UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended: Commission File Number 0-31565
December 31, 2002
NEW YORK COMMUNITY BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1377322
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
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615 Merrick Avenue, Westbury, New York 11590
(Address of principal executive offices) (Zip code)
(Registrant's telephone number, including area code) 516: 683-4100
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes |X| No | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not considered herein, and will not be contained to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. |X|
Indicated by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) Yes |X| No| |
As of June 28, 2002, the aggregate market value of the shares of common stock outstanding of the registrant was $2.709 billion, excluding 7,971,078 shares held by all directors and executive officers of the registrant. This figure is based on the closing price as reported by the Nasdaq National Market for a share of the registrant's common stock on June 28, 2002, which was $27.10 as reported in The Wall Street Journal on July 1, 2002.
The number of shares of the registrant's common stock outstanding as of March 26, 2003 was 104,897,760 shares.
Documents Incorporated by Reference
Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 2003, and the 2002 Annual Report to Shareholders are incorporated herein by reference - Parts I, II, and III.
CROSS REFERENCE INDEX
PART I
Page
Item 1. Business 1
Description of Business 1
Statistical Data: 19
Mortgage and Other Lending Activities 20
Loan Maturity and Repricing 21
Summary of the Allowance for Loan Losses 22
Composition of the Loan Portfolio 23
Portfolio of Securities, Money Market Investments,
and Mortgage-backed Securities 24
Item 2. Properties 25
Item 3. Legal Proceedings 25
Item 4. Submission of Matters to a Vote of Security Holders 25
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters 25
Item 6. Selected Financial Data 25
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 25
Item 8. Financial Statements and Supplementary Data
New York Community Bancorp, Inc. and Subsidiaries: 26
Independent Auditors' Report 26
Consolidated Statements of Condition 26
Consolidated Statements of Income and Comprehensive Income 26
Consolidated Statements of Changes in Stockholders' Equity 26
Consolidated Statements of Cash Flows 26
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 26
PART III
Item 10. Directors and Executive Officers of the Registrant 26
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners and Management 26
Item 13. Certain Relationships and Related Transactions 26
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 26
Signatures 28
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PART I
ITEM 1. BUSINESS
Formerly known as Queens County Bancorp, Inc., New York Community Bancorp, Inc. (the "Company"),was incorporated in the State of Delaware on July 20, 1993, to serve as the holding company for New York Community Bank (the "Bank"), formerly known as Queens County Savings Bank. Established on April 14, 1859, the Bank was the first savings bank chartered in the State of New York in the Borough of Queens. The Company acquired all of the stock of the Bank upon its conversion from a New York State-chartered mutual savings bank to a New York State-chartered stock form savings bank on November 23, 1993.
On November 21, 2000, the Company changed its name to New York Community Bancorp, Inc., in anticipation of its acquisition of Haven Bancorp, Inc. ("Haven"), parent company of CFS Bank. On November 30, 2000, Haven was merged with and into the Company, and on January 31, 2001, CFS Bank merged with and into New York Community Bank. On July 31, 2001, the Company completed a merger-of-equals with Richmond County Financial Corp. ("Richmond County"), parent company of Richmond County Savings Bank. At the same time, Richmond County Savings Bank merged with and into the Bank.
The Bank currently serves its customers through a network of 110 banking offices in New York City, Long Island, Westchester County, and New Jersey, and operates through six divisions with strong local identities: Queens County Savings Bank, Richmond County Savings Bank, CFS Bank, First Savings Bank of New Jersey, Ironbound Bank, and South Jersey Bank. In addition to operating the largest supermarket banking franchise in the metro New York region, with 54 in-store branches, the Bank ranks among its leading producers of multi-family mortgage loans.
The Company also serves its customers, and its shareholders, through its website, www.myNYCB.com. Earnings releases, dividend announcements, and other press releases are typically available at this site within ten minutes of issuance. In addition, the Company's Securities and Exchange Commission filings (including its annual report on Form 10-K; its quarterly reports on Form 10-Q; and its current reports on Form 8-K) are typically available within ten minutes of being filed with the Securities and Exchange Commission.
General
The Company recorded total assets of $11.3 billion at December 31, 2002, up $2.1 billion, or 22.9%, from the balance recorded at December 31, 2001.
Mortgage loans represented $5.4 billion, or 47.8%, of total assets, including $4.5 billion of multi-family loans. The latter amount reflects twelve-month originations totaling $2.1 billion, representing 80.3% of total mortgage loans produced in 2002. While the multi-family loan portfolio rose $1.2 billion, or 38.1%, during the year, the increase was largely offset by a $1.1 billion decline in one-to-four family loans to $265.7 million. In addition to a significant level of prepayments, the reduction stemmed from the sale of loans totaling $215.9 million and the securitization of loans totaling $572.5 million. The reduction in one-to-four family loans, like the increase in multi-family lending, was indicative of a strategic balance sheet restructuring program designed to enhance the quality of the Company's loan portfolio.
The quality of the Company's loans was demonstrated by the performance of the portfolio in 2002. At December 31, 2002, non-performing assets declined $1.2 million to $16.5 million, representing 0.15% of total assets, while non-performing loans declined $1.2 million to $16.3 million, representing 0.30% of loans, net. In addition, the fourth quarter of 2002 was the Company's 33 consecutive quarter without any net charge-offs being recorded. In the absence of any net charge-offs or provisions for loan losses, the allowance for loan losses was maintained at $40.5 million, representing 247.8% of non-performing loans at December 31, 2002.
While enhancing the mix of mortgage loans was its primary objective, the Company also focused on growing its assets through a leveraging strategy. Reflecting the deployment of borrowings into securities investments and the aforementioned loan securitization, the portfolio of securities available for sale rose $1.6 billion to $4.0 billion, while the portfolio of securities held to maturity rose $496.3 million to $699.4 million. Mortgage-backed securities, with an average maturity of 2.4 years, represented $3.6 billion, or 91.0% of the available-for-sale portfolio, while capital trust notes, corporate bonds, and Federal Home Loan Bank ("FHLB") stock comprised the bulk of securities held to maturity.
At December 31, 2002, the Company's borrowings totaled $4.6 billion, up $2.1 billion from the balance recorded at December 31, 2001. Included in the 2002 amount were Federal Home Loan Bank of New York ("FHLB-NY") advances of $2.3 billion; reverse repurchase agreements of $2.0 billion; and trust preferred securities of $368.8 million.
Additional funding stemmed from a $264.2 million increase in core deposits to $3.3 billion, representing 62.9% of total deposits at year-end 2002. The increase was partly offset by a $458.8 million decline in CDs to $1.9 billion, reflecting management's focus on the sale of third-party investment products, and the divestiture of 14 in-store branch offices in Connecticut, New Jersey, and Rockland County (New York) in the second quarter of the year. The reduction in banking offices was partly offset by the opening of four new banking offices in Richmond and Nassau Counties during the first three quarters of 2002.
While core deposits and borrowings were the Company's primary funding sources, funding also stemmed from a robust level of prepayments in both the mortgage-backed securities and one-to-four family mortgage loan portfolios in 2002. The funding derived from these sources was further supplemented by funds derived from loan and securities sales totaling $825.1 million and the maturity of loans and securities.
In 2002, the Company enhanced its capital position through two successful public offerings. On May 14th, the Company issued 5,865,000 shares of common stock in an oversubscribed secondary offering that generated net proceeds of $147.5 million; and, on November 4, 2002, the Company issued 5.5 million Bifurcated Option Note Unit Securities (BONUSES(SM) Units) in an oversubscribed offering that generated net proceeds of $267.3 million. A hybrid investment instrument, the BONUSES Units combine a warrant to purchase common stock with a trust preferred security. The net proceeds generated in connection with the warrant portion of the offering amounted to $89.9 million; the balance of the net proceeds was recorded in borrowings.
At December 31, 2002, stockholders' equity totaled $1.3 billion, up $340.4 million, or 34.6%, from the balance recorded at December 31, 2001. The 2002 amount was equivalent to 11.70% of total assets and a book value per share of $12.97, based on 102,058,843 shares.
Reflecting the record level of mortgage loans produced and the merits of the leveraging program, the Company recorded 2002 net income of $229.2 million, up $124.8 million, or 119.4%, from the year-earlier amount. The $229.2 million was equivalent to an $0.88, or 65.7% increase in diluted earnings per share to $2.22, and provided a return on average assets and average stockholders' equity of 2.29% and 19.95%, respectively.
Earnings growth was supported by a $167.4 million, or 81.4%, rise in net interest income to $373.3 million and by an $11.2 million, or 12.4%, rise in other operating income to $101.8 million. Reflected in net interest income is the interest income produced by the Company's portfolios of loans and securities investments, which more than offset the interest expense produced by its portfolios of interest-bearing deposits and borrowings. Other operating income stemmed from a variety of sources, including the fee income derived from branch operations; net gains on the sale of securities; and other revenue sources. Included in the latter category are the income derived from the sale of third-party investment products, the income derived from the Company's investment in Bank-owned Life Insurance, and the income derived from the Company's 100% equity interest in Peter B. Cannell & Co., Inc., an investment advisory firm.
Reflecting the strength of its earnings and its capital position, the Company increased its quarterly cash dividend 25% in the second quarter of 2002 and another 25% in the first quarter of 2003. In addition, the Company maintained an active share repurchase program during 2002, allocating $120.0 million toward the repurchase of 4,337,534 shares. Reflecting shares repurchases, which were offset by option exercises and the issuance of shares in the secondary offering, the number of shares outstanding at December 31, 2002 was 105,664,464. Reflecting share repurchases in the first quarter of 2003, the number of outstanding shares at March 26, 2003 was 104,897,760.
Market Area and Competition
The Company enjoys a significant presence in the metro New York region and New Jersey, and ranks as the fifth largest thrift depository in the City of New York. In Queens and Staten Island, where the Company has, respectively, 25 and 23 locations, the Bank ranks as the second largest thrift depository, with a 7% and 22% market share. The remainder of the franchise consists of 31 branches in Long Island, 19 in New Jersey, 8 more in New York City, and 4 in Westchester County, New York.
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 Bank faces significant competition both in making loans and in attracting deposits. Its market area has a high density of financial institutions, many of which have greater financial resources than the Bank, and all of which are competitors of the Bank to varying degrees. The Bank vies with commercial banks, other savings banks, credit unions, and savings and loan associations for deposits, and with the same institutions, as well as mortgage banking companies and insurance companies, for loans. Additionally, the Bank faces competition from non-traditional financial service companies and, on a nationwide basis, from companies that solicit loans and deposits over the Internet.
In recent years, competition has increased as a result of recent regulatory actions and legislative changes, most notably the enactment of the Gramm-Leach-Bliley Act of 1999. These changes have eased restrictions on interstate banking and the entrance into the financial services market by non-traditional and non-depository financial services providers, including insurance companies and brokerage and underwriting firms.
Reflecting the entry of new banks into the market, the Bank has recently faced increased competition for the origination of multi-family loans. While management anticipates that competition for multi-family loans will continue to rise in the future, the level of loans produced in 2002 and in the current first quarter would indicate that the Company has the resources to compete effectively. This said, no assurances can be made that the Bank will be able to sustain its leadership role in the multi-family lending market, given that loan production may be influenced by competition as well as by such other factors as economic conditions and market interest rates.
The Company's ability to compete for deposits has been enhanced by the growth of its branch network, both through merger transactions and through de novo development. In addition, the Company places an emphasis on convenience by featuring 24-hour banking, both on line and through a network of 146 ATMS.
Lending Activities
Loan and Mortgage-backed Securities Portfolio Composition. The Company's loan portfolio consists primarily of multi-family mortgage loans on rental and cooperative apartment buildings and, to a lesser extent, of commercial real estate, one-to-four family, construction, and other loans. At December 31, 2002, loans outstanding totaled $5.5 billion, of which $4.5 billion, or 81.9%, were multi-family mortgage loans. Reflected in the latter amount were twelve-month originations totaling $2.1 billion, representing 80.4% of total mortgage loan originations for the year.
One-to-four family mortgage loans totaled $265.7 million at December 31, 2002, representing 4.8% of outstanding loans. The year-end balance reflects a robust level of prepayments, the securitization of loans totaling $572.5 million in the second quarter, and the sale of loans from portfolio totaling $215.9 million over the course of the year. In addition, the Company currently originates one-to-four family loans on a conduit basis; as a result, no newly originated loans are retained for portfolio.
The remainder of the mortgage loan portfolio at year-end 2002 consisted of commercial real estate loans totaling $533.3 million and construction loans totaling $117.0 million. In addition, the Company had other loans totaling $78.8 million.
At December 31, 2002, 82.0% of outstanding mortgage loans had been made at adjustable rates of interest and 18.0% had been made at fixed rates.
The types of loans originated by the Bank are subject to federal and state laws and regulations. Interest rates charged by the Bank on loans are affected principally by the demand for such loans, the supply of money available for lending purposes, and the rates offered by its competitors. These factors are, in turn, affected by general economic conditions, the monetary policy of the Board of Governors of the Federal Reserve System ("Federal Reserve Board"), legislative tax policies, and governmental budgetary matters.
The Bank has invested in a variety of mortgage-backed securities, some of which are directly or indirectly insured or guaranteed by the Federal Home Loan Mortgage Corporation ("FHLMC"), the Government National Mortgage Association ("GNMA"), or the Federal National Mortgage Association ("FNMA"). At December 31, 2002, mortgage-
backed securities totaled $3.63 billion, representing 32.1% of total assets, of which $3.60 billion were classified as available for sale and $36.95 million were classified as held to maturity. The market value of total mortgage-backed securities was approximately $3.64 billion at December 31, 2002.
Loan Originations, Purchases, Sales, and Servicing. The Bank originates both adjustable rate mortgage ("ARM") loans and fixed-rate loans, the amounts of which are dependent upon customer demand and market rates of interest. Generally, the Bank does not purchase whole mortgage loans or loan participations. One-to-four family mortgage loans are originated on a conduit basis and sold without recourse. For the years ended December 31, 2002 and 2001, sales of one-to-four family mortgage loans in connection with the conduit program amounted to $201.6 million and $67.0 million, respectively.
In connection with the Company's balance sheet restructuring program, sales of one-to-four family mortgage loans totaled $215.9 million and $610.6 million, respectively, in 2002 and 2001, excluding $201.6 million and $67.0 million of such loans that were originated and sold through the conduit program in the corresponding years. As of December 31, 2002 and 2001, the Bank was servicing $694.9 million and $1.7 billion, respectively, of loans for others. The Bank is generally paid a fee up to 0.25% for servicing loans sold.
Multi-Family Lending. The Bank originates multi-family loans (defined as loans on properties with five or more units), which are secured by rental or cooperative apartment buildings that are primarily located in the metropolitan New York area. At December 31, 2002, the Bank's portfolio of multi-family mortgage loans totaled $4.5 billion, representing 81.9% of loans outstanding. Of this total, $4.3 billion, or 96.1%, were secured by rental apartment buildings and $173.9 million, or 3.9%, were secured by underlying mortgages on cooperative apartment buildings.
Multi-family loans are generally originated for terms of 10 years at a fixed rate of interest in years one through five and a rate that adjusts annually with the prime rate of interest, as reported in The New York Times, in each of years six through ten. The minimum rate is equivalent to that of the initial five-year term. Prepayment penalties range from five points to one over the first five years of the loan. Properties securing multi-family mortgage loans are appraised by independent appraisers approved by the Bank.
In originating such loans, the Bank bases its underwriting decisions primarily on the cash flows generated by the property in relation to the debt service. The Bank also considers the financial resources of the borrower, the borrower's experience in owning or managing similar properties, the market value of the property, and the Bank's lending experience with the borrower. The Bank generally requires minimum debt service ratios of 120% on multi-family properties. In addition, the Bank requires a security interest in the personal property at the premises and an assignment of rents.
The Bank's largest concentration of loans to one borrower at December 31, 2002 consisted of 17 loans secured by 17 multi-family properties located in the Bank's primary market area. These loans were made to several borrowers who are deemed to be related for regulatory purposes. As of December 31, 2002, the outstanding balance of these loans totaled $96.9 million and, as of such date, all such loans were performing in accordance with their terms. The Bank's concentration of such loans did not exceed its "loans-to-one-borrower" limitation.
Payments on loans secured by multi-family buildings are generally dependent on the income produced by such properties, which, in turn, is dependent on their successful operation or management. Accordingly, repayment of such loans may be subject to adverse conditions in the real estate market or the local economy. The Bank seeks to minimize these risks through its underwriting policies, which restrict new originations of such loans to the Bank's primary lending area and require such loans to be qualified on the basis of the property's cash flow and debt service ratio. Since 1987, one loan on a multi-family property located outside of the primary lending area was foreclosed upon and subsequently sold; in the fourth quarter of 2002, the Company classified a $2.3 million multi-family loan as non-performing, but subsequently sold the loan in the first quarter of 2003 without any loss of principal or interest.
One-to-Four Family Mortgage Lending. At December 31, 2002, $265.7 million, or 4.8%, of the Bank's loan portfolio, consisted of one-to-four family mortgage loans. In addition to a robust level of prepayments, the year-end amount reflects the securitization of loans totaling $572.5 million and the sale of loans totaling $215.9 million from the portfolio. 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 credit and interest rate risk. Since then, applications have been taken and processed by a third party and the loans sold to said party, service-released. Under this program, the Bank sold one-to-four family mortgage loans totaling $201.6 million and $67.0 million in 2002 and 2001, respectively. In the years ended December 31, 2002 and 2001, the Bank originated $251.8 million and $137.0 million, respectively, of one-to-four family loans.
In 2003, the balance of one-to-four family mortgage loans is expected to decline further through principal repayments.
Non-performing one-to-four family loans totaled $14.1 million at December 31, 2002, representing the majority of the Company's non-performing loans at that date. In addition, foreclosed real estate, which is included in "other assets" in the Consolidated Statements of Condition, consisted of four properties with a total carrying value of approximately $175,000 as of December 31, 2002. In the first quarter of 2003, two of those loans were sold without any loss.
Commercial Real Estate Lending. The Bank offers commercial real estate loans that are typically secured by office buildings, retail stores, medical offices, warehouses, and other non-residential buildings. At December 31, 2002, the Bank had loans secured by commercial real estate of $533.3 million, comprising 9.7% of the Bank's total loan portfolio. Commercial real estate loans may be originated in amounts of up to 65% of the appraised value of the mortgaged property and feature the same terms and prepayment penalties as the Bank's multi-family loans. The origination of commercial real estate loans requires one or more of the following: the personal guarantees of the principals, a security interest in the personal property, and an assignment of rents and/or leases. Properties securing the loan are appraised by independent appraisers approved by the Bank.
Loans secured by commercial real estate properties, like multi-family loans, are generally larger and involve a greater degree of risk than one-to-four family residential mortgage loans. Because payments on loans secured by commercial real estate properties are often dependent on the successful operation and management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or the economy, to a greater extent than other types of loans. The Bank seeks to minimize these risks through its lending policies and underwriting standards, which restrict new originations of such loans to the Bank's primary lending area and qualify such loans on the basis of the property's income stream and debt service ratio.
Construction Lending. The Bank 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. The Bank will typically lend up to 70% of the estimated market value, or up to 80%, in the case of home construction loans to individuals. Personal guarantees and a permanent loan commitment are typically required. Construction loans are made for terms of up to two years and feature a daily floating prime-based rate of interest, with a floor of the original rate. Loan proceeds are disbursed in increments as construction progresses and as inspections warrant. As of December 31, 2002, the Bank had $117.0 million, or 2.1% of its total loan portfolio, invested in construction loans.
Other Lending. The Company currently originates other loans on a conduit basis, with applications being taken and processed by a third party and the loans then being sold to said party, service-released. To further reduce the portfolio, the Company sold other loans totaling $71.4 million in 2002. Other loans thus totaled $78.8 million at December 31, 2002, representing 1.4% of the Bank's total loan portfolio.
Loan Approval Authority and Underwriting. The Board of Directors establishes lending authority for individual officers for its various loan products. All loans require the approval of the Mortgage and Real Estate Committee, and all loans in excess of $5.0 million must be approved by the Board of Directors as a whole. During the year ended December 31, 2002, the Bank originated 82 loans in excess of $5.0 million.
Non-performing Loans and Foreclosed Assets. Non-performing loans totaled $16.3 million at December 31, 2002, including mortgage loans in foreclosure totaling $11.9 million and loans 90 days or more delinquent totaling $4.4 million. Based on the current market values of the properties collateralizing the mortgages, management does not expect any loss to be incurred by the Bank.
Management reviews non-performing loans on a regular basis and reports monthly to both the Mortgage and Real Estate Committee and the Board of Directors regarding delinquent loans. The Bank hires outside counsel experienced in foreclosure and bankruptcy to institute foreclosure and other proceedings on the Bank's non-performing loans.
The Bank's policies provide that management report monthly to the Mortgage and Real Estate Committee and the Board of Directors regarding classified assets. The Bank reviews the problem loans in its portfolio on a monthly basis to determine whether any loans require classification in accordance with applicable regulatory guidelines, and believes its classification policies are consistent with regulatory policies. All classified assets of the Bank are included in mortgage loans in foreclosure, loans 90 days or more delinquent, or foreclosed real estate.
When loans are designated as "in foreclosure", the accrual of interest and amortization of origination fees continues up to net realizable value, less the transaction cost of disposition. During the years ended December 31, 2002, 2001, and 2000, the amounts of additional interest income that would have been recorded on mortgage loans in foreclosure, had they been current, totaled approximately $429,000, $651,000 and $435,000, respectively. These amounts were not included in the Bank's interest income for the respective periods.
The following table sets forth information regarding all mortgage loans in foreclosure, loans that are 90 days or more delinquent, and foreclosed real estate at the dates indicated. At December 31, 2002, the Bank had no restructured loans within the meaning of Statement of Financial Accounting Standards ("SFAS") No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings," as amended by SFAS No. 114.
At December 31,
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(dollars in thousands)
Mortgage loans in foreclosure $11,915 $10,604 $6,011 $2,886 $5,530
Loans 90 days or more delinquent
and still accruing interest 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
======= ======= ====== ====== ======
Total non-performing loans to
loans, net 0.30% 0.33% 0.25% 0.19% 0.42%
Total non-performing assets to
total assets 0.15 0.19 0.19 0.17 0.38
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Management monitors non-performing loans and, when deemed appropriate, writes down such loans to their current appraised values, less transaction costs. There can be no assurances that further write-downs will not occur with respect to such loans.
At December 31, 2002, foreclosed real estate consisted of four residential properties with an aggregate carrying value of approximately $175,000. The Bank generally conducts appraisals on all properties securing mortgage loans in foreclosure and foreclosed real estate as deemed appropriate and, if necessary, charges off any declines in value at such times. Based upon management's estimates as to the timing of, and expected proceeds from, the disposition of these loans, no material loss is currently expected to be incurred. In the first quarter of 2003, two of these properties were sold without any loss of principal or interest.
It is the Bank's general policy to dispose of properties acquired through foreclosure or by deed in lieu thereof as quickly and as prudently as possible, in consideration of market conditions and the condition of such property. Foreclosed real estate is titled in the name of the Bank's wholly-owned subsidiary, Main Omni Realty Corp., which manages the property while it is offered for sale.
Allowance for Loan Losses
The allowance for loan losses is increased by the provision for loan losses charged to operations and reduced by reversals or by net charge-offs. Management establishes the allowance for loan losses through a process that begins with estimates of probable loss inherent in the portfolio, based on various statistical analyses. These analyses consider historical and projected default rates and loss severities; internal risk ratings; 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.
The allowance for loan losses is composed of five separate categories corresponding to the Company's various loan classifications. 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.
In order to determine its overall adequacy, the allowance for loan losses is reviewed quarterly by both management (through its Classification of Assets Committee), and the Board of Directors' designated committee (the Mortgage and Real Estate Committee).
Various factors are considered in determining the appropriate level of the allowance for loan losses. These factors include, but are not limited to:
1) End-of-period levels and observable trends in non-performing loans;
2) Charge-offs experienced over prior periods, including an analysis of the underlying factors leading to the delinquencies and subsequent charge-offs (if any);
3) Analysis of the portfolio in the aggregate as well as on an individual loan basis, which analysis considers:
i. payment history;
ii. underwriting analysis based upon current financial information; and
iii. current inspections of the loan collateral by qualified in-house property appraisers/inspectors;
4) Bi-weekly meetings of executive management with the Mortgage and Real Estate Committee (which committee includes 4 independent directors, each possessing over 30 years of complementary real estate experience) during which observable trends in the local economy and their effect on the real estate market are discussed;
5) Discussions with and periodic review by the various governmental regulators (e.g., Federal Deposit Insurance Corporation, the New York State Banking Department); and
6) Full Board assessment of all of the above when making a business judgment regarding the impact of anticipated changes on the future level of the allowance for loan losses.
While management uses available information to recognize losses on loans, future additions to the allowance may be necessary, based on changes in economic and local market conditions beyond management's control. In addition, various regulatory agencies periodically review the Bank's loan loss allowance as an integral part of the examination process. Accordingly, the Bank may be required to take certain charge-offs and/or recognize additions to the allowance based on the judgment of regulators with regard to information provided to them during their examinations. Based upon all relevant and presently available information, management believes that the current allowance for loan losses is adequate.
The Bank's allowance for loan losses totaled $40.5 million at December 31, 2002 and 2001. The year-end 2002 amount represented 247.8% of non-performing loans and 245.2% of non-performing assets, respectively. The year-end 2001 amount represented 231.5% of non-performing loans and 228.2% of non-performing assets, respectively. For the years ended December 31, 2002 and 2001, the Bank had no net charge-offs against this allowance.
The Bank will continue to monitor and modify the level of its allowance for loan losses in order to maintain such allowance at a level which management considers adequate. See Statistical Data- B, C, and D, for components of the Bank's loan portfolio, maturity, and repricing, and for a summary of the allowance for loan losses.
Mortgage-backed Securities
The majority of the Bank's mortgage-backed securities are private label mortgage-backed securities and the remainder are directly or indirectly insured or guaranteed by the FNMA, FHLMC, or GNMA. At December 31, 2002, mortgage-backed securities totaled $3.63 billion, representing 32.1% of total assets. Of the $3.63 billion in total mortgage-backed securities, $36.95 million were classified by the Bank as held to maturity and $3.60 billion were classified as available for sale. Because a majority of the Bank's mortgage-backed securities are fixed-rate private label collateralized mortgage obligations ("CMOs"), the Bank anticipates that the majority of its mortgage-backed securities will prepay or reprice within three years. At December 31, 2002, the mortgage-backed securities portfolio had a weighted average interest yield of 5.10% and a market value of approximately $3.64 billion.
Investment Activities
General. The investment policy of the Bank is established by the Board of Directors and implemented by the Mortgage and Real Estate Committee and the Investment Committee of the Board of Directors, together with certain executive officers of the Bank. The policy is primarily designed to provide and maintain liquidity, to generate a favorable return on investments without incurring undue prepayment, interest rate, and credit risk, and to complement the Bank's lending activities. The Bank's current securities investment policy permits investments in various types of liquid assets, including U.S. Treasury securities, obligations of various federal agencies, and bankers' acceptances of other Board-approved financial institutions, corporate securities, commercial paper, certificates of deposit, and federal funds. The Bank does not currently participate in hedging programs or interest rate swaps and or high-risk mortgage derivatives.
At December 31, 2002 the Bank's investment securities portfolio totaled $1.1 billion, representing 9.3% of total assets. Of the $1.1 billion, in total investment securities, $699.4 million were classified by the Bank as held to maturity and $355.0 million were classified as available for sale. At December 31, 2002, the investment securities portfolio had a weighted average interest yield of 7.04% and a market value of $1.1 billion.
Sources of Funds
General. The Company's primary funding sources are deposits and borrowings. In connection with the Company's leveraged growth strategy, the Company increased its borrowings during 2002. At December 31, 2002, borrowings totaled $4.6 billion, including FHLB-NY advances of $2.3 billion, reverse repurchase agreements of $2.0 billion, and trust preferred securities of $368.8 million. Included in the latter amount was $182.5 million stemming from the aforementioned issuance of the BONUSES Units in the fourth quarter of the year.
Deposits. The Bank offers a variety of deposit accounts with a range of interest rates and terms. The Bank's deposits principally consist of certificates of deposit ("CDs") and savings accounts, together with NOW and money market accounts and demand deposits. The flow of deposits has been influenced significantly by the restructuring of the banking industry, changes in money market and prevailing interest rates, and competition with other financial institutions. The Bank's deposits are typically obtained from customers residing or working in the communities in which its offices are located. The Bank relies primarily on its long-standing relationships with its customers to retain these deposits. At December 31, 2002, $615.7 million, or 11.7% of the Bank's deposit balance, consisted of CDs with a balance of $100,000 or more.
FHLB-NY Advances. The Bank is a member of the FHLB-NY, and had a $4.5 billion line of credit at December 31, 2002. FHLB-NY advances totaled $2.3 billion at December 31, 2002. A $10.0 million line of credit with a correspondent financial institution is also available to the Bank, which had not been drawn upon at December 31, 2002.
Reverse Repurchase Agreements. The Company has repurchase agreements of $2.0 billion and $529.7 million outstanding at December 31, 2002 and 2001, respectively.
Trust Preferred Securities. Haven Capital Trust I, Haven Capital Trust II, Queens Capital Trust I, Queens Statutory Trust I, NYCB Capital Trust I, New York Community Statutory Trust I, New York Community Statutory Trust II and New York Community Capital Trust V are Delaware business trusts of which all the common stock is owned by the Company. The Trusts were formed for the purpose of issuing Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Junior Subordinated Debentures. Trust preferred securities issued by New York Community Capital Trust V were issued as part of the Company's BONUSES(SM) Units offering in November 2002.
For additional information about the Company's trust preferred securities, see "Note 10 - Borrowings" in the Company's 2002 Annual Report to Shareholders, which portion is incorporated herein by reference.
Subsidiary Activities
Under its New York State Leeway Authority, the Bank has formed, or acquired through merger, 11 active subsidiary corporations, seven of which are direct subsidiaries of the Bank and four of which are subsidiaries of Bank-owned entities. The direct subsidiaries are: CFS Investments, Inc. (organized in New York), which sells non-deposit investment products; RCBK Mortgage Corp. (organized in New York), which holds multi-family mortgage loans; RCSB Corporation (organized in New York), which owns a branch building; Richmond Enterprises Inc. (organized in New York), which is the holding company for Peter B. Cannell & Co., Inc.; CFS Investments New Jersey, Inc. (organized in Delaware), an investment Company and the holding company for three Real Estate Investment Trusts (REITs), Columbia Preferred Capital Corp, Ironbound Investment Company, Inc. and Queens Realty Trust; Pacific Urban Renewal Corp. (organized in New Jersey), which owns a branch building and Main Omni Realty Corp. (organized in New York), which manages the Bank's properties aquired through foreclosure while they are being marketed for sale.
The subsidiaries of Bank-owned entities are: Peter B. Cannell & Co., Inc. (organized in Delaware), which advises high net worth individuals and institutions on the management of their assets; Queens Realty Trust, Inc. (organized in Delaware), a REIT that holds residential and commercial mortgages; Ironbound Investment Company, Inc. (organized in New Jersey), a REIT that holds residential and commercial mortgages; Richmond County Capital Corp. (organized in New York), a REIT that holds residential and commercial mortgages; and Columbia Preferred Capital Corp. (organized in Delaware), a REIT that holds residential and commercial mortgages.
In addition, the Bank maintains five inactive corporations: Bayonne Service Corp, (organized in New Jersey); MFO Holding Corp. (organized in New York); Queens County Capital Management, Inc. (organized in New York); Columbia Resources Corp. (organized in New York); and Columbia Funding Corporation, (organized in New York). The Bank is also affiliated with Columbia Travel Services, Inc., an inactive corporation organized in New York.
The Company owns eight special business trusts formed for the purpose of issuing capital and common securities and investing the proceeds thereof in the junior subordinated debentures issued by the Company. The following subsidiaries are named in the "Trust Preferred Securities" section above. (See "Note 10- Borrowings" in the Company's 2002 Annual Report to Shareholders, which portion is incorporated herein by reference).
Personnel
At December 31, 2002, the number of full-time equivalent employees was 1,465. The Bank's employees are not represented by a collective bargaining unit, and the Bank considers its relationship with its employees to be good.
FEDERAL, STATE, AND LOCAL TAXATION
Federal Taxation
General. The Company, the Bank and their subsidiaries (excluding certain subsidiaries which are qualified as Real Estate Investment Trusts, which file separately) report their income on a consolidated basis using a calendar year on the accrual method of accounting, and are subject to Federal income taxation in the same manner as other corporations with some exceptions, including, particularly, the Bank's reserve for bad debts, as discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Bank or the Company.
Bad Debt Reserves. Prior to the enactment of the Small Business Job Protection Act of 1996 (the "1996 Act"), the Bank was permitted to establish tax reserves for bad debts and to make annual additions thereto, which additions, within specified formula limits, were deducted in arriving at the Bank's taxable income. The Bank's deduction with respect to "qualifying loans," which are generally loans secured by certain interests in real property, could be computed using an amount based on a six-year moving average of the Bank's actual loss experience (the "Experience Method"), or a percentage equal to 8% of the Bank's taxable income (the "PTI Method"), computed without regard to this deduction and with additional modifications, and reduced by the amount of any permitted addition to the non-qualifying reserve. Under the 1996 Act, the Bank is no longer permitted to make additions to its tax bad debts reserves and was required to recapture (i.e., take into income) over a six-year period approximately $7.4 million, representing the excess of the balance of its tax bad debt reserves as of December 31, 1995 over the balance of such reserves as of December 31, 1987.
Distributions. To the extent that the Bank makes "non-dividend distributions" to shareholders that are considered to result in distributions from the excess bad debt reserve, i.e., that portion, if any, of the balance of the reserve for qualifying real property loans attributable to certain deductions under the percentage of taxable income method, or the supplemental reserve for losses on loans ("Excess Distribution"), then an amount based on the distribution will be included in the Bank's taxable income.
Non-dividend distributions include distributions in excess of the Bank's current and accumulated earnings and profits, distributions in redemption of stock, and distributions in partial or complete liquidation. However, dividends paid out of the Bank's current or accumulated earnings and profits, as calculated for Federal income tax purposes, will not be considered to result in a distribution from the Bank's bad debt reserves. Thus, any dividends to the Company that would reduce amounts appropriated to the Bank's bad debt reserves and previously deducted for Federal income tax purposes would create a tax liability for the Bank.
The amount of additional taxable income resulting from an Excess Distribution is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Thus, the additional taxable income would be an amount equal to approximately one and one-half times the amount of the Excess Distribution, assuming a 35% corporate income tax rate (exclusive of state taxes). See "Regulations and Supervision" for limits on the payment of dividends by the Bank. The Bank does not intend to pay dividends that would result in a recapture of any portion of its bad debt reserves.
Corporate Alternative Minimum Tax. The Code imposes an alternative minimum tax ("AMT") at a rate of 20% on a base of regular taxable income plus certain tax preferences ("alternative minimum taxable income" or "AMTI"). The AMT is payable to the extent such AMTI is in excess of an exemption amount. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. The Company has not been and does not in the foreseeable future expect to be subject to the alternative minimum tax and has no such amounts available as credits for carryover.
Dividends Received Deduction and Other Matters. The Company may exclude from its income 100% of dividends received from the Bank as a member of the same affiliated group of corporations. The corporate dividends received deduction is generally 70% in the case of dividends received from unaffiliated corporations with which the Company and the Bank will not file a consolidated tax return, unless the Company and the Bank own more than 20% of the stock of the corporation distributing a dividend, in which case 80% of any dividends received may be deducted.
State and Local Taxation
The Company, the Bank and certain of their subsidiaries are subject to the New York State Franchise Tax on Banking Corporations in the annual amount equal to the greater of (i) 8% (falling to 7 1/2% in 2003) of "entire net income" allocable to New York State during the taxable year, or (ii) the applicable alternative minimum tax. The alternative minimum tax is generally the greatest of (a) 0.01% of the value of taxable assets allocable to New York State with certain modifications, (b) 3% of "alternative entire net income" allocable to New York State, or (c) $250. Entire net income is similar to taxable income, subject to certain modifications and alternative entire net income is equal to entire net income without certain deductions. The Bank is also subject to a similarly calculated New York City tax of 9% on income allocated to New York City and similar alternative taxes.
A temporary Metropolitan Transportation Business Tax Surcharge on banking corporations doing business in the metropolitan district has been applied since 1982. The Bank does most of its business within this District (except for the branch offices in New Jersey), and is subject to this surcharge rate of 17% of the New York State tax liability computed as though the franchise tax rate was still 9%.
As a Delaware business corporation, the Company is required to file annual returns and pay annual fees and an annual franchise tax to the State of Delaware. Additionally, the Bank and other subsidiaries of the Company doing business in New Jersey are required to file and pay taxes in that state. Taxes paid to states other than New York are not material.
REGULATION AND SUPERVISION
General
The Bank is a New York State-chartered stock form savings bank and its deposit accounts are insured under the Bank Insurance Fund ("BIF"), and through its acquisition of CFS Bank, some deposits are insured by the Savings Association Insurance Fund ("SAIF"). The Bank is subject to extensive regulation and supervision by the New York State Banking Department ("Banking Department"), as its chartering agency, and by the FDIC, as its deposit insurer. The Bank must file reports with the Banking Department and the FDIC concerning its activities and financial condition, in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other depository institutions. There are periodic examinations by the Banking Department and the FDIC to assess the Bank's compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which a savings bank can engage and is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss allowances for regulatory purposes. Any change in such regulation, whether by the Banking Department, the FDIC, or through legislation, could have a material adverse impact on the Company and the Bank and their operations, and the Company's shareholders. The Company is required to file certain reports, and otherwise comply with the rules and regulations of the Federal Reserve Board and the Banking Department and of the Securities and Exchange Commission ("SEC") under federal securities laws. Certain of the regulatory requirements applicable to the Bank and to the Company are referred to below or elsewhere herein.
New York Law
The Bank derives its lending, investment, and other authority primarily from the applicable provisions of Banking Law and the regulations of the Banking Department, as limited by FDIC regulations. See "Restrictions on Certain Activities." Under these laws and regulations, savings banks, including the Bank, may invest in real estate mortgages, consumer and commercial loans, certain types of debt securities (including certain corporate debt securities and obligations of federal, state, and local governments and agencies), certain types of corporate equity securities and certain other assets. Under the statutory authority for investing in equity securities, a savings bank may directly invest up to 7.5% of its assets in certain corporate stock, and may also invest up to 7.5% of its assets in certain mutual fund securities. Investment in the stock of a single corporation is limited to the lesser of 2% of the issued and outstanding stock of such corporation or 1% of the savings bank's assets, except as set forth below. Such equity securities must meet certain earnings ratios and other
tests of financial performance. A savings bank's lending powers are not subject to percentage of asset limitations, although there are limits applicable to single borrowers. A savings bank may also, pursuant to the "leeway" power, make investments not otherwise permitted under the New York State Banking Law. This power permits investments in otherwise impermissible investments of up to 1% of assets in any single investment, subject to certain restrictions and to an aggregate limit for all such investments of up to 5% of assets. Additionally, savings banks are authorized to elect to invest under a "prudent person" standard in a wide range of debt and equity securities in lieu of investing in such securities in accordance with and reliance upon the specific investment authority set forth in the New York State Banking Law. Although the "prudent person" standard may expand a savings bank's authority, in the event a savings bank elects to utilize the "prudent person" standard, it will be unable to avail itself of the other provisions of the New York State Banking Law and regulations which set forth specific investment authority. A savings bank may also exercise trust powers upon approval of the Banking Department.
New York savings banks may also invest in subsidiaries under a service corporation power. A savings bank may use this power to invest in corporations that engage in various activities authorized for savings banks, plus any additional activities, which may be authorized by the Banking Department. Investment by a savings bank in the stock, capital notes, and debentures of its service corporation is limited to 3% of the savings bank's assets, and such investments, together with the savings bank's loans to its service corporations, may not exceed 10% of the savings bank's assets.
The exercise by an FDIC-insured savings bank of the lending and investment powers of a savings bank under the New York State Banking Law is limited by FDIC regulations and other federal laws and regulations. In particular, the applicable provision of New York State Banking Law and regulations governing the investment authority and activities of an FDIC-insured state-chartered savings bank have been effectively limited by the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") and the FDIC regulations issued pursuant thereto.
With certain limited exceptions, a New York State chartered savings bank may not make loans or extend credit for commercial, corporate, or business purposes (including lease financing) to a single borrower, the aggregate amount of which would be in excess of 15% of the bank's net worth. The Bank currently complies with all applicable loans-to-one borrower limitations.
Under New York State Banking Law, a New York State chartered stock form savings bank may declare and pay dividends out of its net profits, unless there is an impairment of capital, but approval of the Superintendent is required if the total of all dividends declared in a calendar year would exceed the total of its net profits for that year combined with its retained net profits of the preceding two years, subject to certain adjustments.
Under New York State Banking Law, the Superintendent of Banks may issue an order to a New York State chartered banking institution to appear and explain an apparent violation of law, to discontinue unauthorized or unsafe practices, and to keep prescribed books and accounts. Upon a finding by the Banking Department that any director, trustee, or officer of any banking organization has violated any law, or has continued unauthorized or unsafe practices in conducting the business of the banking organization after having been notified by the Superintendent to discontinue such practices, such director, trustee, or officer may be removed from office after notice and an opportunity to be heard.
FDIC Regulations
Capital Requirements. The FDIC has adopted risk-based capital guidelines to which the Bank is subject. The guidelines establish a systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk profiles among banking organizations. The Bank is required to maintain certain levels of regulatory capital in relation to regulatory risk-weighted assets. The ratio of such regulatory capital to regulatory risk-weighted assets is referred to as the Bank's "risk-based capital ratio." Risk-based capital ratios are determined by allocating assets and specified off-balance-sheet items to four risk-weighted categories ranging from 0% to 100%, with higher levels of capital being required for the categories perceived as representing greater risk.
These guidelines divide a savings bank's capital into two tiers. The first tier ("Tier I") includes common equity, retained earnings, certain non-cumulative perpetual preferred stock (excluding auction rate issues) and minority interests in equity accounts of consolidated subsidiaries, less goodwill and other intangible assets (except mortgage servicing rights and purchased credit card relationships subject to certain limitations). Supplementary ("Tier II") capital includes, among other items, cumulative perpetual and long-term limited-life preferred stock, mandatory convertible securities, certain hybrid
capital instruments, term subordinated debt and the allowance for loan and lease losses, subject to certain limitations, less required deductions. Savings banks are required to maintain a total risk-based capital ratio of 8%, of which at least 4% must be Tier I capital.
In addition, the FDIC has established regulations prescribing a minimum Tier I leverage capital ratio (Tier I capital to adjusted average assets as specified in the regulations). These regulations provide for a minimum Tier I leverage capital ratio of 3% for banks that meet certain specified criteria, including that they have the highest examination rating and are not experiencing or anticipating significant growth. All other banks are required to maintain a Tier I leverage capital ratio of at least 4%. The FDIC may, however, set higher leverage and risk-based capital requirements on individual institutions when particular circumstances warrant. Savings banks experiencing or anticipating significant growth are expected to maintain capital ratios, including tangible capital positions, well above the minimum levels.
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 a minimum Tier I Leverage Capital ratio of 5%, Total Capital ratio of 10%, and Tier I Capital ratio of 6%.
The following is a summary of the Bank's regulatory capital at December 31, 2002:
Tier I Leverage Capital to Average Assets 8.18% Total Capital to Risk-Weighted Assets 17.01% Tier I Capital to Risk-Weighted Assets 16.20% |
In August 1995, the FDIC, along with the other federal banking agencies, adopted a regulation providing that the agencies will take account of the exposure of a bank's capital and economic value to changes in interest rate risk in assessing a bank's capital adequacy. According to the agencies, applicable considerations include the quality of the bank's interest rate risk management process, the overall financial condition of the bank and the level of other risks at the bank for which capital is needed. Institutions with significant interest rate risk may be required to hold additional capital. The agencies subsequently have issued a joint policy statement providing guidance on interest rate risk management, including a discussion of the critical factors affecting the agencies' evaluation of interest rate risk in connection with capital adequacy. Banks that engage in specified amounts of trading activity may be subject to adjustments in the calculation of the risk-based capital requirement to assure sufficient additional capital to support market risk.
Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe for depository institutions under its jurisdiction, standards relating to, among other things, internal controls; information systems and audit systems; loan documentation; credit underwriting; interest risk exposure; asset growth; compensation; fees and benefits; and such other operational and managerial standards as the agency deems appropriate. The federal banking agencies adopted final regulations and Interagency Guidelines Establishing Standards for Safety and Soundness (the "Guidelines") to implement these safety and soundness standards. The Guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the Guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard, as required by the Federal Deposit Insurance Act, as amended, ("FDI Act"). The final regulation establishes deadlines for the submission and review of such safety and soundness compliance plans.
Real Estate Lending Standards. The FDIC and the other federal banking agencies have adopted regulations that prescribe standards for extensions of credit that (i) are secured by real estate or (ii) are made for the purpose of financing the construction or improvements on real estate. The FDIC regulations require each savings bank to establish and maintain written internal real estate lending standards that are consistent with safe and sound banking practices and appropriate to the size of the bank and the nature and scope of its real estate lending activities. The standards also must be consistent with accompanying FDIC Guidelines, which include loan-to-value limitations for the different types of real estate loans. Savings banks are also permitted to make a limited amount of loans that do not conform to the proposed loan-to-value limitations so long as such exceptions are reviewed and justified appropriately. The Guidelines also list a number of lending situations in which exceptions to the loan-to-value standard are justified.
Dividend Limitations. The FDIC has authority to use its enforcement powers to prohibit a savings bank from paying dividends if, in its opinion, the payment of dividends would constitute an unsafe or unsound practice. Federal law
prohibits the payment of dividends by a bank that will result in the bank failing to meet applicable capital requirements on a pro forma basis. The Bank is also subject to dividend declaration restrictions imposed by New York law.
Investment Activities
Since the enactment of FDICIA, all state-chartered financial institutions, including savings banks and their subsidiaries, have generally been limited to activities as principal and equity investments of the type and in the amount authorized for national banks, notwithstanding state law, FDICIA and the FDIC regulations permit certain exceptions to these limitations. For example, certain state chartered banks, such as the Bank, may, with FDIC approval, continue to exercise state authority to invest in common or preferred stocks listed on a national securities exchange or the National Market System of Nasdaq and in the shares of an investment company registered under the Investment Company Act of 1940, as amended. Such banks may also continue to sell Savings Bank Life Insurance. In addition, the FDIC is authorized to permit such institutions to engage in state authorized activities or investments not permitted for national banks (other than non-subsidiary equity investments) for institutions that meet all applicable capital requirements if it is determined that such activities or investments do not pose a significant risk to the BIF. The Gramm-Leach-Bliley Act of 1999 and FDIC regulation impose certain quantitative and qualitative restrictions on such activities and a bank's dealings with a subsidiary that engages in specified activities. All non-subsidiary equity investments, unless otherwise authorized or approved by the FDIC, must have been divested by December 19, 1996, pursuant to an FDIC-approved divestiture plan unless such investments were grandfathered by the FDIC.
The Bank received grandfathering authority from the FDIC in February 1993 to invest in listed stock and/or registered shares subject to the maximum permissible investments of 100% of Tier I capital, as specified by the FDIC's regulations, or the maximum amount permitted by New York State Banking Law, whichever is less. Such grandfathering authority is subject to termination upon the FDIC's determination that such investments pose a safety and soundness risk to the Bank or in the event the Bank converts its charter or undergoes a change in control. As of December 31, 2002, the Bank had $239.2 million of such investments.
Prompt Corrective Regulatory Action
Federal law requires, among other things, that federal bank regulatory authorities take "prompt corrective action" with respect to banks that do not meet minimum capital requirements. For these purposes, the law establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized.
The FDIC has adopted regulations to implement the prompt corrective action legislation. Among other things, the regulations define the relevant capital measure for the five capital categories. An institution is deemed to be "well capitalized" if it has a total risk-based capital ratio of 10% or greater, a Tier I risk-based capital ratio of 6% or greater, and a leverage ratio of 5% or greater, and is not subject to a regulatory order, agreement, or directive to meet and maintain a specific capital level for any capital measure. An institution is deemed to be "adequately capitalized" if it has a total risk-based capital ratio of 8% or greater, a Tier I risk-based capital ratio of 4% or greater, and generally a leverage ratio of 4% or greater. An institution is deemed to be "undercapitalized" if it has a total risk-based capital ratio of less than 8%, a Tier I risk-based capital ratio of less than 4%, or generally a leverage capital ratio of less than 4%. An institution is deemed to be "significantly undercapitalized" if it has a total risk-based capital ratio of less than 6%, a Tier I risk-based capital ratio of less than 3%, or a leverage ratio of less than 3%. An institution is deemed to be "critically undercapitalized" if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2%.
"Undercapitalized" banks are subject to growth, capital distribution (including dividend) and other limitations and are required to submit a capital restoration plan. A bank's compliance with such plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the bank's total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an "undercapitalized" bank fails to submit an acceptable plan, it is treated as if it is "significantly undercapitalized." "Significantly undercapitalized" banks are subject to one or more of a number of additional restrictions, including but not limited to an order by the FDIC to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cease receipt of deposits from correspondent banks or dismiss directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers, and capital distributions by the parent holding company.
"Critically undercapitalized" institutions also may not, beginning 60 days after becoming "critically undercapitalized," make any payment of principal or interest on certain subordinated debt or extend credit for a highly leveraged transaction or enter into any material transaction outside the ordinary course of business. In addition, "critically undercapitalized" institutions are subject to appointment of a receiver or conservator. Generally, subject to a narrow exception, the appointment of a receiver is required for a "critically undercapitalized" institution within 270 days after it obtains such status.
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 a minimum Tier I Leverage Capital ratio of 5%, Total Capital ratio of 10%, and Tier I Capital ratio of 6%.
Transactions with Affiliates
Under current federal law, transactions between depository institutions
and their affiliates are governed by Sections 23A and 23B of the Federal Reserve
Act. An affiliate of a savings bank is any company or entity that controls, is
controlled by, or is under common control with the savings bank, other than a
subsidiary. Generally, a bank's subsidiaries are not treated as affiliates
unless they are engaged in activities as principal that are not permissible for
national banks. In a holding company context, at a minimum, the parent holding
company of a savings bank and any companies, which are controlled, by such
parent holding company are affiliates of the savings bank. Generally, Section
23A limits the extent to which the savings bank or its subsidiaries may engage
in "covered transactions" with any one affiliate to an amount equal to 10% of
such savings bank's capital stock and surplus, and contains an aggregate limit
on all such transactions with all affiliates to an amount equal to 20% of such
capital stock and surplus. The term "covered transaction" includes the making of
loans or other extensions of credit to an affiliate; the purchase of assets from
an affiliate, the purchase of, or an investment in, the securities of an
affiliate; the acceptance of securities of an affiliate as collateral for a loan
or extension of credit to any person; or issuance of a guarantee, acceptance, or
letter of credit on behalf of an affiliate. Section 23A also establishes
specific collateral requirements for loans or extensions of credit to, or
guarantees, acceptances on letters of credit issued on behalf of an affiliate.
Section 23B requires that covered transactions and a broad list of other
specified transactions be on terms substantially the same, or no less favorable,
to the savings bank or its subsidiary as similar transactions with
non-affiliates.
The Sarbanes-Oxley Act of 2002 generally prohibits loans by the Company
to its executive officers and directors. However, the Sarbanes-Oxley Act
contains a specific exemption for loans by the Bank to its executive officers
and directors in compliance with federal banking laws. Section 22(h) of the
Federal Reserve Act governs a savings bank's loans to directors, executive
officers, and principal shareholders. Under Section 22(h), loans to directors,
executive officers, and shareholders who control, directly or indirectly, 10% or
more of voting securities of a savings bank, and certain related interests of
any of the foregoing, may not exceed, together with all other outstanding loans
to such persons and affiliated entities, the savings bank's total capital and
surplus. Section 22(h) also prohibits loans above amounts prescribed by the
appropriate Federal-banking agency to directors, executive officers, and
shareholders who control 10% or more of voting securities of a stock savings
bank, and their respective related interests, unless such loan is approved in
advance by a majority of the board of directors of the savings bank. Any
"interested" director may not participate in the voting. The loan amount (which
includes all other outstanding loans to such person) as to which such prior
board of director approval is required, is the greater of $25,000 or 5% of
capital and surplus or any loans over $500,000. Further, pursuant to Section
22(h), loans to directors, executive officers, and principal shareholders must
be made on terms substantially the same as offered in comparable transactions to
other persons. There is an exception for loans made pursuant to a benefit or
compensation program that is widely available to all employees of the
institution and does not give preference to executive officers over other
employees. Section 22(g) of the Federal Reserve Act places additional
limitations on loans to executive officers.
Enforcement
The FDIC has extensive enforcement authority over insured savings banks, including the Bank. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease and desist orders, and to remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations and unsafe or unsound practices.
The FDIC has authority under federal law to appoint a conservator or receiver for an insured savings bank under certain circumstances. The FDIC is required, with certain exceptions, to appoint a receiver or conservator for an insured state savings bank if that savings bank was "critically undercapitalized" on average during the calendar quarter beginning 270 days after the date on which the savings bank became "critically undercapitalized." For this purpose, "critically undercapitalized" means having a ratio of tangible equity to total assets of less than 2%. See "Prompt Corrective Regulatory Action." The FDIC may also appoint a conservator or receiver for a state savings bank on the basis of the institution's financial condition or upon the occurrence of certain events, including; (i) insolvency (whereby the assets of the savings bank are less than its liabilities to depositors and others); (ii) substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices; (iii) existence of an unsafe or unsound condition to transact business; (iv) likelihood that the savings bank will be unable to meet the demands of its depositors or to pay its obligations in the normal course of business; and (v) insufficient capital, or the incurring or likely incurring of losses that will deplete substantially all of the institution's capital with no reasonable prospect of replenishment of capital without federal assistance.
Insurance of Deposit Accounts
The Bank is a member of the Bank Insurance Fund ("BIF") and, through its acquisition of CFS Bank, also holds some deposits that are considered to be insured by the Savings Association Insurance Fund ("SAIF").
The FDIC has adopted a risk-based insurance assessment system. The FDIC assigns an institution to one of three capital categories based on the institution's financial information, as of the reporting period ending seven months before the assessment period, consisting of (1) well capitalized, (2) adequately capitalized, or (3) undercapitalized, and one of three supervisory subcategories within each capital group. The supervisory subgroup to which an institution is assigned is based on the supervisory evaluation provided to the FDIC by the institution's primary federal regulator, and information which the FDIC determines to be relevant to the institution's financial condition and the risk posed to the deposit insurance funds. An institution's assessment rate depends on the capital category and supervisory category to which it is assigned. Assessment rates for both BIF and SAIF deposits are determined semiannually by the FDIC and currently range from 0 basis points to 27 basis points.
The FDIC is authorized to raise the assessment rates in certain circumstances, including maintaining or achieving the designated reserve ratio of 1.25%, which requirement the BIF and SAIF currently meet.
On September 30, 1996, the Deposit Insurance Funds Act of 1996 (the "Funds Act") was signed into law. Among other things, the law spreads the obligations for payment of the financing Corporation ("FICO") bonds across all SAIF and BIF members. Prior to January 1, 2000, BIF members were assessed for FICO payments at approximately 20% of SAIF members. Full pro rata sharing the FICO payments between BIF and SAIF members began on January 1, 2000.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC. The management of the Bank does not know of any practice, condition, or violation that might lead to the termination of deposit insurance.
Community Reinvestment Act
Federal Regulation. Under the Community Reinvestment Act ("CRA"), as implemented by FDIC regulations, a savings bank has continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with CRA. CRA requires the FDIC, in connection with its examination of a savings bank; to assess the institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution. CRA requires public disclosure of an institution's CRA rating and further requires the FDIC to provide a written evaluation of an institution's CRA performance utilizing a four-tiered descriptive rating system. The Bank's latest CRA rating, received from the FDIC in February 2003, was "satisfactory."
New York Regulation. The Bank is also subject to provisions of the New York Banking Law which impose continuing and affirmative obligations upon banking institutions organized in New York to serve the credit needs of its local community ("NYCRA"), which are substantially similar to those imposed by the CRA. Pursuant to the NYCRA, a bank must file an annual NYCRA report and copies of all Federal CRA reports with the Banking Department. The NYCRA requires the Banking Department to make an annual written assessment of a bank's compliance with the NYCRA, utilizing a four-tiered rating system, and make such assessment available to the public. The NYCRA also requires the Superintendent to consider a bank's NYCRA rating when reviewing a bank's application to engage in certain transactions, including mergers, asset purchases, and the establishment of branch offices or ATMs, and provides that such assessment may serve as a basis for the denial of any such application. The Bank's latest NYCRA rating, received from the Banking Department in July 2002, was "outstanding".
Federal Reserve System
Under Federal Reserve Board ("FRB") regulations, the Bank is required to maintain non-interest-earning reserves against its transaction accounts (primarily NOW and regular checking accounts). The Federal Reserve Board regulations generally require that reserves be maintained against aggregate transaction accounts as follows: for that portion of transaction accounts aggregating $42.1 million or less (subject to adjustment by the Federal Reserve Board), the reserve requirement is 3%; for amounts greater than $42.1 million, the reserve requirement is 10% (subject to adjustment by the Federal Reserve Board between 8% and 14%). The first $6.0 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board) are exempted from the reserve requirements. The Bank is in compliance with the foregoing requirements. Because required reserves must be maintained in the form of either vault cash, a non-interest-bearing account at a Federal Reserve Bank, or a pass-through account as defined by the Federal Reserve Board, the effect of this reserve requirement is to reduce the Bank's interest-earning assets. FHLB System members are also authorized to borrow from the Federal Reserve "discount window," but Federal Reserve Board regulations require institutions to exhaust all FHLB sources before borrowing from a Federal Reserve Bank.
Federal Home Loan Bank System
The Bank is a member of the FHLB System, which consists of 12 regional FHLBs. The FHLB provides a central credit facility primarily for member institutions. The Bank, as a member of the FHLB-NY, is required to acquire and hold shares of capital stock in that FHLB in an amount at least equal to 1% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year, or 1/20 of its advances (borrowings) from the FHLB-NY, whichever is greater. The Bank was in compliance with this requirement, with an investment in FHLB-NY stock of $186.9 million at December 31, 2002. FHLB advances must be secured by specified types of collateral and may be obtained primarily for the purpose of providing funds for residential housing finance.
The FHLBs are required to provide funds to cover certain obligations on bonds issued to fund the resolution of insolvent thrifts and to contribute funds for affordable housing programs. These requirements could reduce the amount of dividends that the FHLBs pay to their members and could also result in the FHLBs imposing a higher rate of interest on advances to their members. For the fiscal years ended December 31, 2002, and 2001, dividends from the FHLB-NY to the Bank, amounted to $7.4 million and $4.6 million, respectively. If dividends were reduced, or interest on future FHLB advances increased, the Bank's net interest income might also be reduced.
Interstate Branching
Federal law allows the FDIC, and New York banking law allows the New York superintendent of banks, to approve an application by a state bank to acquire interstate branches by merger, unless, in the case of the FDIC, the state of the target institution has opted out of interstate branching. New York State banking law authorizes savings banks to open and occupy de novo branches outside the state of New York, and the FDIC is authorized to approve a state bank's establishment of a de novo interstate branch if the intended host state has opted into interstate de novo branching. In addition to its branches in New York, the Bank currently maintains branches in New Jersey.
Holding Company Regulations
Federal Regulation. The Company is currently subject to examination, regulation, and periodic reporting under the Bank Holding Company Act of 1956, as amended ("BHCA"), as administered by the FRB.
The Company is required to obtain the prior approval of the FRB to acquire all, or substantially all, of the assets of any bank or bank holding company. Prior FRB approval would be required for the Company to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if, after giving effect to such acquisition, it would, directly or indirectly, own or control more than 5% of any class of voting shares of such bank or bank holding company. In addition to the approval of the FRB, before any bank acquisition can be completed, prior approval thereof may also be required to be obtained from other agencies having supervisory jurisdiction over the bank to be acquired, including the Banking Department.
A bank holding company is generally prohibited from engaging in, or acquiring direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities found by the FRB to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the FRB has determined by regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment or financial advisor; (v) leasing personal or real property; (vi) making investments in corporations or projects designed primarily to promote community welfare; and (vii) acquiring a savings and loan association.
The Gramm-Leach-Bliley Act of 1999 authorizes a bank holding company that meets specified conditions, including being "well capitalized" and "well managed," to opt to become a "financial holding company" and thereby engage in a broader array of financial activities than previously permitted. Such activities can include insurance underwriting and investment banking.
The FRB has adopted capital adequacy guidelines for bank holding companies (on a consolidated basis) substantially similar to those of the FDIC for the Bank. See "Capital Maintenance." At December 31, 2002, the Company's consolidated total and Tier I capital exceeded these requirements.
Bank holding companies are generally required to give the FRB prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the Company's consolidated net worth. The FRB may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, FRB order or directive, or any condition imposed by, or written agreement with, the FRB. The FRB has adopted an exception to this approval requirement for well-capitalized bank holding companies that meet certain other conditions.
The FRB has issued a policy statement regarding the payment of dividends by bank holding companies. In general, the FRB's policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization's capital needs, asset quality, and overall financial condition. The FRB's policies also require that a bank holding company serve as a source of financial strength to its subsidiary banks by standing ready to use available resources to provide adequate capital funds to those banks during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. These regulatory policies could affect the ability of the Company to pay dividends or otherwise engage in capital distributions.
The status of the Company as a registered bank holding company under the BHCA does not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws.
Under the FDI Act, depository institutions are liable to the FDIC for losses suffered or anticipated by the FDIC in connection with the default of a commonly controlled depository institution or any assistance provided by the FDIC to such an institution in danger of default. This law would have potential applicability if the Company ever held as a separate subsidiary a depository institution in addition to the Bank.
The Company and the Bank will be affected by the monetary and fiscal policies of various agencies of the United States Government, including the Federal Reserve System. In view of changing conditions in the national economy and in the money markets, it is impossible for management to accurately predict future changes in monetary policy or the effect of such changes on the business or financial condition of the Company or the Bank.
Acquisition of the Holding Company
Federal Restrictions. Under the Federal Change in Bank Control Act ("CIBCA"), a notice must be submitted to the FRB if any person (including a company), or group acting in concert, seeks to acquire 10% or more of the Company's shares of Common Stock outstanding, unless the FRB has found that the acquisition will not result in a change in control of the Company. Under the CIBCA, the FRB has 60 days within which to act on such notices, taking into consideration certain factors, including the financial and managerial resources of the acquirer, the convenience and needs of the communities served by the Company and the Bank, and the anti-trust effects of the acquisition. Under the BHCA, any company would be required to obtain prior approval from the FRB before it may obtain "control" of the Company within the meaning of the BHCA. Control generally is defined to mean the ownership or power to vote 25% or more of any class of voting securities of the Company or the ability to control in any manner the election of a majority of the Company's directors. An existing bank holding company would be required to obtain the FRB's prior approval under the BHCA before acquiring more than 5% of the Company's voting stock. See "Holding Company Regulation."
New York Change in Control Restrictions. In addition to the CIBCA and the BHCA, the New York State Banking Law generally requires prior approval of the New York Banking Board before any action is taken that causes any company to acquire direct or indirect control of a banking institution which is organized in New York.
Federal Securities Law
The Company's common stock is registered with the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company is subject to the information and proxy solicitation requirements, insider trading restrictions, and other requirements under the Exchange Act.
Registration of the shares of the common Stock that were issued in the Bank's conversion from mutual to stock form under the Securities Act of 1933, as amended (the "Securities Act"), does not cover the resale of such shares. Shares of the common stock purchased by persons who are not affiliates of the Company may be resold without registration. Shares purchased by an affiliate of the Company will be subject to the resale restrictions of Rule 144 under the Securities Act. If the Company meets the current public information requirements of Rule 144 under the Securities Act, each affiliate of the Company who complies with the other conditions of Rule 144 (including those that require the affiliate's sale to be aggregated with those of certain other persons) would be able to sell in the public market, without registration, a number of shares not to exceed in any three-month period the greater of (i) 1% of the outstanding shares of the Company or (ii) the average weekly volume of trading in such shares during the preceding four calendar weeks. Provision may be made in the future by the Company to permit affiliates to have their shares registered for sale under the Securities Act under certain circumstances.
STATISTICAL DATA
The detailed statistical data that follows is being presented in accordance with Guide 3, prescribed by the Securities and Exchange Commission. This data should be read in conjunction with the consolidated financial statements and related notes, and the discussion included in the Management's Discussion and Analysis of Financial Condition and Results of Operations, that are indexed on the Form 10-K Cross Reference Index.
A. Mortgage and Other Lending Activities
The following table sets forth the Bank's loan originations, including acquisitions, sales, and principal repayments, for the periods indicated:
For the
Years Ended December 31,
------------------------
(dollars in thousands) 2002 2001 2000
---------- ---------- ----------
Mortgage loans (gross):
At beginning of period $5,287,773 $3,596,273 $1,601,798
Mortgage loans originated:
Multi-family 2,059,282 791,250 541,734
One-to-four family 255,988 137,002 6,205
Commercial real estate 159,267 130,677 58,899
Construction 89,208 91,155 9,133
---------- ---------- ----------
Total mortgage loans originated 2,563,745 1,150,084 615,971
Mortgage loans acquired in the Richmond County and Haven
transactions, respectively -- 1,917,575 1,749,180
Principal repayments 1,451,171 765,578 185,539
Mortgage loans sold 417,485 610,581 185,137
Mortgage loans securitized to mortgage-backed securities 572,466 -- --
---------- ---------- ----------
At end of period 5,410,396 5,287,773 3,596,273
Other loans (gross):
At beginning of period 116,878 39,748 8,742
Other loans originated and/or acquired in the Richmond
County and Haven transaction.
respectively 102,062 254,278 36,655
Principal repayments 68,263 177,148 5,649
Other loans sold 71,430 -- --
Reclassification from other loans to securities available for sale 460 -- --
---------- ---------- ----------
At end of period 78,787 116,878 39,748
---------- ---------- ----------
Total loans $5,489,183 $5,404,651 $3,636,021
========== ========== ==========
|
B. Loan Maturity and Repricing
The following table shows the maturity or period to repricing of the Bank's loan portfolio at December 31, 2002. Loans that have adjustable rates are shown as being due in the period during which the interest rates are next subject to change. The table does not include prepayments or scheduled principal amortization. Prepayments and scheduled principal amortization on mortgage loans totaled $1.5 billion for the twelve months ended December 31, 2002.
Mortgage and Other Loans
at December 31, 2002
------------------------
Multi- 1-4 Commercial Total
(dollars in thousands) Family Family Real Estate Construction Other Loans
------ ------ ----------- ------------ ----- -----
Amount due:
Within one year $ 259,707 $ 32,244 $ 44,363 $117,013 $36,250 $ 489,577
After one year:
One to five years 3,283,022 54,683 302,967 -- 21,926 3,662,598
Over five years 951,603 178,797 185,997 -- 20,611 1,337,008
----------- -------- -------- -------- ------- ------------
Total due or repricing after
one year 4,234,625 233,480 488,964 -- 42,537 4,999,606
----------- -------- -------- -------- ------- ------------
Total amounts due or
repricing, gross $ 4,494,332 $265,724 $533,327 $117,013 $78,787 $ 5,489,183
=========== ======== ======== ======== ======= ============
|
The following table sets forth, at December 31, 2002, the dollar amount of all loans due after December 31, 2002, and indicates whether such loans have fixed or adjustable rates of interest.
Due after December 31, 2003
---------------------------
(dollars in thousands) Fixed Adjustable Total
----- ---------- -----
Mortgage loans:
Multi-family $635,281 $3,599,344 $ 4,234,625
One-to-four family 143,643 89,837 233,480
Commercial real estate 123,085 365,879 488,964
Construction -- -- --
-------- ---------- -----------
Total mortgage loans $902,009 $4,055,060 $ 4,957,069
Other loans 9,674 32,863 42,537
-------- ---------- -----------
Total loans $911,683 $4,087,923 $ 4,999,606
======== ========== ===========
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C. Summary of the Allowance for Loan Losses
The allowance for loan losses was allocated as follows at December 31,
2002 2001 2000 1999 1998
----------------- ------------------- ---------------- ------------------ -----------------
Percent Percent Percent Percent Percent
of of of of of
Loans in Loans in Loans in Loans in Loans
Category Category Category Category Category
to Total to Total to Total to Total to Total
(dollars in thousands) Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ --------
Mortgage loans:
Multi-family $25,433 62.80% $21,361 52.74% $ 7,783 43.08% $4,927 70.08% $6,686 70.89%
One-to-four family 2,763 6.82 6,084 15.02 2,923 16.18 663 9.42 1,341 14.22
Construction 2,104 5.20 3,489 8.62 892 4.94 64 0.91 28 0.30
Commercial real estate 7,016 17.32 8,150 20.12 5,671 31.40 1,202 17.10 1,181 12.52
Other loans 3,184 7.86 1,416 3.50 795 4.40 175 2.49 195 2.07
------- ------ ------- ------ ------- ------ ------ ------ ------ ------
Total loans $40,500 100.00% $40,500 100.00% $18,064 100.00% $7,031 100.00% $9,431 100.00%
======= ====== ======= ====== ======= ====== ====== ====== ====== ======
|
The preceding allocation is based upon an estimate at a given point in time, based on various factors including, but not limited to, local economic conditions. A different allocation methodology may be deemed to be more appropriate in the future.
D. Composition of the Loan Portfolio
The following table sets forth the composition of the Bank's portfolio of mortgage and other loans in dollar amounts and in percentages at December 31,
2002 2001 2000 1999 1998
-------------------- ------------------- -------------------- --------------------- ------------------
Percent Percent Percent Percent Percent
of of of of of
(dollars in thousands) Amount Total Amount Total Amount Total Amount Total Amount Total
------------ ------ ----------- ------ ----------- ----- ---------- ------ ---------- --------
Mortgage loans:
Multi-family $ 4,494,332 81.88% $ 3,255,167 60.23% $ 1,945,656 53.51% $1,348,351 83.72% $1,239,094 82.77%
One-to-four family 265,724 4.84 1,318,295 24.40 1,267,080 34.85 152,644 9.48 178,770 11.94
Commercial real
estate 533,327 9.72 561,944 10.40 324,068 8.91 96,008 5.96 67,494 4.51
Construction 117,013 2.13 152,367 2.82 59,469 1.64 4,793 0.30 1,898 0.13
------------ ------ ----------- ------ ----------- ------ ---------- ------ ---------- ------
Total mortgage loans 5,410,396 98.57 5,287,773 97.85 3,596,273 98.91 1,601,796 99.46 1,487,256 99.35
Total other loans 78,787 1.43 116,878 2.15 39,748 1.09 8,742 0.54 9,750 0.65
------------ ------ ----------- ------ ----------- ------ ---------- ------ ---------- ------
Total loans 5,489,183 100.00% 5,404,651 100.00% 3,636,021 100.00% 1,610,538 100.00% 1,497,006 100.00%
------------ ====== ----------- ====== ----------- ====== ---------- ====== ---------- ======
Unearned premiums
(discounts) 19 91 (18) (24) (22)
Less: Net deferred loan
origination fees 5,130 3,055 1,553 2,404 1,034
Allowance for loan
losses 40,500 40,500 18,064 7,031 9,431
------------ ----------- ---------- ---------- ----------
Loans, net $ 5,443,572 $ 5,361,187 $3,616,386 $1,601,079 $1,486,519
============ =========== ========== ========== ==========
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ITEM 2. PROPERTIES
The executive and administrative offices of the Company and its subsidiaries are located at 615 Merrick Avenue, Westbury, New York. Haven Bancorp 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"), which has been assumed by the Company. Under the IDA and PILOT agreements, 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.
At December 31, 2002, the Company's bank subsidiary owned 30 of its branch offices and leased 80 of its branch offices and other bank business facilities under various lease and license agreements expiring at various times through 2025 (See "Note 12 - Commitments and Contingencies, Lease and License Commitments" in the Company's 2002 Annual Report to Shareholders, which portion is incorporated herein by reference). The Company and the Bank believe their facilities are adequate to meet their present and immediately foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of the Company's business, there are various outstanding legal proceedings. In the opinion of management, based on consultation with legal counsel, the financial position of the Company will not be affected materially as a result of the outcome of such legal proceedings.
In February 1983, a burglary of the contents of safe deposit boxes occurred at a branch office of CFS Bank. At December 31, 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on The New York Stock Exchange, under the symbol, "NYB".
Information regarding the Company's common stock and its price during fiscal year 2002 appears on page 33 of the 2002 Annual Report to Shareholders under the caption, "Market Price of Common Stock and Dividends Paid per Common Share," and is incorporated herein by this reference.
As of March 26, 2003 the Company had approximately 8,600 shareholders of record, excluding the number of persons or entities holding stock in nominee or street name through various brokers and banks.
Use of Proceeds from BONUSES(SM) Units and Common Stock Offering On November 4, 2002, the Company and its subsidiary, New York Community Capital Trust V (the "Trust"), issued 5.5 million BONUSES(SM) Units (the "Units"), consisting of a preferred security issued by the Trust and a warrant to purchase 1.4036 shares of the Company's common stock.
The Units were issued pursuant to a registration statement on Form S-3 (Registration No. 333-86682) initially filed with the Securities and Exchange Commission on April 22, 2002, as amended, and effective on May 8, 2002, and pursuant to a registration statement on Form S-3 (Registration No. 333-100767) filed with the Securities and Exchange Commission
on October 25, 2002 and effective on the same date. The managing underwriters for the offering were Salomon Smith Barney Inc. (sole book-running manager) and Lehman Brothers Inc. (joint-lead manager).
Units representing $275.0 million were registered and sold in the offering. Total expenses for the Units offering were approximately $7.7 million, including underwriters' discounts and commissions for the offering of $6,875,000. The net proceeds from the Units offering thus totaled approximately $267.3 million.
The Units were issued pursuant to a "shelf" registration process pursuant to which the Company also generated approximately $170.0 million through the issuance of 5.9 million shares of its common stock on May 14, 2002 (as previously reported in the Company Form 10-Q for the quarterly period ended June 30, 2002). As previously reported, the net proceeds of the common stock offering totaled approximately $147.5 million.
The net proceeds of the Units offering and the May 14, 2002 common stock offering, combined, totaled approximately $414.8 million, and were used for the following purposes:
(1) A capital contribution to the Company's primary subsidiary, the Bank of $100.0 million;
(2) Repurchase of Company common stock in the amount of $56.5 million;
(3) Payment of dividends on Company common stock in the amount of $41.4 million;
(4) Payment of dividends on trust preferred securities in the amount of $10.5 million; and
(5) Investment in interest-earning assets and other corporate purposes in the amount of $206.4 million
ITEM 6. SELECTED FINANCIAL DATA
Information regarding selected financial data appears on page 10 of the 2002 Annual Report to Shareholders under the caption, "Financial Summary," and is incorporated therein by this reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information regarding management's discussion and analysis of financial condition and results of operations appears on pages 13 through 33 of the 2002 Annual Report to Shareholders under the caption, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and is incorporated herein by this reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information regarding quantitative and qualitative disclosures about market risk appears on pages 20 through 22 of the 2002 Annual Report to Shareholders under the caption, "Asset and Liability Management and the Management of Interest Rate Risk," and is incorporated herein by this reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information regarding the consolidated financial statements and the Independent Auditors' Report appears on pages 34 through 63 of the 2002 Annual Report to Shareholders, and is incorporated herein by this reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors and executive officers of the Registrant appears on pages 4 through 7 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 2003, under the caption, "Information with Respect to Nominees, Continuing Directors, and Executive Officers," and is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation appears on pages 9 through 16 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 2003, and is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Equity Compensation Plan Information as of December 31, 2002
Plan category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, options, warrants and future issuance under
warrants and rights rights equity compensation plans
(excluding securities
reflected in column (a)
(a) (b) (c)
Equity compensation
plans approved by security
holders 10,922,801 $22.78 1,726,194
Equity compensation plans
not approved by security
holders -- -- --
Total 10,922,801 $22.78 1,726,194
|
Information regarding security ownership of certain beneficial owners appears on page 3 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 2003, under the caption, "Security Ownership of Certain Beneficial Owners," and is incorporated herein by this reference.
Information regarding security ownership of management appears on pages 4 through 7 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 2003, under the caption, "Information with Respect to the Nominees, Continuing Directors, and Executive Officers," and is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions appears on page 17 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 2003 under the caption, "Transactions with Certain Related Persons," and is incorporated herein by this reference.
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures The Corporation maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Corporation files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed within 90 days of the filing date of this report, the chief executive officer and the chief financial officer of the Corporation concluded that the Corporation's disclosure controls and procedures were adequate.
(b) Changes in internal controls The Corporation made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls by the chief executive officer and chief financial officer.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements are included in the Company's Annual Report to Shareholders for the year ended December 31, 2002 and are incorporated herein by this reference:
- Consolidated Statements of Condition at December 31, 2002 and 2001;
- Consolidated Statements of Income and Comprehensive Income for each
of the years in the three-year period ended December 31, 2002;
- Consolidated Statements of Changes in Stockholders' Equity for each
of the years in the three-year period ended December 31, 2002;
- Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 2002;
- Notes to the Consolidated Financial Statements;
- Glossary;
- Cash Earnings;
- Management's Responsibility for Financial Reporting;
- Independent Auditors' Report
The remaining information appearing in the 2002 Annual Report to Shareholders is not deemed to be filed as a part of this report, except as expressly provided herein.
2. Financial Statement Schedules
Financial Statement Schedules have been omitted because they are not applicable or because the required information is shown in the Consolidated Financial Statements or Notes thereto.
(b) Reports on Form 8-K filed during the last quarter of 2002
- On November 4, 2002, the Company filed a Form 8-K to file its underwriting agreement, form of amended and restated declaration of trust and form of indenture, among other things, as incorporated by reference to its registration statement on Form S-3.
(c) Exhibits Required by Securities and Exchange Commission Regulation S-K
4.12 Registrant will furnish, upon request, copies of all
instruments defining the rights of holders of long-term
debt instruments of registrant and its consolidated
subsidiaries.
10.1 Form of Employment Agreement between New York
Community Bancorp, Inc. (formerly known as "Queens County
Bancorp, Inc.") and Joseph R. Ficalora, Robert Wann and
James O'Donovan
10.2 Form of Employment Agreement between New York
Community Bank and Joseph R. Ficalora, Robert Wann and
James O'Donovan
10.3 Agreement by and among New York Community Bancorp,
Inc., Richmond County Financial Corp., Richmond County
Savings Bank and Michael F. Manzulli (6)
10.4 Agreement by and among New York Community Bancorp,
Inc., Richmond County Financial Corp., Richmond County
Savings Bank and Anthony E. Burke (6)
10.5 Agreement by and among New York Community Bancorp,
Inc., Richmond County Financial Corp., Richmond County
Savings Bank and Thomas R. Cangemi (6)
10.6 Form of Change in Control Agreements among the
Company, the Bank, and Certain Officers (7)
10.7 Noncompetition Agreement, dated March 27, 2001, by and
among New York Community Bancorp, Inc., Richmond County
Financial Corp., Richmond County Savings Bank and Thomas R.
Cangemi (6)
10.8 Noncompetition Agreement, dated March 27, 2001, by and
among New York Community Bancorp, Inc., Richmond County
Financial Corp., Richmond County Savings Bank and Michael
F. Manzulli (6)
10.9 Noncompetition Agreement, dated March 27, 2001, by and
among New York Community Bancorp, Inc., Richmond County
Financial Corp., Richmond County Savings Bank and Anthony
E. Burke (6)
10.10 Form of Queens County Savings Bank Recognition and
Retention Plan for Outside Directors (7)
10.11 Form of Queens County Savings Bank Recognition and
Retention Plan for Officers (7)
10.12 Form of Queens County Bancorp, Inc. 1993 Incentive
Stock Option Plan (8)
10.13 Form of Queens County Bancorp, Inc. 1993 Incentive
Stock Option Plan for Outside Directors (8)
10.14 Form of Queens County Savings Bank Employee Severance
Compensation Plan (7)
10.15 Form of Queens County Savings Bank Outside Directors'
Consultation and Retirement Plan (7)
10.16 Form of Queens County Bancorp, Inc. Employee Stock
Ownership Plan and Trust (7)
10.17 ESOP Loan Documents (7)
10.18 Incentive Savings Plan of Queens County Savings Bank (9)
10.19 Retirement Plan of Queens County Savings Bank (7)
10.20 Supplemental Benefit Plan of Queens County Savings
Bank (10)
10.21 Excess Retirement Benefits Plan of Queens County
Savings Bank (7)
10.22 Queens County Savings Bank Directors' Deferred Fee
Stock Unit Plan (7)
10.23 Queens County Bancorp, Inc. 1997 Stock Option Plan
(11)
10.24 Richmond County Financial Corp. 1998 Stock Option Plan
(12)
10.25 Richmond County Savings Bank Retirement Plan (12)
11.0 Statement Re: Computation of Per Share Earnings
(attached hereto)
13.0 2002 Annual Report to Shareholders
21.0 Subsidiaries information incorporated herein by
reference to Part I, "Subsidiaries"
23.0 Consent of KPMG LLP, dated March 31, 2003 (attached
hereto)
99.1 Certification of President and Chief Executive Officer
pursuant to Section 906 of Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to
Section 906 of Sarbanes-Oxley Act of 2002
|
(1) Incorporated by reference to Exhibits filed with the Company's Form
10-Q for the quarterly period ended March 31, 2001 (File No. 0-22278)
(2) Incorporated by reference to Exhibits filed with the Company's Form
10-K for the year ended December 31, 2001 (File No. 0-22278)
(3) Incorporated by reference to Exhibits filed with the Company's
Registration Statement on Form S-1 (Registration No. 33-66852)
(4) Incorporated by reference to Exhibits filed with the Company's Form
8-A filed with the Securities and Exchange Commission on January 24, 1996,
amended as reflected in Exhibit 4.2 to the Company's Registration
Statement on Form S-4 filed with the Securities and Exchange Commission on
April 25, 2001 (Registration No. 333-59486) and as reflected in Exhibit
4.3 to the Company's Form 8-A filed with the Securities and Exchange
Commission on December 12, 2002 (File No. 1-31565)
(5) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended September 30, 2002 (File No. 0-22278)
(6) Incorporated by reference to Exhibits filed with the Company's
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission on April 25, 2001 (Registration No. 333-59486)
(7) Incorporated by reference to Exhibits filed with the Registration
Statement on Form S-1, Registration No. 33-66852
(8) Incorporated herein by reference into this document from the Exhibits
to Form S-8, Registration Statement filed on October 27, 1994,
Registration No. 33-85684
(9) Incorporated herein by reference into this document from the Exhibits to
Form S-8, Registration Statement filed on October 27, 1994, Registration
No. 33-85682
(10) Incorporated by reference to Exhibits filed with the 1995 Proxy Statement
for the Annual Meeting of Shareholders held on April 19, 1995
(11) Incorporated by reference to Exhibit filed with the 1997 Proxy Statement
for the Annual Meeting of Shareholders held on April 16, 1997, as amended
as reflected in the Company's Proxy Statement the Annual Meeting of
Shareholders held on May 15, 2002
(12) Incorporated herein by reference into this document from the Exhibits to
Form S-8, Registration Statement filed on July 31, 2001, Registration No.
333-66366
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
/s/ Michael F. Manzulli 3/25/03 /s/ Joseph R. Ficalora 3/25/03
---------------------------- -----------------------------
Michael F. Manzulli Joseph R. Ficalora
Chairman President and Chief Executive
Officer
(Principal Executive Officer)
/s/ Robert Wann 3/25/03 /s/ Donald M. Blake 3/25/03
---------------------------- -----------------------------
Robert Wann Donald M. Blake
Executive Vice President Director
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Anthony E. Burke 3/25/03 /s/ Dominick Ciampa 3/25/03
---------------------------- -----------------------------
Anthony E. Burke Dominick Ciampa
Director Director
/s/ Robert S. Farrell 3/25/03 /s/ Dr. William C. Frederick 3/25/03
---------------------------- -----------------------------
Robert S. Farrell William C. Frederick, M.D.
Director Director
/s/ Max L. Kupferberg 3/25/03 /s/ Howard C. Miller 3/25/03
---------------------------- -----------------------------
Max L. Kupferberg Howard C. Miller
Director Director
/s/ John A. Pileski 3/25/03
----------------------------
John A. Pileski
Director
|
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DATE: March 25, 2003 BY: /s/ Joseph R. Ficalora
----------------------------
Joseph R. Ficalora
President and
Chief Executive Officer
(Duly Authorized Officer)
DATE: March 25, 2003 BY: /s/ Robert Wann
----------------------------
Robert Wann
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
|
NEW YORK COMMUNITY BANCORP, INC.
CERTIFICATIONS
I, Joseph R. Ficalora, certify that:
1. I have reviewed this annual report on Form 10-K of New York Community Bancorp, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the consolidated financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 25, 2003 BY: /s/ Joseph R. Ficalora
----------------------------
Joseph R. Ficalora
President and
Chief Executive Officer
(Duly Authorized Officer)
|
NEW YORK COMMUNITY BANCORP, INC.
CERTIFICATIONS
I, Robert Wann, certify that:
1. I have reviewed this annual report on Form 10-K of New York Community Bancorp, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the consolidated financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 25, 2003 BY: /s/ Robert Wann
----------------------------
Robert Wann
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
|
EXHIBIT 10.1
The Employment Agreement, as amended and restated, by and between New York Community Bancorp, Inc. (formerly known as "Queens County Bancorp, Inc.") and Joseph R. Ficalora was filed as an Exhibit to the Company's Form 10-Q for the quarterly period ended June 30, 2002 and is incorporated, in its entirety, by reference herein. Such Employment Agreement is substantially identical in all material respects (except as otherwise noted below) with the other contracts listed below which are not being filed as separate exhibits to this Report.
Parties to Employment Agreement
New York Community Bancorp, Inc. (formerly known as "Queens County Bancorp, Inc.") and Robert Wann (1)
New York Community Bancorp, Inc. (formerly known as "Queens County Bancorp, Inc.") and James O'Donovan (2)
(1) Mr. Wann's Employment Agreement with New York Community Bancorp, Inc. is
substantially identical to Exhibit 10.1 except as to (i) the name of the
signatory, which is Robert Wann; (ii) the position in Section 1 of the
Employment Agreement, which is Senior Vice President, Comptroller and
Chief Financial Officer); and (iii) the amount of the base salary in
Section 3(a), which is not less than $225,500 per year.
(2) Mr. O'Donovan's Employment Agreement with New York Community Bancorp, Inc. is substantially identical to Exhibit 10.1 except as to (i) the name of the signatory, which is James O'Donovan; (ii) the position in Section 1 of the Employment Agreement, which is Senior Vice President; and (iii) the amount of the base salary in Section 3(a), which is not less than $269,000.
EXHIBIT 10.2
The Employment Agreement, as amended and restated, by and between Queens County Savings Bank and Joseph R. Ficalora (the "Bank Agreement") is substantially identical in all material respects to Exhibit 10.1 which was filed as an Exhibit to the Company's Form 10-Q for the quarterly period ended June 30, 2002 and is incorporated, in its entirety, by reference herein. The Bank agreement and the Company agreement are coordinated in such a manner that the executive will not receive duplicative benefits under such agreements. Mr. Ficalora's Bank Agreement is also substantially identical in all material respects (except as otherwise noted below) with the other contracts listed below which are not being filed as separate exhibits to this Report.
Parties to Employment Agreement
Queens County Savings Bank and Robert Wann (1)
Queens County Savings Bank and James O'Donovan (2)
(1) Mr. Wann's Employment Agreement with New York Community Bank is substantially identical to Mr. Ficalora's Bank Agreement except as to (i) the names of the signatories, which is Queens County Savings Bank and Robert Wann; (ii) the position in Section 1 of the Employment Agreement, which is Senior Vice President and Comptroller; and (iii) the amount of the base salary in Section 3(a), which is not less than $225,500 per year.
(2) Mr. O'Donovan's Employment Agreement with New York Community Bank is substantially identical to Exhibit 10.1 except as to (i) the names of the signatories, which is Queens County Savings Bank and James O'Donovan; (ii) the position in Section 1 of the Employment Agreement, which is Senior Vice President and Mortgage Officer; and (iii) the amount of the base salary in Section 3(a), which is not less than $269,000.
EXHIBIT 11.0
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share amounts) 2002 2001
-------- --------
Net income $229,230 $104,467
-------- --------
Weighted average common shares outstanding 101,753 76,728
Earnings per common share $2.25 $1.36
======== ========
Total weighted average common shares outstanding 101,753 76,728
Additional dilutive shares using ending value for the
period when utilizing the Treasury stock method
regarding stock options 1,312 1,327
-------- --------
Total shares for fully diluted earnings per share 103,065 78,055
Fully diluted earnings per common share and common
share equivalents $2.22 $1.34
======== ========
|
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
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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
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Total mortgage and other loans 5,489,183 100.00% 5,404,651 100.00% 3,636,021 100.00%
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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
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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
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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
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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
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Total interest-earning assets 919,920 2,021,090 3,333,372 1,990,158 1,177,411 720,559 10,162,510
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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
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Total interest-bearing liabilities 3,167,012 1,587,067 1,103,161 532,548 2,745,703 247,479 9,382,970
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Interest sensitivity gap per period(4) $(2,247,092) $ 434,023 $2,230,211 $1,457,610 $(1,568,292) $473,080 $ 779,540
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Cumulative interest sensitivity gap $(2,247,092) $(1,813,069) $417,142 $1,874,752 $306,460 $779,540
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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
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|
(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)
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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
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-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)
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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
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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
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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,
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2002 2001 2000
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Average Average Average
Average Yield/ Average Yield/ Average Yield/
(dollars in thousands) Balance Interest Cost Balance Interest Cost Balance Interest Cost
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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
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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
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Total assets $10,016,087 $6,396,885 $2,301,345
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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
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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
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Total liabilities 8,866,856 5,821,595 2,116,512
Stockholders' equity 1,149,231 575,290 184,833
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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
===================================================================================================================================
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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
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Increase/(Decrease) Increase/(Decrease) Increase/(Decrease)
--------------------------------------------------------------------------------------------------------------------------------
Due to Due to Due to
(in thousands) Volume Rate Net Volume Rate Net Volume Rate Net
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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
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Total 196,336 (20,133) 176,203 254,975 (6,503) 248,472 29,774 1,935 31,709
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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
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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
================================================================================================================================
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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
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(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
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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
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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
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Balance at end of year (69,095) (78,294) (2,388)
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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
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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
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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 |
EXHIBIT 23.0
Independent Auditors' Consent
The Board of Directors
New York Community Bancorp, Inc.:
We consent to incorporation by reference in the Registration Statements (Nos. 333-32881, 333-51998, 333-89826 and 333-66366) on Form S-8 and the Registration Statements (Nos. 333-86682 and 333-100767) on Form S-3 of New York Community Bancorp, Inc. of our report dated January 22, 2003, relating to the 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, which report appears in the December 31, 2002 annual report and is incorporated by reference on Form 10-K of New York Community Bancorp, Inc. Our report refers to changes in 2002, as the Company adopted the provisions of Statement of Financial Accounting Standard No. 142, "Goodwill and Other Intangibles". Our report also refers to changes in 2001, as the Company adopted the provisions of Statement of Financial Accounting Standard No. 141, "Business Combinations".
/s/ KPMG LLP New York, New York March 31, 2003 |
Exhibit 99.1
NEW YORK COMMUNITY BANCORP, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of New York Community Bancorp, Inc. (the "Company") on Form 10-K for the period ending on December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Joseph R. Ficalora, President and Chief Executive Officer of the Company, certify, to the best of my knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.
DATE: March 25, 2003 BY: /s/ Joseph R. Ficalora
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Joseph R. Ficalora
President and
Chief Executive Officer
(Duly Authorized Officer)
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A signed original of this written statement required by Section 906 has been provided to New York Community Bancorp, Inc. and will be retained by New York Community Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 99.2
NEW YORK COMMUNITY BANCORP, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of New York Community Bancorp, Inc. (the
Company") on Form 10-K for the period ending on December 31, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Robert Wann, Chief Financial Officer of the Company, certify, to the best of my
knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.
DATE: March 25, 2003 BY: /s/ Robert Wann
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Robert Wann
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
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A signed original of this written statement required by Section 906 has been provided to New York Community Bancorp, Inc. and will be retained by New York Community Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.