and equity in undistributed earnings (14,112) 814 86,773
Income tax expense 300 268 150
- ---------------------------------------------------------------------------------------------------------------
(Loss) income before equity in undistributed earnings of subsidiaries (14,412) 546 86,623
Equity in (excess dividends)/undistributed earnings of subsidiaries 243,642 103,921 (62,146)
- ---------------------------------------------------------------------------------------------------------------
Net income $ 229,230 $104,467 $ 24,477
===============================================================================================================
Condensed Statements of Cash Flows
Years Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands) 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 229,230 $ 104,467 $ 24,477
Equity in undistributed earnings (excess dividends) of subsidiaries not provided for (243,642) (103,921) 62,146
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (14,412) 546 86,623
====================================================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities -- (11,232) --
Payments for investments in and advances to subsidiaries (41,759) (428,565) (105,933)
Cash dividends from subsidiaries -- -- 88,800
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (41,759) (439,797) (17,133)
====================================================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Shares issued in secondary offering and the Richmond County
merger, respectively 95,569 693,306 --
Purchase of Treasury stock (119,980) (121,048) (41,483)
Treasury stock issued in secondary offering 67,303 -- --
Dividends paid (78,360) (43,955) (17,847)
Exercise of stock options 18,591 5,627 (727)
Stock warrants issued in connection with BONUSES(SM) Units 89,915 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 73,038 533,930 (60,057)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 16,867 94,679 9,433
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 107,244 12,565 3,132
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 124,111 $ 107,244 $ 12,565
====================================================================================================================================
NEW YORK COMMUNITY BANCORP, INC. PAGE 61
NOTE 18:
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, 2002, the
Bank met all capital adequacy requirements to which it was subject.
As of December 31, 2002, the most recent notification from the FDIC
categorized the Bank as "well capitalized" under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain 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.
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, 2002 Actual Adequacy Purposes Action Provisions
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------------
Total capital (to risk-weighted assets) $862,924 17.01% $405,879 8.0% $507,349 10.0%
Tier 1 capital (to risk-weighted assets) 821,793 16.20 202,940 4.0 304,409 6.0
Tier 1 leverage capital (to average assets) 821,793 8.18 401,921 4.0 502,401 5.0
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
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
====================================================================================================================================
Under this framework, and based upon the Bank's capital levels, no prior
regulatory approval is necessary for the Bank to accept brokered deposits.
The Company is subject to examination, regulation, and periodic reporting
under the Bank Holding Company Act of 1956, as amended, which is administered by
the Federal Reserve Board (the "FRB"). The FRB has adopted capital adequacy
guidelines for bank holding companies (on a consolidated basis) that are
substantially similar to those of the FDIC for the Bank.
NEW YORK COMMUNITY BANCORP, INC. PAGE 62
The following table presents the Company's actual capital amounts and ratios
as well as the minimum amounts and ratios required for capital adequacy
purposes:
- ------------------------------------------------------------------------------------------------------------------------------------
For Capital
At December 31, 2002 Actual Adequacy Purposes
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------------
Total capital (to risk-weighted assets) $749,044 14.71% $509,325 10.0%
Tier 1 capital (to risk-weighted assets) 707,834 13.90 305,595 6.0
Tier 1 leverage capital (to average assets) 707,834 7.03(1) 503,102 5.0
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
For Capital
At December 31, 2001 Actual Adequacy Purposes
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------------
Total capital (to risk-weighted assets) $542,430 11.31% $479,445 10.0%
Tier 1 capital (to risk-weighted assets) 497,184 10.37 287,667 6.0
Tier 1 leverage capital (to average assets) 497,184 5.95 451,455 5.0
====================================================================================================================================
(1) The Federal Reserve has determined that, for regulatory purposes, the
BONUSES Units, in their current form, do not meet Federal Reserve approval
for Tier 1 capital treatment.
NOTE 19:
QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the fiscal years ended December 31,
2002 and 2001 follows:
- ------------------------------------------------------------------------------------------------------------------------------------
2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) 4th 3rd 2nd 1st 4th 3rd 2nd 1st
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 95,900 $ 98,857 $ 95,435 $83,064 $75,044 $59,439 $36,203 $35,130
Provision for loan losses -- -- -- -- -- -- -- --
Other operating income 30,438 23,606 27,981 19,795 18,983 32,023 11,128 28,481
Operating expenses 32,225 33,849 33,324 33,664 26,027 49,742 17,567 19,421
Amortization of core deposit intangible
and goodwill 1,500 1,500 1,500 1,500 2,982 2,482 1,482 1,482
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income tax expense 92,613 87,114 88,592 67,695 65,018 39,238 28,282 42,708
Income tax expense 28,191 26,756 30,463 21,374 22,497 23,631 9,587 15,064
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 64,422 $ 60,358 $ 58,129 $46,321 $42,521 $15,607 $18,695 $27,644
====================================================================================================================================
Diluted earnings per common share(1) $ 0.62 $ 0.58 $ 0.56 $ 0.46 $ 0.43 $ 0.18 $ 0.31 $ 0.44
====================================================================================================================================
Cash dividends declared per
common share(1) $ 0.20 $ 0.20 $ 0.20 $ 0.16 $ 0.16 $ 0.13 $ 0.13 $ 0.11
====================================================================================================================================
Dividend payout ratio 32% 34% 35% 34% 37% 72% 42% 24%
====================================================================================================================================
Average common shares and
equivalents outstanding(1) 104,651 104,775 102,736 99,526 99,411 87,668 61,336 62,361
====================================================================================================================================
Stock price per common share:(1)
High(2) $ 30.00 $ 31.98 $ 30.12 $ 29.65 $ 28.23 $ 31.37 $ 24.98 $ 19.13
Low(2) 25.15 24.79 25.18 23.07 21.83 19.12 19.33 14.72
Close 28.88 28.17 26.68 27.65 22.87 23.21 25.10 19.33
====================================================================================================================================
(1) 2001 amounts have been adjusted to reflect 3-for-2 stock splits on March 29
and September 20, 2001.
(2) Reflects high and low closing prices.
NEW YORK COMMUNITY BANCORP, INC. PAGE 63
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING AND INTERNAL CONTROLS
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 transactions and
events. Financial information included elsewhere in this annual report is
consistent with the consolidated financial statements.
Management is responsible for establishing and maintaining a system of
internal controls 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. The internal control structure and
procedures established by management are also designed for complying with laws
and regulations relating to safety and soundness which are designated by federal
regulatory agencies. Management believes that during fiscal year 2002 such laws
and regulations were complied with, and that its system of internal controls and
procedures were 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 22, 2003
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, 2002 and 2001
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, 2002. 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, 2002 and 2001, and
the results of their operations and cash flows for each of the years in the
three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2002, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangibles." Also as
discussed in Note 1 to the consolidated financial statements, effective July 1,
2001, the Company adopted the provisions of Statement of Financial Accounting
Standards No. 141, "Business Combinations."
/s/ KPMG LLP
New York, New York
January 22, 2003