--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FINANCIAL
SUMMARY
AT OR FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
(dollars in thousands) 2000(1) 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------------------------
EARNINGS SUMMARY
Net interest income $ 73,081 $ 68,903 $ 68,522 $ 62,398 $ 57,520
Reversal of provision for loan losses -- (2,400) -- -- (2,000)
Other operating income 21,645 2,523 2,554 2,305 2,445
Operating expense(2) 49,824 21,390 25,953 27,084 23,271
Income tax expense 20,425 20,772 18,179 14,355 17,755
Net income(3) 24,477 31,664 26,944 23,264 20,939
Earnings per share(3)(4) $ 1.30 $ 1.71 $ 1.41 $ 1.14 $ 0.90
Diluted earnings per share(3)(4) 1.25 1.67 1.34 1.07 0.85
SELECTED RATIOS
Return on average assets 1.06% 1.69% 1.62% 1.61% 1.63%
Return on average stockholders' equity 13.24 22.99 17.32 12.95 10.10
Operating expense to average assets 2.16 1.14 1.57 1.88 1.82
Efficiency ratio 52.60 29.95 36.51 41.86 38.81
Interest rate spread 3.00 3.41 3.76 3.84 3.88
Net interest margin 3.33 3.79 4.24 4.45 4.63
Dividend payout ratio 80.00 60.00 50.00 38.00 29.00
Stockholders' equity to total assets 6.53 7.19 8.55 10.64 15.56
Average interest-earning assets to
average interest-bearing liabilities 1.07x 1.09x 1.12x 1.16x 1.21x
CASH EARNINGS DATA(3)
Earnings $ 58,001 $ 44,349 $ 43,758 $ 35,399 $ 27,458
Earnings per share(4) $ 3.08 $ 2.39 $ 2.29 $ 1.73 $ 1.18
Diluted earnings per share(4) 2.97 2.34 2.17 1.62 1.12
Return on average assets 2.52% 2.37% 2.64% 2.46% 2.14%
Return on average stockholders' equity 31.38 32.21 28.13 19.71 13.24
Operating expense to average assets 2.16 1.01 1.16 1.37 1.39
Efficiency ratio 24.47 26.37 27.05 30.47 28.83
BALANCE SHEET SUMMARY
Total assets $ 4,710,785 $ 1,906,835 $ 1,746,882 $ 1,603,269 $ 1,358,656
Loans, net 3,616,386 1,601,079 1,486,519 1,395,003 1,146,152
Allowance for loan losses 18,064 7,031 9,431 9,431 9,359
Securities held to maturity 222,534 184,637 152,280 94,936 86,495
Securities available for sale 303,734 12,806 4,656 2,617 --
Mortgage-backed securities
held to maturity 1,923 2,094 19,680 49,781 73,732
Deposits 3,257,194 1,076,018 1,102,285 1,069,161 1,023,930
Borrowings 1,037,505 636,378 439,055 309,664 81,393
Stockholders' equity 307,410 137,141 149,406 170,515 211,429
Book value per share(4)(5) $ 11.11 $ 7.52 $ 8.13 $ 8.82 $ 9.43
Common shares outstanding(4) 29,580,124 21,010,127 21,250,897 22,369,187 25,751,598
ASSET QUALITY RATIOS
Non-performing loans to loans, net 0.25% 0.19% 0.42% 0.55% 0.84%
Non-performing assets to total assets 0.19 0.17 0.38 0.54 0.76
Allowance for loan losses to
non-performing loans 198.68 226.22 152.28 122.61 96.90
Allowance for loan losses to loans, net 0.50 0.44 0.63 0.68 0.82
Allowance for loan losses to accumulated
net charge-offs since 1987 1,290.29 493.06 661.36 661.36 625.00
=================================================================================================================================
(1) 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.
(2) The 2000 amount includes $494,000 in goodwill amortization stemming from
the Haven acquisition.
(3) In connection with the Company's acquisition of Haven Bancorp, Inc., the
2000 amount includes a non-recurring net gain of $13.5 million recorded in
other operating income and a non-recurring charge of $22.8 million
recorded in operating expense. The 1999 amount includes a non-recurring
curtailment gain of $1.6 million and a non-recurring charge of $735,000,
both of which were recorded in operating expense. The 1996 amount includes
a non-recurring tax charge of $1.8 million, of which $1.3 million was
reversed in 1997.
(4) Reflects shares issued as a result of a 4-for-3 stock split on August 22,
1996, and 3-for-2 stock splits on April 10 and October 1, 1997 and
September 29, 1998. These amounts have not been adjusted to reflect a
3-for-2 stock split scheduled to occur on March 29, 2001.
(5) Excludes unallocated ESOP shares.
--------------------------------------------------------------------------------
Eight
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated as Queens County Bancorp, Inc. on July 20,
1993 to serve as the holding company for Queens County Savings Bank, the first
savings bank chartered by the State of New York in the New York City borough of
Queens, on April 14, 1859.
On November 21, 2000, the Company changed its name to New York Community
Bancorp, Inc., in anticipation of its acquisition of Haven Bancorp, Inc., parent
company of CFS Bank, which was founded as the Columbia Building and Loan
Association, in Queens, in 1889. The acquisition was announced on June 27, 2000
and was completed on November 30, 2000. Shareholders of Haven Bancorp received
1.04 shares of New York Community Bancorp stock for each share of Haven Bancorp
stock held at the closing date.
The acquisition joined New York Community Bancorp's strength as a
multi-family mortgage lender with Haven Bancorp's strength as a significant
source of low-cost deposits and fee income derived from the sale of investment
products and banking services.
On December 15, 2000, the name of the Company's primary subsidiary was
changed from Queens County Savings Bank to New York Community Bank, and its
headquarters were relocated from Flushing, in Queens County, New York to
Westbury, in Nassau County, New York. CFS Bank was merged with and into New York
Community Bank on January 31, 2001. The combined bank has 86 locations serving
the greater metropolitan New York region, including 19 traditional branch
offices (17 in Queens and one each in Nassau and Suffolk counties) and 67
in-store branches throughout New York City, Nassau, Suffolk, Rockland and
Westchester counties, New Jersey, and Connecticut. Customers are also served
through the Company's web site, which delivers 24-hour access to a full range of
online banking services.
Upon completion of the acquisition, the Company embarked on an aggressive
plan to restructure the balance sheet of the combined institution. In December
2000, $620.0 million of the securities and one-to-four family mortgage loans
acquired were sold, and a portion of the proceeds was utilized to reduce the
balance of Federal Home Loan Bank ("FHLB") borrowings by $500.0 million. As a
result, the Company recorded assets of $4.7 billion at December 31, 2000, as
compared to $1.9 billion at December 31, 1999.
As the acquisition was accounted for as a purchase transaction, the
Company's 2000 earnings reflect the one-month benefit of the acquisition, as
well as the additional shares issued pursuant to the stock-for-stock exchange.
Excluding a non-recurring net charge of $11.4 million, or $0.59 per share,
incurred in connection with the acquisition, the Company recorded core earnings
of $35.9 million, or $1.84 per diluted share, in 2000, as compared to $30.1
million, or $1.59 per diluted share, in 1999.
The full-year benefit of the acquisition and of management's subsequent
actions are expected to contribute to significant earnings growth in 2001.
Management anticipates that 2001 earnings will range between $69.0 million and
$71.0 million, equivalent to diluted earnings per share of $2.54 to $2.60 (or
$1.69 to $1.73, as adjusted for a 3-for-2 stock split scheduled to occur on
March 29, 2001). Similarly, cash earnings are expected to range between $82.0
million and $85.0 million, equivalent to diluted cash earnings per share of
$3.00 to $3.05 (or $2.00 to $2.03, as adjusted for the split).
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
This report contains certain forward-looking statements with regard to the
Company's prospective performance and strategies within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The Company intends for such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995,
and is including this statement for purposes of these safe harbor provisions.
The forward-looking statements made within this report are based on
management's current expectations, but actual results may differ materially from
anticipated future results. Forward-looking statements, which are based on
certain assumptions and describe future plans, strategies, and expectations of
the Company, are generally identified by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," or similar expressions.
The Company's ability to predict results or the actual effects of future
plans or 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 of Governors; changes in the quality or composition of the
Company's loan or investment portfolios, demand for loan products, deposit
flows, competition, and demand for financial services in the Company's market
area; changes in accounting principles and guidelines; and other economic,
competitive, governmental, regulatory, and technological factors affecting the
Company's operations, pricing, and services. Specific factors that could cause
future results to vary from current management expectations are detailed from
time to time in the Company's SEC filings, including this report.
--------------------------------------------------------------------------------
Eleven
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Forward-looking statements included in this report also include, without
limitation, those statements relating to the anticipated effects of the
Company's acquisition of Haven Bancorp. The following factors, among others,
could cause the actual results of the acquisition to differ materially from the
expectations stated in this report: the ability to successfully integrate the
companies following the acquisition; the ability to fully realize the expected
cost savings and revenues; the ability to realize the expected cost savings and
revenues on a timely basis; and a materially adverse change in the financial
condition of the Company.
Readers are cautioned not to put undue reliance on these forward-looking
statements, which speak 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 have been made.
FINANCIAL CONDITION
Balance Sheet Summary
The Company recorded total assets of $4.7 billion at December 31, 2000, as
compared to $1.9 billion at December 31, 1999. The increase stemmed from the
Haven acquisition, and from the origination of $616.0 million in mortgage loans
over the course of the year. Loan growth accounted for $2.0 billion of the $2.8
billion rise in total assets, with securities available for sale and money
market investments accounting for $290.9 million and $118.6 million of the
increase, respectively.
In accordance with the post-acquisition restructuring plan announced on
June 27, 2000, the Company sold securities available for sale and one-to-four
family mortgage loans of $620.0 million upon completion of the acquisition, and
utilized the proceeds to reduce the balance of FHLB borrowings by $500.0
million. The impact of these actions is reflected in the year-end figures for
mortgage loans, securities available for sale, and borrowings.
Specifically, mortgage loans outstanding rose to $3.6 billion from $1.6
billion, while securities available for sale rose to $303.7 million from $12.8
million. In addition, the portfolio of money market investments rose to $124.6
million from $6.0 million, while the portfolio of securities held to maturity
rose $37.9 million to $222.5 million.
Despite the significant portfolio growth resulting from the acquisition,
the quality of the Company's assets was substantially maintained. At December
31, 2000, non-performing assets totaled $9.1 million, or 0.19% of total assets,
and included foreclosed real estate of $12,000 and non-performing loans of $9.1
million, or 0.25% of loans, net. In addition, the Company extended its record to
25 consecutive quarters without any net charge-offs, reducing the average of net
charge-offs recorded since 1987 to $100,000 per year.
Reflecting the acquisition, the allowance for loan losses rose $11.0
million to $18.1 million, representing 198.68% of non-performing loans and 0.50%
of loans, net.
Because the acquisition was accounted for as a purchase transaction, the
Company's assets also included goodwill of $118.1 million.
Total deposits rose $2.2 billion to $3.3 billion, the result of a $965.6
million increase in core deposits to $1.4 billion and a $1.2 billion increase in
CDs to $1.9 billion. At December 31, 2000, core deposits represented 42.5% of
total deposits, an improvement from 38.8% at December 31, 1999. Borrowings
totaled $1.0 billion at year-end 2000, reflecting the aforementioned reduction
of $500.0 million.
Supported by cash earnings of $58.0 million, stockholders' equity totaled
$307.4 million at December 31, 2000, representing 6.53% of total assets and a
book value of $11.11 per share, based on 27,678,204 shares. In addition to
distributing cash dividends totaling $17.8 million, the Company allocated $41.5
million toward the repurchase of 1.7 million Company shares over the course of
the year.
The Company maintained a solid capital position, with regulatory ratios
that continued to exceed the minimum requirements established under the Federal
Deposit Insurance Corporation Improvement Act ("FDICIA"). In addition, the Bank
continued to exceed the FDICIA requirements for classification as a "well
capitalized institution."
Loans
Reinforcing its status as one of the nation's leading multi-family
mortgage lenders, the Company originated $541.7 million in such loans over the
course of 2000, far exceeding the level recorded in every year since 1993 but
one: in 1999, the Company recorded originations of $676.8 million; the previous
record was $453.1 million in 1997.
The multi-family mortgage loan portfolio grew to $1.9 billion at December
31, 2000, representing 54.1% of mortgage loans outstanding, from $1.3 billion,
representing 84.2%, at December 31, 1999. While the concentration of
multi-family mortgage loans had grown to 86.1% at September 30, 2000, the
acquisition triggered a point-in-time change in the mix of mortgage loans.
Reflecting the acquisition, and total originations of $616.0 million, the
Company recorded mortgage loans outstanding of $3.6 billion at December 31,
2000, up $2.0 billion from the balance recorded at December 31, 1999. As a
result of the acquisition, the Company's portfolio of one-to-four family
mortgage loans rose to $1.3 billion from
--------------------------------------------------------------------------------
Twelve
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
$152.6 million; the 2000 amount also reflects originations of $6.2 million and
the sale of loans totaling $105.0 million in the last month of the year. In
addition, the portfolio of commercial real estate loans rose to $324.1 million
from $96.0 million, after originations of $59.0 million; the portfolio of
construction loans rose to $59.5 million from $4.8 million, after originations
of $9.1 million. One-to-four family mortgage loans thus represented 35.2% of
mortgage loans outstanding at the close of 2000, while commercial real estate
and construction loans represented 9.0% and 1.7%, respectively.
The concentration of multi-family mortgage loans is expected to grow over
the course of the next four quarters, together with the concentration of
commercial real estate loans. At the same time, the concentration of one-to-four
family mortgage loans is expected to decline. Effective December 1, 2000, the
Company adopted a policy of originating one-to-four family mortgage loans on a
pass-through basis. Applications are taken and processed by one of the nation's
leading mortgage brokers; upon closing, the loans are sold to the broker,
service-released. In addition to generating fee income, this arrangement enables
the Company to offer its customers an extensive range of one-to-four family
mortgage products, without incurring any of the attendant interest rate or asset
quality risk.
The concentration of multi-family and commercial real estate loans is also
expected to reflect an increase in production, as the Company capitalizes on the
greater availability of low-cost funds. As a result of the acquisition, the
Company's deposits grew $2.2 billion to $3.3 billion; for more information about
funding, see the discussion beginning on page 17 of this report.
The Company's preference for multi-family and commercial real estate
lending is based on the quality and efficiency of such assets as compared to
one-to-four family loans. For example, the Company's emphasis on local-market
multi-family loans has been substantially rewarded by the absence of any
charge-offs since 1987.
In addition, the approval process for these loans is highly efficient,
typically taking a period of four to six weeks. Multi-family and commercial real
estate loans are arranged through a select group of mortgage brokers who are
familiar with the Company's underwriting procedures, as well as its reputation
for responsiveness. As one of the few banks in the marketplace to make
multi-family mortgage loans during the last recession, the Company has been
rewarded by a steady supply of product, despite the entry of new competitors
vying for borrowers.
Multi-family and commercial real estate loans also share a different
structure, with a term of ten years and occasionally less. Such loans generally
feature a fixed rate of interest for the first five years of the mortgage,
before converting to an adjustable rate of one percentage point over prime in
each of years six through ten. Another feature of these loans is a stringent
prepayment penalty schedule. Penalties range from five percentage points to two
in years one through five of the mortgage, depending on the remaining term at
the time the loan is prepaid. While discouraging prepayments, such penalties
represent a potential source of fee income. More often, they assist the Company
in negotiating terms when refinancing a loan. In 2000, the level of prepayments
declined from the year-earlier level, a consequence of the rise in market
interest rates. The Company's multi-family mortgage loans typically refinance
within a period of three to five years.
While the Company's one-to-four family mortgage loans were typically made
to customers in Queens and Nassau counties prior to the acquisition, the market
for its multi-family and commercial real estate loans extended throughout
metropolitan New York. At December 31, 2000, 34.2% of the multi-family mortgage
loan portfolio was secured by buildings in Queens County, with Manhattan and
Brooklyn accounting for 32.6% and 18.0%, respectively. Commercial real estate
loans were largely secured by properties in Manhattan, Queens, and Nassau
County, which accounted for 32.2%, 25.0%, and 14.8% of the portfolio,
respectively. As a result of the acquisition, the market for the Company's
mortgage loans has been further expanded to encompass Suffolk, Westchester, and
Rockland counties, New Jersey, and Connecticut.
In addition to enlarging its niche in the multi-family and commercial real
estate markets, the Company will continue to selectively originate construction
loans. Like multi-family and commercial real estate loans, such loans are
brought to the Bank by a select group of mortgage brokers, representing
reputable builders of one-to-four family houses, multi-family buildings, and
office complexes. As compared to one-to-four family mortgage loans, construction
loans tend to yield a higher rate of interest; like multi-family and commercial
real estate loans, they are more efficient to make.
While other loans rose $31.0 million year-over-year to $39.7 million, the
portfolio may be expected to decline in 2001 and beyond. The Company has adopted
the same approach to consumer loan production as it has to one- to-four family
lending, originating loans on a pass-through basis since December 1, 2000. Loans
are sold, service-released, to a third-party provider within 24 hours of
closing, generating fee income for the Company. The arrangement enables the
Company to provide its customers with a choice of products, while avoiding the
attendant asset quality risk.
--------------------------------------------------------------------------------
Thirteen
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
With its source of funds now greatly enhanced, it is management's
expectation that loan production will rise substantially in 2001. At January
23rd, the Company had a pipeline of $267.3 million, primarily consisting of
multi-family mortgage loans. However, the ability to close these loans and
others in future quarters could be adversely impacted by an increase in
competition, an economic downturn, or an unexpected rise in market interest
rates.
Loan Portfolio Analysis
AT DECEMBER 31,
----------------------------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------
Percent Percent Percent
(dollars in thousands) Amount of Total Amount of Total Amount of Total
------------------------------------------------------------------------------------------------------------------------------------
MORTGAGE LOANS:
1-4 family $1,267,080 34.85% $ 152,644 9.48% $ 178,770 11.94%
Multi-family 1,945,656 53.51 1,348,351 83.72 1,239,094 82.77
Commercial real estate 324,068 8.91 96,008 5.96 67,494 4.51
Construction 59,469 1.64 4,793 0.30 1,898 0.13
-----------------------------------------------------------------------------------------------------------------------------------
Total mortgage loans 3,596,273 98.91 1,601,796 99.46 1,487,256 99.35
-----------------------------------------------------------------------------------------------------------------------------------
OTHER LOANS:
Cooperative apartment 3,726 0.10 4,856 0.30 4,802 0.32
Home equity 12,240 0.34 1,347 0.08 1,793 0.12
Passbook savings 779 0.02 331 0.02 321 0.02
Student 683 0.02 8 -- 8 --
Other 22,320 0.61 2,200 0.14 2,826 0.19
-----------------------------------------------------------------------------------------------------------------------------------
Total other loans 39,748 1.09 8,742 0.54 9,750 0.65
-----------------------------------------------------------------------------------------------------------------------------------
Total loans 3,636,021 100.00% 1,610,538 100.00% 1,497,006 100.00%
-----------------------------------------------------------------------------------------------------------------------------------
Less: Unearned discounts 18 24 22
Net deferred loan origination fees 1,553 2,404 1,034
Allowance for loan losses 18,064 7,031 9,431
-----------------------------------------------------------------------------------------------------------------------------------
Loans, net $3,616,386 $1,601,079 $1,486,519
===================================================================================================================================
Asset Quality
The Company's performance has traditionally been distinguished by a
stellar record of asset quality. At December 31, 2000, that record remained
solid, despite the dramatic portfolio growth resulting from the acquisition of
Haven Bancorp on November 30th. The Company extended its record to 25
consecutive quarters without any net charge-offs, a record unmatched by any
other New York State-based thrift.
At December 31, 2000, non-performing assets totaled $9.1 million, or 0.19%
of total assets, as compared to $2.8 million, or 0.13%, at September 30, 2000,
and to $3.2 million, or 0.17%, at December 31, 1999. Included in the year-end
2000 amount were non-performing loans of $9.1 million, as compared to $2.8
million and $3.1 million at the corresponding dates. Non-performing loans
equaled 0.25% of loans, net, at December 31, 2000, and 0.15% and 0.19% of loans,
net, respectively, at September 30, 2000 and December 31, 1999. Included in
non-performing loans at the current year-end were mortgage loans in foreclosure
totaling $6.0 million and loans 90 days or more delinquent totaling $3.1
million.
Foreclosed real estate totaled $12,000 at December 31, 2000; by
comparison, the Company had no foreclosed real estate at September 30, 2000, and
$66,000 at December 31, 1999. From time to time, properties classified as
"foreclosed real estate" are profitably rented by the Company. When this occurs,
such properties are reclassified as "real estate held for investment" and
included in "other assets" on the balance sheet. At December 31, 2000, the
Company had eight such investments totaling $697,800, and providing an 11.0%
return. At the prior year-end, the Company had 16 such properties totaling $1.6
million; the reduction reflects sales that occurred over the course of the year.
While the quality of the Company's loans reflects the strength of the
local real estate market, it also reflects the conservative credit standards
maintained. In the case of multi-family mortgage loans, management looks at the
appraised value of the property that collateralizes the credit, and, more
importantly, at the consistency of the income stream produced. The condition of
the property is another critical factor. Every multi-family building is
inspected from rooftop to basement by one or more members of the Board
--------------------------------------------------------------------------------
Fourteen
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
of Directors' Mortgage and Real Estate Committee, together with the Bank's
senior mortgage officer. Commercial real estate loans, which are typically
secured by office buildings, warehouses, or shopping centers, are evaluated in
the same way. All properties are appraised by independent appraisers whose
reports are carefully reviewed by the Company's in-house appraisal staff.
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%.
While the Company will lend up to 75% of appraised value on multi-family
buildings and commercial properties, the average loan-to-value ratio of such
credits was 56.0% and 52.0% at year-end. While the largest multi-family and
commercial real estate loans totaled $31.0 million and $31.5 million,
respectively, at December 31, 2000, the average principal balance of such loans
was $1.3 million and $933,900, respectively, at that date.
In addition, the Company originates loans within a local market that
parallels the marketplace served through its branch offices. While the market
now extends as far as Connecticut and New Jersey, the majority of multi-family
loans are secured by buildings in Queens, Manhattan, and Brooklyn, and the
majority of commercial real estate loans by properties in Manhattan, Queens, and
Nassau County. In addition, the Company's multi-family and commercial real
estate loans are primarily made through mortgage brokers whose relationship with
the Company extends back nearly 30 years.
While the Company is no longer originating one-to-four family mortgage
loans for portfolio (thus eliminating any risk to asset quality), such loans,
when made at adjustable rates, were retained for portfolio in the past. Loans
originated by Queens County Savings Bank were typically made on a limited
documentation basis, with approval depending on a thorough property appraisal
and the verification of financial assets, when furnished, in addition to a
review of the borrower's credit history. With the Haven acquisition, the Company
acquired a portfolio of one-to-four family mortgage loans that were made on a
full or alternative documentation basis, underwritten to standards established
by the Federal National Mortgage Association ("▇▇▇▇▇▇ ▇▇▇").
Other dissimilarities have to do with the loan-to-value ratio required and
the area where such loans were made. Whereas Queens County Savings Bank would
lend up to 85% of a home's appraised value with private mortgage insurance, and
up to 75% without PMI, CFS Bank would lend up to 90% and 80%, respectively. In
addition, while the Company's one-to-four family loans were secured by
properties in Queens and Nassau counties, the loans originated by CFS Bank were
secured by properties in an expanded market encompassing the greater
metropolitan New York region, including New Jersey and Connecticut.
While delinquencies have been minimal, the Company maintains specific
procedures to ensure that problems, when they occur, are rapidly identified and
addressed. In the case of multi-family and commercial real estate loans, the
borrower is personally contacted within 20 days of non-payment; in the case of
one-to-four family mortgage loans, the borrower is notified by mail within 20
days.
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, or by a decline in real estate values or in the local economy. To
minimize the impact of credit risk, the Company maintains coverage through an
allowance for loan losses that rose to $18.1 million at December 31, 2000 from
$7.0 million at December 31, 1999. The 2000 amount is equivalent to 198.68% of
non-performing loans and 0.50% of loans, net. In addition, the allowance
represents 1,290.29% of total net charge-offs since 1987, when the last major
downturn in the real estate market began.
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. The allowance is based on management's periodic evaluation of its
adequacy, taking into consideration known and inherent risks in the portfolio,
the Bank's past loan loss experience, adverse situations which may affect its
borrowers' ability to pay, overall portfolio quality, and current and
prospective economic conditions.
The policy of the Company is to segment the allowance to correspond to the
various types of loans in the loan portfolio. These loan categories are assessed
with specific emphasis on the underlying collateral, which corresponds to the
respective levels of quantified and inherent risk. The initial assessment takes
into consideration non-performing loans and the valuation of the collateral
supporting each loan. Non-performing loans are risk-weighted based upon an aging
schedule that typically depicts either (1) delinquency, a situation in which
repayment obligations are at least 90 days in arrears, or (2) serious
delinquency, a situation in which legal foreclosure action has been initiated.
Based upon this analysis, a quantified risk factor is assigned to each type of
non-performing loan. This results in an allocation to the overall allowance for
the corresponding type and severity of each non-performing loan category.
Performing loans are also reviewed by collateral type, with similar risk
factors being assigned. These risk factors take into consideration, among other
matters, the borrower's ability to pay and the Bank's past loan loss experience
with each type of loan. The performing loan categories are also assigned
quantified risk factors, which result in allocations
--------------------------------------------------------------------------------
Fifteen
to the allowance that correspond to the individual types of loans in the
portfolio.
While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary, based on changes in economic
conditions beyond management's control. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the loan loss allowance. Accordingly, the Company 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
exams. Based upon all relevant and currently available information, management
believes that the current allowance for loan losses is adequate.
For more information regarding asset quality and the coverage provided by
the loan loss allowance, see the asset quality analysis that follows and the
discussion of the provision for loan losses on page 27 of this report.
Asset Quality Analysis
-----------------------------------------------------------
(dollars in thousands) 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of year $ 7,031 $ 9,431 $9,431 $9,359 $ 11,359
Loan recoveries -- -- -- 72 --
Acquired allowance 11,033 -- -- -- --
Reversal of provision for loan losses -- (2,400) -- -- (2,000)
-------------------------------------------------------------------------------------------------------------------
Balance at end of year $18,064 $ 7,031 $9,431 $9,431 $ 9,359
===================================================================================================================
NON-PERFORMING ASSETS:
Mortgage loans in foreclosure $ 6,011 $ 2,886 $5,530 $6,121 $ 6,861
Loans 90 days or more delinquent 3,081 222 663 1,571 2,798
-------------------------------------------------------------------------------------------------------------------
Total non-performing loans 9,092 3,108 6,193 7,692 9,659
Foreclosed real estate 12 66 419 1,030 627
-------------------------------------------------------------------------------------------------------------------
Total non-performing assets $ 9,104 $ 3,174 $6,612 $8,722 $ 10,286
===================================================================================================================
RATIOS:
Non-performing loans to loans, net 0.25% 0.19% 0.42% 0.55% 0.84%
Non-performing assets to total assets 0.19 0.17 0.38 0.54 0.76
Allowance for loan losses to non-performing loans 198.68 226.22 152.28 122.61 96.90
Allowance for loan losses to loans, net 0.50 0.44 0.63 0.68 0.82
Allowance for loan losses to accumulated
net charge-offs since 1987 1,290.29 493.06 661.36 661.36 625.00
===================================================================================================================
Securities and Money Market Investments
The acquisition of Haven Bancorp triggered a significant year-over-year
increase in the portfolios of securities held to maturity, securities available
for sale, and money market investments.
While the Company had begun to enrich its asset mix with an increase in
securities held to maturity prior to the acquisition, the portfolio of such
assets rose 20.2% to $222.5 million at December 31, 2000 from $184.6 million at
December 31, 1999. The growth in the portfolio of securities held to maturity
primarily stemmed from a $21.7 million rise in capital trust notes to $25.2
million and a $31.2 million rise in FHLB stock to $72.0 million, offsetting a
$15.0 million reduction in U.S. Government and agency obligations to $125.3
million. At December 31, 2000, the market value of the portfolio was $220.6
million, or 99.1% of carrying value, as compared to $180.2 million, or 97.6% of
carrying value, at the prior year-end.
Reflecting the acquisition, and the sale of $515.0 million in securities
available for sale in December, the balance of such assets totaled $303.7
million at December 31, 2000, as compared to $12.8 million at December 31, 1999.
The 2000 amount consisted of mortgage-backed securities with an estimated market
value of $161.0 million, and debt and equity securities with an estimated market
value of $142.7 million. It is management's intention to sell approximately $40
million of such securities in the first quarter of 2001.
At December 31, 2000, the balance of money market investments rose to
$124.6 million from $6.0 million at December 31, 1999. The Company's money
market investments consist entirely of federal funds sold.
Mortgage-backed Securities Held to Maturity
Reflecting principal prepayments, and the absence of any new investments
since October 1994, the portfolio of mortgage-backed securities held to maturity
declined to $1.9 million at December 31, 2000 from $2.1 million at
--------------------------------------------------------------------------------
Sixteen
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
December 31, 1999. The market value of the portfolio declined to $2.0 million,
or 102.9% of carrying value, from $2.1 million, or 102.0% of carrying value, at
the corresponding dates.
Sources of Funds
The demand for funding increased significantly during 2000, as the Company
stepped up its share repurchase program in anticipation of the acquisition, and
produced $616.0 million in mortgage loans.
To supplement the funding provided by its deposits, the Company accessed
its FHLB line of credit throughout 2000, and also issued $25.0 million in trust
preferred securities. Borrowings thus rose to $1.0 billion at December 31, 2000,
from $636.4 million, the December 31, 1999 level, after paying down $500.0
million of the balance in the last month of the year. While the Company would
expect to re-leverage at some time in the future, the significant volume of
low-cost funds acquired through the Haven transaction substantially reduces its
reliance on the use of higher cost borrowings.
The Company's funding also stems from more traditional sources, including
deposits, interest payments on loans and other investments, loan prepayments,
and the maturities of securities and mortgage-backed securities. Deposits
totaled $3.3 billion at year-end 2000, a $2.2 billion increase from $1.1 billion
at year-end 1999. Included in the 2000 amount were core deposits of $1.4
billion, representing 42.5% of the total, up $965.6 million from $417.8 million,
representing 38.8%. Included in the increase were a $616.0 million rise in NOW
and money market accounts to $719.4 million; a $218.1 million rise in savings
accounts to $492.6 million; and a $131.5 million rise in non-interest-bearing
accounts to $171.4 million. NOW and money market accounts thus represented 22.1%
of total deposits, while savings accounts and non-interest-bearing accounts
represented 15.1% and 5.3%, respectively. While the balance of CDs rose to $1.9
billion from $658.3 million, the concentration of CDs declined to 57.5% of total
deposits from 61.2%.
The level of deposits depends on a combination of factors, including
market interest rates and competition with other banks. The Company vies for
deposits by emphasizing convenience, and by offering an array of financial
products consistent with those expected of a full-service bank. With a network
of 86 offices and an expanded product menu, the Company is well positioned to
attract and maintain a solid customer base.
Market Risk and Interest Rate Sensitivity
Given the influence of market interest rates on net interest income,
interest rate volatility is the Company's primary market risk. In order to
manage its interest rate risk, the Company strives to maintain an appropriate
balance between the interest rate sensitivity of its interest-earning assets and
the interest rate sensitivity of its interest-bearing liabilities. The Company
also monitors its interest rate exposure by analyzing, under a variety of
interest rate scenarios, estimated changes in the market value of its assets and
liabilities.
Interest rate sensitivity is determined by analyzing 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. This difference, or "gap," suggests
the extent to which the Company's net interest income may be affected by future
changes in market interest rates. A gap is considered "positive" when the amount
of interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities, and "negative" when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. In a rising
rate environment, a company with a negative gap would generally be expected,
absent the impact of other factors, to experience a greater increase in the cost
of its liabilities relative to the yields on its assets, resulting in a
reduction in the company's net interest income. A company with a positive gap
would generally be expected to experience the opposite result in a rising rate
environment. Conversely, during a period of falling interest rates, a negative
gap would tend to result in an increase in net interest income, while a positive
gap would have an opposite, adverse effect.
At December 31, 2000, the cumulative gap between the Company's interest
rate sensitive assets and interest rate sensitive liabilities repricing within a
one-year period was $491.3 million, representing a negative gap of 10.43%. At
the prior year-end, the cumulative one-year gap between the Company's interest
rate sensitive assets and liabilities was $835.9 million, representing a
negative gap of 43.84%.
With the acquisition of Haven Bancorp, the Company has enhanced its
ability to manage interest rate risk. The sale of securities and one-to-four
family mortgage loans enabled the Bank to reduce its balance of FHLB borrowings
and higher cost deposits in December 2000, and will facilitate further
reductions in the first quarter of 2001. In addition, the Company now has access
to a substantially larger pool of low-cost core deposits to fund the production
of higher yielding multi-family and commercial real estate loans.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 2000 which, based on
certain assumptions, are expected to reprice or mature in each of the time
periods shown. Except as stated, the amount of assets and liabilities shown to
reprice or mature within a particular time period was determined in accordance
with the earlier of (a) the term to repricing or (b) the contractual terms of
--------------------------------------------------------------------------------
Seventeen
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
the asset or liability. The interest rate sensitivity analysis utilizes the
format and assumptions for disclosure for an interest rate sensitivity gap table
required by the FDIC and the New York State Banking Department and, based on the
Bank's historical experience during the ten years ended December 31, 2000,
reflects the following decay rates: 11.20% for savings accounts; 15.03% for
money market accounts; and 22.24% for NOW and Super NOW accounts. No decay rate
has been applied for CDs. In addition, management has assumed no prepayments of
the Company's loans in the preparation of this table; therefore, the assumptions
used may not be indicative of future withdrawals of deposits or prepayments of
loans. Loan prepayments and scheduled principal amortization totaled $178.3
million in the twelve months ended December 31, 2000, as compared to $135.1
million in the twelve months ended December 31, 1999.
As this analysis does not necessarily indicate the impact of changes in
market interest rates on the Company's net interest income, certain assets and
liabilities indicated as repricing within a stated period or at a stated rate of
interest may, in fact, reprice at a different time or interest rate.
Interest Rate Sensitivity Analysis
AT DECEMBER 31, 2000
-------------------------------------------------------
Three Four to More Than More Than
Months Twelve One Year to Three Years
(dollars in thousands) or Less Months Three Years to Five Years
---------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS:
Mortgage and other loans $180,832 $ 402,830 $ 536,085 $1,691,278
Securities 214,718 -- 125,327 --
Mortgage-backed securities(1) 161,032 450 1,473 --
Money market investments 124,622 -- -- --
---------------------------------------------------------------------------------------------------
Total interest-earning assets 681,204 403,280 662,885 1,691,278
---------------------------------------------------------------------------------------------------
Less: Unearned discounts and deferred fees 393 1,178 -- --
---------------------------------------------------------------------------------------------------
Net interest-earning assets 680,811 402,102 662,885 1,691,278
---------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Savings accounts 13,793 40,220 49,122 43,621
NOW and Super NOW accounts 10,060 28,501 31,663 24,621
Money market accounts 20,234 77,894 66,187 56,239
Certificates of deposit 485,990 877,544 462,615 47,661
Borrowings -- 20,000 60,000 31,609
---------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 530,077 1,044,159 669,587 203,751
---------------------------------------------------------------------------------------------------
Interest sensitivity gap per period $150,734 $ (642,057) $ (6,702) $1,487,527
===================================================================================================
Cumulative interest sensitivity gap $150,734 $ (491,323) $(498,025) $ 789,502
===================================================================================================
Cumulative interest sensitivity gap
as a percentage of total assets 3.20% (10.43)% (10.57)% 20.96%
Cumulative net interest-earning assets
as a percentage of net interest-bearing
liabilities 128.44 68.79 77.80 140.43
===================================================================================================
AT DECEMBER 31, 2000
---------------------------------------
More than More
Five Years than
(dollars in thousands) to 10 Years 10 Years Total
-----------------------------------------------------------------------------------
INTEREST-EARNING ASSETS:
Mortgage and other loans $ 761,714 $ 63,282 $3,636,021
Securities -- 25,191 365,236
Mortgage-backed securities(1) -- -- 162,955
Money market investments -- -- 124,622
-----------------------------------------------------------------------------------
Total interest-earning assets 761,714 88,473 4,288,834
-----------------------------------------------------------------------------------
Less: Unearned discounts and deferred fees -- -- 1,571
-----------------------------------------------------------------------------------
Net interest-earning assets 761,714 88,473 4,287,263
-----------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Savings accounts 38,735 307,113 492,604
NOW and Super NOW accounts 19,145 66,938 180,928
Money market accounts 47,786 270,152 538,492
Certificates of deposit -- -- 1,873,810
Borrowings 850,596 75,300 1,037,505
-----------------------------------------------------------------------------------
Total interest-bearing liabilities 956,262 719,504 4,123,339
-----------------------------------------------------------------------------------
Interest sensitivity gap per period $(194,548) $(631,031) $ 163,924
===================================================================================
Cumulative interest sensitivity gap $ 794,954 $ 163,924
===================================================================================
Cumulative interest sensitivity gap
as a percentage of total assets 16.88% 3.48%
Cumulative net interest-earning assets
as a percentage of net interest-bearing
liabilities 123.35 103.98
===================================================================================
(1) Based on historical repayment experience.
Management also monitors the Company's interest rate sensitivity through
an analysis of the change in net portfolio value ("NPV"), which is defined as
the net present value of the expected future cash flows of an entity's assets
and liabilities. Hypothetically, NPV represents the market value of an
institution's net worth.
Increases in the market value of a company's assets will increase the NPV,
whereas declines in the market value of its assets will reduce the NPV.
Conversely, increases in the market value of a company's liabilities will reduce
the NPV, whereas declines in the market value of its liabilities will increase
the NPV. Changes in the market value of assets and liabilities due to changes in
interest rates reflect the interest rate sensitivity of those assets and
liabilities, since their values are derived from the rate characteristics (e.g.,
fixed or adjustable, cap or floor) of the asset or liability relative to the
interest rate environment. For example, in a rising interest rate environment,
the market value of a fixed rate asset will decline, whereas the market value of
an adjustable rate asset, depending on its repricing characteristics, may not
necessarily decline.
--------------------------------------------------------------------------------
Eightteen
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
The NPV ratio, under any interest rate scenario, is defined as the NPV in
said scenario, divided by the market value of assets in the same scenario. This
ratio, referred to in the following NPV analysis, initially measures percentage
changes from the value of the projected NPV in a given rate scenario and then
measures interest rate sensitivity by the change in the NPV ratio over a range
of interest rate scenarios. For the purpose of the following NPV analysis,
deposit decay rates similar to those employed in the Interest Rate Sensitivity
Analysis were used.
The NPV analysis is based on simulations that utilize institution-specific
assumptions with regard to future cash flows, including customer options such as
period and lifetime caps, and deposit withdrawal estimates. The NPV analysis
uses discount rates derived from various sources, primarily including, but not
limited to, Treasury yield curves.
The discount rates used for mortgage loans were based on market rates for
new loans of similar type and purpose, and adjusted, when necessary, for factors
such as servicing cost, credit risk, and term. The discount rates used for CDs
and FHLB borrowings were based on rates that approximate the rates offered by
the Company for deposits and FHLB borrowings of similar remaining maturities.
The analysis calculates the NPV at a flat rate scenario by computing the present
value of the cash flows of interest-earning assets, less the present value of
interest-bearing liabilities. Certain assets, including fixed assets and real
estate held for investment, are assumed to remain at book value (net of a
valuation allowance), regardless of the interest rate scenario. Other
non-interest-earning assets and non-interest-bearing liabilities, such as
deferred fees, unamortized premiums, and accrued expenses and other liabilities,
are excluded from the NPV calculation.
The following analysis sets forth the Company's NPV at December 31, 2000,
as calculated by the Company, for instantaneous and sustained changes in
interest rates relative to the NPV in a changing interest rate environment.
Net Portfolio Value Analysis
Market Value
of Portfolio
Change in Net Projected
Interest Rates Portfolio Net % Change
(in basis points) Value Change to Base
--------------------------------------------------------------------------------
+200 $302,679 $(16,353) (5.13)%
+100 304,846 (14,186) (4.45)
-- 319,032 -- --
-100 320,668 1,636 0.51
-200 327,883 8,851 2.77
================================================================================
As with the Interest Rate Sensitivity Analysis, certain shortcomings are
inherent in the methodology used in the above interest rate risk measurements.
In order to model changes in NPV, certain assumptions must 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 model assumes that the
composition of the Company's interest rate sensitive assets and liabilities at
the beginning of a period remain constant over the period being measured. In
addition, the model assumes that a particular change in interest rates is
immediate and is reflected uniformly across the yield curve, regardless of the
duration to maturity or repricing schedule of specific assets and liabilities.
Assumptions within the model are also subjective in nature and, therefore,
cannot be determined with precision. Thus, while the NPV measurements, in
theory, may provide an indication of the Company's exposure to interest rate
risk 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 portfolio value, and therefore may differ from actual
results.
Liquidity and Capital Position
Liquidity
As previously noted, the Company's primary funding sources have been
borrowings and deposits. Additional funding has stemmed from interest and
principal payments on loans, securities, and mortgage-backed securities, and the
sale of loans and foreclosed real estate. While borrowings and the scheduled
amortization of loans and securities are more predictable funding sources,
deposit flows and mortgage prepayments are subject to such external factors as
economic conditions, competition, and market interest rates.
The Company primarily invests in mortgage loan originations and
supplements such investments with the purchase of short-term securities. In
2000, the net cash used in investing activities totaled $2.2 billion, primarily
reflecting a $2.0 billion net increase in loans, the purchase of securities
available for sale totaling $738.4 million, and proceeds from the redemption and
sales of securities available for sale totaling $447.5 million. In addition to
loans, net, of $2.2 billion acquired through the Haven transaction, the net
--------------------------------------------------------------------------------
Nineteen
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
increase in loans reflects mortgage originations of $616.0 million, offset by
repayments and prepayments totaling $185.5 million.
The net cash used in operating activities totaled $103.1 million,
including $118.1 million in goodwill stemming from the Haven acquisition and a
$36.9 million increase in deferred income taxes. These expenses were partly
offset by a $13.5 million net gain on the sale of the Company's former
headquarters in Flushing, New York.
The Company's investing and operating activities were funded by internal
cash flows generated by financing activities. In 2000, the net cash provided by
financing activities totaled $2.5 billion. Included in the latter amount was a
$2.2 billion net increase in deposits, largely stemming from the Haven
acquisition, and a $401.1 million net increase in borrowings.
The Company monitors its liquidity position on a daily basis to ensure
that sufficient funds are available to meet its financial obligations, including
outstanding loan commitments and withdrawals from depository accounts. The
Company's most liquid assets are cash and due from banks and money market
investments, which collectively totaled $257.7 million and $37.2 million at
December 31, 2000 and 1999, respectively. The Company also had securities
available for sale of $303.7 million and $12.8 million at the corresponding
dates. Additional liquidity is available through the Bank's FHLB line of credit,
totaling $1.9 billion at year-end 2000, and a $10.0 million line of credit with
a money center bank.
At January 23, 2001, the Bank had mortgage loans totaling $267.3 million
in the pipeline, which management anticipates having the ability to fund. In
addition, CDs due to mature in one year or less from December 31, 2000 totaled
$1.4 billion; based upon its historic retention rate, as well as current
pricing, management believes that a significant portion of such deposits will
remain with the Bank.
Capital Position
The Company took an aggressive approach to capital management throughout
2000 and has already demonstrated that it will do so again in 2001. In 2000, the
Company distributed cash dividends totaling $17.8 million and allocated $41.5
million toward the repurchase of 1.7 million shares of Company stock.
At December 31, 2000, 1.2 million shares remained available for repurchase
under the authorization announced on June 27, 2000. Primarily reflecting shares
repurchased pursuant to option exercises by former Haven officers and employees,
all but 80,000 of the 1.2 million shares had been repurchased by February 6,
2001. Accordingly, on that date, the Board of Directors authorized an additional
one-million share repurchase; on a post-split basis, the number of shares
authorized will increase to 1.5 million, effective March 29, 2001. The timing of
any repurchases will depend on market conditions, as well as the implementation
of other corporate strategies.
The magnitude of the Company's share repurchase program is a strong
indication of management's confidence in the Company's capital strength.
Reflecting cash earnings of $58.0 million and shares issued pursuant to the
Haven acquisition in the amount of $174.3 million, stockholders' equity totaled
$307.4 million at December 31, 2000, equivalent to 6.53% of total assets and a
book value of $11.11 per share, based on 27,678,204 shares. At December 31,
1999, stockholders' equity totaled $137.1 million, representing 7.19% of total
assets and a book value of $7.52 per share, based on 18,233,153 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, 2000, the number of unallocated ESOP shares totaled
1,901,920; at the prior year-end, the number of unallocated ESOP shares was
2,776,974.
At December 31, 2000, the level of stockholders' equity was more than
sufficient to exceed the minimum federal requirements for a bank holding
company. The Company's leverage capital totaled $264.5 million, or 8.75% of
adjusted average assets; its Tier 1 and total risk-based capital amounted to
$264.5 million and $282.6 million, representing 9.70% and 10.37% of
risk-weighted assets, respectively. At the prior year-end, the Company's
leverage capital totaled $136.2 million, or 6.73% of adjusted average assets;
its Tier 1 and total risk-based capital amounted to $136.2 million and $143.3
million, representing 10.75% and 11.30% of risk-weighted assets, respectively.
RESULTS OF OPERATIONS
Earnings Summary
2000 and 1999 Comparison:
The Company acquired Haven Bancorp on November 30, 2000 in a purchase
transaction calling for the exchange of 1.04 Company shares for each share of
Haven Bancorp stock held at that date. Accordingly, the Company's 2000 earnings
reflect one month of combined operations, and its earnings per share reflect the
addition of 9,827,744 Company shares.
In addition, the Company realized a non-recurring net charge of $11.4
million, or $0.59 per share, in connection with the acquisition. Excluding this
charge, the Company recorded core earnings of $35.9 million in 2000, as compared
to core earnings of $30.1 million in 1999. The 2000 amount was equivalent to
diluted core earnings per share of $1.84, as compared to $1.59 in the
year-earlier period, and provided a core ROA and ▇▇▇ of 1.56% and 19.40%,
respectively. Core earnings for 1999 exclude a non-recurring net benefit of $1.1
million, or $0.06 per share, stemming from
--------------------------------------------------------------------------------
Twenty
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
the reversal of $2.0 million from the allowance for loan losses in the first
quarter, and a non-recurring net benefit of $472,000, or $0.02 per share,
stemming from certain actions taken in the third and fourth quarters of the year
to reduce operating expense.
The non-recurring net charge in 2000 was comprised of two
acquisition-related components: compensation and benefits expense of $22.8
million stemming from the distribution of ESOP shares, and other operating
income of $13.5 million stemming from the sale of the Company's former
headquarters in Flushing, New York. Reflecting the net impact of these
non-recurring items, the Company recorded earnings of $24.5 million, or $1.25
per diluted share, in 2000, as compared to $31.7 million, or $1.67 per diluted
share, in 1999.
At the same time, the Company's cash earnings rose to $58.0 million, or
$2.97 per diluted share, in 2000 from $44.3 million, or $2.34 per diluted share,
in the prior year. The Company's cash earnings thus contributed $33.5 million,
or 137.0%, more to capital than its reported earnings alone. The dramatic
difference in capital creation is further demonstrated by comparing the returns
on average assets and average stockholders' equity provided by the Company's
reported earnings for 2000 and the returns provided by its cash earnings during
the same twelve-month period. On the basis of reported earnings, the Company
recorded an ROA and ▇▇▇ of 1.06% and 13.24%, respectively; in contrast, the
Company's cash ROA and ▇▇▇ were 2.52% and 31.38%.
Excluding the impact of the non-recurring items, the growth in core
earnings was primarily driven by a $5.6 million increase in core other operating
income to $8.1 million and a $4.2 million increase in net interest income to
$73.1 million. Other operating income was fueled by a $2.7 million rise in fee
income, primarily stemming from the sale of banking services and investment
products, and by a $2.9 million rise in core other income, including $1.9
million stemming from the Company's investment in Bank-owned Life Insurance at
December 30, 1999.
The growth in net interest income was the net effect of a $31.7 million
rise in interest income to $174.8 million and a $27.5 million rise in interest
expense to $101.8 million. Pressured by a ▇▇▇-▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ in market
interest rates and the increased use of short-term borrowings, the Company's
interest rate spread and net interest margin declined 41 and 46 basis points,
respectively, to 3.00% and 3.33%.
Earnings were further boosted by a $347,000 reduction in income tax
expense to $20.4 million, notwithstanding a $7.5 million reduction in pre-tax
income to $44.9 million.
The growth in core earnings was partly offset by a $4.7 million rise in
core operating expense to $27.0 million, or 1.17% of average assets, largely
reflecting post-acquisition increases in compensation and benefits and occupancy
and equipment expense. The $4.7 million includes $494,000 in goodwill
amortization stemming from the Haven acquisition. Despite the higher levels of
net interest income and other operating income, the core efficiency ratio rose
to 35.72% from 28.70% in the year-earlier period; however, the cash efficiency
ratio improved to 24.47% from 26.37%.
In addition, while the Company suspended the provision for loan losses
throughout 2000, the Company's 1999 results reflect the reversal of $2.0 million
from the loan loss allowance in the first quarter, which had a net benefit of
$1.1 million, or $0.06 per share.
Recognizing the magnitude of the Haven acquisition, and of the subsequent
balance sheet restructuring, it is currently management's expectation that the
Company's 2001 earnings will range between $69.0 million and $71.0 million,
equivalent to diluted earnings per share of $2.54 to $2.60 (or $1.69 to $1.73,
as adjusted for the aforementioned 3-for-2 stock split on March 29, 2001). Cash
earnings are currently expected to range between $82.0 million and $85.0
million, equivalent to diluted cash earnings per share of $3.00 to $3.05 (or
$2.00 to $2.03, as adjusted for the split).
These estimates are based on certain management expectations regarding the
growth of net interest income, interest rate spread, and net interest margin in
a favorable interest rate environment; the growth of other operating income from
the sale of financial products and services in an expanded branch network; and
the stabilization of operating expense and the effective tax rate. The earnings
estimates also presume the continued suspension of the loan loss provision,
based on assumptions made regarding the continuing quality of the loan portfolio
and the current level of market interest rates. Estimates regarding cash
earnings and diluted cash earnings per share are based on assumptions regarding
a combination of factors, including share repurchases.
Specific estimates for net interest income, other operating income,
operating expense, and the effective tax rate are provided in the respective
line-item discussions that appear on pages 26, 27, 28, and 29 of this report. As
actual results may differ materially from current projections, please also see
the discussion of forward-looking statements and risk factors that appears on
page 11.
1999 and 1998 Comparison:
The Company recorded core earnings of $30.1 million in the twelve months
ended December 31, 1999, up $3.2 million, or 11.8%, from $26.9 million in 1998.
On a diluted per share basis, the Company's core earnings rose to $1.59 from
$1.34 in the year-earlier period, representing an increase of 18.7%.
The 1999 amounts exclude the net benefit of certain non-recurring actions
taken by management in the first, third, and fourth quarters of the year. In the
first quarter
--------------------------------------------------------------------------------
Twenty-One
of 1999, the Company reversed $2.0 million from the allowance for loan losses in
recognition of the portfolio's strong performance and the level of coverage
provided for its non-performing loans. The net benefit of the reversal was $1.1
million, equivalent to $0.06 per share. In the third quarter of the year, the
Company froze its defined benefit pension plan, which resulted in a one-time
gain of $1.6 million and offset a one-time charge of $735,000 following the
implementation of an early retirement window in the fourth quarter of the year.
The net benefit of these two actions was a $472,000 increase in 1999 earnings,
equivalent to $0.02 per share.
Reflecting these actions, the Company's 1999 earnings rose to $31.7
million, or $1.67 on a diluted per share basis, representing an ROA of 1.69% and
an ▇▇▇ of 22.99%. The Company also reported 1999 cash earnings of $44.3 million,
or $2.34 on a diluted per share basis, representing a cash ROA of 2.37% and a
cash ▇▇▇ of 32.21%. The Company's 1999 cash earnings contributed $12.7 million,
or 40.1%, more to capital than its 1999 GAAP earnings alone.
The Company's 1999 earnings growth was driven by an increase in net
interest income and a reduction in operating expense. Net interest income rose
to $68.9 million in 1999 from the year-earlier $68.5 million, despite declines
in the spread and margin to 3.41% and 3.79%, respectively. The higher level of
net interest income was the net effect of an $8.8 million rise in interest
income to $143.1 million and an $8.4 million rise in interest expense to $74.2
million.
The Company's earnings also reflect a $4.6 million reduction in operating
expense to $21.4 million, or 1.14% of average assets, stemming in part from the
cost containment measures cited above. Reflecting the reduction in operating
expense and the rise in net interest income, the Company's efficiency ratio
improved to 29.95% from 36.51% on a GAAP earnings basis and, on a cash earnings
basis, to 26.37% from 27.05%.
The growth in 1999 earnings was tempered by a decline in other operating
income, as well as by an increase in income tax expense. Other operating income
totaled $2.5 million in 1999, down $31,000 from the year-earlier total, the net
effect of a $248,000 drop in fee income to $1.9 million and a $217,000 increase
in other income to $660,000. Reflecting a $7.3 million, or 16.2%, rise in
pre-tax income to $52.4 million, income tax expense rose $2.6 million to $20.8
million in 1999.
Cash Earnings Analysis(1)
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
(in thousands, except per share data) 2000 1999 1998
-----------------------------------------------------------------------------------------------------
Net income $24,477 $31,664 $26,944
Additional contributions to tangible stockholders' equity:
Amortization and appreciation of stock-related benefit plans 24,795 2,559 6,724
Associated tax benefits 5,953 7,269 8,071
Other 2,776 2,857 2,019
-----------------------------------------------------------------------------------------------------
Cash earnings $58,001 $44,349 $43,758
-----------------------------------------------------------------------------------------------------
Cash earnings per share $ 3.08 $ 2.39 $ 2.29
Diluted cash earnings per share 2.97 2.34 2.17
-----------------------------------------------------------------------------------------------------
(1) Effective January 1, 2001, the calculation of cash earnings will include the
amortization of goodwill stemming from the Haven acquisition.
Interest Income
In any given period, the level of interest income depends upon the average
balance and mix of the Company's interest-earning assets, the yields on said
assets, and the current level of market interest rates. These rates are
influenced by the Federal Open Market Committee ("FOMC") of the Federal Reserve
Board of Governors, which reduces, maintains, or increases the federal funds
rate (the rate at which banks borrow funds from one another), as it deems
necessary. The federal funds rate rose 100 basis points between February and May
2000, leveling off at 6.50% for the remainder of the year.
2000 and 1999 Comparison:
The Company recorded interest income of $174.8 million in 2000, a 22.2%
increase from $143.1 million in 1999. The $31.7 million increase reflects a
$372.8 million, or 20.5%, rise in average interest-earning assets to $2.2
billion, coupled with an 11-basis point rise in the average yield to 7.97%.
Fueled by mortgage originations of $616.0 million, mortgage and other
loans generated $151.6 million of total interest income in 2000, up 15.2% from
$131.6 million in 1999. The increase was the net effect of a $271.7 million, or
16.7%, rise in the average balance of loans to $1.9 billion, and a ten-basis
point drop in the average yield to 7.97%. Loans represented 86.7% of average
interest-earning assets and generated 86.7% of total interest income in 2000, as
compared to 89.6% and 92.0%, respectively, in 1999.
Additional interest income stemmed from the Company's portfolios of
securities, mortgage-backed securities ("MBS"), and money market investments,
which increased significantly
--------------------------------------------------------------------------------
Twenty-Two
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
with the acquisition of Haven Bancorp. In connection with the acquisition, each
of these portfolios was marked to market, which contributed to the meaningful
rise in average yields detailed below.
Securities generated interest income of $18.0 million in 2000, up 76.8%
from $10.2 million in 1999. The increase stemmed from a $58.2 million, or 34.9%,
rise in the average balance of securities to $225.0 million, together with a
▇▇▇-▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ in the average yield to 7.99%. In 2000, securities
represented 10.3% of average interest-earning assets and generated 10.3% of
total interest income, as compared to 9.2% and 7.1%, respectively, in the prior
year.
The interest income derived from MBS rose $2.9 million to $3.8 million,
the result of a $27.9 million, or 213.0%, increase in the average balance of MBS
to $40.9 million and a 244-basis point increase in the average yield to 9.27%.
MBS represented 1.9% of average interest-earning assets and generated 2.2% of
total interest income in 2000, up from 0.7% and 0.6% in the prior year.
Money market investments contributed interest income of $1.4 million, up
from $443,000 in 1999. The increase reflects a $15.1 million rise in the average
balance of money market investments to $24.4 million and a ▇▇▇-▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
in the average yield to 5.89%. In 2000 and 1999, money market investments
represented 1.1% and 0.5% of interest-earning assets, respectively, and
generated 0.8% and 0.3%, respectively, of total interest income.
In 2001, the Company's interest income is expected to reflect a
significant change in the mix of average interest-earning assets, as well as a
reduction in market interest rates. This expectation is based on a combination
of factors. First, the Company sold securities and one-to-four family loans of
$620.0 million in December 2000, and anticipates selling an additional $500.0
million to $700.0 million of such interest-earning assets in the first quarter
of 2001. At the same time, the Company intends to take advantage of the
significant growth in deposits triggered by the Haven acquisition to increase
its production of multi-family mortgage loans. These actions will be taken in an
interest rate environment expected to favor loan production, as the FOMC reduced
the federal funds rate a total of 100 basis points in January and February,
bringing it to the year-earlier level, 5.50%.
1999 and 1998 Comparison:
In 1999, the Company originated a record level of multi-family mortgage
loans and increased its commercial real estate lending while, at the same time,
increasing its investments in securities. These actions combined to produce a
$205.8 million, or 12.7%, rise in the average balance of interest-earning assets
to $1.8 billion, generating an $8.8 million rise in interest income
year-over-year. Specifically, interest income rose to $143.1 million from $134.3
million, the net effect of the higher average balance and a 46-basis point
decline in the average yield to 7.86%.
The interest income produced by mortgage and other loans rose $7.8 million
to $131.6 million from the year-earlier level, the net effect of a $186.1
million increase in the average balance to $1.6 billion and a 50-basis point
decline in the average yield to 8.07%.
The interest income derived from securities rose $2.7 million to $10.2
million, the net effect of a $48.2 million increase in the average balance to
$166.7 million and a 19-basis point drop in the average yield to 6.10%. While
the Company increased its securities portfolio during the year, the higher
average balance also reflects the reclassification of certain mortgage-backed
securities as securities available for sale, effective April 1, 1999. Reflecting
the reclassification, as well as scheduled repayments, the average balance of
mortgage-backed securities declined to $13.1 million from $36.8 million in 1998.
The interest income produced by mortgage-backed securities fell to $893,000 from
$2.3 million, the net effect of the lower average balance and a 47-basis point
rise in the average yield to 6.83%.
Money market investments generated interest income of $443,000, down from
$691,000 in the year-earlier twelve months. Reflecting management's focus on
mortgage lending, the average balance of money market investments declined to
$9.3 million from $14.1 million, in tandem with a 13-basis point drop in the
average yield to 4.76%.
Interest Expense
The level of interest expense is driven by the average balance and
composition of the Company's interest-bearing liabilities and by the respective
costs of the funding sources found within this mix. These factors are
influenced, in turn, by competition for deposits and by the level of market
interest rates.
2000 and 1999 Comparison:
The Company recorded interest expense of $101.8 million in 2000, a 37.1%
increase from $74.2 million in 1999. The increase stemmed from a $380.4 million
rise in the average balance of interest-bearing liabilities to $2.0 billion and
a 52-basis point rise in the average cost to 4.97%.
Borrowings generated interest expense of $49.3 million in 2000, up from
$30.3 million in 1999. The $19.0 million increase reflects a $247.7 million rise
in the average balance of borrowings to $817.8 million and a 72-basis point rise
in the average cost to 6.03%. The higher average balance reflects the Company's
use of borrowings to originate loans
--------------------------------------------------------------------------------
Twenty-Three
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
and repurchase shares in anticipation of the acquisition; while not reflected in
the average balance for 2000, the volume of borrowings for the combined company
was reduced by $500.0 million at year-end. Although borrowings represented 39.9%
of interest-bearing liabilities and generated 48.5% of total interest expense in
2000 (versus 34.2% and 40.8%, respectively, in the year-earlier period), they
are expected to figure far less significantly in the calculation of interest
expense in 2001.
The interest expense produced by CDs rose $6.1 million year-over-year to
$41.2 million, the result of a $33.6 million increase in the average balance to
$748.1 million and a 58-basis point increase in the average cost to 5.50%. CDs
represented 36.5% of average interest-bearing liabilities and generated 40.5% of
total interest expense in 2000, as compared to 42.9% and 47.3%, respectively, in
1999.
Other funding (NOW and money market accounts, savings accounts,
mortgagor's escrow, and non-interest-bearing accounts) generated combined
interest expense of $11.2 million in 2000, up $2.5 million from the 1999 amount.
The increase was the net effect of a $122.2 million rise in the combined average
balance to $541.8 million and a two-basis point drop in the average cost to
2.08%.
NOW and money market accounts generated 2000 interest expense of $4.9
million, up $2.4 million, the result of a $78.1 million rise in the average
balance to $161.9 million and a nine-basis point rise in the average cost to
3.02%. Savings accounts generated interest expense of $6.3 million, comparable
to the year-earlier figure, the net effect of a $21.0 million rise in the
average balance to $295.4 million and a 16-basis point reduction in the average
cost to 2.15%. Mortgagors' escrow generated interest expense of $33,000, up
$4,000, reflecting a $41,000 rise in the average balance to $23.8 million and a
two-basis point rise in the average cost to 0.14%. In addition, the average
balance of non-interest-bearing accounts rose $23.1 million year-over-year to
$60.7 million.
In addition to the aforementioned reduction in market interest rates, the
Company's 2001 interest expense may be expected to reflect a greater
concentration of lower cost core deposits and a lesser concentration of higher
cost funds. While the growth in core deposits will stem from the expanded branch
network, it is management's intention to pay down the balance of higher cost
funds with the proceeds derived from the sale of certain interest-earning
assets, as previously discussed.
1999 and 1998 Comparison:
The Company's asset growth was primarily funded by an increase in FHLB
borrowings, and supported by an increase in CDs and core deposits. Interest
expense rose $8.4 million year-over-year to $74.2 million, the net effect of a
$223.4 million increase in the average balance of interest-bearing liabilities
to $1.7 billion and an 11-basis point drop in the average cost to 4.45%.
On December 29, 1999, the Company sold a $211.6 million interest in its
portfolio of multi-family mortgage loans to the Federal Home Loan Bank of New
York ("FHLB-NY"). While the balance of FHLB borrowings was significantly reduced
at year-end with the proceeds from this transaction, the reduction is not
reflected in the average balance sheet for 1999. For the twelve months ended
December 31, 1999, FHLB borrowings generated interest expense of $30.3 million,
an increase of $9.0 million, the net effect of a $172.3 million rise in the
average balance to $570.1 million and a four-basis point drop in the average
cost to 5.31%.
In 1999, CDs produced interest expense of $35.1 million, or 47.3% of the
total, down $1.1 million from the level recorded in 1998. The reduction was the
net effect of a 38-basis point decline in the average cost to 4.92% and a $30.1
million rise in the average balance to $714.5 million.
Other funding generated interest expense of $8.8 million, as compared to
$8.2 million in 1998. The $600,000 increase was entirely attributable to a $26.7
million rise in the average balance to $419.6 million, as the cost of such funds
was maintained at 2.10%.
NOW and money market accounts produced interest expense of $2.5 million,
up $512,000, reflecting a $14.0 million rise in the average balance to $83.9
million and a 15-basis point rise in the average cost to 2.93%. Savings accounts
generated interest expense of $6.3 million, up $105,000, the net effect of a
$5.8 million increase in the average balance to $274.4 million and a one-basis
point drop in the average cost to 2.31%. Mortgagors' escrow generated interest
expense of $29,000, down $17,000, the net effect of an eight-basis point drop in
the average cost to 0.12% and a $1.2 million rise in the average balance to
$23.7 million. In addition, the average balance of non-interest-bearing deposits
rose $5.7 million, or 17.8%, to $37.6 million.
--------------------------------------------------------------------------------
Twenty-Four
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
Net Interest Income Analysis
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------
2000 1999
Average Average
Average Yield/ Average Yield/
(dollars in thousands) Balance Interest Cost Balance Interest Cost
------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest-earning Assets:
Mortgage and other loans, net $1,902,821 $151,626 7.97% $1,631,168 $131,618 8.07%
Securities 224,969 17,974 7.99 166,761 10,169 6.10
Mortgage-backed securities 40,945 3,795 9.27 13,081 893 6.83
Money market investments 24,408 1,437 5.89 9,309 443 4.76
------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 2,193,143 174,832 7.97 1,820,319 143,123 7.86
Non-interest-earning assets 108,202 48,010
------------------------------------------------------------------------------------------------------------------------
Total assets $2,301,345 $1,868,329
========================================================================================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing Liabilities:
NOW and money market
accounts $ 161,941 $ 4,892 3.02% $ 83,875 $ 2,456 2.93%
Savings accounts 295,370 6,346 2.15 274,402 6,329 2.31
Certificates of deposit 748,138 41,178 5.50 714,546 35,123 4.92
Borrowings 817,775 49,302 6.03 570,077 30,283 5.31
Mortgagors' escrow 23,777 33 0.14 23,736 29 0.12
------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 2,047,001 101,751 4.97 1,666,636 74,220 4.45
Non-interest-bearing deposits 60,716 37,596
Other liabilities 8,795 26,390
------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,116,512 1,730,622
Stockholders' equity 184,833 137,707
------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $2,301,345 $1,868,329
========================================================================================================================
Net interest income/interest
rate spread $ 73,081 3.00% $ 68,903 3.41%
Net interest-earning assets/
net interest margin $146,142 3.33% $153,683 3.79%
Ratio of interest-earning assets
to interest-bearing liabilities 1.07x 1.09x
========================================================================================================================
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1998
Average
Average Yield/
(dollars in thousands) Balance Interest Cost
--------------------------------------------------------------------------------
ASSETS
Interest-earning Assets:
Mortgage and other loans, net $1,445,028 $123,784 8.57%
Securities 118,594 7,464 6.29
Mortgage-backed securities 36,782 2,338 6.36
Money market investments 14,130 691 4.89
--------------------------------------------------------------------------------
Total interest-earning assets 1,614,534 134,277 8.32
Non-interest-earning assets 43,727
--------------------------------------------------------------------------------
Total assets $1,658,261
================================================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing Liabilities:
NOW and money market
accounts $ 69,894 $ 1,944 2.78%
Savings accounts 268,558 6,224 2.32
Certificates of deposit 684,434 36,251 5.30
Borrowings 397,815 21,290 5.35
Mortgagors' escrow 22,501 46 0.20
--------------------------------------------------------------------------------
Total interest-bearing liabilities 1,443,202 65,755 4.56
Non-interest-bearing deposits 31,918
Other liabilities 27,559
--------------------------------------------------------------------------------
Total liabilities 1,502,679
Stockholders' equity 155,582
--------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $1,658,261
================================================================================
Net interest income/interest
rate spread $ 68,522 3.76%
Net interest-earning assets/
net interest margin $171,332 4.24%
Ratio of interest-earning assets
to interest-bearing liabilities 1.12x
================================================================================
--------------------------------------------------------------------------------
Twenty-Five
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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
December 31, 2000 December 31, 1999
Compared to Year Ended Compared to Year Ended
December 31, 1999 December 31, 1998
Increase/(Decrease) Increase/(Decrease)
------------------------------------------------------------------
Due to Due to
---------------------------------------------------------------------------------------------------------------
(in thousands) Volume Rate Net Volume Rate Net
---------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS:
Mortgage and other loans, net $21,651 $(1,643) $20,008 $15,021 $(7,187) $ 7,834
Securities 4,651 3,154 7,805 2,938 (233) 2,705
Mortgage-backed securities 2,583 319 2,902 (1,619) 174 (1,445)
Money market investments 889 105 994 (229) (19) (248)
---------------------------------------------------------------------------------------------------------------
Total 29,774 1,935 31,709 16,111 (7,265) 8,846
---------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
NOW and money market accounts 2,358 78 2,436 410 102 512
Savings accounts 451 (434) 17 135 (30) 105
Certificates of deposit 1,848 4,207 6,055 1,482 (2,610) (1,128)
Borrowings 14,936 4,083 19,019 9,147 (154) 8,993
Mortgagors' escrow -- 4 4 1 (18) (17)
---------------------------------------------------------------------------------------------------------------
Total 19,593 7,938 27,531 11,175 (2,710) 8,465
---------------------------------------------------------------------------------------------------------------
Net change in interest income $10,181 $(6,003) $ 4,178 $ 4,936 $(4,555) $ 381
===============================================================================================================
Year Ended
December 31, 1998
Compared to Year Ended
December 31, 1997
Increase/(Decrease)
--------------------------------
Due to
-----------------------------------------------------------------------
(in thousands) Volume Rate Net
-----------------------------------------------------------------------
INTEREST-EARNING ASSETS:
Mortgage and other loans, net $16,060 $(1,144) $14,916
Securities 2,666 61 2,727
Mortgage-backed securities (1,620) 102 (1,518)
Money market investments 433 (15) 418
-----------------------------------------------------------------------
Total 17,539 (996) 16,543
-----------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
NOW and money market accounts 71 29 100
Savings accounts (81) (218) (299)
Certificates of deposit 964 (890) 74
Borrowings 11,164 (625) 10,539
Mortgagors' escrow 10 (5) 5
-----------------------------------------------------------------------
Total 12,129 (1,710) 10,419
-----------------------------------------------------------------------
Net change in interest income $ 5,410 $ 714 $ 6,124
=======================================================================
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 pricing and mix of the Company's interest-earning assets, the
pricing and mix of its funding sources, and such external factors as
competition, economic conditions, and the monetary policy of the FOMC.
2000 and 1999 Comparison:
Despite the steady rise in market interest rates over the course of 2000,
net interest income rose to $73.1 million from $68.9 million in 1999. The 6.1%
increase was driven by the significant growth of interest-earning assets, and
tempered by a substantial rise in funding costs.
At the same time, the Company's spread and margin declined to 3.00% and
3.33%, respectively, from 3.41% and 3.79%, respectively, in the prior year.
Although the rise in market interest rates had some impact on the 2000 measures,
the declines were primarily due to the use of higher cost funding for mortgage
loan production and for the acquisition-related repurchase of Company shares.
In 2001, the Company's net interest income is expected to benefit from a
combination of external and internal factors. First, the FOMC reduced the
federal funds rate 50 basis points in both December 2000 and January 2001, and
expressed a bias toward further leveling of market interest rates over the
course of the year. As a substantial portion of the deposit mix consists of core
deposits, the Company's ability to reprice deposits in response to changes in
market interest rates is significant. Additionally, the Company intends to sell
certain interest-earning assets in the first quarter of 2001, and to utilize the
proceeds to reduce the balance of higher cost CDs and borrowings. Furthermore,
the Company expects to reduce the balance of lower yielding one-to-four family
mortgage loans and to increase the balance of higher yielding multi-family and
commercial real estate loans. Based
--------------------------------------------------------------------------------
Twenty-Six
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
on these expectations, management estimates that net interest income will rise
from $73.1 million in 2000 to approximately $143.0 million to $144.0 million in
2001.
Among the factors that could cause actual net interest income to be
materially below the estimated levels are: a change in the direction of market
interest rates; the inability of the Company to sell certain assets, as
expected; a decline in multi-family mortgage loan demand in the local real
estate market; a significant increase in refinancings at lower rates of
interest; a decline in the quality of the Company's loan portfolio; significant
competition for loans and deposits; and a significant change in the deposit mix.
1999 and 1998 Comparison:
The Company recorded net interest income of $68.9 million in 1999, as
compared to $68.5 million in 1998. The $381,000 increase was achieved despite
declines in the Company's interest rate spread and net interest margin, to 3.41%
and 3.79%, respectively, from 3.76% and 4.24%.
Provision for Loan Losses
The provision for loan losses is based on management's periodic assessment
of the adequacy of the loan loss allowance which, in turn, is based on such
interrelated factors as the composition of the loan portfolio and its inherent
risk characteristics; the level of non-performing loans and charge-offs, both
current and historic; local economic conditions; the direction of real estate
values; and current trends in regulatory supervision.
2000 and 1999 Comparison:
Despite the significant portfolio growth resulting from the Haven
acquisition, the quality of the Company's assets was substantially maintained.
While the balance of non- performing loans rose to $9.1 million at December 31,
2000 from $3.1 million at December 31, 1999, the ratio of non-performing loans
to loans, net, rose a mere six basis points to 0.25% from 0.19%. In addition,
the fourth quarter of 2000 was the Company's 25th consecutive quarter without
any net charge-offs. Accordingly, the provision for loan losses was suspended
for all four quarters of 2000, continuing a practice initiated in the third
quarter of 1995. Reflecting the acquisition, the allowance for loan losses rose
$11.0 million to $18.1 million at December 31, 2000, representing 198.68% of
non-performing loans and 0.50% of loans, net.
In addition to suspending the loan loss provision in 1999, the Company
reversed $2.0 million from the allowance for loan losses in the first quarter,
resulting in a net benefit of $1.1 million, or $0.06 per share. An additional
$400,000 was reversed from the loan loss allowance in the fourth quarter to
establish a recourse reserve for loans sold to the FHLB-NY on December 29, 1999.
Based on assumptions about the continuing quality of the loan portfolio
and the favorable nature of the current interest rate environment, management
anticipates that the provision for loan losses will continue to be suspended
throughout 2001. Among the factors that could cause management to reverse this
position would be a significant downturn in the local real estate market and a
significant deterioration in the quality of the loan portfolio.
For a detailed explanation of the factors considered by management in
determining the allowance for loan losses, please see the asset quality
discussion beginning on page 14 of this report.
1999 and 1998 Comparison:
In 1999, the Company recorded a 49.8% decline in non-performing loans to
$3.1 million (or 0.19% of loans, net) from $6.2 million (or 0.42% of loans,
net), at December 31, 1998. In addition, the Company extended its record to 21
consecutive quarters without any net charge-offs and maintained the fully
performing status of its multi-family mortgage loan portfolio.
Based on the consistent quality of the portfolio's performance, management
extended the suspension of the loan loss provision throughout 1999 and reversed
$2.0 million from the allowance for loan losses in the first quarter of the
year. The impact of this reversal on the Company's 1999 earnings was an
after-tax benefit of $1.1 million, or $0.06 per share. In the fourth quarter of
the year, an additional $400,000 was reversed from the loan loss allowance and
used to establish a recourse reserve for the $211.6 million in multi-family
mortgage loans that were sold to the FHLB-NY. The $400,000 is included in "other
expense" and had no impact on earnings in 1999. The allowance for loan losses
thus declined to $7.0 million, or 0.44% of loans, net, and 226.22% of
non-performing loans, at December 31, 1999. Reflecting the historic strength of
the Company's assets, the $7.0 million also represented 493.06% of accumulated
net charge-offs for the 13 years ended on that date.
Other Operating Income
The interest income generated by the Company's interest-earning assets is
complemented by other operating income, traditionally derived from service fees
and fees charged on loans and depository accounts. In 2000, the Company's other
operating income was substantially
--------------------------------------------------------------------------------
Twenty-Seven
augmented by income from its investment in Bank-owned Life Insurance ("BOLI") on
December 30, 1999.
With the Haven acquisition, the Company has significantly enhanced its
ability to generate fee income. The Company is expected to benefit from the
addition of 72 CFS Bank branches and the sale of investment products through its
subsidiary, CFS Investments. In addition, the Company's original $30.0 million
investment in BOLI increased to $60.0 million, as a result of Haven's having
invested $30.0 million in BOLI on October 2, 2000.
2000 and 1999 Comparison:
The Company recorded other operating income of $21.6 million in 2000, up
$19.1 million from the year-earlier amount. While the increase primarily
reflects the non-recurring gain of $13.5 million stemming from the sale of the
Company's former headquarters on December 30th, core other operating income rose
a solid $5.6 million to $8.1 million, excluding the gain.
The $5.6 million increase reflects a $2.9 million rise in core other
income to $3.6 million (including $1.9 million derived from the Company's BOLI
investment) and a $2.7 million rise in fee income to $4.6 million (largely
reflecting income generated by the sale of banking services and investment
products).
In 2001, the Company anticipates recording approximately $3.8 million in
BOLI income, reflecting the combination of its original $30.0 million investment
and the $30.0 million investment made by Haven. In addition, the Company expects
to enjoy the full-year benefit of selling products and services in an 86-branch
network and of introducing the sale of investment products in the fourteen
branches of Queens County Savings Bank. Accordingly, management currently
expects 2001 other operating income to range between $38.0 million and $39.0
million.
Factors that could cause the level of other operating income to fall
materially below the range expected include an increase in competition for
financial products and services and a change in the current level of market
interest rates.
1999 and 1998 Comparison:
Other operating income totaled $2.5 million in 1999, down $31,000 from the
level recorded in 1998. The reduction was the net effect of a $248,000 decline
in fee income to $1.9 million and a $217,000 increase in other income to
$660,000. In 1998, fee income was bolstered by penalties paid during an extended
period of mortgage loan prepayment activity.
Operating Expense and Amortization of Goodwill
Among the Company's distinguishing characteristics is a demonstrated
ability to contain operating expense. Traditionally consisting of compensation
and benefits, occupancy and equipment, general and administrative ("G&A"), and
other expenses, the Company's operating expense has typically represented a
below-average percentage of average assets and contributed to an efficiency
ratio that has ranked among the thrift industry's best.
Included in compensation and benefits expense are expenses associated with
the amortization and appreciation of shares held in the Company's stock-related
benefit plans ("plan-related expenses") which are added back to stockholders'
equity at the end of the period.
Reflecting the acquisition of Haven Bancorp on November 30, 2000, the
Company also recorded the amortization of goodwill as an expense.
2000 and 1999 Comparison:
Excluding the $22.8 million impact of the aforementioned ESOP allocation,
the Company recorded core operating expense of $27.0 million, or 1.17% of
average assets, as compared to core operating expense of $22.3 million, or 1.19%
of average assets, in 1999. The 1999 amount excludes a net gain of $865,000
pursuant to the freezing of the Company's defined benefit pension plan in the
third quarter, and the implementation of an early retirement plan in the fourth
quarter of the year. On a reported basis, operating expense totaled $49.8
million in 2000, as compared to $21.4 million in 1999. The 2000 amounts include
$494,000 in goodwill amortization stemming from the Haven acquisition. There was
no comparable expense in 1999.
Core compensation and benefits expense totaled $16.2 million in 2000, as
compared to $14.3 million in the prior year. Including the non-recurring items
mentioned above, compensation and benefits expense totaled $39.6 million and
$13.5 million, respectively, in the corresponding periods. Plan-related expenses
represented $24.8 million of the 2000 total and $2.6 million of the total in
1999.
The higher level of operating expense in 2000 also reflects a $1.7 million
rise in occupancy and equipment expense to $4.0 million, a $642,000 rise in G&A
expense to $5.4 million, and a $78,000 rise in other operating expense to
$950,000. While the higher level of occupancy and equipment expense includes the
operation of the CFS Bank branches for the month of December, the higher levels
of G&A and other expense largely reflect other acquisition-related costs.
The rise in operating expense was partly offset by the higher levels of
net interest income and other operating income in 2000, producing a core
efficiency ratio of 35.72%, as compared to 28.70% in 1999. On the basis of cash
earnings, the efficiency ratio improved to 24.47% from the year-earlier measure
of 26.37%.
While operating expense may be expected to rise in 2001, reflecting the
full-year effect of staffing and operating the CFS Bank branches, the efficiency
ratio is expected to stabilize in the range of 35% to 40%.
--------------------------------------------------------------------------------
Twenty-Eight
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
Based on certain assumptions regarding improvements in internal controls
and the implementation of operating efficiencies throughout the branch network,
management would expect operating expense to range between $68.0 million and
$69.0 million in 2001, reflecting post-acquisition cost savings of approximately
$14.0 million.
Factors that could cause actual operating expense to differ materially
from the range expected include a delay in the integration of the Bank's
computer systems and a delay in reducing overlapping resources, including
employees.
As the efficiency ratio is a function not only of operating expense but
also of net interest income and other operating income, factors that could cause
the efficiency ratio to differ materially from current expectations include
those cited in the previous discussions of anticipated net interest income and
other operating income.
On an annualized basis, the Company's goodwill expense may be expected to
approximate $6.0 million. However, the Financial Accounting Standards Board (the
"FASB") is currently considering a proposal that, if adopted, would discontinue
the amortization of goodwill created with respect to business combinations,
effective July 1, 2001. The amortization of goodwill is included in the
Company's earnings estimates for 2001.
1999 and 1998 Comparison:
The Company's focus on cost containment was demonstrated by a series of
actions taken in 1999. Operating expense declined 17.6% to $21.4 million, or
1.14% of average assets, from $26.0 million, or 1.57% of average assets, in
1998. The $4.6 million reduction primarily stemmed from a 27.4% decline in
compensation and benefits expense to $13.5 million, from $18.5 million in the
year-earlier twelve months. The $5.0 million savings included the one-time gain
of $1.6 million pursuant to the freezing of the Bank's defined benefit pension
plan at September 30, which more than offset the one-time charge of $735,000
pursuant to the implementation of an early retirement window in the fourth
quarter of the year. The reduction in compensation and benefits also reflects a
$4.1 million decline in plan-related expenses to $2.6 million, pursuant to a
change in the amortization period for the Company's ESOP to sixty years from
thirty at January 1, 1999. While recorded as a charge against earnings, the $2.6
million was added back to stockholders' equity at December 31, 1999.
The Company's 1999 operating expense also reflects a $157,000 decline in
occupancy and equipment expense to $2.3 million, despite the Company's
successful Y2K preparations and the opening of two banking offices in the second
half of the year. This decline combined with the decrease in compensation and
benefits expense to substantially offset increases of $221,000 and $444,000 in
G&A expense and other expense to $4.8 million and $872,000, respectively. The
increase in other expense primarily stemmed from the establishment of the
$400,000 recourse reserve in connection with the fourth quarter sale of $211.6
million in multi-family mortgage loans to the FHLB-NY. As the $400,000 was
reversed from the allowance for loan losses, this action had no impact on the
Company's 1999 results.
Reflecting the reduction in operating expense and the growth in net
interest income, the Company's efficiency ratio improved to 29.95% from 36.51%
on the basis of GAAP earnings and, on the basis of cash earnings, to 26.37% from
27.05%.
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
non-cash items stemming from the amortization and appreciation of shares held in
its stock-related benefit plans. While these non-cash items are recorded as a
charge against earnings, they are added back to stockholders' equity at the end
of the period.
2000 and 1999 Comparison:
The Company recorded income tax expense of $20.4 million in 2000, a
year-over-year reduction of $347,000, despite a $7.5 million decline in pre-tax
income to $44.9 million. As a result, the effective tax rate rose to 45.5% from
39.6%, the 1999 level; the higher rate was principally due to non-deductible
expenses related to the acquisition-related allocation of ESOP shares.
Included in 2000 income tax expense were plan-related expenses of $6.0
million (down from the year-earlier $7.3 million), all of which was added back
to stockholders' equity at December 31, 2000.
Management currently expects the effective tax rate to stabilize in the
range of 39% to 40% in 2001.
1999 and 1998 Comparison:
Reflecting a $7.3 million, or 16.2%, rise in pre-tax income to $52.4
million, the Company recorded 1999 income tax expense of $20.8 million, as
compared to $18.2 million in 1998. The increase in pre-tax income was partly
offset by a decline in the effective tax rate to 39.61% from 40.29% in the
year-earlier period, and by a decline in non-cash items to $7.3 million from
$8.1 million.
IMPACT OF ACCOUNTING PRONOUNCEMENTS
Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities
On September 29, 2000, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 140, "Accounting for Transfers and Servicing of Financial
Assets
--------------------------------------------------------------------------------
Twenty-Nine
and Extinguishments of Liabilities." SFAS No. 140 replaces SFAS No. 125, which
was issued in June 1996, and addresses implementation issues that were
identified in applying SFAS No. 125. SFAS No. 140 is effective for transfers of
financial assets (including securitizations) occurring after March 31, 2001.
However, the provisions of SFAS No. 140 related to the recognition and
reclassification of collateral in financial statements and disclosures related
to securities transactions and collateral are effective for fiscal years ending
after December 15, 2000. The Company does not expect the adoption of SFAS No.
140 to have a material effect upon its financial statements.
MARKET PRICE OF COMMON STOCK AND DIVIDENDS PAID PER COMMON SHARE
Shares of New York Community Bancorp, Inc. are traded on the Nasdaq
National Markett under the symbol "NYCB." At December 31, 2000, the number of
outstanding shares was 29,580,124.
The table below sets forth the intra-day high/low price range and closing
prices for the Company stock, as reported by The Nasdaq Stock Markett, and the
cash dividends paid per common share for each of the four quarters of 2000 and
1999.
Market Price(1)
Dividends Declared
per Common Share(1) High Low Close
--------------------------------------------------------------------------------
2000
1st Quarter $0.2500 $27.125 $17.325 $18.063
2nd Quarter 0.2500 21.188 17.250 18.438
3rd Quarter 0.2500 29.063 18.500 28.875
4th Quarter 0.2500 37.813 25.500 36.750
--------------------------------------------------------------------------------
1999
1st Quarter $0.2500 $31.938 $26.500 $27.000
2nd Quarter 0.2500 36.125 26.875 32.375
3rd Quarter 0.2500 33.125 26.000 27.625
4th Quarter 0.2500 32.875 25.750 27.125
================================================================================
(1) Amounts shown have not been adjusted to reflect the 3-for-2 stock split
scheduled to occur on March 29, 2001.
--------------------------------------------------------------------------------
Thirty
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS
OF CONDITION
DECEMBER 31,
----------------------------
(in thousands, except share data) 2000 1999
---------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 133,093 $ 31,224
Money market investments 124,622 6,000
Securities held to maturity ($120,125 pledged at December 31, 2000) (note 4) 222,534 184,637
Mortgage-backed securities held to maturity (note 5) 1,923 2,094
Securities available for sale ($127,858 pledged at December 31, 2000) (note 6) 303,734 12,806
Mortgage loans, net (note 11) 3,594,720 1,599,392
Other loans, net 39,730 8,718
Less: Allowance for loan losses (18,064) (7,031)
---------------------------------------------------------------------------------------------------------------------------
Loans, net (notes 7 and 8) 3,616,386 1,601,079
Premises and equipment, net 39,191 10,060
Goodwill (note 2) 118,070 --
Deferred tax asset, net (note 12) 42,360 5,496
Other assets (notes 9 and 14) 108,872 53,439
---------------------------------------------------------------------------------------------------------------------------
Total assets $4,710,785 $1,906,835
===========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (note 10):
NOW and money market accounts $ 719,420 $ 103,422
Savings accounts 492,604 274,501
Certificates of deposit 1,873,810 658,238
Non-interest-bearing accounts 171,360 39,857
---------------------------------------------------------------------------------------------------------------------------
Total deposits 3,257,194 1,076,018
---------------------------------------------------------------------------------------------------------------------------
Official checks outstanding 41,239 31,189
Borrowings (note 11) 1,037,505 636,378
Mortgagors' escrow 11,291 10,288
Other liabilities (note 14) 56,146 15,821
---------------------------------------------------------------------------------------------------------------------------
Total liabilities 4,403,375 1,769,694
---------------------------------------------------------------------------------------------------------------------------
Stockholders' equity (note 3):
Preferred stock at par $0.01 (5,000,000 shares authorized; none issued) -- --
Common stock at par $0.01 (60,000,000 shares authorized;
30,970,693 shares issued; 29,580,124 and 21,010,127 shares
outstanding at December 31, 2000 and 1999, respectively) 310 310
Paid-in capital in excess of par 174,450 147,607
Retained earnings (substantially restricted) (note 17) 146,514 150,545
Less: Treasury stock (1,390,569 and 9,960,566 shares, respectively) (2,388) (145,122)
Unallocated common stock held by ESOP (note 15) (8,485) (12,388)
Common stock held by SERP and Deferred Compensation Plans
(notes 14 and 15) (3,770) (3,770)
Unearned common stock held by RRPs (note 15) (41) (41)
Accumulated other comprehensive income, net of tax effect 820 --
---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 307,410 137,141
---------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (note 13)
Total liabilities and stockholders' equity $4,710,785 $1,906,835
===========================================================================================================================
See accompanying notes to the consolidated financial statements.
--------------------------------------------------------------------------------
Thirty-One
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS
OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31,
---------------------------------------------
(in thousands, except per share data) 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Mortgage and other loans (note 7) $151,626 $131,618 $123,784
Securities 17,974 10,169 7,464
Mortgage-backed securities 3,795 893 2,338
Money market investments 1,437 443 691
---------------------------------------------------------------------------------------------------------------------------
Total interest income 174,832 143,123 134,277
---------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
NOW and money market accounts 4,892 2,456 1,944
Savings accounts 6,346 6,329 6,224
Certificates of deposit 41,178 35,123 36,251
Borrowings (note 11) 49,302 30,283 21,290
Mortgagors' escrow 33 29 46
---------------------------------------------------------------------------------------------------------------------------
Total interest expense 101,751 74,220 65,755
---------------------------------------------------------------------------------------------------------------------------
Net interest income 73,081 68,903 68,522
Reversal of provision for loan losses (note 8) -- 2,400 --
---------------------------------------------------------------------------------------------------------------------------
Net interest income after reversal of provision for loan losses 73,081 71,303 68,522
---------------------------------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME:
Fee income 4,595 1,863 2,111
Other (note 7) 17,050 660 443
---------------------------------------------------------------------------------------------------------------------------
Total other operating income 21,645 2,523 2,554
---------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSE:
Compensation and benefits (notes 14 and 15) 39,014 13,458 18,529
Occupancy and equipment (note 13) 3,953 2,289 2,446
General and administrative 5,413 4,771 4,550
Other 950 872 428
---------------------------------------------------------------------------------------------------------------------------
Total operating expense 49,330 21,390 25,953
Amortization of goodwill 494 -- --
---------------------------------------------------------------------------------------------------------------------------
Total expense 49,824 21,390 25,953
Income before income taxes 44,902 52,436 45,123
Income tax expense (note 12) 20,425 20,772 18,179
---------------------------------------------------------------------------------------------------------------------------
Net income $ 24,477 $ 31,664 $ 26,944
---------------------------------------------------------------------------------------------------------------------------
Other comprehensive income, net of tax:
Unrealized gain (loss) on securities 820 (34) (23)
---------------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 25,297 $ 31,630 $ 26,921
---------------------------------------------------------------------------------------------------------------------------
Earnings per share $1.30 $1.71 $1.41
Diluted earnings per share $1.25 $1.67 $1.34
===========================================================================================================================
See accompanying notes to the consolidated financial statements.
--------------------------------------------------------------------------------
Thirty-Two
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31,
--------------------------------------------
(in thousands, except per share data) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------
COMMON STOCK (Par Value: $0.01):
Balance at beginning of year $ 310 $ 310 $ 206
Stock splits (0; 0; and 10,323,460 shares) -- -- 104
--------------------------------------------------------------------------------------------------------------------------
Balance at end of year 310 310 310
--------------------------------------------------------------------------------------------------------------------------
PAID-IN CAPITAL IN EXCESS OF PAR:
Balance at beginning of year 147,607 138,180 125,000
Tax benefit on stock plans 5,953 7,269 8,071
Common stock acquired by SERP and
Deferred Compensation Plans -- -- 1,278
Allocation of ESOP stock 20,890 2,158 3,938
Stock splits (0; 0; and 10,323,460 shares) -- -- (104)
Cash paid in lieu of fractional shares -- -- (3)
--------------------------------------------------------------------------------------------------------------------------
Balance at end of year 174,450 147,607 138,180
--------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of year 150,545 165,383 166,230
Net income 24,477 31,664 26,944
Dividends paid on common stock (17,847) (18,563) (12,636)
Exercise of stock options (446,091; 1,045,223; and
784,740 shares) (10,661) (27,939) (15,155)
--------------------------------------------------------------------------------------------------------------------------
Balance at end of year 146,514 150,545 165,383
--------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK:
Balance at beginning of year (145,122) (137,901) (104,148)
Purchase of common stock (1,703,873; 1,285,992; and
1,957,530 shares) (41,483) (38,352) (52,533)
Shares issued in the acquisition 174,283 -- --
Common stock acquired by SERP -- -- 1,278
Exercise of stock options (446,091; 1,045,223; and
784,740 shares) 9,934 31,131 17,502
--------------------------------------------------------------------------------------------------------------------------
Balance at end of year (2,388) (145,122) (137,901)
--------------------------------------------------------------------------------------------------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN:
Balance at beginning of year (12,388) (12,767) (13,526)
Allocation of ESOP stock 3,903 379 759
--------------------------------------------------------------------------------------------------------------------------
Balance at end of year (8,485) (12,388) (12,767)
--------------------------------------------------------------------------------------------------------------------------
SERP AND DEFERRED COMPENSATION PLANS:
Balance at beginning of year (3,770) (3,770) (2,492)
Common stock acquired by SERP and
Deferred Compensation Plans -- -- (1,278)
--------------------------------------------------------------------------------------------------------------------------
Balance at end of year (3,770) (3,770) (3,770)
--------------------------------------------------------------------------------------------------------------------------
RECOGNITION AND RETENTION PLANS:
Balance at beginning of year (41) (63) (812)
Earned portion of RRPs -- 22 749
--------------------------------------------------------------------------------------------------------------------------
Balance at end of year (41) (41) (63)
--------------------------------------------------------------------------------------------------------------------------
ACCUMULATED COMPREHENSIVE INCOME, NET OF TAX:
Balance at beginning of year -- 34 57
Net unrealized appreciation (depreciation) in securities,
net of tax 820 (34) (23)
--------------------------------------------------------------------------------------------------------------------------
Balance at end of year 820 -- 34
--------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $ 307,410 $ 137,141 $ 149,406
==========================================================================================================================
See accompanying notes to the consolidated financial statements.
--------------------------------------------------------------------------------
Thirty-Three
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS
OF CASH FLOWS
YEARS ENDED DECEMBER 31,
----------------------------------------------
(in thousands) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24,477 $ 31,664 $ 26,944
--------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 1,461 923 921
Reversal of provision for loan losses -- (2,400) --
Acquired allowance 11,033 -- --
(Accretion of discounts) amortization of premiums, net (1,818) 2 106
Amortization of net deferred loan origination fees 4,808 1,372 244
Amortization of goodwill 494 -- --
Net gain on redemption and sales of securities and
mortgage-backed securities (704) (91) (91)
Net gain on sale of foreclosed real estate and loans (121) (126) (167)
Net gain on sale of former headquarters (13,500) -- --
Tax benefit on stock plans 5,953 7,269 8,071
Earned portion of RRPs -- 22 749
Earned portion of ESOP 24,793 2,537 4,697
Changes in assets and liabilities:
Goodwill recognized in acquisition of Haven Bancorp (118,070) -- --
(Increase) decrease in deferred income taxes (36,864) 421 (403)
(Increase) decrease in other assets (55,433) (32,569) 1,033
Increase (decrease) in official checks outstanding 10,050 (3,298) 5,047
Increase (decrease) in other liabilities 40,325 7,256 (5,234)
--------------------------------------------------------------------------------------------------------------------------
Total adjustments (127,593) (18,682) 14,973
--------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (103,116) 12,982 41,917
--------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from redemption and sales of securities and
mortgage-backed securities held to maturity 64,396 17,380 168,529
Proceeds from redemption and sales of securities available for sale 447,508 14,534 --
Purchase of securities held to maturity (24,754) (48,041) (195,788)
Purchase of securities available for sale (738,436) (6,794) (2,081)
Net increase in loans (2,021,624) (329,480) (101,934)
Proceeds from sale of loans and foreclosed real estate 103,860 216,129 10,358
Acquisition or purchase of premises and equipment, net (30,592) (584) (538)
--------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,199,642) (136,856) (121,454)
--------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in mortgagors' escrow 1,003 (2,796) 2,394
Net increase (decrease) in deposits 2,181,176 (26,267) 33,124
Net increase in borrowings 401,127 197,323 129,391
Cash dividends and stock options exercised (28,508) (46,502) (27,791)
Purchase of Treasury stock, net of stock options exercised (31,549) (7,221) (35,031)
Shares acquired by SERP -- -- 1,278
--------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,523,249 114,537 103,365
--------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 220,491 (9,337) 23,828
Cash and cash equivalents at beginning of period 37,224 46,561 22,733
--------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 257,715 $ 37,224 $ 46,561
==========================================================================================================================
Supplemental information:
Cash paid for:
Interest $101,759 $74,177 $65,767
Income taxes 11,754 14,582 10,489
--------------------------------------------------------------------------------------------------------------------------
Transfers to foreclosed real estate from loans -- 223 772
--------------------------------------------------------------------------------------------------------------------------
Transfers to real estate held for investment from foreclosed real estate -- 457 535
==========================================================================================================================
See accompanying notes to the consolidated financial statements.
--------------------------------------------------------------------------------
Thirty-Four
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
As more fully described in Note 3, Queens County Savings Bank, now known
as New York Community Bank (the "Bank"), converted from a mutual savings bank to
the capital stock form of ownership on November 23, 1993. In anticipation of the
conversion, Queens County Bancorp, Inc., now known as New York Community
Bancorp, Inc. (the "Company" or the "Parent"), was formed on July 20, 1993.
On June 27, 2000, the Company entered into an agreement and plan of merger
with Haven Bancorp, Inc. ("Haven"), parent of CFS Bank, under which it would
acquire Haven in a purchase transaction valued at $174.3 million. On November
30, 2000, Haven merged with and into the Company, and on January 31, 2001, CFS
Bank merged with and into New York Community Bank. The Company therefore
operated two subsidiaries during December 2000: New York Community Bank and CFS
Bank (the "Subsidiaries").
The following is a description of the significant accounting and reporting
policies that the Company and its wholly-owned subsidiaries follow in preparing
and presenting their consolidated financial statements, which conform to
accounting principles generally accepted in the United States of America
("GAAP") and to general practices within the banking industry. The preparation
of financial statements in conformity with GAAP requires the Company to make
estimates and judgments that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant inter-company
accounts and transactions are eliminated in consolidation. Certain
reclassifications have been made to prior-year financial statements to conform
to the 2000 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 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 according to the loan's contractual terms. SFAS No. 114 also
provides that in-substance foreclosed loans should not be included in foreclosed
real estate for financial reporting purposes but, rather, in the loan portfolio.
The allowance for loan losses is increased by the provision for loan
losses charged to operations and reduced by reversals or by charge-offs, net of
recoveries. The allowance is based on management's periodic evaluation of the
adequacy of the allowance, taking into consideration known and inherent risks in
the portfolio, the Bank's past loan loss experience, adverse situations which
may affect its borrowers' ability to repay, overall portfolio quality, and
current and prospective economic conditions. While management uses available
information to recognize losses on loans, future additions may be necessary,
based on changes in economic conditions beyond management's control. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for loan losses. Accordingly,
the Bank may be required to take certain charge-offs and/or recognize additions
to the allowance based on regulators' judgments concerning information available
to them during their examinations. Based upon all relevant and available
information, management believes that the current allowance for loan losses is
adequate.
--------------------------------------------------------------------------------
Thirty-Five
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Fees are charged for originating mortgage loans at the time of commitment.
Loan origination fees, partially offset by certain expenses associated with
loans originated, are amortized to interest on loans over the life of the loan,
using 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. Leasehold improvements are
carried at cost less the accumulated amortization computed on a straight-line
basis over the shorter of the related lease term or the estimated useful life of
the improvement.
Depreciation and amortization included in occupancy and equipment expense
for the years ended December 31, 2000, 1999, and 1998 amounted to $1,461,000,
$923,000, and $921,000, respectively.
Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, foreclosure are to
be sold or rented, and are initially recorded at fair value at the date of
foreclosure, establishing a new cost basis. After foreclosure, valuations are
periodically performed by management and the real estate is carried at the lower
of carrying amount or fair value, less the estimated selling costs. Revenue and
expenses from operations and changes in the valuation allowance are included in
other operating expense.
Income Taxes
Income tax expense consists of income taxes that are currently payable and
deferred income taxes. Deferred income tax expense (benefit) is determined by
recognizing deferred tax assets and liabilities for future tax consequences,
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. The realization
of deferred tax assets is assessed and a valuation allowance provided for that
portion of the asset for which the allowance is more likely than not to be
realized. Deferred tax assets and liabilities are measured using enacted tax
rates that are expected to apply to taxable income in years in which those
temporary differences are expected to be recovered or settled.
Stock Option Plans
In October 1995, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 123, "Accounting for Stock-based Compensation." SFAS No. 123
defines a fair value-based method of accounting for an employee stock option or
similar equity instrument. It also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value-based method of
accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Entities electing to remain with the
accounting method prescribed by APB Opinion No. 25 must make pro forma
disclosures of net income and earnings per share as if the fair value-based
method of accounting had been applied. SFAS No. 123 is effective for
transactions entered into in fiscal years beginning after December 31, 1995. Pro
forma disclosures required for entities that elect to continue measuring
compensation cost using APB Opinion No. 25 must include the effects of all
awards granted in fiscal years beginning after December 15, 1994.
The Company had four stock option plans at December 31, 2000, including
two plans for directors and employees of the former CFS Bank and two plans for
directors and employees of the former Queens County Savings Bank. The Company
applies APB Opinion No. 25 and the related interpretations in accounting for its
plans and, accordingly, no compensation cost has been recognized.
Retirement Plans
The Company maintains two pension plans, one for employees of the former
Queens County Savings Bank, and one for employees of the former CFS Bank,
covering substantially all employees who had attained minimum service
requirements. The Queens County Savings Bank Retirement Plan was frozen at
September 30, 1999, while the CFS Bank Retirement Plan was frozen at June 30,
1996. 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.
Earnings per Share (Basic and Diluted)
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
--------------------------------------------------------------------------------
Thirty-Six
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
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, 2000, 1999, and 1998, the weighted
average number of common shares outstanding used in the computation of basic EPS
was 18,845,676; 18,526,890; and 19,091,705, respectively. The weighted average
number of common shares outstanding used in the computation of diluted EPS was
19,531,588; 18,939,867; and 20,181,013 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.
NOTE 2:
BUSINESS COMBINATIONS
On November 30, 2000, the Company acquired Haven Bancorp, Inc., parent of
CFS Bank, which operated 70 branch offices in New York City, Nassau, Suffolk,
Westchester and Rockland counties, New Jersey, and Connecticut. At the date of
acquisition, Haven had consolidated assets of $2.7 billion, including loans,
net, of $2.2 billion, and consolidated liabilities of $2.6 billion, including
deposits of $2.1 billion. In accordance with the plan and agreement of merger,
holders of Haven's common stock received 1.04 shares of common stock of New York
Community Bancorp for each share of Haven common stock held at the date of the
acquisition. In connection therewith, the Company issued 9,827,744 shares of
common stock from Treasury with a value of $174.3 million. The excess of cost
over fair value of net assets acquired was $118.6 million, to be amortized on a
straight-line basis over 20 years.
NOTE 3:
CONVERSION TO STOCK FORM OF OWNERSHIP
On July 13, 1993, the Board of Trustees of the Bank (now the Board of
Directors of the Company) adopted a Plan of Conversion to convert the Bank from
a state-chartered mutual savings bank to a state-chartered capital stock form
savings bank. In connection with the conversion, the Company was organized under
Delaware law for the purpose of acquiring all of the capital stock of the Bank.
On November 23, 1993, the Company became a public company and issued its
initial offering of 4,588,500 shares of common stock (par value: $0.01 per
share) at a price of $25.00 per share, resulting in net proceeds of $110.6
million. Concurrent with the issuance of the common stock, 50 percent of the net
proceeds were used to purchase all of the outstanding capital stock of the Bank.
Parent company-only financial information is presented in Note 18.
As a result of five 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, and September 29, 1998), the initial offering
price was adjusted to $3.71 per share. The number of shares outstanding at
December 31, 2000 was 29,580,124.
Reflecting a 3-for-2 stock split scheduled to occur on March 29, 2001, the
initial offering price will adjust to $2.47 per share and the number of
outstanding shares at December 31, 2000 will adjust to 44,370,186.
--------------------------------------------------------------------------------
Thirty-Seven
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NOTE 4:
SECURITIES HELD TO MATURITY
Securities held to maturity at December 31, 2000 and 1999 are summarized
as follows:
DECEMBER 31, 2000
--------------------------------------------------------------
Gross Gross Estimated
(in thousands) Cost Unrealized Gain Unrealized Loss Market Value
--------------------------------------------------------------------------------------------------------------------------
U.S. Government and agency obligations $125,325 $ -- $ (833) $124,492
--------------------------------------------------------------------------------------------------------------------------
Capital trust notes 25,191 -- (1,299) 23,892
--------------------------------------------------------------------------------------------------------------------------
FHLB stock 72,016 -- -- 72,016
--------------------------------------------------------------------------------------------------------------------------
FNMA stock 2 206 -- 208
--------------------------------------------------------------------------------------------------------------------------
Total stock 72,018 206 -- 72,224
--------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity $222,534 $206 $(2,132) $220,608
==========================================================================================================================
DECEMBER 31, 1999
--------------------------------------------------------------
Gross Gross Estimated
(in thousands) Cost Unrealized Gain Unrealized Loss Market Value
--------------------------------------------------------------------------------------------------------------------------
U.S. Government and agency obligations $140,325 $ -- $(4,528) $135,797
--------------------------------------------------------------------------------------------------------------------------
Capital trust notes 3,500 -- -- 3,500
--------------------------------------------------------------------------------------------------------------------------
FHLB stock 40,810 -- -- 40,810
--------------------------------------------------------------------------------------------------------------------------
FNMA stock 2 72 -- 74
--------------------------------------------------------------------------------------------------------------------------
Total stock 40,812 72 -- 40,884
--------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity $184,637 $ 72 $(4,528) $180,181
==========================================================================================================================
The following is a summary of the amortized cost and estimated market
value of securities held to maturity at December 31, 2000 by remaining term to
maturity:
---------------------------------------------------
U.S. Government Capital Trust Estimated
(in thousands) and Agencies Notes Market Value
---------------------------------------------------------------------------------------------------------------------------
3 to 5 years $125,325 $ -- $124,492
---------------------------------------------------------------------------------------------------------------------------
Up to 30 years -- 25,191 23,892
===========================================================================================================================
Because the sale of Federal Home Loan Bank ("FHLB") and Federal National
Mortgage Association ("FNMA") stock is restricted by the respective governmental
agencies, these securities are not considered marketable equity securities. FHLB
stock is carried at cost, which approximates value at redemption.
NOTE 5:
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
Mortgage-backed securities held to maturity at December 31, 2000 and 1999
are summarized as follows:
-------------------------
DECEMBER 31,
-------------------------------------------------------------------------------
(in thousands) 2000 1999
-------------------------------------------------------------------------------
Principal balance $ 1,926 $ 2,097
Unamortized discount (3) (3)
-------------------------------------------------------------------------------
Mortgage-backed securities, net 1,923 2,094
Gross unrealized gains 56 41
-------------------------------------------------------------------------------
Estimated market value $ 1,979 $ 2,135
===============================================================================
--------------------------------------------------------------------------------
Thirty-Eight
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
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, 2000
by remaining term to maturity:
DECEMBER 31, 2000
--------------------------
Estimated
(in thousands) Cost Basis Market Value
--------------------------------------------------------------------------------
Over 1 year to 5 years $1,923 $1,979
--------------------------------------------------------------------------------
Mortgage-backed securities, net $1,923 $1,979
--------------------------------------------------------------------------------
There were no sales of mortgage-backed securities held to maturity during
the years ended December 31, 2000, 1999, or 1998. On April 1, 1999, the Company
reclassified $14.1 million of mortgage-backed securities held to maturity as
securities available for sale, pursuant to the adoption of SFAS No. 133.
NOTE 6:
SECURITIES AVAILABLE FOR SALE
Securities available for sale at December 31, 2000 and 1999 are summarized
as follows:
--------------------------------------------------------
DECEMBER 31, 2000
---------------------------------------------------------------------------------------------------------------
Amortized Gross Gross Estimated
(in thousands) Cost Unrealized Gain Unrealized Loss Market Value
---------------------------------------------------------------------------------------------------------------
Debt and equity securities available for sale:
U.S. Government and agency obligations $ 59,669 $ -- $ -- $ 59,669
Corporate bonds 61,140 -- -- 61,140
Equity 23,268 -- -- 23,268
---------------------------------------------------------------------------------------------------------------
Total $144,077 $ -- $ -- $144,077
---------------------------------------------------------------------------------------------------------------
Mortgage-backed securities available for sale:
GNMA certificates $ 1,059 $ 8 $ -- $ 1,067
FNMA certificates 80,286 -- -- 80,286
FHLMC certificates 4,963 -- -- 4,963
CMOs and REMICs 73,341 -- -- 73,341
---------------------------------------------------------------------------------------------------------------
Total $159,649 $ 8 $ -- $159,657
---------------------------------------------------------------------------------------------------------------
Total securities available for sale $303,726 $ 8 $ -- $303,734
===============================================================================================================
--------------------------------------------------------
DECEMBER 31, 1999
---------------------------------------------------------------------------------------------------------------
Amortized Gross Gross Estimated
(in thousands) Cost Unrealized Gain Unrealized Loss Market Value
---------------------------------------------------------------------------------------------------------------
Equity $ 12,805 $ 364 $ (363) $ 12,806
===============================================================================================================
--------------------------------------------------------------------------------
Thirty-Nine
The following table summarizes securities available for sale at December
31, 2000, based on contractual maturity. The average yield was determined by
dividing the actual income derived in 2000 from each type of security by the
respective fair values.
------------------------------------------------------------------------------------
Due
Due in Within Due
One Year One to After Total Fair
(dollars in thousands) or Less Five Years Five Years Cost Value Yield
------------------------------------------------------------------------------------------------------------------------------------
U.S. Government and agency obligations $ 9,954 $29,214 $ 20,501 $ 59,669 $ 59,669 6.26%
Corporate bonds -- -- 61,140 61,140 61,140 9.20
Equity 23,268 -- -- 23,268 23,268 4.30
GNMA certificates -- -- 1,059 1,059 1,067 7.24
FNMA certificates -- -- 80,286 80,286 80,286 6.72
FHLMC certificates -- -- 4,963 4,963 4,963 8.13
CMOs and REMICs -- -- 73,341 73,341 73,341 7.09
------------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $33,222 $29,214 $241,290 $303,726 $303,734 7.21%
====================================================================================================================================
NOTE 7:
LOANS
The composition of the loan portfolio at December 31, 2000 and 1999 is
summarized as follows:
-------------------------
DECEMBER 31,
--------------------------------------------------------------------------------
(in thousands) 2000 1999
--------------------------------------------------------------------------------
MORTGAGE LOANS:
1-4 family $1,267,080 $ 152,644
Multi-family 1,945,656 1,348,351
Commercial real estate 324,068 96,008
Construction 59,469 4,793
--------------------------------------------------------------------------------
Total mortgage loans 3,596,273 1,601,796
--------------------------------------------------------------------------------
Less: Net deferred loan origination fees 1,553 2,404
--------------------------------------------------------------------------------
Mortgage loans, net 3,594,720 1,599,392
--------------------------------------------------------------------------------
OTHER LOANS:
Cooperative apartment 3,726 4,856
Home equity 12,240 1,347
Passbook savings 779 331
Student 683 8
Other 22,320 2,200
--------------------------------------------------------------------------------
Total other loans 39,748 8,742
Less: Unearned discounts 18 24
--------------------------------------------------------------------------------
Other loans, net 39,730 8,718
Less: Allowance for loan losses 18,064 7,031
--------------------------------------------------------------------------------
Loans, net $3,616,386 $1,601,079
================================================================================
The Bank has a diversified loan portfolio as to type and borrower
concentration. At December 31, 2000 and 1999, approximately $3.1 billion and
$1.6 billion, respectively, of the Bank's mortgage loans were secured by
properties located in New York State. Accordingly, economic conditions in the
State of New York may have a significant impact on the market value of the real
estate collateralizing such loans and on the ability of the Company's borrowers
to honor their contracts.
Prior to 2000, the Bank held all adjustable rate one-to-four family
mortgage loans that it originated, and generally sold any fixed rate one-to-four
family mortgage loans it originated to Savings Bank Life Insurance ("SBLI"),
while retaining the servicing rights. One-to-four family mortgage
--------------------------------------------------------------------------------
Forty
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
loans sold to SBLI during the years ended December 31, 1999 and 1998 amounted to
$2.0 million and $1.6 million, respectively; no one-to-four family mortgage
loans were sold to SBLI during 2000.
On December 28, 2000, the Bank sold 458 fixed rate one-to-four family
mortgage loans totaling $105.7 million that it had acquired in the Haven
transaction, while retaining the servicing rights. The proceeds from the loan
sales were used, together with the proceeds from the sale of securities in
December, to reduce the balance of higher cost FHLB borrowings at year-end.
In December 2000, the Bank sold one-to-four family mortgage loans totaling
$1.7 million that were originated on a pass-through basis to Cendant Mortgage
Corporation.
On December 29, 1999, the Bank sold a $211.6 million interest in
multi-family mortgage loans from its portfolio to the Federal Home Loan Bank of
New York ("FHLB-NY"), while retaining the servicing rights. In connection with
this transaction, the Bank provided additional collateral of $75.8 million in
loans to the FHLB-NY. In 1998, the Bank originated and sold $7.1 million in
multi-family mortgage loans to another financial institution, with the servicing
rights retained. No multi-family loans were sold in 2000.
The Bank services mortgage loans for various third parties, including the
FHLB-NY, SBLI, FNMA, and the State of New York Mortgage Agency ("SONYMA"). The
unpaid principal balance of serviced loans amounted to $1.1 billion, $224.8
million, and $18.8 million at December 31, 2000, 1999, and 1998, respectively.
Custodial escrow balances maintained in connection with such loans amounted to
$3.4 million, $1.9 million, and $60,000 at the corresponding dates.
Commitments to originate first mortgage loans at December 31, 2000 and
1999 amounted to approximately $180.1 million and $72.9 million, respectively.
Substantially all of the commitments at December 31, 2000 were expected to close
within 90 days and were made at interest rates that are fixed for five years
before adjusting to a point over prime in year six.
NOTE 8:
ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses for the years ended December 31,
2000, 1999, and 1998 is summarized as follows:
---------------------------------
DECEMBER 31,
--------------------------------------------------------------------------------
(in thousands) 2000 1999 1998
--------------------------------------------------------------------------------
Balance, beginning of year $ 7,031 $ 9,431 $ 9,431
Addition due to acquisition 11,033 -- --
Reversal of provision for loan losses -- (2,400) --
--------------------------------------------------------------------------------
Balance, end of year $18,064 $ 7,031 $ 9,431
================================================================================
The $11.0 million increase in the allowance for loan losses in 2000
stemmed from the Haven acquisition. In 1999, the Company reversed $2.0 million
from the allowance for loan losses in the first quarter and, in the fourth
quarter, reversed an additional $400,000 to establish a recourse reserve for the
$211.6 million in loans sold to the FHLB-NY.
Mortgage loans in foreclosure amounted to approximately $6.0 million, $2.9
million, and $5.5 million, at December 31, 2000, 1999, and 1998, respectively.
The interest income that would have been recorded under the original terms of
such loans and the interest income actually recognized for the years ended
December 31, 2000, 1999, and 1998, are summarized below:
------------------------------
DECEMBER 31,
-------------------------------------------------------------------------------
(in thousands) 2000 1999 1998
-------------------------------------------------------------------------------
Interest income that would have been recorded $ 435 $ 641 $ 1,079
Interest income recognized (51) (70) (150)
-------------------------------------------------------------------------------
Interest income foregone $ 384 $ 571 $ 929
================================================================================
--------------------------------------------------------------------------------
Forty-One
The Company defines impaired loans as those loans in foreclosure that are
not one-to-four family mortgage loans. Impaired loans for which the discounted
cash flows, collateral value, or market price equals or exceeds the carrying
value of the loan do not require an allowance. The allowance for impaired loans
for which the discounted cash flows, collateral value, or market price is less
than the carrying value of the loan is included in the Bank's overall allowance
for loan losses. The Bank generally recognizes interest income on these loans to
the extent that it is received in cash. There were no impaired loans in 2000,
1999, or 1998.
NOTE 9:
FORECLOSED REAL ESTATE
The following table summarizes transactions in foreclosed real estate,
which is included in "other assets," for the years ended December 31, 2000 and
1999:
-------------------
DECEMBER 31,
--------------------------------------------------------------------------------
(in thousands) 2000 1999
-------------------------------------------------------------------------------
Balance, beginning of year $ 66 $ 419
Acquired from Haven Bancorp 12 --
Transfers in -- 520
Sales (66) (841)
Transfers to real estate held for investment -- (32)
-------------------------------------------------------------------------------
Balance, end of year $ 12 $ 66
================================================================================
Foreclosed real estate is carried at fair market value; there were no
valuation allowances at December 31, 2000 or 1999, and no provisions for the
years ended December 31, 2000, 1999, or 1998.
NOTE 10:
DEPOSITS
The following is a summary of weighted average interest rates at December
31, 2000 and 1999 for each type of deposit:
---------------------------------------------------------------------------------
DECEMBER 31,
----------------------------------------------------------------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------------------------------------------------------------
Percent Weighted Percent Weighted
(in thousands) Amount of Total Average Rate Amount of Total Average Rate
----------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing demand accounts $ 171,360 5.26% 0.00% $ 39,857 3.70% 0.00%
NOW and money market accounts 719,420 22.09 2.87 103,422 9.62 3.15
Savings accounts 492,604 15.12 1.87 274,501 25.51 2.30
Certificates of deposit 1,873,810 57.53 6.05 658,238 61.17 4.93
----------------------------------------------------------------------------------------------------------------------------
Total deposits $3,257,194 100.00% 4.40% $1,076,018 100.00% 3.91%
============================================================================================================================
The following is a summary of certificates of deposit in amounts of
$100,000 or more at December 31, 2000 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 $99,848 $62,240 $72,255 $86,389 $320,732
====================================================================================
At December 31, 2000 and 1999, the aggregate amount of certificates of
deposit of $100,000 or more was approximately $320.7 million and $161.2 million,
respectively.
--------------------------------------------------------------------------------
Forty-Two
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
NOTE 11:
BORROWINGS
The Company maintains a line of credit with the FHLB that totaled $1.9
billion at December 31, 2000 and $762.7 million at December 31, 1999. The credit
line is collateralized by stock in the FHLB and by certain securities and
mortgage loans under a blanket pledge agreement in an amount equal to 110% of
outstanding borrowings. At December 31, 2000, the outstanding balance of FHLB
borrowings was $958.7 million, with a weighted average interest rate of 5.98%.
At December 31, 1999 and 1998, the outstanding balances were $636.4 million and
$439.1 million, with a weighted average interest rate of 5.27% and 5.22%,
respectively. The Company's FHLB borrowings have scheduled maturities that fall
within the next ten years.
The Company also has four trusts formed under the State of Delaware for
the purpose of issuing capital and common securities and investing the proceeds
thereof in the junior subordinated deferrable interest debentures issued by the
Company. On February 12, 1997, Haven Capital Trust I issued $25.0 million of
10.46% capital securities, which are scheduled to mature on February 1, 2027.
The Company is the owner of all the beneficial interests represented by common
securities of Haven Capital Trust I. Interest on the capital securities is
payable in semi-annual installments, commencing on August 2, 1997.
On May 26, 1999, Haven Capital Trust II completed the offering of $22.0
million of 10.25% capital securities. An additional $3.3 million of capital
securities were issued on June 18, 1999. The capital securities pay interest
quarterly and are scheduled to mature on September 30, 2029.
On July 26, ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ I issued $10.0 million of 11.045%
capital securities, which are scheduled to mature on July 19, 2030. Interest on
the capital securities is payable semi-annually, commencing on January 19, 2000.
On September 7, 2000, Queens Statutory Trust I issued $15.0 million of
10.60% capital securities, which are scheduled to mature on September 7, 2030.
The securities pay interest semi-annually, commencing on March 7, 2001.
For the twelve months ended December 31, 2000, the weighted average
balance of total borrowings was approximately $817.8 million with a weighted
average interest rate of 6.03%. In the year-earlier period, the weighted average
balance was approximately $570.1 million, with a weighted average interest rate
of 5.31%. The maximum amount of FHLB borrowings outstanding at any month-end
during the year ended December 31, 2000 was $958.7 million; in 1999, the maximum
month-end amount was $732.0 million.
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, 2000.
NOTE 12:
FEDERAL, STATE, AND LOCAL TAXES
The components of the net deferred tax asset at December 31, 2000 and 1999
are summarized as follows:
---------------------
DECEMBER 31,
-------------------------------------------------------------------------------
(in thousands) 2000 1999
-------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Financial statement loan loss allowance $ 7,699 $ 3,493
Accrual for post-retirement benefits 2,507 2,079
▇▇▇▇ to market on securities available for sale 18,413 --
▇▇▇▇ to market on loans 8,883 --
▇▇▇▇ to market on borrowings 3,178 --
Loan origination costs 2,831 --
SERP and Deferred Compensation Plans 2,623 2,867
Other 302 389
-------------------------------------------------------------------------------
Total deferred tax assets 46,436 8,828
-------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Tax reserve in excess of base year reserve (1,296) (1,727)
Pre-paid pension cost (2,008) (1,605)
Other (772) --
-------------------------------------------------------------------------------
Total deferred tax liabilities (4,076) (3,332)
-------------------------------------------------------------------------------
Net deferred tax asset $ 42,360 $ 5,496
================================================================================
--------------------------------------------------------------------------------
Forty-Three
The net deferred tax asset at December 31, 2000 and 1999 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, 2000, 1999, and 1998
is summarized as follows:
-------------------------------------
DECEMBER 31,
-------------------------------------------------------------------------------
(in thousands) 2000 1999 1998
-------------------------------------------------------------------------------
Federal--current $ 15,362 $ 16,792 $ 15,465
State and local--current 1,913 3,559 3,117
-------------------------------------------------------------------------------
Total current 17,275 20,351 18,582
-------------------------------------------------------------------------------
Federal--deferred 3,040 518 92
State and local--deferred 110 (97) (495)
-------------------------------------------------------------------------------
Total deferred 3,150 421 (403)
-------------------------------------------------------------------------------
Total income tax expense $ 20,425 $ 20,772 $ 18,179
================================================================================
The following is a reconciliation of statutory federal income tax expense
to combined effective income tax expense for the years ended December 31, 2000,
1999, and 1998:
-------------------------------
DECEMBER 31,
--------------------------------------------------------------------------------------------------
(in thousands) 2000 1999 1998
--------------------------------------------------------------------------------------------------
Statutory federal income tax expense $ 15,716 $ 18,352 $ 15,793
State and local income taxes, net of federal income tax benefit 1,315 5,805 4,998
ESOP 5,865 84 1,926
BOLI (735) -- --
Other, net (1,736) (3,469) (4,538)
--------------------------------------------------------------------------------------------------
Total income tax expense $ 20,425 $ 20,772 $ 18,179
==================================================================================================
Federal Income Taxes
The Company and its subsidiaries file a consolidated federal income tax
return on a calendar-year basis.
Under federal tax law that existed prior to 1996, the Bank was generally
allowed a bad debt deduction under the reserve method. The Small Business Job
Protection Act of 1996 (the "Act"), enacted in August 1996, repealed the use of
the reserve method for tax purposes. As a result, the Bank has computed its bad
debt deduction using the direct charge-off method for tax years after 1995. The
Act also required the Bank to recapture into taxable income over a six-year
period the net additions to its tax bad debt reserves which occurred after 1987
(the "base year"). The Bank has previously provided for this deferred tax
liability for post-1987 reserves in the financial statements. At December 31,
2000 and 1999, such deferred tax liability amounted to $1.3 million and $1.7
million, respectively.
Pursuant to SFAS No. 109, "Accounting for Income Taxes," the Bank is
generally not required to provide for deferred taxes for its pre-1988 tax bad
debt reserve. Included in the Bank's retained earnings at December 31, 2000 and
1999 were $17.7 million (including $10.3 million from CFS Bank) and $7.4
million, respectively, which had been segregated for federal income tax purposes
as a pre-1988 bad debt reserve, for which tax deductions were taken in prior
years. Under the Act, this tax bad debt reserve could be recognized as taxable
income if one of the following were to occur: (a) the Bank's retained earnings
represented by this reserve were used for purposes other than to absorb losses
from bad debts, including excess dividends or distributions in liquidation; (b)
the Bank were to redeem its stock; (c) the Bank were to fail to meet the
definition provided by the Internal Revenue Code for a bank; or (d) there was a
change in the federal tax law. The Bank does not expect such reserves to be
recaptured into taxable income.
--------------------------------------------------------------------------------
Forty-Four
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
State and Local Taxes
The Company files New York State franchise tax and New York City financial
corporation tax returns on a calendar-year basis. The Company's annual tax
liability for each year is the greater of a tax on (i) allocated net income;
(ii) allocated alternative net income; (iii) allocated assets; or (iv) a fixed
minimum tax. Operating losses cannot be carried back or carried forward for New
York State or New York City tax purposes. The Company has provided for New York
State and New York City taxes based on allocated alternative net income for the
years ended December 31, 2000, 1999, and 1998.
Both New York State and New York City adopted legislation applicable to
tax years after 1995 to permit the continued use of the reserve method for
calculating bad debt deductions and to avoid the recapture of post-1987 tax bad
debt reserves, except under certain limited circumstances. As a result, the New
York State and New York City bad debt deduction is no longer predicated on the
federal deduction.
As a Delaware business corporation, the Company is required to file annual
returns and to pay annual fees and an annual franchise tax to the State of
Delaware. Such taxes and fees, which are not material, are included in income
tax expense in the Consolidated Statements of Income and Comprehensive Income.
NOTE 13:
COMMITMENTS AND CONTINGENCIES
Lease Commitments
At December 31, 2000, the Company was obligated under eighty
non-cancelable operating lease 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 leases contain
escalation clauses commencing at various times during the lives of the leases.
Such clauses provide for increases in the annual rental, based on increases in
the consumer price index.
At December 31, 2000, the Company had entered into several non-cancelable
operating lease agreements for rental of Bank-owned properties. The leases
contain escalation clauses that provide for periodic increases in the annual
rental, again based on increases in the consumer price index.
The projected minimum annual rental commitments under these leases,
exclusive of taxes and other charges, are summarized as follows:
(in thousands) Rental Income Rental Expense
--------------------------------------------------------------------------------
2001 $1,245 $ 5,557
2002 1,138 4,532
2003 1,055 3,097
2004 820 2,534
2005 810 2,250
2006 and thereafter 1,371 14,425
--------------------------------------------------------------------------------
Total minimum future rentals $6,439 $32,395
================================================================================
Included in "occupancy and equipment expense," the rental expense under
these leases was approximately $1,072,000, $485,000, and $446,000 for the years
ended December 31, 2000, 1999, and 1998, respectively. Rental income on
Bank-owned properties, netted in occupancy and equipment expense, was
approximately $1.1 million, $1.3 million, and $1.2 million for the corresponding
periods.
On December 15, 2000, the Company relocated its corporate headquarters to
the former headquarters of Haven Bancorp, 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 ("▇▇▇") which has been assumed by the Company.
Under the ▇▇▇ and PILOT agreements, the Company assigned the building and land
to the ▇▇▇, 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 ▇▇▇ financial assistance.
Legal Proceedings
In the normal course of the Company's business, there are various
outstanding legal proceedings. In the opinion of management, based on
consultation with legal counsel, the financial position of the Company will not
be affected materially as a result of the outcome of such legal proceedings.
In February 1983, a burglary of the contents of safe deposit boxes
occurred at a branch office of CFS Bank. At December 31, 2000, the Bank had a
class action lawsuit pending, whereby the plaintiffs were seeking recovery of
approximately $12.9 million in actual damages and an additional $12.9 million of
unspecified damages. 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 these actions and will continue to defend
its position.
--------------------------------------------------------------------------------
Forty-Five
NOTE 14:
EMPLOYEE BENEFITS
Retirement Plan
The Company maintains two pension plans, one for employees of the former
Queens County Savings Bank and one for employees of the former CFS Bank,
covering substantially all employees who had attained minimum service
requirements. The Queens County Savings Bank Retirement Plan was frozen at
September 30, 1999, while the CFS Bank Retirement Plan was frozen at June 30,
1996. The plans are subject to the provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA"), as amended. Post-retirement benefits were
recorded on an accrual basis with an annual provision that recognized the
expense over the service life of the employee, determined on an actuarial basis.
Since both plans were frozen prior to 2000, there was no service cost or
employer contribution for the current year.
Effective January 1, 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Post-retirement Benefits." SFAS No. 132
standardized the disclosures for pension and other post-retirement benefits by
requiring additional information that facilitates financial analysis, and by
eliminating certain disclosures that were no longer considered useful.
Accordingly, SFAS No. 132 superseded the disclosure requirements in SFAS Nos.
87, 88, and 106. The following tables set forth the disclosures required under
SFAS No. 132 for the two benefit plans, combined, in 2000 and for the Queens
County Savings Bank plan, alone, in 1999 and 1998:
-----------------------
Pension Benefits
--------------------------------------------------------------------------------
(in thousands) 2000 1999
--------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 22,051 $ 15,231
Service cost -- 641
Interest cost 1,683 1,024
Actuarial loss (728) (889)
Benefits paid (2,881) (2,345)
--------------------------------------------------------------------------------
Benefit obligation at end of year $ 20,125 $ 13,662
================================================================================
CHANGE IN PLAN ASSETS:
Fair value of assets at beginning of year $ 26,758 $ 15,128
Actual return on plan assets 1,943 1,760
Employer contribution -- 460
Benefits paid (2,881) (898)
--------------------------------------------------------------------------------
Fair value of assets at end of year $ 25,820 $ 16,450
================================================================================
FUNDED STATUS:
Funded status $ 5,695 $ 1,968
Unrecognized prior service cost -- 906
Unrecognized net actuarial (gain) loss (982) 542
--------------------------------------------------------------------------------
Prepaid benefit cost $ 4,713 $ 3,416
================================================================================
YEARS ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------------------------------------------------------------------------------
WEIGHTED AVERAGE ASSUMPTIONS:
Discount rate 8.00% 7.75% 6.75%
Expected rate of return on plan assets 8.00 8.00 8.00
Rate of compensation increase 4.00 5.50 4.00
================================================================================
YEARS ENDED DECEMBER 31,
------------------------------
(in thousands) 2000 1999 1998
-------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $ -- $ 641 $ 580
Interest cost 1,683 1,024 990
Expected return on plan assets (2,192) (1,203) (1,172)
Amortization of prior service cost (56) (1,906) 19
-------------------------------------------------------------------------------
Net periodic benefit cost $ (565) $ (1,444) $ 417
================================================================================
--------------------------------------------------------------------------------
Forty-Six
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
Thrift Incentive Plan
The Company maintains two defined contribution Thrift Incentive Plans in
which all regular salaried employees may participate after one year of service
and having attained age 21. Pursuant to the Bank's conversion from mutual to
stock form in 1993 and the adoption of the ESOP, all matching contributions to
the Thrift Incentive Plan for Queens County Savings Bank employees were
suspended, in order to comply with the limitations set forth by the Internal
Revenue Code. In connection with the acquisition by New York Community Bancorp,
all matching contributions to the CFS Bank Thrift Incentive Plan were suspended,
effective January 1, 2001. Accordingly, there was one month of Company
contributions for the year ended December 31, 2000, and no Company contributions
for the years ended 1999 and 1998.
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, to
ensure that the Bank will have their continued service and assistance in the
conduct of its business in the future. These directors have provided, and will
continue to provide, expertise that enables the Bank to experience successful
growth.
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 $1.4
million and $682,000 at December 31, 2000 and 1999, respectively, are unfunded
and, as such, are reflected in "other liabilities" in the Company's Consolidated
Statements of Financial Condition.
Post-retirement Health Care Benefits
The Company offers post-retirement benefits to its retired employees. The
New York Community Bank plan provides comprehensive medical coverage through a
major insurance company, subject to an annual deductible co-payment percentage
and an offset against other insurance available to the retiree. The plan covers
most medical expenses, including hospital services, doctors' visits, x-rays, and
prescription drugs. Employees retiring after January 1, 1994 are required to
share costs of the plan with the Bank, based upon a formula that takes into
account age and years of service.
The CFS Bank post-retirement plan provides life insurance coverage to
retirees under an unfunded plan. Life insurance coverage in the first year of
retirement is equal to three times annual pay at retirement, reduced by 10% (the
"reduction amount"). For the next four years, life insurance coverage is reduced
each year by the reduction amount. The maximum benefit is $50,000 on the earlier
of (a) the fifth anniversary of retirement or (b) attaining age 70.
The Company 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, as described on page 46 of this report,
for the two benefit plans, combined, in 2000 and for the Queens County Savings
Bank plan, alone, in 1999 and 1998:
Post-retirement Benefits
------------------------
(in thousands) 2000 1999
-------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 4,535 $ 3,110
Service cost 226 89
Interest cost 347 205
Actuarial gain (98) (83)
Benefits paid (122) (135)
-------------------------------------------------------------------------------
Benefit obligation at end of year $ 4,888 $ 3,186
===============================================================================
CHANGE IN PLAN ASSETS:
Fair value of assets at beginning of year $ -- $ --
Actual return on plan assets -- --
Employer contribution 184 --
Benefits paid (184) (170)
-------------------------------------------------------------------------------
Fair value of assets at end of year $ -- $ (170)
================================================================================
FUNDED STATUS:
Accrued post-retirement benefit cost $(6,181) $(4,252)
Employer contribution 184 --
Total net periodic benefit cost 548 (170)
-------------------------------------------------------------------------------
Accrued post-retirement benefit cost $(5,449) $(4,422)
===============================================================================
--------------------------------------------------------------------------------
Forty-Seven
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
----------------------------
2000 1999 1998
------------------------------------------------------------------------------
WEIGHTED AVERAGE ASSUMPTIONS:
Discount rate 8.00% 7.75% 6.75%
Current medical trend rate 6.50 6.50 6.50
Rate of compensation increase 5.50 5.50 4.00
==============================================================================
YEARS ENDED DECEMBER 31,
----------------------------
(in thousands) 2000 1999 1998
------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $ 226 $ 89 $ 78
Interest cost 347 205 200
Expected return on plan assets -- (61) (86)
Amortization of prior service cost (25) (63) (64)
------------------------------------------------------------------------------
Net periodic benefit cost $ 548 $ 170 $ 128
==============================================================================
NOTE 15:
STOCK-RELATED BENEFIT PLANS
Stock Plans
At the time of its conversion to stock form, the Bank established the
following stock plans for eligible employees who have at least 12 consecutive
months of credited service:
Employee Stock Ownership Plan ("ESOP") and Supplemental Employee Retirement Plan
("SERP")
In connection with the conversion, the Company lent $19.4 million to the
ESOP to purchase 4,645,860 shares (as adjusted for the five stock splits
discussed in Note 3). The loan will be repaid, principally from the Bank's
discretionary contributions to the ESOP, over a period of time not to exceed 60
years. The Bank's obligation to make such contributions is reduced to the extent
of any investment earnings realized on such contributions and any dividends paid
on shares held in the unallocated stock account. At December 31, 2000, the loan
had an outstanding balance of $7.0 million and a fixed interest rate of 6.0%.
Interest expense for the obligation was $751,000 for the year ended December 31,
2000.
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.
Forfeitures are reallocated among participating employees in the same proportion
as contributions. Contributions to the ESOP were approximately $4.6 million for
the year ended December 31, 2000. Dividends and investment income received on
ESOP shares used for debt service amounted to $1.0 million for the year.
Benefits vest on a seven-year basis, starting with 20% in the third year
of employment and continuing each year thereafter, and are payable upon death,
retirement, disability, or separation from service, and may be payable in cash
or stock. However, in the event of a change in control, as defined in the plan,
any unvested portion of benefits shall vest immediately.
In connection with the Haven acquisition, the Company allocated 875,053
ESOP shares to participants in 2000; in 1999, shares allocated to participants
totaled 84,793. At December 31, 2000, there were 1,901,920 shares remaining for
future allocation, with a market value of $71.3 million. The Bank recognizes
compensation expense for the ESOP based on the average market price of the
common stock during the year at the date of allocation. The Company recorded
ESOP-related compensation expense of $21.1 million, $2.5 million, and $4.7
million for the years ended December 31, 2000, 1999, and 1998, respectively.
In 1993, the Bank also established a Supplemental Employee Retirement Plan
("SERP"), which provided additional unfunded, non-qualified benefits to certain
participants in the ESOP in the form of common stock. The SERP was frozen in
1999. The plan maintained $3.8 million of trust-held assets at both December 31,
2000 and 1999, based upon the cost of said assets at the time of purchase.
Trust-held assets consist entirely of Company common stock and amounted to
258,690 shares at both December 31, 2000 and 1999. The cost of such shares is
reflected as contra-equity and additional paid-in capital in the accompanying
Consolidated Statements of Financial Condition. The Company recorded
SERP-related compensation expense of $1.3 million in 1998; there was no
SERP-related compensation expense in either 2000 or 1999.
--------------------------------------------------------------------------------
Forty-Eight
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
Recognition and Retention Plans and Trusts ("RRPs")
The purpose of the RRPs is to provide employees, officers, and directors
of the Bank with a proprietary interest in the Company in a manner designed to
encourage such persons to remain with the Bank. The Bank contributed a total of
$5.5 million to the RRPs to enable them to acquire an aggregate of 1,474,875
shares (split-adjusted) of the common stock in the conversion; substantially all
of these shares have been awarded. The $5.5 million represents deferred
compensation and has been accounted for as a reduction in stockholders' equity.
Awards vest at a rate of 33-1/3% per year for directors, initially commencing on
November 23, 1994, and vest at a rate of 20% per year for officers and
employees, initially commencing on January 1, 1995. 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 Company
recognizes expense based on the original cost of the common stock at the date of
vesting. The Company recorded no compensation expense for the RRPs in 2000; in
1999 and 1998, the compensation expense recorded for the RRPs was $22,000 and
$749,000, respectively.
Stock Option Plans
At December 31, 2000, the Company had four stock option plans: the 1993
and 1997 Queens County Bancorp, Inc. stock option plans and, pursuant to the
acquisition, the 1993 and 1996 Haven Bancorp, Inc. stock option plans. As the
Company applies APB Opinion No. 25 and related interpretations in accounting for
these plans, no compensation cost has been recognized.
Under these plans, each stock option granted entitles the holder to
purchase one share 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 three to five years from the date of issuance, and expire
ten years from the date on which they were granted. However, all options become
100% exercisable in the event that employment is terminated due to death,
disability, normal retirement, or in the event of a change in control of the
Bank or the Company.
The Company primarily utilizes common stock held in Treasury to satisfy
the exercise of options. The difference between the average cost of Treasury
shares and the exercise price is recorded as an adjustment to retained earnings
on the date of exercise. At December 31, 2000, 1999, and 1998, the number of
vested options that were exercisable under the 1993 Queens County Bancorp, Inc.
plan was 245,531; 794,365; and 1,727,831, respectively; under the 1997 Queens
County Bancorp, Inc. plan, the number of vested options that were exercisable at
those dates was 1,422,250; 671,625; and 671,625, respectively. The number of
vested options that were exercisable under the Haven Bancorp, Inc. 1993 and 1996
stock option plans at December 31, 2000 was 376,983 and 400,101, respectively.
At December 31, 2000, there were 586,234 shares reserved for future issuance
under the Company's four stock option plans.
The status of the Company's stock options plans at December 31, 2000,
1999, and 1998, and changes during the years ending on those dates, are
summarized below:
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Stock Exercise of Stock Exercise of Stock Exercise
Options Price Options Price Options Price
-----------------------------------------------------------------------------------------------------------------------------
Stock options outstanding,
beginning of year 1,465,990 $15.91 2,395,456 $ 9.64 2,944,581 $ 6.53
Granted 777,625 20.06 671,625 30.34 671,625 24.85
Assumed in acquisition 777,084 8.98 -- -- -- --
Exercised (575,834) 3.71 (1,601,091) 12.58 (1,220,750) 10.27
-----------------------------------------------------------------------------------------------------------------------------
Stock options outstanding,
end of year 2,444,865 $17.90 1,465,990 $15.91 2,395,456 $ 9.64
=============================================================================================================================
Options exercisable at end of year 2,444,865 1,465,990 2,395,456
Weighted average grant-date fair value
of options granted during the year $17.32 $2.17 $8.95
=============================================================================================================================
--------------------------------------------------------------------------------
Forty-Nine
The following table summarizes information about stock options outstanding
at December 31, 2000:
Weighted
Average
Number Weighted Remaining Weighted
Range of of Options Average Contractual Life Options Average
Exercise Outstanding at Exercise of Options Exercisable at Exercise
Prices December 31, 2000 Price Outstanding December 31, 2000 Price
------------------------------------------------------------------------------------------------------------------------------------
$ 1-$ 4 245,531 $ 3.71 2.92 years 245,531 $ 3.71
$ 4-$10 376,983 4.81 2.50 376,983 4.81
$11-$20 400,101 12.91 8.00 400,101 12.91
$21-$29 777,625 20.06 9.50 -- 20.06
$30-$40 644,625 30.34 8.50 644,625 30.34
------------------------------------------------------------------------------------------------------------------------------------
2,444,865 $16.47 7.25 years 1,667,240 $16.47
====================================================================================================================================
Because stock options granted under the four plans have characteristics
that are significantly different from those of traded options, and because
changes in the subjective assumptions can materially affect the fair value
estimates, the Company used a Black-Scholes option-pricing model with the
following weighted average assumptions used for grants in 2000, 1999, and 1998:
YEARS ENDED DECEMBER 31,
--------------------------------------
2000 1999 1998
-------------------------------------------------------------------------------
Dividend yield 2.68% 3.69% 2.25%
Expected volatility 10.02 9.24 9.69
Risk-free interest rate 4.00 4.83 5.14
Expected option lives 9.5 years 9.5 years 9.5 years
===============================================================================
Had compensation cost for the Company's four stock option plans been
determined based on the fair value at the date of grant for awards made under
those plans, consistent with the method set forth in SFAS No. 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
YEARS ENDED DECEMBER 31,
--------------------------------------
(in thousands, except per share data) 2000 1999 1998
-------------------------------------------------------------------------------
Net income
As reported $ 24,477 $ 31,664 $ 26,944
Pro forma 17,750 23,490 17,780
Diluted earnings per share
As reported $ 1.25 $ 1.67 $ 1.34
Pro forma 0.91 1.24 0.89
===============================================================================
NOTE 16:
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table summarizes the carrying values and estimated fair
values of the Company's on-balance-sheet financial instruments at December 31,
2000 and 1999:
DECEMBER 31,
---------------------------------------------------------
2000 1999
(in thousands) Value Fair Value Value Fair Value
-----------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS:
Cash and cash equivalents $ 257,715 $ 257,715 $ 37,224 $ 37,224
Securities held to maturity 222,534 220,608 184,637 180,181
Mortgage-backed securities held to maturity 1,923 1,979 2,094 2,135
Securities available for sale 303,734 303,734 12,806 12,806
Loans, net 3,616,386 3,702,138 1,601,079 1,603,483
FINANCIAL LIABILITIES:
Deposits $3,257,194 $3,278,831 $1,076,018 $1,076,767
Borrowings 1,037,505 1,037,505 636,378 636,378
Mortgagors' escrow 11,291 11,291 10,288 10,288
===========================================================================================================
--------------------------------------------------------------------------------
Fifty
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
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 mature overnight.
Securities and Mortgage-backed Securities Held to Maturity and Securities
Available for Sale
Estimated fair values are based principally on market prices or dealer
quotes. Certain fair values are estimated using market prices of similar
securities.
Loans
The loan portfolio is segregated into various components for valuation
purposes in order to group loans based on their significant financial
characteristics, such as loan type (mortgages or other) and payment status
(performing or non-performing). Fair values are estimated for each component
using a valuation method selected by management.
The estimated fair values of performing residential mortgage loans,
commercial real estate loans, 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 residential and commercial
mortgage loans are based on recent collateral appraisals or management's
analysis of estimated cash flows, discounted at rates commensurate with the
credit risk involved.
The above technique of estimating fair value is extremely sensitive to the
assumptions and estimates used. While management has attempted to use
assumptions and estimates that are the most reflective of the Company's loan
portfolio and the current market, a greater degree of subjectivity is inherent
in these values than in those determined in formal trading marketplaces.
Accordingly, readers are cautioned in using this information for purposes of
evaluating the financial condition and/or value of the Company in and of itself
or in comparison with any other company.
Deposits
The fair values of deposit liabilities with no stated maturity (NOW, money
market, savings, and non-interest-bearing accounts) are equal to the carrying
amounts payable on demand. The fair values of certificates of deposit represent
contractual cash flows, discounted using interest rates currently offered on
deposits with similar characteristics and remaining maturities. These estimated
fair values do not include the intangible value of core deposit relationships,
which comprise a significant portion of the Bank's deposit base. Management
believes that the Bank's core deposit relationships provide a relatively stable,
low-cost funding source that has a substantial intangible value separate from
the value of the deposit balances.
Borrowings
The carrying value of borrowings approximates fair value in the financial
statements, as these instruments, being callable, are considered short-term.
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 estimated fair values of these off-balance-sheet financial instruments
resulted in no unrealized gain or loss at December 31, 2000 or 1999.
NOTE 17:
RESTRICTIONS ON THE BANK
Various legal restrictions limit the extent to which the Bank can supply
funds to the parent company and its non-bank subsidiaries. As a converted stock
form savings bank, the Bank is required to have the approval of the
Superintendent of the New York State Banking Department if dividends declared in
any calendar year exceed the total of its net profits for that year combined
with its retained net profits for the preceding two calendar years, less any
required transfer to paid-in capital. "Net profits" is defined as the remainder
of all earnings from current operations plus actual recoveries on loans and
investments and other assets, after deducting from the total thereof all current
operating expenses, actual losses, if any, and all federal and local taxes. In
2000, the Bank declared dividends to its parent aggregating $88.8 million, which
did not exceed net profits for 2000.
--------------------------------------------------------------------------------
Forty-One
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NOTE 18:
PARENT COMPANY-ONLY FINANCIAL INFORMATION
During 1999 and the first eleven months of 2000, the Company operated one
wholly-owned subsidiary, New York Community Bank. From December 1 through
December 31, 2000, the Company operated an additional wholly-owned subsidiary,
CFS Bank. As the earnings of the banks were recognized by the Company using the
equity method of accounting, the earnings were recorded as an increase in the
Company's investment in the banks in 2000. CFS Bank merged with and into New
York Community Bank on January 31, 2001.
Following are the condensed financial statements for New York Community
Bancorp, Inc. (parent company-only):
CONDENSED STATEMENTS OF CONDITION
----------------------
DECEMBER 31,
-------------------------------------------------------------------------------------------------------------
(in thousands) 2000 1999
-------------------------------------------------------------------------------------------------------------
ASSETS
Cash $ 7,422 $ 3,075
Money market investments 5,143 57
Securities available for sale 1,444 --
Investment in and advances to subsidiary banks, net 127,742 105,392
Goodwill 118,071 --
Deferred tax asset 26,762 --
-------------------------------------------------------------------------------------------------------------
Total assets $ 286,584 $ 108,524
=============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 18,639 $ --
Stockholders' equity 267,945 108,524
-------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 286,584 $ 108,524
=============================================================================================================
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
-----------------------------------
(in thousands) 2000 1999 1998
-------------------------------------------------------------------------------------------------------------
Interest income from subsidiary banks $ -- $ -- $ 340
Other interest income 56 78 39
Dividends from subsidiary banks 88,800 33,100 17,800
-------------------------------------------------------------------------------------------------------------
Total income 88,856 33,178 18,179
Interest expense to subsidiary banks 1,808 1,683 --
Operating expense 275 301 229
-------------------------------------------------------------------------------------------------------------
Income before income tax and equity in undistributed earnings 86,773 31,194 17,950
Income tax expense 150 150 150
-------------------------------------------------------------------------------------------------------------
Income before equity in undistributed earnings of subsidiary banks 86,623 31,044 17,800
Equity in (excess dividends)/undistributed earnings of subsidiary banks (62,146) 620 9,144
-------------------------------------------------------------------------------------------------------------
Net income $ 24,477 $ 31,664 $ 26,944
=============================================================================================================
--------------------------------------------------------------------------------
Fifty-Two
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-----------------------------------
(in thousands) 2000 1999 1998
-------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24,477 $ 31,664 $ 26,944
Equity in excess dividends/(undistributed earnings)
of the banks not provided for 62,146 (620) (9,144)
-------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 86,623 31,044 17,800
=============================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for investments in and advances to subsidiaries (105,933) (36,277) (17,021)
Repayment from investments in and advances to subsidiaries 88,800 60,505 62,812
-------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (17,133) 24,228 45,791
=============================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Treasury stock (41,483) (38,352) (52,533)
Dividends paid (17,847) (18,563) (12,636)
Exercise of stock options (727) 3,192 2,347
-------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (60,057) (53,723) (62,822)
-------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 9,433 1,549 769
-------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 3,132 1,583 814
-------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 12,565 $ 3,132 $ 1,583
=============================================================================================================
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NOTE 19:
REGULATORY MATTERS
The Bank is subject to regulation, examination, and supervision by the New
York State Banking Department and the Federal Deposit Insurance Corporation (the
"Regulators"). The Bank is also governed by numerous federal and state laws and
regulations, including the FDIC Improvement Act of 1991 ("FDICIA"), which
established five capital categories ranging from well capitalized to critically
undercapitalized. Such classifications are used by the FDIC to determine various
matters, including prompt corrective action and each institution's semi-annual
FDIC deposit insurance premium assessments. The Bank's capital amounts and
classification are also subject to qualitative judgments by the Regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier 1 capital to average assets (as defined). At December 31, 2000, the
Bank met all capital adequacy requirements to which it was subject.
As of December 31, 2000, 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.
--------------------------------------------------------------------------------
Fifty-Three
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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
AS OF DECEMBER 31, 2000 Actual Adequacy Purposes Action Provisions
--------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------------------------------------------------------------------------
Total capital (to risk-weighted assets) $333,159 13.02% $204,642 >=8.0% $255,802 >=10.0%
Tier 1 capital (to risk-weighted assets) 309,806 12.11 102,321 >=4.0 153,481 >= 6.0
Tier 1 leverage capital (to average assets) 309,806 6.38 145,637 >=3.0 242,729 >= 5.0
==========================================================================================================================
--------------------------------------------------------------------------
To Be Well Capitalized
For Capital Under Prompt Corrective
AS OF DECEMBER 31, 1999 Actual Adequacy Purposes Action Provisions
--------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------------------------------------------------------------------------
Total capital (to risk-weighted assets) $181,809 14.36% $101,321 >=8.0% $126,651 >=10.0%
Tier 1 capital (to risk-weighted assets) 174,778 13.80 50,660 >=4.0 75,990 >= 6.0
Tier 1 leverage capital (to average assets) 174,778 8.63 60,734 >=3.0 101,233 >= 5.0
==========================================================================================================================
Under this framework, and based upon the Bank's capital levels, no prior
approval from the Regulators is necessary to accept brokered deposits.
NOTE 20:
QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the fiscal years ended December 31,
2000 and 1999 follows:
------------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------------
(in thousands, except per share data) ▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇
----------------------------------------------------------------------------------------------------------------------------
Net interest income after
loan loss provision $24,041 $16,278 $16,319 $16,443 $17,694 $17,557 $17,490 $18,564
Other operating income 18,021 1,264 1,249 1,111 798 581 513 630
Operating expense 32,486 5,684 5,520 5,638 6,420 3,554 5,840 5,586
----------------------------------------------------------------------------------------------------------------------------
Income before income tax expense 9,082 11,858 12,048 11,916 12,072 14,594 12,163 13,608
Income tax expense 7,753 4,073 4,278 4,322 4,868 5,819 4,714 5,371
----------------------------------------------------------------------------------------------------------------------------
Net income $ 1,329 $ 7,785 $ 7,770 $ 7,594 $ 7,204 $ 8,775 $ 7,449 $ 8,237
============================================================================================================================
Diluted earnings per common share $ 0.06 $ 0.45 $ 0.44 $ 0.42 $ 0.39 $ 0.46 $ 0.39 $ 0.43
============================================================================================================================
Cash dividends declared
per common share $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25
============================================================================================================================
Dividend payout ratio 417% 56% 57% 60% 64% 54% 64% 58%
============================================================================================================================
Average common shares and
equivalents outstanding 21,496 17,494 17,796 18,145 18,715 18,982 19,212 19,108
============================================================================================================================
Stock price per common share:
High $ 37.50 $ 28.88 $ 20.69 $ 26.88 $ 32.44 $ 32.37 $ 35.69 $ 31.68
Low 26.31 18.69 17.94 17.75 25.75 26.94 27.00 27.00
Close 36.75 28.88 18.44 18.06 27.13 27.63 32.38 27.00
============================================================================================================================
--------------------------------------------------------------------------------
Fifty-Four
--------------------------------------------------------------------------------
NEW YORK COMMUNITY BANCORP, INC.
--------------------------------------------------------------------------------
MANAGEMENT'S RESPONSIBILITY FOR
FINANCIAL REPORTING
TO OUR SHAREHOLDERS:
Management has prepared, and is responsible for, the consolidated
financial statements and related financial information included in this annual
report. The consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America, and
reflect management's judgments and estimates with respect to certain events and
transactions. Financial information included elsewhere in this annual report is
consistent with the consolidated financial statements.
Management is responsible for maintaining a system of internal controls
and has established such a system to provide reasonable assurance that
transactions are recorded properly to permit preparation of financial
statements; that they are executed in accordance with management's
authorizations; and that assets are safeguarded from significant loss or
unauthorized use. Management believes that during fiscal year 2000, this system
of internal controls was adequate to accomplish the intended objectives.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Chairman, President, and
Chief Executive Officer
January 24, 2001
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, 2000 and
1999 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, 2000. 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 the financial position of New York Community Bancorp, Inc. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and cash flows for each of the years in the three-year period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States of America.
/s/ KPMG LLP
New York, New York
January 24, 2001
--------------------------------------------------------------------------------
Fifty-Five
