STRENGTH. STABILITY. SERVICE.
Celebrating 150 years.
2008 Annual Report
Westchester
Manhattan
Bronx
Suffolk
Manhattan
Bronx
Essex
Hudson
Queens
Nassau
Union
Brooklyn
Staten
Island
Monmouth
Middlesex
Mercer
New Jersey
New York
Ocean
TM
Communit y Bank loCations
CommerCial Bank loCations
Queens County Savings Bank
New York Commercial Bank
Roslyn Savings Bank
Richmond County Savings Bank
Roosevelt Savings Bank
New York Community Bank
Garden State Community Bank
Atlantic Bank
Since the year 2000, our growth has been driven by
organic loan production and by a successful growth-
through-acquisition strategy.
(dollars in billions)
Number of branches
Multi-family loans
Total loans
Total assets
Core deposits
Total deposits
12/31/99
12/31/08
Compound Annual
Growth Rate
14
$1.3
1.6
1.9
0.4
1.1
216
$15.7
22.2
32.5
7.5
14.3
35.5%
31.4
33.8
37.0
37.8
33.3
Westchester
Manhattan
Bronx
Suffolk
Essex
Hudson
Queens
Nassau
Union
Brooklyn
Middlesex
New York
Staten
Island
Monmouth
Mercer
New Jersey
Ocean
Company profile
Manhattan
Now celebrating 150 years of strength, stability, and service,
New York Community Bancorp, Inc. (NYSE: NYB) is the 25th largest
bank holding company in the nation, with assets of $32.5 billion at
December 31, 2008.
Bronx
As the holding company for New York Community Bank and
New York Commercial Bank, we operate 215 branches throughout
Metro New York and New Jersey, including 44 branches in Queens
County, where the Community Bank began with a single branch in
April 1859. Today, New York Community Bank is the second largest
thrift in the nation, and ranks among the top depositories in our
marketplace.
We also rank among the region’s leading multi-family
mortgage lenders, with a $15.7 billion multi-family loan portfolio
at December 31, 2008. The majority of the multi-family loans we
produce are secured by apartment buildings in New York City that
feature below-market rents.
In 2008—a year when most U.S. banks were cutting back on
lending—we increased the volume of loans we produced by more
than 21%. Of the $5.9 billion of loans we produced, $3.2 billion were
multi-family loan originations, representing a year-over-year increase
of 29.8%. Boosted by a nearly 12% rise in multi-family loans outstanding,
total loans grew 9.0% to $22.2 billion at December 31st.
Though not immune to the impact of the economic crisis, the
quality of our assets continued to exceed that of our industry peers.
Non-performing assets represented 0.35% of total assets at the end
of December, and net charge-offs represented 0.03% of average loans
for the year.
The growth of our loan portfolio combined with a reduction in
higher-cost funding to generate a 9.6% increase in our net interest
income, while expanding our net interest margin to its highest level
in four years. The result was a 17.1% rise in our 2008 operating earn-
ings, equivalent to a 9.1% rise in diluted operating earnings per share.
We also completed the year with a solid capital foundation, and
did so without an infusion of government funds. Year-over-year,
our tangible stockholders’ equity rose $61.3 million to $1.7 billion,
representing 5.66% of tangible assets at December 31, 2008.
As the challenges posed by last year’s events give way to new and
evolving pressures, we remain confident in our ability to generate
solid earnings in 2009. With 150 years of strength, stability, and
service to draw on, we have one very distinct advantage: a history
of performing well in the best and worst of times.
Communit y Bank Divisions
R O O S E V E L T S A V I N G S B A N K D I V I S I O N
R O O S E V E L T S A V I N G S B A N K D I V I S I O N
CommerCial Bank Division
Established on April 14, 1859 in the village of Flushing,
Queens County Savings Bank—the forebear of New York
Community Bank—was the first savings bank chartered
by the State of New York in the New York City
borough of Queens.
The building at right housed the Bank’s headquarters
and Flushing branch for 44 years, beginning in 1911,
and was replaced by a more contemporary building
at the same site in 1955. Our headquarters remained at
this location until our move to Westbury, New York
on December 15, 2000.
On Our Cover: The George Washington Bridge
connects Metro New York and New Jersey, the
dynamic marketplace we serve.
WITh ASSETS Of $32.5 Billion:
We are the 25th largest bank holding company in the nation,
and operate the nation’s second largest thrift.
S
WITh A MUlTI-fAMIlY lOAN POrTfOlIO Of
$15.7 Billion:
We rank among the leading producers of multi-family loans in New York City, with
an emphasis on apartment buildings that feature below-market rents.
S
WITh 2008 lOAN OrIgINATIONS Of
$5.9 Billion:
We exceeded our 2007 loan production by 21.2%.
S
WITh A 0.03% rATIO Of NET ChArgE-OffS
TO AvErAgE lOANS AND A 0.35% rATIO Of NON-PErfOrMINg
ASSETS TO TOTAl ASSETS:
Our asset quality measures ranked among the bank and thrift industry’s best in 2008.
S
WITh DEPOSITS Of $14.3 Billion AND
215 Branches:
We operate the fourth largest thrift depository in Metro New York/New Jersey
and the fifteenth largest commercial bank depository in Metro New York.
S
WITh ADJUSTED NET INTErEST INCOME Of
$715.1 Million(a):
We realized a 16.0% improvement in our primary earnings source in 2008.
S
WITh 2008 OPErATINg EArNINgS Of
$322.5 Million(b):
We exceeded our 2007 operating earnings by 17.1%.
S
WITh AN OPErATINg EffICIENCY rATIO Of
38.89% in 2008(b):
We continued to rank among the ten most efficient bank holding companies
in the nation, and realized a 229-basis point improvement year-over-year.
(a)Please see the reconciliations of our 2008 net interest income and net interest margin and the respective
non-GAAP measures, located in the pocket at the back of this report.
(b)Please see the reconciliations of our 2008 GAAP and operating earnings and the related performance
measures, located in the pocket at the back of this report.
2
2.0
1.5
1.0
0.5
0.0
2.5
2.0
1.5
1.0
0.5
0.0
2.0
1.5
1.0
0.5
0.0
2008 Annual Report
fellow Shareholders:
Strength. Stability. Service.
2008 was an extraordinary year for our industry
establishment of our first branch, in 1859. From a single
and for our nation, as the subprime mortgage crisis
branch in the borough of Queens, we have evolved into
that began in 2007 evolved into an economic crisis of
a family of banks with 215 branches spanning Metro
global proportions and unexpected magnitude.
New York and New Jersey, without compromising our
It was a year that bore witness to the demise of
commitments to our customers, our communities, or
major financial institutions, and the forced acquisition
those who own our shares.
of several others once held in high regard. It was a year
when banks and other financial services firms dominated
headlines, and when the need for government inter-
Asset Quality Measures 12/31/08
vention loomed increasingly large. It was a year when
fear and uncertainty eroded confidence in the capital
markets, and when the Dow Jones Industrial Average
fell 4,488 points. It was a year when real estate values
declined, bankruptcies rose, foreclosures increased, and
unemployment reached a level not seen in 16 years.
2008 was, nonetheless, a good year for New York
Community Bancorp. While not immune to the impact
of the economic crisis, we originated more loans,
generated more net interest income, and produced higher
operating earnings than we did in 2007—or, for that
matter, 2006.
In addition, our asset quality measures continued
to rank among the best in the nation, validating our
Non-performing Assets/
Total Assets(a)
1.58%
1.11%
Non-performing Loans/
Total Loans
2.16%
2.20%
long-held belief in our business model, and our expec-
tation that we would outperform our peers in a down-
Net Charge-offs/
Average Loans
1.87%
1.63%
ward credit cycle turn. In addition to experiencing a
smaller percentage of non-performing assets to total
assets than our industry peers at the end of December,
we experienced a smaller percentage of net charge-offs
to average loans, as further discussed on page 5.
At a time when headlines would have you believe
that all banks are broken, it is important to note that we
have—just this week—embarked on our 151st year.
Two days ago, on April 14th, we celebrated 150 years
of strength, stability, and service that began with the
0.35%
0.51%
0.03%
SNL Bank and Thrift Index(b)
NY & NJ Banks and Thrifts(b)
NYB
(a) For the SNL Bank and Thrift Index and the NY & NJ Banks and Thrifts,
non-performing assets include loans 90 days past due and still accruing
interest. The Company had no loans that were 90 days past due and still
accruing interest at 12/31/08.
(b) SNL Financial; all aggregates are size-weighted and calculated by consolidating
all companies into a single entity.
3
Loan Growth (in millions)
Operating Earnings(a)
Diluted Operating
Net Interest Income
Net Interest Margin
350
300
250
200
150
100
50
0
EPS(a)
1.0
0.8
0.6
0.4
0.2
0.0
800
700
600
500
400
300
200
100
0
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Operating
Efficiency Ratio(a)
42.00
36.75
31.50
26.25
21.00
15.75
10.50
5.25
0.00
4th Quarter 2008 Performance Measures (dollars in millions, except per share data)
Operating Earnings(a)
Diluted Operating
Net Interest Income
Net Interest Margin
EPS(a)
$201.6
$154.4
2.36% 2.87%
Operating
Efficiency Ratio(a)
35.94%
43.44%
$92.4
$67.5
$0.27
$0.21
DO NOT USE THIS GRAPH–SEE NEW FILE
Year-Over-Year Improvement:
3.9%
28.6%
30.6%
51 bp
(750 bp)
4Q 2007
4Q 2008
4Q 2007
4Q 2008
4Q 2007
4Q 2008
4Q 2007
4Q 2008
4Q 2007
4Q 2008
(a) Please see the reconciliations of our GAAP and operating earnings and the related GAAP and non-GAAP measures on page 7 of this report.
6
5
4
3
$5,125
$6,314
$14,529
$14,052
$4,175
$12,854
$6,472
$15,728
$3,557
$9,839
$3,131
$7,368
12/31/03
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
$10,499
$4,330
$13,396
$6,041
$17,029
$6,332
$19,654
$4,971
$20,366
$4,853
$22,200
$5,881
$263
$1,348
12/31/99
$1,611
$677
$1,690
$1,946
12/31/00
$3,636
$616
$2,150
$995
$3,255
12/31/01
$5,405
$1,150
$4,494
12/31/02
$5,489
$2,560
Total Loans:
Total Originations:
Multi-family Loans Outstanding All Other Loans Outstanding
Operating Earnings Growth: 2008/2007 (dollars in millions, except per share data)
Operating
Earnings(a)
EPS(a)
Diluted Operating
Net Interest Income
Net Interest Margin
Operating
Efficiency Ratio(a)
$322.5
$0.96
$0.88
$275.3
$616.5
$715.1
2.38% 2.63%
41.18% 38.89%
2007
2008
2007
2008
2007
2008(b)
2007
2008(b)
2007
2008
Year-Over-Year Improvement:
17.1%
9.1%
16.0%
25 bp
(229 bp)
(a) Please see the reconciliations of our 2008 and 2007 GAAP and operating earnings and the related measures, located in the back pocket of this report.
(b) The 2008 measure excludes the impact of a $39.6 million debt repositioning charge recorded in second quarter interest expense. Please see the reconciliations of our
net interest income and net interest margin and the respective non-GAAP measures, located in the back pocket of this report.
Measures of Capital Strength (in millions)
5.22% 5.39%
5.19% 5.41%
5.53% 5.72%
5.83% 5.90%
5.94%
5.66%
Tangible Stockholders’ Equity: (a)
12/31/04
$1,147
12/31/05
$1,258
12/31/06
$1,435
12/31/07
$1,634
12/31/08
$1,695
Tangible Equity/Tangible Assets Adjusted Tangible Equity/Adjusted Tangible Assets
(a) Please see the reconciliation of our GAAP and non-GAAP capital measures on page 76 of the accompanying Annual Report on Form 10-K.
6
5
4
3
25000
20000
15000
10000
5000
0
Loan Growth (in millions)
Loan Origination (in millions)
Multi-family loans: 34.0% CAGR
Total loans: 37.3% CAGR
w/ ABNY
$4,175
$12,854
w/ LICB
$3,557
$9,839
$3,131
$7,368
$6,314
w/ PFSB, SYNF,
& Doral
$5,125
$14,529
$14,052
Multi-family loans: 34.0% CAGR
Total loans: 37.3% CAGR
w/ ABNY
$4,175
$12,854
w/ LICB
$3,557
$9,839
$3,131
$7,368
$6,314
w/ PFSB, SYNF,
& Doral
$5,125
$14,529
$14,052
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
Total Loans:
$10,499
$13,396
$17,029
$19,654
$20,366
Total Loans:
$10,499
$13,396
$17,029
$19,654
$20,366
Multi-family Loans Outstanding
All Other Loans Outstanding
Multi-family Loans Outstanding
All Other Loans Outstanding
2.0
1.5
1.0
0.5
0.0
2.5
2.0
1.5
1.0
0.5
0.0
2.0
1.5
1.0
0.5
0.0
Asset Quality Measures 12/31/08
Non-performing Assets/
1.58%
Total Assets(a)
1.11%
Non-performing Loans/
Total Loans
2.16%
2.20%
Net Charge-offs/
Average Loans
1.87%
1.63%
0.35%
0.51%
0.03%
SNL Bank and Thrift Index(b)
NY & NJ Banks and Thrifts(b)
NYB
(a) For the SNL Bank and Thrift Index and the NY & NJ Banks and Thrifts,
non-performing assets include loans 90 days past due and still accruing
interest. The Company had no loans that were 90 days past due and still
accruing interest at 12/31/08.
(b) SNL Financial; all aggregates are size-weighted and calculated by consolidating
all companies into a single entity.
Operating Earnings(a)
Diluted Operating
Net Interest Income
Net Interest Margin
350
300
250
200
150
100
50
0
EPS(a)
1.0
0.8
0.6
0.4
0.2
0.0
800
700
600
500
400
300
200
100
0
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Operating
Efficiency Ratio(a)
42.00
36.75
31.50
26.25
21.00
15.75
10.50
5.25
0.00
4th Quarter 2008 Performance Measures (dollars in millions, except per share data)
Operating Earnings(a)
Diluted Operating
Net Interest Income
Net Interest Margin
EPS(a)
$201.6
$154.4
2.36% 2.87%
Operating
Efficiency Ratio(a)
35.94%
43.44%
$92.4
$67.5
$0.27
$0.21
DO NOT USE THIS GRAPH–SEE NEW FILE
Year-Over-Year Improvement:
3.9%
28.6%
30.6%
51 bp
(750 bp)
4Q 2007
4Q 2008
4Q 2007
4Q 2008
4Q 2007
4Q 2008
4Q 2007
4Q 2008
4Q 2007
4Q 2008
(a) Please see the reconciliations of our GAAP and operating earnings and the related GAAP and non-GAAP measures on page 7 of this report.
6
5
4
3
Loan Growth (in millions)
$263
$1,348
12/31/99
$1,611
$677
$1,690
$1,946
12/31/00
$3,636
$616
$2,150
$995
$3,255
12/31/01
$5,405
$1,150
$4,494
12/31/02
$5,489
$2,560
Total Loans:
Total Originations:
$5,125
$6,314
$14,529
$14,052
$4,175
$12,854
$6,472
$15,728
$3,557
$9,839
$3,131
$7,368
12/31/03
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
$10,499
$4,330
$13,396
$6,041
$17,029
$6,332
$19,654
$4,971
$20,366
$4,853
$22,200
$5,881
Multi-family Loans Outstanding All Other Loans Outstanding
25000
20000
15000
10000
5000
0
in a year when many banks were cutting back
Operating Earnings Growth: 2008/2007 (dollars in millions, except per share data)
on lending, we increased our loan production
by 21.2%.
Diluted Operating
EPS(a)
Operating
Earnings(a)
Net Interest Income
Net Interest Margin
Our cost of deposits also declined in tandem with the
federal funds rate, as we replaced a significant portion
with $3.8 billion of lower-cost wholesale borrowings.
Operating
Efficiency Ratio(a)
With the departure of both rational and irrational
$322.5
$0.96
$0.88
lenders from our local market, we increased the volume
$275.3
of loans we produced to $5.9 billion from $4.9 billion
in the prior year. Of the loans we produced in 2008,
$3.2 billion were multi-family loan originations—a 29.8%
increase from the year-earlier amount. As a result, our
of higher-cost certificates of deposit with substantially
41.18% 38.89%
2.38% 2.63%
$715.1
lower-cost retail and wholesale funds.
$616.5
We increased our earnings and capital
through a strategic common stock offering.
2007
multi-family loan portfolio rose nearly 12% to $15.7
9.1%
Year-Over-Year Improvement:
billion, boosting the total loan portfolio to $22.2 billion
(a) Please see the reconciliations of our 2008 and 2007 GAAP and operating earnings and the related measures, located in the back pocket of this report.
at year-end. Commercial real estate loans rose nearly
(b) The 2008 measure excludes the impact of a $39.6 million debt repositioning charge recorded in second quarter interest expense. Please see the reconciliations of our
19% during the year, to $4.6 billion, contributing to the
net interest income and net interest margin and the respective non-GAAP measures, located in the back pocket of this report.
increase our earnings and our tangible capital in 2008
and beyond. In concert with the repositioning of our
higher-cost debt in the second quarter, we issued 17.9
The repositioning of our debt was just one key
2008
2007
component of a two-pronged strategy structured to
(229 bp)
16.0%
17.1%
25 bp
2008(b)
2008(b)
2007
2008
2007
2008
2007
Measures of Capital Strength (in millions)
5.22% 5.39%
5.19% 5.41%
5.53% 5.72%
5.83% 5.90%
5.94%
5.66%
Tangible Stockholders’ Equity: (a)
12/31/04
$1,147
12/31/05
$1,258
12/31/06
$1,435
12/31/07
$1,634
12/31/08
$1,695
Tangible Equity/Tangible Assets Adjusted Tangible Equity/Adjusted Tangible Assets
(a) Please see the reconciliation of our GAAP and non-GAAP capital measures on page 76 of the accompanying Annual Report on Form 10-K.
6
5
4
3
Loan Growth (in millions)
Loan Origination (in millions)
Multi-family loans: 34.0% CAGR
Total loans: 37.3% CAGR
w/ ABNY
$4,175
$12,854
w/ LICB
$3,557
$9,839
$3,131
$7,368
$6,314
w/ PFSB, SYNF,
& Doral
$5,125
$14,529
$14,052
Multi-family loans: 34.0% CAGR
Total loans: 37.3% CAGR
w/ ABNY
$4,175
$12,854
w/ LICB
$3,557
$9,839
$3,131
$7,368
$6,314
w/ PFSB, SYNF,
& Doral
$5,125
$14,529
$14,052
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
Total Loans:
$10,499
$13,396
$17,029
$19,654
$20,366
Total Loans:
$10,499
$13,396
$17,029
$19,654
$20,366
Multi-family Loans Outstanding
All Other Loans Outstanding
Multi-family Loans Outstanding
All Other Loans Outstanding
year-over-year growth of total loans.
At the same time as we were increasing our
multi-family and commercial real estate lending,
we were taking steps to reduce our portfolios of
construction, commercial & industrial, and one- to
four-family loans. Together, these portfolios totaled
$1.8 billion at the end of December—a year-over-year
decline of 21.0%.
Capitalizing on the fomC’s actions, we strate-
gically reduced our cost of funds in 2008.
In the interest of encouraging banks to lend, and
consumers and businesses to borrow, the FOMC reduced
the federal funds rate seven times over the course of
2008, from a high of 4.25% in January to an historical
million shares through a successful common stock
offering that generated net proceeds of $339.2 million.
In addition to offsetting the impact of an after-tax debt
repositioning charge of $199.2 million, the offering
contributed to the growth of our capital at year-end
2008. While the strength of our 2008 performance was
the result of several strategic actions, no other action
taken during the year was more meaningful than this.
The combination of loan growth and the
reduction in higher-cost funding boosted our
net interest margin, our net interest income,
and our operating earnings in 2008.
The reduction in our cost of funds combined with
range of zero to 0.25% on December 16th. Capitalizing
the loan growth we recorded to expand our net interest
on the decline in short-term rates, we prepaid $4.0
margin and generate a meaningful increase in net
billion of higher-cost wholesale and other borrowed
interest income, our primary earnings source.
funds in the second quarter, and replaced those funds
4
2.0
1.5
1.0
0.5
0.0
2.5
2.0
1.5
1.0
0.5
0.0
2.0
1.5
1.0
0.5
0.0
Asset Quality Measures 12/31/08
Non-performing Assets/
1.58%
Total Assets(a)
1.11%
Non-performing Loans/
Total Loans
2.16%
2.20%
Net Charge-offs/
Average Loans
1.87%
1.63%
0.35%
0.51%
0.03%
SNL Bank and Thrift Index(b)
NY & NJ Banks and Thrifts(b)
NYB
(a) For the SNL Bank and Thrift Index and the NY & NJ Banks and Thrifts,
non-performing assets include loans 90 days past due and still accruing
interest. The Company had no loans that were 90 days past due and still
accruing interest at 12/31/08.
(b) SNL Financial; all aggregates are size-weighted and calculated by consolidating
all companies into a single entity.
2008 Annual Report
The merits of our strategies were best conveyed by
our fourth quarter 2008 performance, with our margin
rising 51 basis points from the year-earlier measure, and
our net interest income rising 30.6% year-over-year. With
While we clearly were able to capitalize on
certain changes in our market, other changes
constrained our earnings growth in 2008.
Among the challenges we faced last year was the
refinancing activity constrained by uncertainty on the
4th Quarter 2008 Performance Measures (dollars in millions, except per share data)
part of property owners, prepayment penalty income
collapse of the capital markets, which reduced the value
declined 56.8% in 2008 from the level recorded in 2007,
Diluted Operating
EPS(a)
including a 46.1% decline in the fourth quarter of the
Operating Earnings(a)
year. Therefore, the significant improvements in our full
year and fourth quarter 2008 margin and net interest
$0.21
$92.4
$67.5
$0.27
income were achieved without the traditional contribu-
of certain investments in our securities portfolio. As a
Net Interest Income
Net Interest Margin
result, we recorded an after-tax other-than-temporary
35.94%
2.36% 2.87%
impairment charges on securities totaling $62.7 million
in the last nine months of the year.
Operating
Efficiency Ratio(a)
$201.6
43.44%
$154.4
While securities represented 18.2% of total assets
at the end of December, 90.0% of the portfolio consisted
tion of prepayment penalty income to our results.
DO NOT USE THIS GRAPH–SEE NEW FILE
Reflecting our margin expansion and the growth
of investments in government-sponsored enterprises that
have the full backing and guarantees of the United States.
of our net interest income, our operating earnings rose
36.9% year-over-year to $92.4 million in the fourth
4Q 2007
notwithstanding the impact of the recession,
4Q 2007
quarter, equivalent to a 28.6% rise in diluted operating
our record of asset quality continued to
28.6%
Year-Over-Year Improvement:
earnings per share to $0.27. As a result, our fourth
exceed that of our industry peers.
(a) Please see the reconciliations of our GAAP and operating earnings and the related GAAP and non-GAAP measures on page 7 of this report.
(750 bp)
51 bp
30.6%
3.9%
4Q 2007
4Q 2007
4Q 2007
4Q 2008
4Q 2008
4Q 2008
4Q 2008
4Q 2008
quarter 2008 operating performance was the best we’ve
generated since the third quarter of 2004.(1)
In addition, our operating efficiency ratio improved
Loan Growth (in millions)
to 35.94% from 43.44% in the year-earlier fourth quarter,
reinforcing our long-held rank as one of the nation’s
most efficient bank holding companies.(1)
Our fourth quarter 2008 performance was notable
for yet another critical reason: Our cash earnings rose
44.8% year-over-year to $115.6 million, equivalent to a
$3,131
36.0% increase in diluted cash earnings per share to
$2,150
$995
$0.34.(1) As cash earnings represent the total amount we
$1,690
$7,368
contribute to tangible stockholders’ equity—and there-
$3,255
$1,946
$263
$1,348
$4,494
fore are the primary source of our quarterly dividend
12/31/99
12/31/00
12/31/01
12/31/02
payments—the year-over-year increase in our fourth
Total Loans:
Total Originations:
quarter cash earnings was especially significant.
$5,405
$1,150
$5,489
$2,560
$3,636
$616
$1,611
$677
12/31/03
$10,499
$4,330
Multi-family Loans Outstanding All Other Loans Outstanding
In 2008, our ratio of net charge-offs to average loans
was a modest 0.03%, as compared to 1.63% for the
SNL Bank and Thrift Index, an industry index currently
comprised of 552 publicly traded U.S. banks and thrifts.
Similarly, our ratio of non-performing assets to total
$6,472
assets was a modest 0.35% at the end of December, as
$15,728
compared to the Index measure of 1.58%.
$3,557
While our non-performing loans rose in 2008, and
$6,314
$5,125
$4,175
$14,529
$14,052
may continue to rise as economic pressures continue,
$12,854
$9,839
we believe that our loan losses, or charge-offs, will be
limited by the conservative nature of our underwriting
standards and our focus on properties that feature
below-market rents. As the amounts we lend are
12/31/06
12/31/07
12/31/08
12/31/05
12/31/04
typically based on the property’s current rent rolls, our
$13,396
$6,041
$17,029
$6,332
$19,654
$4,971
$20,366
$4,853
$22,200
$5,881
loans are less likely to result in losses than loans that
are based on speculative or at-market rents.
Operating Earnings(a)
Diluted Operating
Net Interest Income
Net Interest Margin
350
300
250
200
150
100
50
0
EPS(a)
1.0
0.8
0.6
0.4
0.2
0.0
800
700
600
500
400
300
200
100
0
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Operating
Efficiency Ratio(a)
42.00
36.75
31.50
26.25
21.00
15.75
10.50
5.25
0.00
Operating Earnings Growth: 2008/2007 (dollars in millions, except per share data)
Operating
Earnings(a)
$322.5
$275.3
Diluted Operating
EPS(a)
$0.96
$0.88
Net Interest Income
Net Interest Margin
Operating
Efficiency Ratio(a)
$715.1
2.38% 2.63%
41.18% 38.89%
$616.5
2007
2008
2007
2008
2007
2008(b)
2007
2008(b)
2007
2008
Year-Over-Year Improvement:
17.1%
9.1%
16.0%
25 bp
(229 bp)
(a) Please see the reconciliations of our 2008 and 2007 GAAP and operating earnings and the related measures, located in the back pocket of this report.
(b) The 2008 measure excludes the impact of a $39.6 million debt repositioning charge recorded in second quarter interest expense. Please see the reconciliations of our
net interest income and net interest margin and the respective non-GAAP measures, located in the back pocket of this report.
Measures of Capital Strength (in millions)
5.22% 5.39%
5.19% 5.41%
5.53% 5.72%
5.83% 5.90%
5.94%
5.66%
Tangible Stockholders’ Equity: (a)
12/31/04
$1,147
12/31/05
$1,258
12/31/06
$1,435
12/31/07
$1,634
12/31/08
$1,695
Tangible Equity/Tangible Assets Adjusted Tangible Equity/Adjusted Tangible Assets
(a) Please see the reconciliation of our GAAP and non-GAAP capital measures on page 76 of the accompanying Annual Report on Form 10-K.
6
5
4
3
25000
20000
15000
10000
5000
0
Loan Growth (in millions)
Loan Origination (in millions)
Multi-family loans: 34.0% CAGR
Total loans: 37.3% CAGR
w/ ABNY
$4,175
$12,854
w/ LICB
$3,557
$9,839
$3,131
$7,368
$6,314
w/ PFSB, SYNF,
& Doral
$5,125
$14,529
$14,052
Multi-family loans: 34.0% CAGR
Total loans: 37.3% CAGR
w/ ABNY
$4,175
$12,854
w/ LICB
$3,557
$9,839
$3,131
$7,368
$6,314
w/ PFSB, SYNF,
& Doral
$5,125
$14,529
$14,052
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
Total Loans:
$10,499
$13,396
$17,029
$19,654
$20,366
Total Loans:
$10,499
$13,396
$17,029
$19,654
$20,366
Multi-family Loans Outstanding
All Other Loans Outstanding
Multi-family Loans Outstanding
All Other Loans Outstanding
6
5
4
3
5
Operating Earnings(a)
Diluted Operating
Net Interest Income
Net Interest Margin
100
80
60
40
20
0
EPS(a)
0.30
0.25
0.20
0.15
0.10
0.05
0.00
250
200
150
100
50
0
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Operating
Efficiency Ratio(a)
42.00
36.75
31.50
26.25
21.00
15.75
10.50
5.25
0.00
6
Operating Earnings Growth: 4th Quarter 2008/2007 (dollars in millions, except per share data)
Operating
Earnings(a)
Diluted Operating
EPS(a)
Net Interest Income
Net Interest Margin
$92.4
$0.27
$201.6
2.36%
$67.5
$0.21
$154.4
2.87%
Operating
Efficiency Ratio(a)
43.44%
35.94%
Year-Over-Year Improvement:
36.9%
28.6%
30.6%
51 bp
(750 bp)
4Q 2007
4Q 2008
4Q 2007
4Q 2008
4Q 2007
4Q 2008
4Q 2007
4Q 2008
4Q 2007
4Q 2008
(a) Please see the reconciliations of our 4th Quarter 2008 and 2007 GAAP and operating earnings and the related measures, located in the back pocket of
this report.
Furthermore, our loans typically represent a conser-
Accordingly, while we carefully considered par-
vative percentage of the underlying property’s economic
ticipating in the government’s Troubled Asset Relief
value. In fact, our multi-family and commercial real
Program in early January, we decided to refrain from
estate loans—which together represented more than
taking part. We concluded that participating in the
90% of our loans outstanding—featured respective
TARP would be inconsistent with our needs and
average loan-to-value ratios of 61.2% and 55.2% at issue
business model, including our growth-through-
when accumulated at year-end 2008.
acquisition strategy.
With adjusted tangible stockholders’ equity
representing 5.94% of adjusted tangible assets,
we continue to operate from a position of
capital strength.(2)
In a year when the capital strength of banks was
a topic of mainstream conversation, we reinforced our
position through the strategic common stock offering
While we chose not to complete any transactions
in 2008, in view of the strains on the market, we
continue to consider opportunities to grow through
acquisitions that will not compromise our unwavering
focus on asset quality and earnings growth.
We are confident in our ability to withstand
the challenges before us.
I mentioned before. The offering generated net proceeds
Given our level of tangible capital, and our his torical
of $339.2 million, as stated, and was accretive to our
ability to access the capital markets, we have reason to
tangible book value as well as our earnings and
be confident in our capital position and our capacity to
earnings per share.
manage the challenges posed by a weakened economy.
Yet another sign of our capital strength was our
Notwithstanding the government’s focus and
ability to distribute four quarterly cash dividends totaling
bold approach to improving economic conditions, it is
$333.5 million while, at the same time, growing our
likely that our nation will continue to be challenged by
tangible stockholders’ equity. Tangible stockholders’
the aftermath of a decade’s worth of irrational lending
equity rose $61.3 million, or 3.8%, from the year-earlier
and borrowing. Unemployment continues to rise on
balance to $1.7 billion at December 31, 2008.(2)
both a local and national level, and the capital markets
In addition, the regulatory capital measures main-
continue to be driven by fear and uncertainty.
tained by our banks continued to be solid. Consistent
Given our ability to withstand these pressures in
with their long-held classification as well capitalized
2008 by staying true to our business model, we would
institutions, New York Community Bank reported
expect to do much of the same in 2009. In an ever-
Tier 1 and total risk-based capital ratios of 10.65%
changing environment, we believe we will serve your
and 11.10% at the end of December, and New York
interests best by pursuing the same corporate strategies
Commercial Bank reported Tier 1 and total risk-based
we pursued in earlier times of crisis, and that historically
capital ratios of 12.77% and 13.23%.
have served the Company, and our constituencies, well.
2008 Annual Report
There is much to be
said for a bank that has
survived 150 years,
through times of fiscal
50
and global upheaval,
40
and that remains
30
positioned to stand
20
strong today and in
10
the years to come.
0
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
120
100
80
60
40
20
0
Cash Earnings Growth:
4th Quarter 2008/2007 (dollars in millions, except per share data)
Cash
Earnings(a)
Diluted
Cash EPS(a)
Cash
Efficiency Ratio(a)
$115.6
$0.34
41.84%
$79.8
$0.25
32.21%
Year-Over-Year Improvement:
44.8%
36.0%
(963 bp)
4Q 2007
4Q 2008
4Q 2007
4Q 2008
4Q 2007
4Q 2008
(a) Please see the reconciliations of our 4th Quarter 2008 and 2007 GAAP and cash earnings and
the related measures, located in the back pocket of this report.
My commitment to this mission is shared by an
We believe that there is much to be said for a bank
equally committed, and exceptionally well-informed,
that has survived 150 years, through times of fiscal and
Board of Directors; a strong and experienced manage-
global upheaval, and that remains positioned to stand
ment team; and a staff of highly motivated and hard-
strong today and in the years to come.
working employees. As shareholders of the Company,
each of us shares your interest in its financial perfor-
Sincerely yours,
mance, and in seeing its value appreciate.
On behalf of our Board of Directors, as well as our
officers and employees, I thank you for your continued
investment, and for your confidence in our ability to
navigate successfully through these turbulent times.
Joseph r. ficalora
Chairman, President, and Chief Executive Officer
April 16, 2009
(1) Please see the reconciliations of our GAAP and non-GAAP performance
measures that are located in the pocket at the back of this report.
(2) Please see the reconciliations of our GAAP and non-GAAP capital measures
that appear on page 76 of the Annual Report on Form 10-K, located in the
pocket at the back of this report.
PICTUrED frOM lEfT TO rIghT:
robert Wann
Senior Executive Vice President
and Chief Operating Officer
Joseph r. ficalora
Chairman, President,
and Chief Executive Officer
James J. Carpenter
Senior Executive Vice President
and Chief Lending Officer
Thomas r. Cangemi
Senior Executive Vice President
and Chief Financial Officer
7
Shareholder reference
CorporaTe HeadquarTers
615 Merrick Avenue
Westbury, NY 11590
Phone: (516) 683-4100
Fax: (516) 683-8385
www.myNYCB.com
invesTor relaTions
Shareholders, analysts, and others seeking information
about New York Community Bancorp, Inc. are invited to
contact our Investor Relations Department at:
Phone: (516) 683-4420
Fax: (516) 683-4424
E-mail: ir@myNYCB.com
Copies of our earnings releases and other financial
publications, including our Annual Report on SEC
Form 10-K filed with the U.S. Securities and Exchange
Commission, are available without charge upon request.
Information about our financial performance may
also be found on the Investor Relations portion of our web
site, www.myNYCB.com. Earnings releases, dividend announce-
ments, and other press releases are typically available at this
site upon issuance, and SEC documents are typically available
within minutes of being filed. In addition, shareholders wishing
to receive e-mail notification each time a press release, SEC
filing, or corporate event has been posted to our web site
may arrange to do so by visiting the web site and following
the instructions listed under “E-mail Notification.”
online delivery of proxy maTerials
To arrange to receive next year’s Annual Report to
Shareholders and proxy materials electronically, rather than
in hard copy, please visit the Investor Relations portion of
our web site, www.myNYCB.com, click on “Online Delivery of
Proxy Materials,” and follow the prompts.
sHareHolder aCCounT inquiries
To review the status of your shareholder account, expedite
a change of address, transfer shares, or perform various
other account-related functions, please contact our stock
registrar, transfer agent, and dividend disbursement agent,
BNY Mellon Shareowner Services (“BNY Mellon”), directly.
BNY Mellon is available to assist you 24 hours a day,
seven days a week, through its toll-free Interactive Voice
Response (IVR) system or through its online service, Investor
ServiceDirect®. In addition, customer service representatives
are available to assist you Monday through Friday, 9:00 a.m.
to 7:00 p.m. (Eastern Time), except for bank holidays in the
State of New York.
You may contact BNY Mellon in any of the following ways:
online:
www.bnymellon.com/shareowner/isd
via e-mail:
shrrelations@bnymellon.com
By phone:
In the U.S. & Canada: (866) 293-6077
International: (201) 680-6578
Tdd lines for hearing-impaired investors:
In the U.S. & Canada: (866) 231-5469
International: (201) 680-6610
By regular mail:
P.O. Box 358015
Pittsburgh, PA 15252-8015
By overnight mail:
480 Washington Blvd.
Jersey City, NJ 07310-1900
In all correspondence with BNY Mellon, be sure to
mention New York Community Bancorp and to provide your
name as it appears on your shareholder account, along with
your assigned Investor ID number, daytime phone number,
and current address.
dividend poliCy
We typically pay a quarterly cash dividend on or
about the 15th day of February, May, August, and November
to shareholders of record on or about the 5th day of those
months. Dividends are typically declared on the fourth
Tuesday of January, April, July, and October and announced
the following day. As declaration, record, and payable dates
are subject to change, you may wish to confirm them by
visiting our web site, clicking on “Investor Relations,” and
then on “Dividends.”
Dividend Reinvestment and Stock Purchase Plan
Under our Dividend Reinvestment and Stock Purchase
Plan, registered shareholders may purchase additional shares
of New York Community Bancorp by reinvesting their cash
dividends, and by making optional cash purchases ranging
from a minimum of $50 per transaction to a maximum of
$100,000 per calendar year. In addition, new investors may
purchase their initial shares through the Plan. For more
information about the Plan, please contact BNY Mellon at
the web site, phone numbers, or e-mail address provided
under Shareholder Account Inquiries.
Direct Deposit of Dividends
Registered shareholders may arrange to have their
quarterly cash dividends deposited directly into their
checking or savings accounts on the payable date. For
more information, please contact BNY Mellon at the
web site, phone numbers, or e-mail address provided
under Shareholder Account Inquiries.
annual meeTing of sHareHolders
Our 2009 Annual Meeting of Shareholders will be held
at 10:00 a.m. Eastern Time on Wednesday, June 10th, at
the Sheraton LaGuardia East Hotel, 135-20 39th Avenue, in
Flushing, New York. Shareholders of record as of April 16,
2009 will be eligible to receive notice of, and to vote at, the
2009 Annual Meeting.
independenT regisTered
puBliC aCCounTing firm
KPMG LLP
345 Park Avenue
New York, NY 10154
sToCk lisTing
Shares of New York Community Bancorp common stock
are traded under the symbol “NYB” on the New York Stock
Exchange. Price information appears daily in The Wall Street
Journal under “NY CmntyBcp” and in other major newspapers
under similar abbreviations of the Company’s name.
The Bifurcated Option Note Unit SecuritiES (BONUSESSM
Units) issued through the Company’s subsidiary, New York
Community Capital Trust V, also trade on the New York
Stock Exchange, under the symbol “NYB U.”
8
2008 Annual Report to Shareholders
Reconciliations
of
GAAP and Non-GAAP
Performance Measures
RECONCILIATIONS OF GAAP AND OPERATING EARNINGS AND CERTAIN RELATED MEASURES
While neither operating earnings, diluted operating earnings per share, nor the operating efficiency ratio are measures calculated in accordance with U.S.
generally accepted accounting principles (“GAAP”), we believe that each of these measures of performance are important indications of our ability to generate
earnings through our fundamental banking business. Since our operating earnings, diluted operating earnings per share, and operating efficiency ratio exclude
the effects of certain items that are unusual and/or difficult to predict, we believe that these non-GAAP measures provide useful supplemental information to both
management and investors in evaluating our financial results.
For the three and twelve months ended December 31, 2008 and 2007, we calculated our operating earnings, diluted operating earnings per share, and
operating efficiency ratio by either adding back certain charges to net interest income; adding back certain losses and charges to non-interest income; subtracting
certain losses and charges from non-interest expense; and/or subtracting certain gains from non-interest income and non-interest expense. The specific items that
were added back or subtracted in calculating our operating earnings, diluted operating earnings per share, and operating efficiency ratio are noted in the table
below.
Operating earnings should not be considered in isolation or as a substitute for net income, cash flows from operating activities, or other income or cash
flow statement data calculated in accordance with GAAP. Moreover, the manner in which we calculate our operating earnings and the related measures may
differ from that of other companies reporting measures with similar names.
Reconciliations of our GAAP and operating earnings and the related measures for the three and twelve months ended December 31, 2008 and 2007 follow:
For the Three Months Ended
For the Twelve Months Ended
(dollars in thousands, except per share data)
GAAP Earnings and Related Measures
Adjustments:
December 31, 2008
Diluted
EPS
Efficiency
Ratio
December 31, 2007
Diluted
EPS
Efficiency
Ratio
Earnings
Earnings
Earnings
$102,232 $ 0.30 35.09 % $67,380 $0.21 45.24 % $ 77,884
December 31, 2008
Diluted
EPS
December 31, 2007
Diluted
EPS
$ 0.23 46.43 % $279,082 $ 0.90
Efficiency
Ratio
Efficiency
Ratio
41.17 %
Earnings
--
--
--
--
--
--
325,016
0.97
(2.52 )
3,190
0.01
--
Debt repositioning charge
Loss on other-than-temporary
impairment of securities
Litigation settlement charge
Visa-related charge (gain)
Net gain on sale of securities
Gain on sale of bank-owned property
Merger-related charge
(Gain) loss on debt repurchases
Benefit of tax audit developments
0.31
0.01
--
--
--
--
(0.05 )
--
Income tax effect
(0.51 )
Operating Earnings and Related Measures $ 92,442 $ 0.27 35.94 % $67,515 $0.21 43.44 % $ 322,506 $ 0.96
10,562
--
--
--
--
--
(16,036 )
--
(4,316 )
3,365
(1,647 )
--
--
--
(16,962 )
--
(169,467 )
--
--
1,000
--
--
2,245
--
(2,634 )
(476 )
0.03
--
--
--
--
--
(0.05 )
--
(0.01 )
--
--
--
--
--
0.01
--
(0.01 )
--
--
--
(0.56 )
--
--
(1.24 )
--
--
--
(1.54 )
--
--
--
--
--
2.39
--
--
104,317
(5.49 )
(0.40 )
0.07
--
--
--
0.80
--
--
56,958
--
1,000
(1,888 )
(64,879 )
2,245
1,848
(2,634 )
392
0.18
--
--
(0.01 )
(0.21 )
0.01
0.01
(0.01 )
--
(2.99 )
--
(0.12 )
0.09
3.45
(0.32 )
(0.10 )
--
--
38.89 % $275,314 $ 0.88 41.18 %
RECONCILIATIONS OF NET INTEREST INCOME TO ADJUSTED NET INTEREST INCOME
AND OF NET INTEREST MARGIN TO ADJUSTED NET INTEREST MARGIN
While the adjusted measures of net interest income and net interest margin presented in the graph on page 5 of
this Annual Report are not calculated in accordance with GAAP, we believe that these non-GAAP performance
measures are important indications of our ability to generate net interest income through our fundamental banking
business, and therefore provide useful supplemental information to both management and investors in evaluating our
financial results.
To calculate our adjusted net interest income, we excluded the $39.6 million debt repositioning charge we
recorded in second quarter 2008 interest expense from the calculation of our net interest income for the twelve
months ended December 31, 2008. To calculate our adjusted net interest margin, we divided our 2008 adjusted net
interest income by the average balance of interest-earning assets for the year.
Neither of these adjusted measures should be considered in isolation or as a substitute for net interest income
or net interest margin. Moreover, the manner in which we have calculated these non-GAAP measures may differ
from that of other companies that may report measures with similar names.
The following table presents the reconciliations of our net interest income and net interest margin for the
twelve months ended December 31, 2008:
(dollars in thousands)
Net interest income
Twelve Months Ended
December 31, 2008
$675,495
Average interest-earning assets
$27,198,540
Net interest margin
Net interest income
Add back: Debt repositioning charge
Adjusted net interest income
2.48 %
$675,495
39,647
$715,142
Average interest-earning assets
$27,198,540
Adjusted net interest margin
2.63 %
RECONCILIATIONS OF GAAP AND CASH EARNINGS AND CERTAIN RELATED MEASURES
While neither cash earnings, diluted cash earnings per share, nor the cash efficiency ratio are measures of
performance calculated in accordance with GAAP, we believe that these measures are important because of the
contribution of cash earnings to tangible stockholders’ equity. (Please see the discussion and reconciliations of
stockholders’ equity and tangible stockholders’ equity and the related measures that appear on page 76 of the
accompanying 2008 Annual Report on Form 10-K.)
We calculate our cash earnings by adding back to GAAP earnings certain items that have been charged against
net income but added back to tangible stockholders’ equity. Unlike other expenses we incur, such capital items
represent contributions to, not reductions of, tangible stockholders’ equity. For this reason, we believe that cash
earnings are useful to investors seeking to evaluate our financial performance and to compare our performance with
other companies in the banking industry that also report cash earnings.
Cash earnings should not be considered in isolation or as a substitute for net income, cash flows from
operating activities, or other income or cash flow statement data calculated in accordance with GAAP. Moreover,
the manner in which we calculate our cash earnings, diluted cash earnings per share, and cash efficiency ratio may
differ from that of other companies reporting measures with similar names.
Reconciliations of our GAAP and cash earnings and the related measures for the three months ended
December 31, 2008 and December 31, 2007 follow:
For the Three Months Ended
(dollars in thousands, except per share data)
GAAP Earnings and Related Measures
Additional contributions to tangible stockholders’
equity:
Amortization and appreciation of shares held in
stock-related benefit plans
Associated tax effects
Dividends on unallocated ESOP shares
Amortization of core deposit intangibles
Loss on other-than-temporary impairment of
securities
Visa litigation charge
Total additional contributions to tangible
stockholders’ equity
Cash Earnings and Related Measures
December 31, 2008
Diluted
EPS
$ 0.30
Efficiency
Ratio(1)
35.09 %
Earnings
$102,232
December 31, 2007
Diluted
EPS
$0.21
Efficiency
Ratio(1)
45.24 %
Earnings
$67,380
3,236
(2,071 )
245
5,733
0.01
(0.01 )
--
0.02
6,246
--
0.02
--
(1.54 )
--
--
--
(1.34 )
--
5,143
216
366
6,078
--
650
0.02
--
--
0.02
(2.84 )
--
--
--
--
--
--
(0.56 )
13,389
$115,621
0.04
$ 0.34
(2.88 )
32.21 %
12,453
$79,833
0.04
$0.25
(3.40 )
41.84 %
(1) We calculate our cash efficiency ratio by dividing our operating expenses by the sum of our net interest income and non-
interest income after excluding the pertinent non-cash items from our operating expenses and non-interest income.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended: December 31, 2008
Commission File Number 1-31565
NEW YORK COMMUNITY BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
06-1377322
(I.R.S. Employer
Identification No.)
615 Merrick Avenue, Westbury, New York 11590
(Zip code)
(Address of principal executive offices)
(Registrant’s telephone number, including area code) (516) 683-4100
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value
and
Bifurcated Option Note Unit SecuritiESSM
(Title of Class)
Haven Capital Trust II 10.25% Capital Securities
(Title of Class)
New York Stock Exchange
(Name of exchange on which registered)
The NASDAQ Stock Market, LLC
(Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:95) No (cid:133)(cid:3)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes(cid:133) No (cid:95)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:95) No (cid:133)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is
not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:95)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “accelerated filer,” “large accelerated filer,” and “smaller reporting company” in Rule 12b-
2 of the Exchange Act. Large Accelerated Filer (cid:95) Accelerated Filer (cid:133) Non-Accelerated Filer (cid:133) Smaller Reporting Company (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes(cid:133) No (cid:95)
As of June 30, 2008, the aggregate market value of the shares of common stock outstanding of the registrant was $5.85 billion,
excluding 15,825,408 shares held by all directors and executive officers of the registrant. This figure is based on the closing price of
the registrant’s common stock on June 30, 2008, $17.84, as reported by the New York Stock Exchange.
The number of shares of the registrant’s common stock outstanding as of February 23, 2009 was 344,944,331 shares.
Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 10, 2009 are incorporated by
reference into Part III.
Documents Incorporated by Reference
CROSS REFERENCE INDEX
Forward-looking Statements and Associated Risk Factors
Glossary
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases
of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Signatures
Certifications
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For the purpose of this Annual Report on Form 10-K, the words “we,” “us,” “our,” and the “Company” are
used to refer to New York Community Bancorp, Inc. and our consolidated subsidiaries, including New York
Community Bank and New York Commercial Bank (the “Community Bank” and the “Commercial Bank,”
respectively, and collectively, the “Banks.”)
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK FACTORS
This report, like many written and oral communications presented by New York Community Bancorp, Inc.
and our authorized officers, may contain certain forward-looking statements regarding our 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. We intend 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 are including this statement for purposes of said safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and
expectations of the Company, are generally identified by use of the words “anticipate,” “believe,” “estimate,”
“expect,” “intend,” “plan,” “project,” “seek,” “strive,” “try,” or future or conditional verbs such as “will,” “would,”
“should,” “could,” “may,” or similar expressions. Our ability to predict results or the actual effects of our plans or
strategies is inherently uncertain. Accordingly, actual results may differ materially from anticipated results.
There are a number of factors, many of which are beyond our control, that could cause actual conditions,
events, or results to differ significantly from those described in our forward-looking statements. These factors
include, but are not limited to:
(cid:120) General economic conditions and trends, either nationally or in some or all of the areas in which we and
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
our customers conduct our respective businesses;
Conditions in the securities and real estate markets or the banking industry;
Changes in interest rates, which may affect our net income, prepayment penalty income, and other future
cash flows, or the market value of our assets, including our investment securities;
Changes in real estate values, which could impact the quality of the assets securing the loans in our
portfolio;
Changes in the quality or composition of our loan or securities portfolios;
Changes in competitive pressures among financial institutions or from non-financial institutions;
Changes in our customer base or in the financial or operating performances of our customers’ businesses;
Changes in the demand for our deposit, loan, and investment products and other financial services in the
markets we serve;
Changes in deposit flows and wholesale borrowing facilities;
Changes in our credit ratings or in our ability to access the capital markets;
Changes in our estimates of future reserves based upon the periodic review thereof under relevant
regulatory and accounting requirements;
Changes in our capital management policies, including those regarding business combinations, dividends,
and share repurchases, among others;
(cid:120) Our ability to retain key members of management;
(cid:120)
Changes in legislation, regulation, and policies, including, but not limited to, those pertaining to banking,
securities, taxation, environmental protection, and insurance, and the ability to comply with such changes
in a timely manner;
Changes in accounting principles, policies, practices, or guidelines;
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;
(cid:120)
(cid:120)
(cid:120) Our timely development of new lines of business and competitive products or services in a changing
environment, and the acceptance of such products or services by our customers;
(cid:120) Operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to
industry changes in information technology systems, on which we are highly dependent;
(cid:120) Any interruption or breach of security resulting in failures or disruptions in customer account management,
general ledger, deposit, loan, or other systems;
(cid:120) Any interruption in customer service due to circumstances beyond our control;
(cid:120)
Potential exposure to unknown or contingent liabilities of companies we target for acquisition;
1
(cid:120)
(cid:120)
The outcome of pending or threatened litigation, or of other matters before regulatory agencies, or of
matters resulting from regulatory exams, whether currently existing or commencing in the future;
Environmental conditions that exist or may exist on properties owned by, leased by, or mortgaged to the
Company;
(cid:120) War or terrorist activities; and
(cid:120) Other economic, competitive, governmental, regulatory, and geopolitical factors affecting our operations,
pricing, and services.
In addition, it should be noted that we routinely evaluate opportunities to expand through acquisition and
frequently conduct due diligence activities in connection with such opportunities. As a result, acquisition discussions
and, in some cases, negotiations, may take place at any time, and acquisitions involving cash, debt, or equity
securities may occur.
Furthermore, the timing and occurrence or non-occurrence of events may be subject to circumstances beyond
our control.
Please see Item 1A, “Risk Factors,” for a further discussion of factors that could affect the actual outcome of
future events.
Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which
speak only as of the date of this report. Except as required by applicable law or regulation, we undertake no
obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on
which such statements were made.
2
GLOSSARY
BASIS POINT
Throughout this filing, the year-over-year or linked-quarter changes that occur in certain financial measures
are reported in terms of basis points. Each basis point is equal to one hundredth of a percentage point, or 0.01%.
BOOK VALUE PER SHARE
As we define it, book value per share refers to the amount of stockholders’ equity attributable to each
outstanding share of common stock, after the unallocated shares held by our Employee Stock Ownership Plan
(“ESOP”) have been subtracted from the total number of shares outstanding. Book value per share is determined by
dividing total stockholders’ equity at the end of a period by the adjusted number of shares at the same date. The
following table indicates the number of shares outstanding both before and after the total number of unallocated
ESOP shares have been subtracted at December 31,
Shares outstanding
Less: Unallocated ESOP shares
Shares used for book value per
2008
344,985,111
(631,303)
2007
323,812,639
(977,800)
2006
295,350,936
(1,460,564)
2005
269,776,791
(2,182,398)
2004
265,190,635
(4,656,851)
share computation
344,353,808
322,834,839
293,890,372
267,594,393
260,533,784
BROKERED DEPOSITS
Refers to funds obtained, directly or indirectly, by or through deposit brokers that are then deposited into one
or more deposit accounts at a bank.
CHARGE-OFFS
Refers to loan balances that have been written off against the allowance for loan losses.
CORE DEPOSIT INTANGIBLE (“CDI”)
Refers to the intangible asset related to the value of core deposit accounts acquired in a merger or acquisition.
CORE DEPOSITS
All deposits other than certificates of deposit (i.e., NOW and money market accounts, savings accounts, and
non-interest-bearing deposits) are collectively referred to as core deposits.
COST OF FUNDS
The interest expense associated with interest-bearing liabilities, typically expressed as a ratio of interest
expense to the average balance of interest-bearing liabilities for a given period.
DIVIDEND PAYOUT RATIO
The percentage of our earnings that is paid out to shareholders in the form of dividends. It is determined by
dividing the dividend paid per share during a period by our diluted earnings per share during the same period of
time.
DIVIDEND YIELD
Refers to the yield generated on a shareholder’s investment in the form of dividends. The current dividend
yield is calculated by annualizing the current quarterly cash dividend and dividing that amount by the current stock
price.
EFFICIENCY RATIO
Measures total operating expenses as a percentage of the sum of net interest income and non-interest income
(loss).
GAAP
This abbreviation is used to refer to U.S. generally accepted accounting principles, on the basis of which
financial statements are prepared and presented.
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GOODWILL
Refers to the difference between the purchase price and the fair value of an acquired company’s assets, net of
the liabilities assumed. Goodwill is reflected as an asset on the balance sheet and is tested at least annually for
impairment.
GOVERNMENT-SPONSORED ENTERPRISES (“GSEs”)
Refers to a group of financial services corporations that were created by the United States Congress to
enhance the availability, and reduce the cost, of credit to certain targeted borrowing sectors, including home finance.
The GSEs include, but are not limited to, the Federal National Mortgage Association (“Fannie Mae”), the Federal
Home Loan Mortgage Corporation (“Freddie Mac”), and the twelve Federal Home Loan Banks. On September 7,
2008, the U.S. Government placed Fannie Mae and Freddie Mac into conservatorship.
GSE OBLIGATIONS
Refers to GSE mortgage-related securities (both certificates and collateralized mortgage obligations) and GSE
debentures.
INTEREST RATE SENSITIVITY
Refers to the likelihood that the interest earned on assets and the interest paid on liabilities will change as a
result of fluctuations in market interest rates.
INTEREST RATE SPREAD
The difference between the yield earned on average interest-earning assets and the cost of average interest-
bearing liabilities.
LOAN-TO-VALUE RATIO
Measures the current balance of a loan as a percentage of the original appraised value of the underlying
property.
MULTI-FAMILY LOAN
A mortgage loan secured by a rental or cooperative apartment building with more than four units.
NET INTEREST INCOME
The difference between the interest and dividends earned on interest-earning assets and the interest paid or
payable on interest-bearing liabilities.
NET INTEREST MARGIN
Measures net interest income as a percentage of average interest-earning assets.
NON-ACCRUAL LOAN
A loan generally is classified as a “non-accrual” loan when it is 90 days past due. When a loan is placed on
non-accrual status, we cease the accrual of interest owed, and previously accrued interest is reversed and charged
against interest income. A loan generally is returned to accrual status when the loan is less than 90 days past due and
we have reasonable assurance that the loan will be fully collectible.
NON-PERFORMING ASSETS
Consists of non-accrual loans, loans 90 days or more delinquent and still accruing interest, and other real
estate owned.
RENT-CONTROL/RENT-STABILIZATION
In New York City, where the vast majority of the properties securing our multi-family loans are located, the
amount of rent that tenants may be charged on the apartments in certain buildings is restricted under certain “rent-
control” or “rent-stabilization” laws. Rent-control laws apply to apartments in buildings that were constructed prior
to February 1947. An apartment is said to be “rent-controlled” if the tenant has been living continuously in the
apartment for a period of time beginning prior to July 1971. When a rent-controlled apartment is vacated, it typically
becomes “rent-stabilized.” Rent-stabilized apartments are generally located in buildings with six or more units that
were built between February 1947 and January 1974. Rent-controlled and -stabilized apartments tend to be more
affordable to live in because of the applicable regulations, and buildings with a preponderance of such rent-regulated
apartments are therefore less likely to experience vacancies in times of economic adversity.
4
REPURCHASE AGREEMENTS
Repurchase agreements are contracts for the sale of securities owned or borrowed by the Banks with an
agreement to repurchase those securities at an agreed-upon price and date. The Banks’ repurchase agreements are
primarily collateralized by GSE obligations and other mortgage-related securities, and are entered into with either
the Federal Home Loan Bank of New York (the “FHLB-NY”) or various brokerage firms.
RETURN ON AVERAGE ASSETS
A measure of profitability determined by dividing net income by average assets.
RETURN ON AVERAGE STOCKHOLDERS’ EQUITY
A measure of profitability determined by dividing net income by average stockholders’ equity.
WHOLESALE BORROWINGS
Refers to advances drawn by the Banks against their respective lines of credit with the FHLB-NY, their
repurchase agreements with the FHLB-NY and various brokerage firms, and federal funds purchased.
YIELD
The interest income associated with interest-earning assets, typically expressed as a ratio of interest income to
the average balance of interest-earning assets for a given period.
YIELD CURVE
Considered a key economic indicator, the yield curve is a graph that illustrates the difference between long-
term and short-term interest rates over a period of time. The greater the difference, the steeper the yield curve; the
lesser the difference, the flatter the yield curve. When short-term interest rates exceed long-term interest rates, the
result is an “inverted” yield curve.
5
ITEM 1.
BUSINESS
General
PART I
With total assets of $32.5 billion at December 31, 2008, we are the 25th largest publicly traded bank holding
company in the nation, and operate the nation’s second largest thrift. Reflecting our growth through a series of eight
business combinations between 2000 and 2007, we currently have 215 banking offices serving customers in all five
boroughs of New York City, Long Island, and Westchester County in New York, and Essex, Hudson, Mercer,
Middlesex, Monmouth, Ocean, and Union counties in New Jersey.
We are organized under Delaware Law as a multi-bank holding company and have two primary subsidiaries:
New York Community Bank and New York Commercial Bank (hereinafter referred to as the “Community Bank”
and the “Commercial Bank,” respectively, and collectively as the “Banks”).
Established in 1859, the Community Bank is a New York State-chartered savings bank with 178 locations that
currently operate through six divisional banks. In New York, we serve our customers through Roslyn Savings Bank,
with 56 locations on Long Island, a suburban market east of New York City comprised of Nassau and Suffolk
counties; Queens County Savings Bank, with 34 locations in the New York City borough of Queens; Richmond
County Savings Bank, with 22 locations in the borough of Staten Island; and Roosevelt Savings Bank, with eight
branches in the borough of Brooklyn. In the Bronx and Westchester County, we currently have four branches that
operate directly under the name “New York Community Bank.”
In New Jersey, we serve our customers through 54 locations, including 35 that operate through our Garden
State Community Bank division and 19 that currently operate under the name “Synergy Bank.” The latter branches
will commence operations under the Garden State Community Bank name by the end of the second quarter, when
we expect to complete the conversion of all 178 of our Community Bank branches to a common core processing
system.
In a market that is currently served by 205 banks and savings institutions, we compete for customers by
emphasizing convenience and service, and by offering a comprehensive menu of traditional and non-traditional
products and services. All but five of our Community Bank branches feature weekend hours, including 45 branches
that are located inside supermarkets or drugstores. The combination of traditional and in-store branches enables us to
offer 70 to 80 hours a week of in-branch banking in many of the communities we serve. The Community Bank also
offers 24-hour banking online and by phone.
The Commercial Bank is a New York State-chartered commercial bank and was established in connection
with our acquisition of Long Island Financial Corp. (“Long Island Financial”) on December 30, 2005. Reflecting
that acquisition, and our subsequent acquisitions of Atlantic Bank of New York (“Atlantic Bank”) and of Doral
Bank, FSB’s New York City-based branch network, we currently serve our Commercial Bank customers through 37
branches in Manhattan, Queens, Brooklyn, Westchester County, and Long Island, including 18 that operate under
the name “Atlantic Bank.”
The Commercial Bank competes for customers by emphasizing personal service and by addressing the needs
of small and mid-size businesses, professional associations, and government agencies with a comprehensive menu
of business solutions, including installment loans, revolving lines of credit, and cash management services. In
addition to featuring up to 52.5 hours per week of in-branch service, the Commercial Bank offers 24-hour banking
online and by phone.
Customers of the Community Bank and the Commercial Bank also have 24-hour access to their accounts
through 197 of our 225 ATM locations. In addition, with the conversion of the Commercial Bank to the Community
Bank’s core processing system slated for September, our customers will be able to transact their banking business
within any branch of the Community or the Commercial Bank.
We also serve our customers through our websites: www.myNYCB.com,
www.NewYorkCommercialBank.com, and www.NYCBfamily.com. In addition to providing our customers with
24-hour access to their accounts, and information regarding our products and services, hours of service, and
6
locations, these websites provide extensive information about the Company for the investment community. Earnings
releases, dividend announcements, and other press releases are posted upon issuance to the Investor Relations
portion of our websites. In addition, our filings with the U.S. Securities and Exchange Commission (the “SEC”)
(including our annual report on Form 10-K; our quarterly reports on Form 10-Q; and our current reports on Form 8-
K), and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, are available without charge, typically within minutes of being filed. The websites also
provide information regarding our Board of Directors and management team and the number of Company shares
held by these insiders, as well as certain Board Committee charters and our corporate governance policies. The
content of our websites shall not be deemed to be incorporated by reference into this Annual Report.
Overview
Multi-family Lending: Multi-family loans are our principal asset. At December 31, 2008, our multi-family
loans totaled $15.7 billion and represented 70.9% of loans outstanding at that date.
We are a leading producer of multi-family loans in New York City, with an emphasis on loans secured by
apartment buildings where the apartments are largely rent-controlled or rent-stabilized. As reported by the Rent
Guidelines Board, such rent-regulated apartments represented 52% of New York City’s housing market as recently
as 2005.
The loans we produce are typically based on the cash flows produced by the buildings, and are generally made
to long-term property owners with a history of growing cash flows over time. The property owners typically use the
funds we provide to make improvements to the buildings and the apartments within them, thus increasing the value
of the buildings and the amount of rent they may charge. As improvements are made, the building’s rent roll
increases, prompting the borrower to seek additional funds by refinancing the loan. Our typical loan has a term of
ten years, with a fixed rate of interest in years one through five and a rate that either adjusts annually or is fixed for
the five years that follow. However, the vast majority of our loans tend to refinance within the first five years.
Loans that prepay in the first five years generate prepayment penalties ranging from five percentage points to
one percentage point of the then-current loan balance, depending on the remaining term of the loan. Reflecting the
structure of our multi-family credits, the average multi-family loan had an expected weighted average life of 3.8
years at December 31, 2008.
Commercial Real Estate (“CRE”) Lending: At December 31, 2008, CRE loans totaled $4.6 billion and
represented 20.5% of our loan portfolio. The CRE loans we produce are similar in structure to our multi-family
credits, and had a weighted average life of 3.4 years at December 31, 2008. In addition, our CRE loans are largely
secured by properties in New York City, with Manhattan accounting for the largest share.
Acquisition, Development, and Construction (“ADC”) Lending: Our ADC loan portfolio largely consists of
loans of 18 to 24 months duration for land acquisition, development, and construction of multi-family and
residential tract projects in New York City and Long Island, and, to a lesser extent, for the construction of owner-
occupied one- to four-family homes and commercial properties. ADC loans represented $778.4 million, or 3.5%, of
total loans at the end of December, reflecting a decline in production in a year when home inventories increased, real
estate values declined, and unemployment rose.
Commercial and Industrial (“C&I”) Lending: Included in “other loans” in our Consolidated Statements of
Condition, C&I loans represented $713.1 million, or 3.2%, of total loans at December 31, 2008. A broad range of
loans is available to small and mid-size businesses for working capital (including inventory and receivables),
business expansion, and the purchase of equipment and machinery.
Loan Production: The acquisition of certain competitors and the exit of certain others from our market
enabled us to increase our loan production significantly in 2008. Originations totaled $5.9 billion during the year,
and included multi-family loans of $3.2 billion; CRE loans of $1.1 billion; ADC loans of $373.0 million; and $1.1
billion of C&I loans. Reflecting the volume of loans produced and repayments of $4.1 billion, the loan portfolio rose
from $20.4 billion at December 31, 2007 to $22.2 billion at December 31, 2008. The respective amounts were
equivalent to 66.6% and 68.4% of total assets at the corresponding dates.
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Funding Sources: On a consolidated basis, we have four primary funding sources: cash flows produced by
the repayment of loans; cash flows produced by securities sales and repayments; the deposits we’ve added through
our acquisitions or gathered organically through our branch network, as well as brokered deposits; and the use of
wholesale borrowings, primarily in the form of Federal Home Loan Bank of New York (“FHLB-NY”) advances and
repurchase agreements with the FHLB-NY and various brokerage firms.
While loan repayments declined to $4.1 billion as refinancing activity weakened, securities sales and
repayments generated cash flows of $2.5 billion in 2008. Deposits rose to $14.3 billion at the end of 2008 from
$13.2 billion at year-end 2007, primarily reflecting an increase in lower-cost brokered money market accounts and,
to a lesser extent, savings accounts. Consistent with our practice of running off higher-cost retail funds when
wholesale funds present a more attractively priced source of funding, we reduced our balance of certificates of
deposit (“CDs”) to $6.8 billion.
Our balance of borrowed funds rose $581.0 million year-over-year to $13.5 billion, as we increased our use of
wholesale borrowings, and issued $602.0 million in fixed rate senior notes under the FDIC’s Temporary Liquidity
Guarantee Program.
Asset Quality: Although the Metro New York region fared better in 2008 than many other parts of the
country, our marketplace was nonetheless impacted by the widespread economic decline. Home prices fell 9.2%
year-over-year in the region, and unemployment in New York City, Long Island, and New Jersey rose from 5.2%,
3.8%, and 4.1% in December 2007 to 7.2%, 5.8%, and 6.8%, respectively, in December 2008. In addition, office
vacancies in Manhattan rose from 7.1% at year-end 2007 to 10.2% at year-end 2008.
Against this backdrop, our net charge-offs rose to $6.1 million in 2008 from $431,000 in 2007, representing a
modest 0.029% and 0.002% of average loans, respectively. Similarly, non-performing loans totaled $113.7 million
at the end of 2008, an increase from $22.2 million at the end of 2007, representing a modest 0.51% and 0.11% of
total loans at the respective dates. Our ability to maintain this level of asset quality in a year when so many banks
suffered significant loan losses was largely due to the nature of our underwriting standards, the structure of our loan
portfolio, and the rigorous approval process to which our loans are subject.
In view of the declining economy and the related rise in non-performing loans and charge-offs, we recorded a
loan loss provision of $7.7 million in 2008. Reflecting this provision and the aforementioned net charge-offs, our
allowance for loan losses rose $1.6 million year-over-year to $94.4 million, representing 83.0% of non-performing
loans and 0.43% of loans, net, at December 31, 2008.
An extended period of economic weakness, resulting from a further contraction of real estate values and/or an
increase in office vacancies, bankruptcies, and unemployment could result in our experiencing a further increase in
charge-offs and/or an increase in our loan loss provision, either of which could have an adverse impact on our
earnings in the period ahead.
Efficiency: The efficiency of our operation has long been a distinguishing characteristic, driven by our focus
on multi-family lending, which is entirely broker-driven, and by the expansion of our franchise through acquisitions
rather than de novo growth. In 2008, we continued to rank among the most efficient bank holding companies in the
nation, with an efficiency ratio of 46.43%.
Accretive Merger Transactions: Although accretive merger transactions are a key component of our business
model, we chose not to consummate any transactions in 2008 in view of the significant weakness in the U.S. and
local economies.
Revenues: Our primary source of income is net interest income, which is the difference between the interest
income generated by the loans we produce and the securities we invest in, and the interest expense generated by our
interest-bearing deposits and borrowed funds. The level of net interest income we generate is influenced by a variety
of factors, some of which are within our control (e.g., our mix of interest-earning assets and interest-bearing
liabilities); and some of which are not (e.g., the level of prepayment penalty income we receive, the level of short-
term interest rates and market rates of interest, and the degree of competition we face for deposits and loans).
While net interest income is our primary source of income, it is supplemented by the non-interest income we
produce. The fee income we generate on deposits and, to a lesser extent, loans is complemented by revenues from a
8
variety of sources, including the sale of third-party investment products and the sale of one- to four-family loans to a
third-party conduit. We also generate other income through our investment in bank-owned life insurance (“BOLI”)
and through our investment advisory firm, Peter B. Cannell & Co., Inc., which had $1.0 billion of assets under
management at December 31, 2008.
Market Area and Competition
The combined population of our marketplace is 16.5 million, including 5.6 million residents of Nassau,
Queens, Richmond, and Suffolk Counties, where 132 of our 215 branch offices are located, and 1.3 million residents
of Essex and Union Counties in New Jersey, where we operate 29 branches, combined.
With assets of $32.5 billion at December 31, 2008, we are the 25th largest bank holding company in the
nation, and operate the second largest thrift in the United States.
With deposits of $14.3 billion at year-end, we ranked tenth among all bank and thrift depositories in the 15
counties comprising our market, and second among all thrift depositories in the four New York counties mentioned
above. In Essex and Union Counties, we ranked third and fifth, respectively, among thrift institutions on the basis of
our deposit market share. (Market share information was provided by SNL Financial.)
With 205 banks and thrifts currently serving our region, we face a significant level of competition for deposits
and, to a lesser extent, for loans. We not only vie for business with the many banks and thrifts within our local
market, but also with credit unions, Internet banks, mortgage banks, and brokerage firms. Many of the institutions
we compete with have greater financial resources than we do, and serve a broader market, which enables them to
promote their products more extensively than we can.
Unlike larger financial institutions that serve a broader market, we are focused on serving customers in the
Metro New York/New Jersey region. Accordingly, our success is substantially tied to the economic health of New
York City, Long Island, Westchester County, and the seven counties in New Jersey we serve. Local economic
conditions have a significant impact on loan demand, the value of the collateral securing our credits, and the ability
of our borrowers to repay their loans. In addition, our ability to attract and retain deposits is not only a function of
short-term interest rates and industry consolidation, but also the competitiveness of the rates being offered by other
financial institutions within our marketplace.
Competition for Deposits
Our drive to compete for deposits is influenced by several factors, including the opportunity to acquire
deposits through business combinations, the availability of attractively priced wholesale funding, and the cash flows
produced through loan and securities repayments and sales. In addition, the degree to which we compete for deposits
is influenced by the liquidity needed to fund our loan production and other outstanding commitments, and by the
interest rates on the products offered by the banks and thrifts with whom we compete.
We vie for deposits and customers by placing an emphasis on convenience and service, with 178 Community
Bank locations, 37 Commercial Bank locations, and 225 ATM locations, including 197 that operate 24 hours a day.
Our customers also have 24-hour access to their accounts through our bank-by-phone service and online through our
three websites, www.myNYCB.com, www.NewYorkCommercialBank.com, and www.NYCBfamily.com.
In addition to 125 traditional “brick & mortar” branches, three customer service centers, and five “campus”
locations, our Community Bank currently has 45 branch offices that are located in-store. Our in-store branch
network ranks among the largest in-store franchises in the New York metropolitan region, and is also one of the
largest in the Northeast. Because of their proximity to our traditional Community Bank branches, our in-store
branches enable us to offer 70 to 80 hours of service a week to those who bank with us within a number of
communities. This service model is a key component of our efforts to attract and maintain deposits in a highly
competitive marketplace.
We also compete by complementing our broad selection of traditional banking products with an extensive
menu of alternative financial services, including insurance, annuities, and mutual funds of various third-party service
providers. In addition, our practice of originating loans through a third-party mortgage originator enables us to offer
our customers a variety of one- to four-family mortgage loans.
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In addition to checking and savings accounts, Individual Retirement Accounts, and CDs for both businesses
and consumers, the Commercial Bank offers a variety of cash management products to address the needs of small
and mid-size businesses, municipal and county governments, school districts, and professional associations.
Another competitive advantage is our strong community presence, with April 14, 2009 marking the 150th
anniversary of our forebear, Queens County Savings Bank. At a time when depositors are in significant need of
reassurance, our longevity, strength, and stability are important qualities.
Competition for Loans
We are a leading producer of multi-family loans in New York City, and compete for such loans both on the
basis of timely service and the expertise that stems from being a specialist in our field. The majority of our multi-
family loans are secured by buildings that have a preponderance of rent-regulated apartments, a niche that we have
focused on for more than 30 years.
While multi-family loans represent our principal asset, our loan portfolio also includes a sizeable portfolio of
CRE credits, together with much smaller portfolios of ADC, one- to four-family, and C&I loans.
In 2008, our ability to compete for multi-family and CRE loans was enhanced by the demise or acquisition of
certain investment banks and savings institutions, and the conservatorship of Fannie Mae and Freddie Mac. With the
exit of the conduit lenders and certain other major competitors from our local market, we increased our production
of multi-family and CRE loans over the past four quarters, and grew our loan portfolio significantly.
While we anticipate that competition for multi-family loans will continue in the future, the volume of loans
produced in 2008, and that are in our current pipeline, are indicative of our enhanced ability to compete effectively.
That said, no assurances can be made that we will be able to sustain our 2008 level of loan production, given the
extent to which it is influenced not only by competition, but also by such factors as the level of market interest rates,
the availability and cost of funding, real estate values, market conditions, and the state of the local economy.
Environmental Issues
We encounter certain environmental risks in our lending activities. The existence of hazardous materials may
make it unattractive for a lender to foreclose on the properties securing its loans. In addition, under certain
conditions, lenders may become liable for the costs of cleaning up hazardous materials found on such properties. We
attempt to mitigate such environmental risks by requiring either that a borrower purchase environmental insurance
or that an appropriate environmental site assessment be completed as part of our underwriting review on the initial
granting of CRE and ADC loans, regardless of location, and of all out-of-state multi-family loans. In addition, we
typically maintain ownership of real estate we acquire through foreclosure in separately incorporated subsidiaries.
Our attention to environmental risks also applies to the properties and facilities that house our bank
operations. Prior to acquiring a large-scale property, a Phase 1 Environmental Property Assessment is typically
performed by a licensed professional engineer to determine the integrity of, and/or the potential risk associated with,
the facility and the property on which it is built. Properties and facilities of a smaller scale are evaluated by qualified
in-house assessors, as well as by industry experts in environmental testing and remediation. This two-pronged
approach identifies potential risks associated with asbestos-containing material, above and underground storage
tanks, radon, electrical transformers (which may contain PCBs), ground water flow, storm and sanitary discharge,
and mold, among other environmental risks. These processes assist us in mitigating environmental risk by enabling
us to identify potential issues prior to, and following, our acquisition of bank properties.
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Subsidiary Activities
The Community Bank has formed, or acquired through merger transactions, 33 active subsidiary corporations.
Of these, 20 are direct subsidiaries of the Community Bank and 13 are subsidiaries of Community Bank-owned
entities.
The 20 direct subsidiaries of the Community Bank are:
Name
Mt. Sinai Ventures, LLC
Jurisdiction of
Organization
Delaware
NYCB Community Development Corp. Delaware
Roslyn National Mortgage Corporation Delaware
Eagle Rock Investment Corp.
New Jersey
Pacific Urban Renewal, Inc.
Penn Savings Insurance Agency, Inc.
Somerset Manor Holding Corp.
New Jersey
New Jersey
New Jersey
Synergy Capital Investments, Inc.
New Jersey
1400 Corp.
BSR 1400 Corp.
Bellingham Corp.
Blizzard Realty Corp.
CFS Investments, Inc.
MFO Holding Corp.
Main Omni Realty Corp.
O.B. Ventures, LLC
RCBK Mortgage Corp.
RCSB Corporation
RSB Agency, Inc.
Richmond Enterprises, Inc.
New York
New York
New York
New York
New York
New York
New York
New York
New York
New York
New York
New York
Purpose
A joint venture partner in the development,
construction, and sale of a 177-unit golf course
community in Mt. Sinai, New York, all the units of
which were sold by December 31, 2006
Formed to invest in community development
activities
Formerly operated as a mortgage loan originator and
servicer and currently holds an interest in its former
office space
Formed to hold and manage investment portfolios for
the Company
Owns a branch building
Sells non-deposit investment products
Holding company for four subsidiaries that owned
and operated two assisted-living facilities in New
Jersey in 2005
Formed to hold and manage investment portfolios for
the Company
Manages properties acquired by foreclosure while
they are being marketed for sale
Organized to own interests in real estate
Organized to own interests in real estate
Organized to own interests in real estate
Sells non-deposit investment products
Organized to own interests in real estate
Organized to own interests in real estate
A joint venture partner in a 370-unit residential
community in Plainview, New York, all the units of
which were sold by December 31, 2004
Organized to own interests in certain multi-family
loans
Owns a branch building, Ferry Development Holding
Company, and Woodhaven Investments, Inc.
Sells non-deposit investment products
Holding company for Peter B. Cannell & Co., Inc.
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The 13 subsidiaries of Community Bank-owned entities are:
Name
Columbia Preferred Capital Corporation Delaware
Jurisdiction of
Organization
Ferry Development Holding Company
Delaware
Peter B. Cannell & Co., Inc.
Roslyn Real Estate Asset Corp.
Woodhaven Investments, Inc.
Delaware
Delaware
Delaware
Ironbound Investment Company, Inc.
New Jersey
Somerset Manor North Operating
Company, LLC
Somerset Manor North Realty Holding
Company, LLC
Somerset Manor South Operating
Company, LLC
Somerset Manor South Realty Holding
Company, LLC
Richmond County Capital Corporation
New Jersey
New Jersey
New Jersey
New Jersey
New York
The Hamlet at Olde Oyster Bay, LLC
New York
The Hamlet at Willow Creek, LLC
New York
Purpose
A real estate investment trust (“REIT”) organized
for the purpose of investing in mortgage-related
assets
Formed to hold and manage investment portfolios
for the Company
Advises high net worth individuals and institutions
on the management of their assets
A REIT organized for the purpose of investing in
mortgage-related assets
Holding company for Roslyn Real Estate Asset
Corp. and Ironbound Investment Company, Inc.
A REIT organized for the purpose of investing in
mortgage-related assets that also is the principal
shareholder of Richmond County Capital Corp.
Established to own or operate assisted-living
facilities in New Jersey that were sold in 2005
Established to own or operate assisted-living
facilities in New Jersey that were sold in 2005
Established to own or operate assisted-living
facilities in New Jersey that were sold in 2005
Established to own or operate assisted-living
facilities in New Jersey that were sold in 2005
A REIT organized for the purpose of investing in
mortgage-related assets that also is the principal
shareholder of Columbia Preferred Capital Corp.
Organized as a joint venture, part-owned by O.B.
Ventures, LLC
Organized as a joint venture, part-owned by Mt.
Sinai Ventures, LLC
In addition, the Community Bank maintains two inactive corporations organized in New Jersey, including
Bayonne Service Corp. and PennFed Title Service Corporation, and two inactive corporations organized in New
York, including Residential Mortgage Banking, Inc. and VBF Holding Corporation.
The Commercial Bank has six active subsidiary corporations, three of which are subsidiaries of Commercial
Bank-owned entities.
The three direct subsidiaries of the Commercial Bank are:
Name
Beta Investments, Inc.
Jurisdiction of
Organization
Delaware
Gramercy Leasing Services, Inc.
Standard Funding Corp.
New York
New York
Purpose
Holding company for Omega Commercial Mortgage
Corp. and Long Island Commercial Capital Corp.
Provides equipment lease financing
Provides insurance premium financing
The three subsidiaries of Commercial Bank-owned entities are:
Name
Standard Funding of California, Inc.
Omega Commercial Mortgage Corp.
Jurisdiction of
Organization
California
Delaware
Long Island Commercial Capital Corp.
New York
Purpose
Provides insurance premium financing
A REIT organized for the purpose of investing in
mortgage-related assets
A REIT organized for the purpose of investing in
mortgage-related assets
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The Company owns nine active special business trusts that were formed for the purpose of issuing capital and
common securities and investing the proceeds thereof in the junior subordinated debentures issued by the Company.
Please see Note 8 to the Consolidated Financial Statements, “Borrowed Funds,” within Item 8, “Financial
Statements and Supplementary Data,” for a further discussion of the Company’s special business trusts.
The Company also has three non-banking subsidiaries: one that was acquired in the Long Island Financial
transaction to provide private banking; one that was acquired in the Synergy Financial Group, Inc. transaction to sell
non-deposit investment products; and one that was established in connection with the acquisition of Atlantic Bank.
Personnel
At December 31, 2008, the number of full-time equivalent employees was 2,699. Our employees are not
represented by a collective bargaining unit, and we consider our relationship with our employees to be good.
Federal, State, and Local Taxation
Federal Taxation
Generally, the Company and its subsidiaries report their income on a consolidated basis for tax purposes,
using a calendar year and the accrual method of accounting. With some minor exceptions, the Company and its
subsidiaries are subject to federal income taxation in the same manner as other corporations.
Frozen Bad Debt Reserve Subject to Recapture. Commercial banks and thrift institutions with assets in excess
of $500 million deduct loan losses when realized, and are not permitted a deduction based on a “reserve” method.
Prior to 1996, thrift institutions such as the Community Bank were permitted to establish tax reserves for bad debts.
Such institutions maintain a frozen reserve equal to the balance of their bad debt reserves as of December 31, 1987.
This frozen reserve is subject to recapture in certain circumstances, as described below and in Note 9 to the
Consolidated Financial Statements, “Income Taxes.”
If the Community Bank makes “non-dividend distributions” to the Parent Company (i.e., the Company on a
stand-alone basis), such distributions will be considered to have been made from the Community Bank’s
unrecaptured federal tax bad debt reserves to the extent thereof, and approximately one and one-half times the
amount of such distribution (but not in excess of the amount of such reserves) will be included in the Community
Bank’s taxable income. Non-dividend distributions include distributions in excess of the Community Bank’s current
and accumulated earnings and profits, as calculated for federal income tax purposes; distributions in redemption of
its stock; and distributions in partial or complete liquidation. The Community Bank does not intend to make
distributions that would result in a recapture of any portion of its tax bad debt reserves.
See “Regulation and Supervision” later in this report for limits on the payment of dividends by the
Community Bank.
State and Local Taxation
New York State Taxation. The Company, the Community Bank, the Commercial Bank, and certain of their
subsidiaries file a New York State combined return, based on tax laws applicable to banking corporations and
affiliates. Income is allocated to New York State based upon three factors: receipts, wages, and deposits. The New
York State tax law on banking corporations allows a deduction for net operating losses sustained in tax years
beginning on or after January 1, 2001. No carryback of these losses is allowed. However, the losses may be carried
forward for the same 20-year period allowed under federal tax law.
On April 23, 2008, new tax laws were enacted by New York State that were effective as of calendar year
2008. Included in these tax laws is a provision that requires the inclusion in taxable income for New York State
purposes of income earned by a subsidiary taxed as a REIT for federal tax purposes, regardless of the location in
which the REIT subsidiary conducts its business or the timing of its distribution of earnings. This tax provision
replaces the tax laws enacted in 2007 addressing income earned by REIT subsidiaries. The full inclusion of such
income is completely phased in by 2011, at which time the law is scheduled to sunset and be replaced by the laws
enacted in 2007.
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For additional information regarding this tax provision, please see the discussion of “Income Tax Expense” in
the comparison of our 2008 and 2007 earnings in Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” of this report.
Bad Debt Reserves. For purposes of computing their New York State entire net income, the Community Bank
and the Commercial Bank are permitted a deduction for an addition to the reserve for loan losses. The New York
State tax bad debt reserve of the Community Bank is subject to recapture for “non-dividend distributions” in a
manner similar to the recapture of the federal tax bad debt reserve for such distributions. Also, the New York State
tax bad debt reserve is subject to recapture in the event that the Community Bank fails a definitional test which
includes maintaining a minimum level of qualifying assets (the “60% Test”); the Community Bank presently
satisfies the 60% Test. Qualifying assets for this test include loans secured by residential, multi-family, and mixed-
use properties (where the residential portion exceeds 80% of total use), mortgage-related securities, cash, and other
specified investments that are not significant for the Community Bank. Although there can be no assurance that the
Community Bank will satisfy the 60% Test in the future, management believes that the requisite level of qualifying
assets will be maintained by the Community Bank.
City of New York Taxation. The Company, the Community Bank, the Commercial Bank, and certain of their
subsidiaries file a New York City combined return based on tax laws applicable to banking corporations and
affiliates. Income is allocated and calculated in accordance with rules that are similar to the rules imposed by New
York State, including the allowance of a deduction for an addition to the tax bad debt reserve. The New York City
tax law does not permit a deduction for net operating losses and does not include REIT subsidiaries in the combined
bank tax return.
Other State and Local Taxes. Other income and franchise taxes paid by the Company and by certain
subsidiaries in separately filed returns are not material to the Company’s consolidated financial condition or results
of operations.
Regulation and Supervision
General
The Community Bank is a New York State-chartered savings bank and its deposit accounts are insured under
the Deposit Insurance Fund (the “DIF”) up to applicable legal limits. The Commercial Bank is a New York State-
chartered commercial bank and its deposit accounts also are insured by the DIF up to applicable legal limits. Both
the Community Bank and the Commercial Bank are subject to extensive regulation and supervision by the New
York State Banking Department (the “Banking Department”), as their chartering agency, and by the Federal Deposit
Insurance Corporation (the “FDIC”), as their insurer of deposits. Both institutions must file reports with the Banking
Department and the FDIC concerning their activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other depository
institutions. Furthermore, the Banks are periodically examined by the Banking Department and the FDIC to assess
compliance with various regulatory requirements, including safety and soundness considerations. This regulation
and supervision establishes a comprehensive framework of activities in which a savings bank and a commercial
bank can engage, and is intended primarily for the protection of the insurance fund and depositors. The regulatory
structure also gives the regulatory authorities extensive discretion in connection with their supervisory and
enforcement activities and examination policies, including policies with respect to the classification of assets and the
establishment of adequate loan loss allowances for regulatory purposes. Any change in such regulation, whether by
the Banking Department, the FDIC, or through legislation, could have a material adverse impact on the Company,
the Community Bank, the Commercial Bank, and their operations, and the Company’s shareholders.
The Company is required to file certain reports under, and otherwise comply with, the rules and regulations of
the Federal Reserve Board (the “FRB”), the FDIC, the Banking Department, and the SEC under federal securities
laws. In addition, the FRB periodically examines the Company. Certain of the regulatory requirements applicable to
the Community Bank, the Commercial Bank, and the Company are referred to below or elsewhere herein. However,
such discussion is not meant to be a complete explanation of all laws and regulations and is qualified in its entirety
by reference to the actual laws and regulations.
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New York Law
The Community Bank and the Commercial Bank derive their lending, investment, and other authority
primarily from the applicable provisions of New York State Banking Law and the regulations of the Banking
Department, as limited by FDIC regulations. Under these laws and regulations, banks, including the Community
Bank and the Commercial Bank, may invest in real estate mortgages, consumer and commercial loans, certain types
of debt securities (including certain corporate debt securities, and obligations of federal, state, and local
governments and agencies), certain types of corporate equity securities, and certain other assets. The lending powers
of New York savings banks and commercial banks are not subject to percentage of assets or capital limitations,
although there are limits applicable to loans to individual borrowers.
Under the statutory authority for investing in equity securities, a savings bank may directly invest up to 7.5%
of its assets in certain corporate stock, and may also invest up to 7.5% of its assets in certain mutual fund securities.
Investment in the stock of a single corporation is limited to the lesser of 2% of the issued and outstanding stock of
such corporation or 1% of the savings bank’s assets, except as set forth below. Such equity securities must meet
certain earnings ratios and other tests of financial performance. Commercial banks may invest in certain equity
securities up to 2% of the stock of a single issuer and are subject to a general overall limit of the lesser of 2% of the
bank’s assets or 20% of capital and surplus.
Pursuant to the “leeway” power, a savings bank may also make investments not otherwise permitted under
New York State Banking Law. This power permits a bank to make investments that would otherwise be
impermissible. Up to 1% of a bank’s assets may be invested in any single such investment, subject to certain
restrictions; the aggregate limit for all such investments is 5% of a bank’s assets. Additionally, savings banks are
authorized to elect to invest under a “prudent person” standard in a wide range of debt and equity securities in lieu of
investing in such securities in accordance with, and reliance upon, the specific investment authority set forth in New
York State Banking Law. Although the “prudent person” standard may expand a savings bank’s authority, in the
event that a savings bank elects to utilize the “prudent person” standard, it may be unable to avail itself of the other
provisions of New York State Banking Law and regulations which set forth specific investment authority.
New York State savings banks may also invest in subsidiaries under a service corporation power. A savings
bank may use this power to invest in corporations that engage in various activities authorized for savings banks, plus
any additional activities which may be authorized by the Banking Department. Investment by a savings bank in the
stock, capital notes, and debentures of its service corporation is limited to 3% of the savings bank’s assets, and such
investments, together with the savings bank’s loans to its service corporations, may not exceed 10% of the savings
bank’s assets. Savings banks and commercial banks may invest in operating subsidiaries that engage in activities
permissible for the institution directly. Under New York law, the New York State Banking Board has the authority
to authorize savings banks to engage in any activity permitted under federal law for federal savings associations and
the insurance powers of national banks. Commercial banks may be authorized to engage in any activity permitted
under federal law for national banks.
The exercise by an FDIC-insured savings bank or commercial bank of the lending and investment powers
under New York State Banking Law is limited by FDIC regulations and other federal laws and regulations. In
particular, the applicable provision of New York State Banking Law and regulations governing the investment
authority and activities of an FDIC-insured state-chartered savings bank and commercial bank have been effectively
limited by the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) and the FDIC
regulations issued pursuant thereto.
With certain limited exceptions, a New York State-chartered savings bank may not make loans or extend
credit for commercial, corporate, or business purposes (including lease financing) to a single borrower, the
aggregate amount of which would be in excess of 15% of the bank’s net worth or up to 25% for loans secured by
collateral having an ascertainable market value at least equal to the excess of such loans over the bank’s net worth.
A commercial bank is subject to similar limits on all of its loans. The Community Bank and the Commercial Bank
currently comply with all applicable loans-to-one-borrower limitations.
Under New York State Banking Law, New York State-chartered stock-form savings banks and commercial
banks may declare and pay dividends out of their net profits, unless there is an impairment of capital, but approval
of the Superintendent of Banks (the “Superintendent”) is required if the total of all dividends declared by the bank in
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a calendar year would exceed the total of its net profits for that year combined with its retained net profits for the
preceding two years less prior dividends paid.
New York State Banking Law gives the Superintendent authority to issue an order to a New York State-
chartered banking institution to appear and explain an apparent violation of law, to discontinue unauthorized or
unsafe practices, and to keep prescribed books and accounts. Upon a finding by the Banking Department that any
director, trustee, or officer of any banking organization has violated any law, or has continued unauthorized or
unsafe practices in conducting the business of the banking organization after having been notified by the
Superintendent to discontinue such practices, such director, trustee, or officer may be removed from office after
notice and an opportunity to be heard. The Superintendent also has authority to appoint a conservator or a receiver
for a savings or commercial bank under certain circumstances.
FDIC Regulations
Capital Requirements. The FDIC has adopted risk-based capital guidelines to which the Community Bank and
the Commercial Bank are subject. The guidelines establish a systematic analytical framework that makes regulatory
capital requirements sensitive to differences in risk profiles among banking organizations. The Community Bank
and the Commercial Bank are required to maintain certain levels of regulatory capital in relation to regulatory risk-
weighted assets. The ratio of such regulatory capital to regulatory risk-weighted assets is referred to as a “risk-based
capital ratio.” Risk-based capital ratios are determined by allocating assets and specified off-balance-sheet items to
four risk-weighted categories ranging from 0% to 100%, with higher levels of capital being required for the
categories perceived as representing greater risk.
These guidelines divide an institution’s capital into two tiers. The first tier (“Tier I”) includes common equity,
retained earnings, certain non-cumulative perpetual preferred stock (excluding auction rate issues) and minority
interests in equity accounts of consolidated subsidiaries, less goodwill and other intangible assets (except mortgage
servicing rights and purchased credit card relationships subject to certain limitations). Supplementary (“Tier II”)
capital includes, among other items, cumulative perpetual and long-term limited-life preferred stock, mandatorily
convertible securities, certain hybrid capital instruments, term subordinated debt, and the allowance for loan losses,
subject to certain limitations, and up to 45% of pre-tax net unrealized gains on equity securities with readily
determinable fair market values, less required deductions. Savings banks and commercial banks are required to
maintain a total risk-based capital ratio of at least 8%, of which at least 4% must be Tier I capital.
In addition, the FDIC has established regulations prescribing a minimum Tier I leverage capital ratio (the ratio
of Tier I capital to adjusted average assets as specified in the regulations). These regulations provide for a minimum
Tier I leverage capital ratio of 3% for institutions that meet certain specified criteria, including that they have the
highest examination rating and are not experiencing or anticipating significant growth. All other institutions are
required to maintain a Tier I leverage capital ratio of at least 4%. The FDIC may, however, set higher leverage and
risk-based capital requirements on individual institutions when particular circumstances warrant. Institutions
experiencing or anticipating significant growth are expected to maintain capital ratios, including tangible capital
positions, well above the minimum levels.
As of December 31, 2008, the Community Bank and the Commercial Bank were deemed to be well
capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, a
bank must maintain a minimum Tier I leverage capital ratio of 5%, a minimum Tier I risk-based capital ratio of 6%,
and a minimum total risk-based capital ratio of 10%. A summary of the regulatory capital ratios of the Banks at
December 31, 2008 appears in Note 16 to the Consolidated Financial Statements, “Regulatory Matters” in Item 8,
“Financial Statements and Supplementary Data.”
The regulatory capital regulations of the FDIC and other federal banking agencies provide that the agencies
will take into account the exposure of an institution’s capital and economic value to changes in interest rate risk in
assessing capital adequacy. According to the agencies, applicable considerations include the quality of the
institution’s interest rate risk management process, overall financial condition, and the level of other risks at the
institution for which capital is needed. Institutions with significant interest rate risk may be required to hold
additional capital. The agencies have issued a joint policy statement providing guidance on interest rate risk
management, including a discussion of the critical factors affecting the agencies’ evaluation of interest rate risk in
connection with capital adequacy. Institutions that engage in specified amounts of trading activity may be subject to
16
adjustments in the calculation of the risk-based capital requirement to assure sufficient additional capital to support
market risk.
Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe, for the
depository institutions under its jurisdiction, standards that relate to, among other things, internal controls;
information and audit systems; loan documentation; credit underwriting; the monitoring of interest rate risk; asset
growth; compensation; fees and benefits; and such other operational and managerial standards as the agency deems
appropriate. The federal banking agencies adopted final regulations and Interagency Guidelines Establishing
Standards for Safety and Soundness (the “Guidelines”) to implement these safety and soundness standards. The
Guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address
problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking
agency determines that an institution fails to meet any standard prescribed by the Guidelines, the agency may
require the institution to submit to the agency an acceptable plan to achieve compliance with the standard, as
required by the Federal Deposit Insurance Act, as amended, (the “FDI Act”). The final regulations establish
deadlines for the submission and review of such safety and soundness compliance plans.
Real Estate Lending Standards. The FDIC and the other federal banking agencies have adopted regulations
that prescribe standards for extensions of credit that (i) are secured by real estate, or (ii) are made for the purpose of
financing construction or improvements on real estate. The FDIC regulations require each institution to establish and
maintain written internal real estate lending standards that are consistent with safe and sound banking practices and
appropriate to the size of the institution and the nature and scope of its real estate lending activities. The standards
also must be consistent with accompanying FDIC Guidelines, which include loan-to-value limitations for the
different types of real estate loans. Institutions are also permitted to make a limited amount of loans that do not
conform to the proposed loan-to-value limitations so long as such exceptions are reviewed and justified
appropriately. The Guidelines also list a number of lending situations in which exceptions to the loan-to-value
standard are justified.
In 2006, the FDIC, the Office of the Comptroller of the Currency, and the Board of Governors of the Federal
Reserve System (collectively, the “Agencies”) issued joint guidance entitled “Concentrations in Commercial Real
Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”). The CRE Guidance, which addresses
land development, construction, and certain multi-family loans, as well as commercial real estate loans, does not
establish specific lending limits but, rather, reinforces and enhances the Agencies’ existing regulations and
guidelines for such lending and portfolio management.
Dividend Limitations. The FDIC has authority to use its enforcement powers to prohibit a savings bank or
commercial bank from paying dividends if, in its opinion, the payment of dividends would constitute an unsafe or
unsound practice. Federal law prohibits the payment of dividends that will result in the institution failing to meet
applicable capital requirements on a pro forma basis. The Community Bank and the Commercial Bank are also
subject to dividend declaration restrictions imposed by New York law as previously discussed under “New York
Law.”
Investment Activities
Since the enactment of FDICIA, all state-chartered financial institutions, including savings banks, commercial
banks, and their subsidiaries, have generally been limited to such activities as principal and equity investments of the
type and in the amount authorized for national banks. State law, FDICIA, and FDIC regulations permit certain
exceptions to these limitations. For example, certain state-chartered savings banks, such as the Community Bank,
may, with FDIC approval, continue to exercise state authority to invest in common or preferred stocks listed on a
national securities exchange and in the shares of an investment company registered under the Investment Company
Act of 1940, as amended. Such banks may also continue to sell Savings Bank Life Insurance. In addition, the FDIC
is authorized to permit institutions to engage in state authorized activities or investments not permitted for national
banks (other than non-subsidiary equity investments) for institutions that meet all applicable capital requirements if
it is determined that such activities or investments do not pose a significant risk to the insurance fund. The Gramm-
Leach-Bliley Act of 1999 and FDIC regulations impose certain quantitative and qualitative restrictions on such
activities and on a bank’s dealings with a subsidiary that engages in specified activities.
The Community Bank received grandfathering authority from the FDIC in 1993 to invest in listed stock and/or
registered shares subject to the maximum permissible investments of 100% of Tier I Capital, as specified by the
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FDIC’s regulations, or the maximum amount permitted by New York State Banking Law, whichever is less. Such
grandfathering authority is subject to termination upon the FDIC’s determination that such investments pose a safety
and soundness risk to the Community Bank or in the event that the Community Bank converts its charter or
undergoes a change in control.
Prompt Corrective Regulatory Action
Federal law requires, among other things, that federal bank regulatory authorities take “prompt corrective
action” with respect to institutions that do not meet minimum capital requirements. For these purposes, the law
establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized.
The FDIC has adopted regulations to implement prompt corrective action. Among other things, the regulations
define the relevant capital measure for the five capital categories. An institution is deemed to be “well capitalized” if
it has a total risk-based capital ratio of 10% or greater, a Tier I risk-based capital ratio of 6% or greater, and a
leverage capital ratio of 5% or greater, and is not subject to a regulatory order, agreement, or directive to meet and
maintain a specific capital level for any capital measure. An institution is deemed to be “adequately capitalized” if it
has a total risk-based capital ratio of 8% or greater, a Tier I risk-based capital ratio of 4% or greater, and generally a
leverage capital ratio of 4% or greater. An institution is deemed to be “undercapitalized” if it has a total risk-based
capital ratio of less than 8%, a Tier I risk-based capital ratio of less than 4%, or generally a leverage capital ratio of
less than 4%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio
of less than 6%, a Tier I risk-based capital ratio of less than 3%, or a leverage capital ratio of less than 3%. An
institution is deemed to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the
regulations) to total assets that is equal to or less than 2%.
“Undercapitalized” institutions are subject to growth, capital distribution (including dividend), and other
limitations and are required to submit a capital restoration plan. An institution’s compliance with such plan is
required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the
lesser of 5.0% of the bank’s total assets when deemed undercapitalized or the amount necessary to achieve the status
of adequately capitalized. If an undercapitalized institution fails to submit an acceptable plan, it is treated as if it is
“significantly undercapitalized.” Significantly undercapitalized institutions are subject to one or more additional
restrictions including, but not limited to, an order by the FDIC to sell sufficient voting stock to become adequately
capitalized; requirements to reduce total assets, cease receipt of deposits from correspondent banks, or dismiss
directors or officers; and restrictions on interest rates paid on deposits, compensation of executive officers, and
capital distributions by the parent holding company.
“Critically undercapitalized” institutions also may not, beginning 60 days after becoming critically
undercapitalized, make any payment of principal or interest on certain subordinated debt, or extend credit for a
highly leveraged transaction, or enter into any material transaction outside the ordinary course of business. In
addition, subject to a narrow exception, the appointment of a receiver is required for a critically undercapitalized
institution.
Transactions with Affiliates
Under current federal law, transactions between depository institutions and their affiliates are governed by
Sections 23A and 23B of the Federal Reserve Act and the FRB’s Regulation W promulgated thereunder. An affiliate
of a savings bank or commercial bank is any company or entity that controls, is controlled by, or is under common
control with the institution, other than a subsidiary. Generally, an institution’s subsidiaries are not treated as
affiliates unless they are engaged in activities as principal that are not permissible for national banks. In a holding
company context, at a minimum, the parent holding company of an institution, and any companies that are
controlled by such parent holding company, are affiliates of the institution. Generally, Section 23A limits the extent
to which the institution or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount
equal to 10% of the institution’s capital stock and surplus, and contains an aggregate limit on all such transactions
with all affiliates to an amount equal to 20% of such capital stock and surplus. The term “covered transaction”
includes the making of loans or other extensions of credit to an affiliate; the purchase of assets from an affiliate; the
purchase of, or an investment in, the securities of an affiliate; the acceptance of securities of an affiliate as collateral
for a loan or extension of credit to any person; or issuance of a guarantee, acceptance, or letter of credit on behalf of
an affiliate. Section 23A also establishes specific collateral requirements for loans or extensions of credit to, or
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guarantees, or acceptances on letters of credit issued on behalf of, an affiliate. Section 23B requires that covered
transactions and a broad list of other specified transactions be on terms substantially the same as, or no less
favorable to, the institution or its subsidiary as similar transactions with non-affiliates.
The Sarbanes-Oxley Act of 2002 generally prohibits loans by the Company to its executive officers and
directors. However, the Sarbanes-Oxley Act contains a specific exemption for loans by an institution to its executive
officers and directors in compliance with federal banking laws. Section 22(h) of the Federal Reserve Act, and FRB
Regulation O adopted thereunder, governs loans by a savings bank or commercial bank to directors, executive
officers, and principal shareholders. Under Section 22(h), loans to directors, executive officers, and shareholders
who control, directly or indirectly, 10% or more of voting securities of an institution, and certain related interests of
any of the foregoing, may not exceed, together with all other outstanding loans to such persons and affiliated
entities, the institution’s total capital and surplus. Section 22(h) also prohibits loans above amounts prescribed by the
appropriate federal banking agency to directors, executive officers, and shareholders who control 10% or more of
the voting securities of an institution, and their respective related interests, unless such loan is approved in advance
by a majority of the board of the institution’s directors. Any “interested” director may not participate in the voting.
The loan amount (which includes all other outstanding loans to such person) as to which such prior board of director
approval is required, is the greater of $25,000 or 5% of capital and surplus or any loans aggregating over $500,000.
Further, pursuant to Section 22(h), loans to directors, executive officers, and principal shareholders must be made on
terms substantially the same as those offered in comparable transactions to other persons. There is an exception for
loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution
and does not give preference to executive officers over other employees. Section 22(g) of the Federal Reserve Act
places additional limitations on loans to executive officers.
Enforcement
The FDIC has extensive enforcement authority over insured banks, including the Community Bank and the
Commercial Bank. This enforcement authority includes, among other things, the ability to assess civil money
penalties, to issue cease and desist orders, and to remove directors and officers. In general, these enforcement
actions may be initiated in response to violations of laws and regulations and unsafe or unsound practices.
The FDIC has authority under federal law to appoint a conservator or receiver for an insured institution under
certain circumstances. The FDIC is required, with certain exceptions, to appoint a receiver or conservator for an
insured institution if that institution was critically undercapitalized on average during the calendar quarter beginning
270 days after the date on which the institution became critically undercapitalized. For this purpose, “critically
undercapitalized” means having a ratio of tangible equity to total assets of less than 2%. See “Prompt Corrective
Regulatory Action” earlier in this report.
The FDIC may also appoint a conservator or receiver for an insured institution on the basis of the institution’s
financial condition or upon the occurrence of certain events, including (i) insolvency (whereby the assets of the bank
are less than its liabilities to depositors and others); (ii) substantial dissipation of assets or earnings through
violations of law or unsafe or unsound practices; (iii) existence of an unsafe or unsound condition to transact
business; (iv) likelihood that the bank will be unable to meet the demands of its depositors or to pay its obligations
in the normal course of business; and (v) insufficient capital, or the incurrence or likely incurrence of losses that will
deplete substantially all of the institution’s capital with no reasonable prospect of replenishment of capital without
federal assistance.
Insurance of Deposit Accounts
The deposits of the Community Bank and the Commercial Bank are insured up to applicable limits by the
DIF. The DIF is the successor to the Bank Insurance Fund and the Savings Association Insurance Fund, which were
merged in 2006. Under the FDIC’s risk-based assessment system, insured institutions are assigned to one of four
risk categories based on supervisory evaluations, regulatory capital levels, and certain other factors, with less risky
institutions paying lower assessments. An institution’s assessment rate depends upon the category to which it is
assigned. For 2008, assessments ranged from five to 43 basis points of assessable deposits.
Due to losses incurred by the DIF in 2008, and in anticipation of future losses, the FDIC adopted an across-
the-board seven-basis point increase in the assessment range, effective January 2009. In addition to this increase, the
Banks will be assessed up to an additional nine basis points, beginning the first of April, as a result of subsequent
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refinements made by the FDIC to the risk-based assessment system. Furthermore, on February 27, 2009, the FDIC
adopted an interim rule imposing a 20-basis point emergency special assessment on the industry on June 30th, which
is to be collected on September 30, 2009. The interim rule also permits the FDIC to impose an emergency special
assessment of up to ten basis points after June 30, 2009, if necessary, to maintain public confidence in federal
deposit insurance. Comments on the interim rule on special assessments are due no later than 30 days after
publication in the Federal Register.
During 2008, the Bank’s assessments were fully offset by one-time credits provided by the Federal Deposit
Insurance Reform Act of 2005. As of December 31, 2008, an immaterial amount of these credits was still available
for use in 2009.
The FDIC may adjust the scale uniformly from one quarter to the next, except that no adjustment can deviate
more than three basis points from the base scale without notice and comment rulemaking. No institution may pay a
dividend if it is in default of its obligation to pay its federal deposit insurance assessment.
Due to the decline in economic conditions in 2008, the deposit insurance provided by the FDIC per account
owner was raised to $250,000 for all types of accounts for the period beginning January 1, 2009 and ending
January 1, 2010. In addition, the FDIC adopted an optional Temporary Liquidity Guarantee Program (“TLGP”),
under which, for a fee, non-interest-bearing transaction accounts would receive unlimited insurance coverage until
December 31, 2009, and certain senior unsecured debt issued between October 13, 2008 and June 30, 2009 by
institutions and their holding companies would be guaranteed by the FDIC through June 30, 2012. The Banks are
both participating in the unlimited non-interest-bearing transaction account coverage and, together with the
Company, are participating in the unsecured debt guarantee program. In December 2008, the Company issued $90.0
million of fixed rate senior notes with a maturity date of June 22, 2012, and the Community Bank issued $512.0
million of fixed rate senior notes with a maturity date of December 16, 2011.
Federal law also provides for the possibility that the FDIC may pay dividends to insured institutions once the
DIF reserve ratio equals or exceeds 1.35% of estimated insured deposits.
In addition to the assessment for deposit insurance, institutions are required to make payments on bonds
issued in the late 1980s by the Financing Corporation to recapitalize a predecessor deposit insurance fund. That
payment is established quarterly, and during the calendar year ending December 31, 2008, averaged 1.12 basis
points of assessable deposits.
The Federal Deposit Insurance Reform Act of 2005 provided the FDIC with authority to adjust the DIF ratio
to insured deposits within a range of 1.15% and 1.50%, in contrast to the prior statutorily fixed ratio of 1.25%. The
ratio, which is viewed by the FDIC as the long-term level that the fund should achieve, has been established by the
agency at 1.25% for 2009.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order, or condition imposed by the FDIC. Management does not know of any practice, condition, or
violation that might lead to termination of deposit insurance of either of the Banks.
Community Reinvestment Act
Federal Regulation. Under the Community Reinvestment Act (the “CRA”), as implemented by FDIC
regulations, an institution has a continuing and affirmative obligation consistent with its safe and sound operation to
help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA
does not establish specific lending requirements or programs for financial institutions nor does it limit an
institution’s discretion to develop the types of products and services that it believes are best suited to its particular
community, consistent with the CRA. The CRA requires the FDIC, in connection with its examinations, to assess
the institution’s record of meeting the credit needs of its community and to take such record into account in its
evaluation of certain applications by such institution. The CRA requires public disclosure of an institution’s CRA
rating and further requires the FDIC to provide a written evaluation of an institution’s CRA performance utilizing a
four-tiered descriptive rating system. The Community Bank’s latest CRA rating from the FDIC was “outstanding”
and the Commercial Bank’s latest CRA rating was “satisfactory.”
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New York Regulation. The Community Bank and the Commercial Bank are also subject to provisions of the
New York State Banking Law which impose continuing and affirmative obligations upon a banking institution
organized in New York to serve the credit needs of its local community (the “NYCRA”). Such obligations are
substantially similar to those imposed by the CRA. The NYCRA requires the Banking Department to make a
periodic written assessment of an institution’s compliance with the NYCRA, utilizing a four-tiered rating system,
and to make such assessment available to the public. The NYCRA also requires the Superintendent to consider the
NYCRA rating when reviewing an application to engage in certain transactions, including mergers, asset purchases,
and the establishment of branch offices or ATMs, and provides that such assessment may serve as a basis for the
denial of any such application. The latest NYCRA rating received by the Community Bank was “outstanding” and
the latest rating received by the Commercial Bank was “satisfactory.”
Federal Reserve System
Under FRB regulations, the Community Bank and the Commercial Bank are required to maintain reserves
against their transaction accounts (primarily NOW and regular checking accounts). The FRB regulations generally
require that reserves be maintained against aggregate transaction accounts as follows: for that portion of transaction
accounts aggregating $44.4 million or less (subject to adjustment by the FRB), the reserve requirement is 3%; for
amounts greater than $44.4 million, the reserve requirement is 10% (subject to adjustment by the FRB between 8%
and 14%). The first $10.3 million of otherwise reservable balances (subject to adjustments by the FRB) are
exempted from the reserve requirements. The Community Bank and the Commercial Bank are in compliance with
the foregoing requirements.
Federal Home Loan Bank System
The Community Bank and the Commercial Bank are members of the Federal Home Loan Bank of New York
(the “FHLB-NY”), one of 12 regional FHLBs comprising the FHLB system. Each regional FHLB manages its
customer relationships, while the 12 FHLBs use their combined size and strength to obtain their necessary funding
at the lowest possible cost. As members of the FHLB-NY, the Community Bank and the Commercial Bank are
required to acquire and hold shares of capital stock. Pursuant to this requirement, the Community Bank and the
Commercial Bank held FHLB-NY stock of $392.8 million and $8.2 million, respectively, at December 31, 2008.
FHLB-NY stock continued to be valued at par, with no impairment loss required, at that date.
For the fiscal years ended December 31, 2008 and 2007, dividends from the FHLB-NY to the Community
Bank amounted to $18.0 million and $31.5 million, respectively. Dividends from the FHLB-NY to the Commercial
Bank amounted to $487,000 and $871,000, respectively, in the corresponding years. A reduction in FHLB-NY
dividends received or an increase in the interest paid on future FHLB-NY advances would adversely impact the
Company’s net interest income. The FHLB-NY has stated that it expects to continue to pay dividends, but has
acknowledged that future economic events, regulatory actions, and other actions could impact their ability to pay
dividends. The FHLB-NY announced a reduction in the dividend that will be paid in the first quarter of 2009 from
the 3.5% that was paid in the fourth quarter of 2008 to 3.00%. In addition, a reduction in the capital levels of the
FHLB-NY could adversely impact our ability to redeem our shares and the value thereof.
Interstate Branching
Federal law allows the FDIC, and New York State Banking Law allows the Superintendent, to approve an
application by a state banking institution to acquire interstate branches by merger, unless, in the case of the FDIC,
the state of the target institution has opted out of interstate branching. New York State Banking Law authorizes
savings banks and commercial banks to open and occupy de novo branches outside the state of New York, and the
FDIC is authorized to approve a state bank’s establishment of a de novo interstate branch, if the intended host state
has opted into interstate de novo branching. The Community Bank currently maintains 54 branches in New Jersey in
addition to its 124 branches in New York State.
In April 2008, the Banking Regulators in the States of New Jersey, New York, and Pennsylvania entered into
a Memorandum of Understanding (the “Interstate MOU”) to clarify their respective roles, as home and host state
regulators, regarding interstate branching activity on a regional basis pursuant to the Riegle-Neal Amendments Act
of 1997. The Interstate MOU establishes the regulatory responsibilities of the respective state banking regulators
regarding bank regulatory examinations and is intended to reduce the regulatory burden on state chartered banks
branching within the region by eliminating duplicative host state compliance exams.
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Under the Interstate MOU, the activities of branches established by the Community Bank or the Commercial
Bank in New Jersey or Pennsylvania would be governed by New York State law to the same extent that federal law
governs the activities of the branch of an out-of-state national bank in such host states. For the Community Bank and
the Commercial Bank, issues regarding whether a particular host state law is preempted are to be determined in the
first instance by the Banking Department. In the event that the Banking Department and the applicable host state
regulator disagree regarding whether a particular host state law is pre-empted, the Banking Department and the
applicable host state regulator would use their reasonable best efforts to consider all points of view and to resolve
the disagreement.
Holding Company Regulation
Federal Regulation. The Company is currently subject to examination, regulation, and periodic reporting
under the Bank Holding Company Act of 1956, as amended (the “BHCA”), as administered by the FRB.
The Company is required to obtain the prior approval of the FRB to acquire all, or substantially all, of the
assets of any bank or bank holding company. Prior FRB approval would be required for the Company to acquire
direct or indirect ownership or control of any voting securities of any bank or bank holding company if, after giving
effect to such acquisition, it would, directly or indirectly, own or control more than 5% of any class of voting shares
of such bank or bank holding company. In addition to the approval of the FRB, before any bank acquisition can be
completed, prior approval thereof may also be required to be obtained from other agencies having supervisory
jurisdiction over the bank to be acquired, including the Banking Department.
FRB regulations generally prohibit a bank holding company from engaging in, or acquiring, direct or indirect
control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the
principal exceptions to this prohibition is for activities found by the FRB to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the FRB has
determined by regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing
certain data processing services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment, or
financial advisor; (v) leasing personal or real property; (vi) making investments in corporations or projects designed
primarily to promote community welfare; and (vii) acquiring a savings and loan association.
The Gramm-Leach-Bliley Act of 1999 authorizes a bank holding company that meets specified conditions,
including being “well capitalized” and “well managed,” to opt to become a “financial holding company” and thereby
engage in a broader array of financial activities than previously permitted. Such activities can include insurance
underwriting and investment banking.
The FRB has adopted capital adequacy guidelines for bank holding companies (on a consolidated basis)
substantially similar to those of the FDIC for the Community Bank and the Commercial Bank. (Please see “Capital
Requirements” earlier in this report.) At December 31, 2008, the Company’s consolidated Total and Tier I capital
exceeded these requirements.
Bank holding companies are generally required to give the FRB prior written notice of any purchase or
redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions during the preceding twelve months,
is equal to 10% or more of the Company’s consolidated net worth. The FRB may disapprove such a purchase or
redemption if it determines that the proposal would constitute an unsafe or unsound practice, or would violate any
law, regulation, FRB order or directive, or any condition imposed by, or written agreement with, the FRB. The FRB
has adopted an exception to this approval requirement for well-capitalized bank holding companies that meet certain
other conditions.
The FRB has issued a policy statement regarding the payment of dividends by bank holding companies. In
general, the FRB’s policies provide that dividends should be paid only out of current earnings and only if the
prospective rate of earnings retention by the bank holding company appears consistent with the organization’s
capital needs, asset quality, and overall financial condition. The FRB’s policies also require that a bank holding
company serve as a source of financial strength to its subsidiary banks by standing ready to use available resources
to provide adequate capital funds to those banks during periods of financial stress or adversity and by maintaining
the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks
where necessary. Under the prompt corrective action laws, the ability of a bank holding company to pay dividends
22
may be restricted if a subsidiary bank becomes undercapitalized. These regulatory policies could affect the ability of
the Company to pay dividends or otherwise engage in capital distributions.
Under the FDI Act, a depository institution may be responsible for providing financial support if a commonly
controlled depository institution were to fail. The Community Bank and the Commercial Bank are commonly
controlled within the meaning of that law.
The status of the Company as a registered bank holding company under the BHCA does not exempt it from
certain federal and state laws and regulations applicable to corporations generally, including, without limitation,
certain provisions of the federal securities laws.
The Company, the Community Bank, the Commercial Bank, and their respective affiliates will be affected by
the monetary and fiscal policies of various agencies of the United States Government, including the Federal Reserve
System. In view of changing conditions in the national economy and in the money markets, it is impossible for
management to accurately predict future changes in monetary policy or the effect of such changes on the business or
financial condition of the Company, the Community Bank, or the Commercial Bank.
New York Holding Company Regulation. With the addition of the Commercial Bank, the Company became
subject to regulation as a “multi-bank holding company” under New York law since it controls two banking
institutions. Among other requirements, this means that the Company must receive the prior approval of the New
York State Banking Board prior to the acquisition of 10% or more of the voting stock of another banking institution
or to otherwise acquire a banking institution by merger or purchase.
Acquisition of the Holding Company
Federal Restrictions. Under the Federal Change in Bank Control Act (the “CIBCA”), a notice must be
submitted to the FRB if any person (including a company), or group acting in concert, seeks to acquire 10% or more
of the Company’s shares of outstanding common stock, unless the FRB has found that the acquisition will not result
in a change in control of the Company. Under the CIBCA, the FRB generally has 60 days within which to act on
such notices, taking into consideration certain factors, including the financial and managerial resources of the
acquirer, the convenience and needs of the communities served by the Company, the Community Bank, and the
Commercial Bank, and the anti-trust effects of the acquisition. Under the BHCA, any company would be required to
obtain prior approval from the FRB before it may obtain “control” of the Company within the meaning of the
BHCA. Control generally is defined to mean the ownership or power to vote 25% or more of any class of voting
securities of the Company or the ability to control in any manner the election of a majority of the Company’s
directors. An existing bank holding company would be required to obtain the FRB’s prior approval under the BHCA
before acquiring more than 5% of the Company’s voting stock. See “Holding Company Regulation” earlier in this
report.
New York Change in Control Restrictions. In addition to the CIBCA and the BHCA, New York State Banking
Law generally requires prior approval of the New York State Banking Board before any action is taken that causes
any company to acquire direct or indirect control of a banking institution which is organized in New York.
Federal Securities Law
The Company’s common stock is registered with the SEC under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). The Company is subject to the information and proxy solicitation requirements,
insider trading restrictions, and other requirements under the Exchange Act.
Registration of the shares of the common stock that were issued in the Community Bank’s conversion from
mutual to stock form under the Securities Act of 1933, as amended (the “Securities Act”), does not cover the resale
of such shares. Shares of the common stock purchased by persons who are not affiliates of the Company may be
resold without registration. Shares purchased by an affiliate of the Company will be subject to the resale restrictions
of Rule 144 under the Securities Act. If the Company meets the current public information requirements of Rule 144
under the Securities Act, each affiliate of the Company who complies with the other conditions of Rule 144
(including those that require the affiliate’s sale to be aggregated with those of certain other persons) would be able to
sell in the public market, without registration, a number of shares not to exceed in any three-month period the
greater of (i) 1% of the outstanding shares of the Company, or (ii) the average weekly volume of trading in such
23
shares during the preceding four calendar weeks. Provision may be made by the Company in the future to permit
affiliates to have their shares registered for sale under the Securities Act under certain circumstances.
ITEM 1A. RISK FACTORS
There are various risks and uncertainties that are inherent in our business. Following is a discussion of the
material risks and uncertainties that could have a material adverse impact on our financial condition and results of
operations, and that could cause the value of our common stock to decline significantly, were they to transpire.
Additional risks that are not currently known to us, or that we currently believe to be immaterial, may also have a
material effect on our financial condition and results of operations. This report is qualified in its entirety by these
risk factors.
The current economic environment poses significant challenges for us and could adversely affect our financial
condition and results of operations.
We currently are operating in a challenging and uncertain economic environment, both nationally and in the
local markets that we serve. Financial institutions continue to be affected by sharp declines in the value of financial
instruments and real estate values, and while we are taking steps to reduce our market and credit risk exposure, we
nonetheless are affected by these issues in view of our retaining a securities portfolio, and portfolios of multi-family;
CRE; ADC; and C&I loans. Continued declines in the value of our investment securities could result in our
recording additional losses on the other-than-temporary impairment (“OTTI”) of securities, which would reduce our
earnings and therefore our capital. Continued declines in real estate values and home sales, and an increase in the
financial stress on borrowers stemming from an uncertain economic environment, including rising unemployment,
could have an adverse effect on our borrowers or their customers, which could adversely impact the repayment of
the loans we have made. The overall deterioration in economic conditions also could subject us to increased
regulatory scrutiny. In addition, a prolonged recession, or further deterioration in local economic conditions, could
result in an increase in loan delinquencies; an increase in problem assets and foreclosures; and a decline in the value
of the collateral for our loans, which could reduce our customers’ borrowing power. Furthermore, a prolonged
recession or further deterioration in local economic conditions could drive the level of loan losses beyond the level
we have provided for in our loan loss allowance, which could necessitate an increase in our provision for loans
losses, which, in turn, would reduce our earnings and capital. Additionally, the demand for our products and services
could be reduced, which would adversely impact our liquidity and the level of revenues we generate.
We are subject to interest rate risk.
Our primary source of income is net interest income, which is the difference between the interest income
generated by our interest-earning assets (consisting primarily of loans and, to a lesser extent, securities) and the
interest expense generated by our interest-bearing liabilities (consisting primarily of deposits and wholesale
borrowings).
The level of net interest income is primarily a function of the average balance of our interest-earning assets,
the average balance of our interest-bearing liabilities, and the spread between the yield on such assets and the cost of
such liabilities. These factors are influenced by both the pricing and mix of our interest-earning assets and our
interest-bearing liabilities which, in turn, are impacted by such external factors as the local economy, competition
for loans and deposits, the monetary policy of the Federal Open Market Committee of the Federal Reserve Board of
Governors (the “FOMC”), and market interest rates.
The cost of our deposits and short-term wholesale borrowings is largely based on short-term interest rates, the
level of which is driven by the FOMC. However, the yields generated by our loans and securities are typically
driven by intermediate-term (i.e., five-year) interest rates, which are set by the market and generally vary from day
to day. The level of net interest income is therefore influenced by movements in such interest rates, and the pace at
which such movements occur. If the interest rates on our interest-bearing liabilities increase at a faster pace than the
interest rates on our interest-earning assets, the result could be a reduction in net interest income and with it, a
reduction in the earnings of the Company. Our net interest income and earnings would be similarly impacted were
the interest rates on our interest-earning assets to decline more quickly than the interest rates on our interest-bearing
liabilities.
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In addition, such changes in interest rates could affect our ability to originate loans and attract and retain
deposits; the fair values of our securities and other financial assets; the fair values of our liabilities; and the average
lives of our loan and securities portfolios.
Changes in interest rates could also have an effect on the level of loan refinancing activity which, in turn,
would impact the amount of prepayment penalty income we receive on our multi-family and commercial real estate
loans. As prepayment penalties are recorded as interest income, the extent to which they increase or decrease during
any given period could have a significant impact on the level of net interest income and net income we generated
during that time.
In addition, changes in interest rates could have an effect on the slope of the yield curve. A flat to inverted
yield curve could cause our net interest income and net interest margin to contract, which could have a material
adverse effect on our net income and cash flows, and the value of our assets.
Please see “Net Interest Income” and “Asset and Liability Management and the Impact of Interest Rate Risk”
in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for
information regarding the actions we have been taking to mitigate our exposure to interest rate risk.
We are subject to credit risk.
Risks stemming from our lending activities:
Our business strategy emphasizes the origination of multi-family loans and, to a lesser extent, CRE, ADC, and
C&I loans, which are generally larger, and have higher risk-adjusted returns and shorter maturities than one- to four-
family mortgage loans. Our credit risk would ordinarily be expected to increase with the growth of these loan
portfolios.
While our record of asset quality has historically been solid, multi-family and CRE properties are generally
believed to involve a greater degree of credit risk than one- to four-family loans. In addition, payments on multi-
family and CRE loans generally depend on the income produced by the underlying properties which, in turn,
depends on their successful operation and management. Accordingly, the ability of our borrowers to repay these
loans may be impacted by adverse conditions in the local real estate market and the local economy. While we seek
to minimize these risks through our underwriting policies, which generally require that such loans be qualified on
the basis of the collateral property’s cash flows, appraised value, and debt service coverage ratio, among other
factors, there can be no assurance that our underwriting policies will protect us from credit-related losses or
delinquencies.
ADC financing typically involves a greater degree of credit risk than longer-term financing on improved,
owner-occupied real estate. Risk of loss on an ADC loan depends largely upon the accuracy of the initial estimate of
the property’s value at completion of construction or development, compared to the estimated costs (including
interest) of construction. If the estimate of value proves to be inaccurate, the loan may be under-secured. While we
seek to minimize these risks by maintaining consistent lending policies and rigorous underwriting standards, an error
in such estimates or a downturn in the local economy or real estate market could have a material adverse effect on
the quality of our ADC loan portfolio, thereby resulting in material losses or delinquencies.
We seek to minimize the risks involved in C&I lending by underwriting such loans on the basis of the cash
flows produced by the business; by requiring that such loans be collateralized by various business assets, including
inventory, equipment, and accounts receivable, among others; and by requiring personal guarantees. However, the
capacity of a borrower to repay a C&I loan is substantially dependent on the degree to which his or her business is
successful. In addition, the collateral underlying such loans may depreciate over time, may not be conducive to
appraisal, or may fluctuate in value, based upon the business’ results.
We cannot guarantee that our record of asset quality will be maintained in future periods. Although we were
not, and are not, involved in subprime or Alt-A lending, the ramifications of the subprime lending crisis and the
turmoil in the financial and capital markets that followed have been far-reaching, with real estate values declining
and unemployment and bankruptcies rising throughout the nation, including the region we serve. The ability of our
borrowers to repay their loans could be adversely impacted by the significant change in market conditions, which
not only could result in our experiencing an increase in charge-offs, but also could necessitate our increasing our
25
provision for loan losses. Either of these events would have an adverse impact on our results of operations were they
to occur.
Please see “Loans” and “Asset Quality” in Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” for a discussion of the policies and procedures we follow in underwriting our
multi-family, CRE, ADC, and C&I loans.
Risks stemming from our focus on lending in the New York metropolitan region:
Our business depends significantly on general economic conditions in the New York metropolitan region,
where the majority of the buildings and properties securing our loans and the businesses of our customers are
located. Unlike larger national or superregional banks that serve a broader and more diverse geographic region, our
lending is primarily concentrated in New York City and the surrounding markets of Nassau, Suffolk, and
Westchester counties in New York, and Essex, Hudson, Mercer, Middlesex, Monmouth, Ocean, and Union counties
in New Jersey.
Accordingly, the ability of our borrowers to repay their loans, and the value of the collateral securing such
loans, may be significantly affected by economic conditions in the region or by changes in the local real estate
market. A significant decline in general economic conditions caused by inflation, recession, unemployment, acts of
terrorism, or other factors beyond our control could therefore have an adverse effect on our financial condition and
results of operations. In addition, because multi-family and CRE loans represent the majority of our loans
outstanding, a decline in tenant occupancy due to such factors or for other reasons could adversely impact the ability
of our borrowers to repay their loans on a timely basis, which could have a negative impact on our results of
operations.
Please see “Loans” and “Asset Quality” in Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” for a discussion of the policies and procedures we follow in underwriting our
multi-family, CRE, ADC, and C&I loans. In addition, please see the discussion of the potential impact of the current
economic environment on our financial condition and results of operations on page 24 of this report.
We are subject to certain risks in connection with the level of our allowance for loan losses.
A variety of factors could cause our borrowers to default on their loan payments and the collateral securing
such loans to be insufficient to repay any remaining indebtedness. In such an event, we could experience significant
loan losses, which could have a material adverse effect on our financial condition and results of operations.
In the process of originating a loan, we make various assumptions and judgments about the ability of the
borrower to repay it, based on the cash flows produced by the building, property, or business; the value of the real
estate or other assets serving as collateral; and the creditworthiness of the borrower, among other factors.
We also establish an allowance for loan losses through an assessment of probable losses in each of our loan
portfolios. Several factors are considered in this process, including historical and projected default rates and loss
severities; internal risk ratings; loan size; economic, industry, and environmental factors; and loan impairment, as
defined by the Financial Accounting Standards Board. If our assumptions and judgments regarding such matters
prove to be incorrect, our allowance for loan losses might not be sufficient, and additional loan loss provisions might
need to be made. Depending on the amount of such loan loss provisions, the adverse impact on our earnings could
be material.
In addition, as we continue to grow our loan portfolio, it may be necessary to increase the allowance for loan
losses by making additional provisions, which would adversely impact our operating results. Furthermore, bank
regulators may require us to make a provision for loan losses or otherwise recognize further loan charge-offs
following their periodic review of our loan portfolio, our underwriting procedures, and our loan loss allowance. Any
increase in our allowance for loan losses or loan charge-offs as required by such regulatory authorities could have a
material adverse effect on our financial condition and results of operations.
Please see “Allowance for Loan Losses” under “Critical Accounting Policies” in Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” for a discussion of the procedures we
26
follow in establishing our loan loss allowance. In addition, please see the discussion of risks stemming from our
lending activities above and on page 25 of this report.
We face significant competition for loans and deposits.
We face significant competition for loans and deposits from other banks and financial institutions, both within
and beyond our local marketplace. Within our region, we compete with commercial banks, savings banks, credit
unions, and investment banks for deposits, and with the same financial institutions and others (including mortgage
brokers, finance companies, mutual funds, insurance companies, and brokerage houses) for loans. We also compete
with companies that solicit loans and deposits over the Internet.
Many of our competitors (including money center, national, and superregional banks) have substantially
greater resources and higher lending limits than we do, and may offer certain products and services that we cannot.
Because our profitability stems from our ability to attract deposits and originate loans, our continued ability to
compete for depositors and borrowers is critical to our success.
Our success as a competitor depends on a number of factors, including our ability to develop, maintain, and
build upon long-term relationships with our customers by providing them with convenience, in the form of multiple
branch locations and extended hours of service; access, in the form of alternative delivery channels, such as online
banking, banking by phone, and ATMs; a broad and diverse selection of products and services; interest rates and
service fees that compare favorably with those of our competitors; and skilled and knowledgeable personnel to assist
our customers with their financial needs. External factors that may impact our ability to compete include changes in
local economic conditions and real estate values, changes in interest rates, and the consolidation of banks and thrifts
within our marketplace.
Please see “Loans” and “Funding Sources” in Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” for a discussion of the actions we have taken to attract and retain our
borrowers and depositors.
We are subject to certain risks with respect to liquidity.
“Liquidity” refers to our ability to generate sufficient cash flows to support our operations and to fulfill our
obligations, including commitments to originate loans, to repay our wholesale borrowings, and to satisfy the
withdrawal of deposits by our customers.
Our primary sources of liquidity are the cash flows generated through the repayment of loans and securities;
cash flows from the sale of securities; the deposits we acquire in connection with our acquisitions and those we
gather organically through our branch network, as well as brokered deposits; and borrowed funds, primarily in the
form of wholesale borrowings from the FHLB-NY and various Wall Street brokerage firms. In addition, and
depending on current market conditions, we have the ability to access the capital markets from time to time.
Deposit flows, calls of investment securities and wholesale borrowings, and prepayments of loans and
mortgage-related securities are strongly influenced by such external factors as the direction of interest rates, whether
actual or perceived; local and national economic conditions; and competition for deposits and loans in the markets
we serve. Furthermore, changes to the FHLB-NY’s underwriting guidelines for wholesale borrowings or lending
policies may limit or restrict our ability to borrow, and could therefore have a significant adverse impact on our
liquidity. Additionally, replacing funds in the event of large-scale withdrawals of brokered deposits could require us
to pay significantly higher interest rates on retail deposits or other wholesale funding sources, which would have an
adverse impact on our net interest income and our earnings. A decline in available funding could adversely impact
our ability to originate loans, invest in securities, and meet our expenses, or to fulfill such obligations as repaying
our borrowings or meeting deposit withdrawal demands.
We are subject to certain risks in connection with our strategy of growing through mergers and acquisitions.
Mergers and acquisitions have contributed significantly to our growth in the past, and continue to be a key
component of our business model. Accordingly, it is possible that we could acquire other financial institutions,
financial service providers, or branches of banks in the future. However, our ability to engage in future mergers and
acquisitions depends on our ability to identify suitable merger partners, our ability to finance and complete such
27
transactions on acceptable terms and at acceptable prices, and our ability to receive the necessary regulatory
approvals and, where required, shareholder approvals.
Furthermore, mergers and acquisitions involve a number of risks and challenges, including the diversion of
management’s attention; the need to integrate acquired operations, internal controls, and regulatory functions; the
potential loss of key employees and customers of the acquired companies; an increase in expenses and working
capital requirements; and limitations on our ability to successfully complete the post-merger repositioning of our
balance sheet.
Any of these factors, among others, could adversely affect our ability to achieve the anticipated benefits of the
acquisitions we undertake.
Please see Item 1, “Business,” earlier in this report and Note 3 to the Consolidated Financial Statements in
Item 8, “Financial Statements and Supplementary Data,” for information about our mergers and acquisitions.
Our goodwill may be determined to be impaired.
The Company tests goodwill for impairment on an annual basis, or more frequently if necessary. According to
SFAS No. 142, “Goodwill and Other Intangible Assets,” quoted market prices in active markets are the best
evidence of fair value and are to be used as the basis for measuring impairment, when available. Other acceptable
valuation methods include present-value measurements based on multiples of earnings or revenues, or similar
performance measures. If we were to determine that the carrying amount of our goodwill exceeded its implied fair
value, we would be required to write down the value of the goodwill on our balance sheet. This, in turn, would result
in a charge against earnings and, thus, a reduction in our stockholders’ equity and certain related capital measures.
Please see “Significant Accounting Policies” in Note 2 to the Consolidated Financial Statements in Item 8,
“Financial Statements and Supplementary Data,” and “Critical Accounting Policies” in Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”
We may not be able to attract and retain key personnel.
To a large degree, our success depends on our ability to attract and retain key personnel whose expertise,
knowledge of our markets, and years of industry experience would make them difficult to replace. Competition for
skilled leaders in our industry can be intense, and we may not be able to hire or retain the people we would like to
have working for us. The unexpected loss of services of one or more of our key personnel could have a material
adverse impact on our business, given the specialized knowledge of such personnel and the difficulty of finding
qualified replacements on a timely basis. To attract and retain personnel with the skills and knowledge to support
our business, we offer a variety of benefits which may negatively impact our earnings.
Please see Notes 11 and 12 to the Consolidated Financial Statements in Item 8, “Financial Statements and
Supplementary Data,” for a description of our employee and stock-related benefit plans.
We are subject to environmental liability risk associated with our lending activities.
A significant portion of our loan portfolio is secured by real property. During the ordinary course of business,
we may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or
toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for
remediation costs, as well as for personal injury and property damage. In addition, we own and operate certain
properties that may be subject to similar environmental liability risks.
Environmental laws may require us to incur substantial expenses and may materially reduce the affected
property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent
interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental
liability. Although we have policies and procedures requiring the performance of an environmental site assessment
before initiating any foreclosure action on real property, these assessments may not be sufficient to detect all
potential environmental hazards. The remediation costs and any other financial liabilities associated with an
environmental hazard could have a material adverse effect on our financial condition and results of operations.
28
Please see “Environmental Issues” in Item 1, “Business,” earlier in this report.
Our business may be adversely impacted by acts of war or terrorism.
Acts of war or terrorism could have a significant adverse impact on our ability to conduct our business. Such
events could affect the ability of our borrowers to repay their loans, could impair the value of the collateral securing
our loans, and could cause significant property damage, thus increasing our expenses and/or reducing our revenues.
In addition, such events could affect the ability of our depositors to maintain their deposits with the Banks. Although
we have established disaster recovery policies and procedures, the occurrence of any such event could have a
material adverse effect on our business which, in turn, could have a material adverse effect on our financial
condition and results of operations.
We are subject to extensive laws, regulations, and regulatory enforcement.
We are subject to regulation, supervision, and examination by the New York State Banking Department,
which is the chartering authority for both the Community Bank and the Commercial Bank; by the Federal Deposit
Insurance Corporation, as the insurer of the Banks’ deposits; and by the Board of Governors of the Federal Reserve
System.
Such regulation and supervision governs the activities in which a bank holding company and its banking
subsidiaries may engage, and is intended primarily for the protection of the Deposit Insurance Fund, the banking
system in general, and customers, and not for the benefit of a company’s shareholders. These regulatory authorities
have extensive discretion in connection with their supervisory and enforcement activities, including with respect to
the imposition of restrictions on the operation of a bank or a bank holding company, the imposition of significant
fines, the ability to delay or deny merger applications, the classification of assets by a bank, and the adequacy of a
bank’s allowance for loan losses, among other matters. Any failure to comply with, or any change in, such
regulation and supervision, or change in regulation or enforcement by such authorities, whether in the form of
policy, regulations, legislation, rules, orders, enforcement actions, or decisions, could have a material impact on the
Company, our subsidiary banks, and our operations.
Our operations are also subject to extensive legislation enacted, and regulation implemented, by other federal,
state, and local governmental authorities, and to various laws and judicial and administrative decisions imposing
requirements and restrictions on part or all of our operations. While we believe that we are in compliance in all
material respects with applicable federal, state, and local laws, rules, and regulations, including those pertaining to
banking, lending, and taxation, among other matters, we may be subject to future changes in such laws, rules, and
regulations that could have a material impact on our results of operations.
Please see “Regulation and Supervision” in Item 1, “Business,” earlier in this report.
We are subject to risks associated with taxation.
The amount of income taxes we are required to pay on our earnings is based on federal and state legislation
and regulations. We provide for current and deferred taxes in our financial statements, based on our results of
operations, business activity, legal structure, interpretation of tax statutes, assessment of risk of adjustment upon
audit, and application of financial accounting standards. We may take tax return filing positions for which the final
determination of tax is uncertain. Our net income and earnings per share may be reduced if a federal, state, or local
authority assesses additional taxes that have not been provided for in our consolidated financial statements. There
can be no assurance that we will achieve our anticipated effective tax rate either due to a change to tax law, a change
in regulatory or judicial guidance, or an audit assessment which denies previously recognized tax benefits.
Please see “Regulation and Supervision” in Item 1, “Business,” earlier in this report.
The U.S. government’s plans to stabilize the financial markets may not be effective.
In response to the recent volatility in the financial markets, the U.S. government has enacted certain legislation
and regulatory programs to foster stability, including the Emergency Economic Stabilization Act of 2008. There can
be no assurance that the impact of such legislation and the various programs created thereunder on the financial
markets will be sufficient to produce the desired results. The failure of the U.S. government to fully execute the
29
programs it has already developed, or to implement expeditiously other remedial economic and financial legislation
that may be needed, could have a material adverse effect on the financial markets, which in turn could materially
and adversely affect our business, financial condition, and results of operations.
In addition, compliance with new requirements and regulations established by federal and state governments
to address the current economic crisis could have an adverse impact on our results of operations, our ability to fill
positions with the most qualified candidates available, and our ability to maintain our dividend.
We are subject to litigation risk.
In the ordinary course of our business, the Company and the Banks may become involved in litigation, the
outcome of which may have a direct material impact on our financial position and daily operations. Please see
“Legal Proceedings” under Note 10 to the Consolidated Financial Statements, “Commitments and Contingencies,”
in Item 8, “Financial Statements and Supplementary Data,” for a discussion of the status of certain legal matters.
We are subject to certain risks in connection with our use of technology.
Risks associated with systems failures, interruptions, or breaches of security:
Communications and information systems are essential to the conduct of our business, as we use such systems
to manage our customer relationships, our general ledger, our deposits, and our loans. While we have established
policies and procedures to prevent or limit the impact of systems failures, interruptions, and security breaches, there
can be no assurance that such events will not occur or that they will be adequately addressed if they do. In addition,
any compromise of our security systems could deter customers from using our web site and our online banking
service, both of which involve the transmission of confidential information. Although we rely on commonly used
security and processing systems to provide the security and authentication necessary to effect the secure
transmission of data, these precautions may not protect our systems from compromises or breaches of security.
In addition, we outsource certain of our data processing to certain third-party providers. If our third-party
providers encounter difficulties, or if we have difficulty in communicating with them, our ability to adequately
process and account for customer transactions could be affected, and our business operations could be adversely
impacted. Threats to information security also exist in the processing of customer information through various other
vendors and their personnel.
The occurrence of any systems failure, interruption, or breach of security could damage our reputation and
result in a loss of customers and business, could subject us to additional regulatory scrutiny, or could expose us to
civil litigation and possible financial liability. Any of these occurrences could have a material adverse effect on our
financial condition and results of operations.
Risks associated with changes in technology:
The provision of financial products and services has become increasingly technology-driven. Our ability to
meet the needs of our customers competitively, and in a cost-efficient manner, is dependent on our ability to keep
pace with technological advances and to invest in new technology as it becomes available. Many of our competitors
have greater resources to invest in technology than we do and may be better equipped to market new technology-
driven products and services. The ability to keep pace with technological change is important, and the failure to do
so on our part could have a material adverse impact on our business and therefore on our financial condition and
results of operations.
We rely on the dividends we receive from our subsidiaries.
The Parent Company is a separate and distinct legal entity from the Banks, and a substantial portion of the
revenues the Parent Company receives consists of dividends from the Banks. These dividends are the primary
funding source for the dividends we pay on our common stock and the interest and principal payments on our debt.
Various federal and state laws and regulations limit the amount of dividends that a bank may pay to its parent
company. In addition, our right to participate in a distribution of assets upon the liquidation or reorganization of a
subsidiary may be subject to the prior claims of the subsidiary’s creditors. If the Banks are unable to pay dividends
to the Parent Company, we may not be able to service our debt, pay our obligations, or pay dividends on our
common stock. The inability to receive dividends from the Banks could therefore have a material adverse effect on
30
our business, our financial condition, and our results of operations, as well as our ability to maintain or increase the
current level of cash dividends paid to our stockholders.
Please see “Supervision and Regulation” in Item 1, “Business,” and Note 14 to the Consolidated Financial
Statements, “Restrictions on Subsidiary Banks,” in Item 8, “Financial Statements and Supplementary Data,” for a
further discussion of the restrictions on our ability to pay dividends.
Various factors could make a takeover attempt of the Company more difficult to achieve.
Certain provisions of our certificate of incorporation and bylaws, in addition to certain federal banking laws
and regulations, could make it more difficult for a third party to acquire the Company without the consent of the
Board of Directors, even if doing so were perceived to be beneficial to our shareholders. These provisions also make
it more difficult to remove our current Board of Directors or management or to appoint new directors, and also
regulate the timing and content of stockholder proposals and nominations, and qualification for service on the Board
of Directors. In addition, we have entered into employment agreements with certain executive officers and directors
that would require payments to be made to them in the event that their employment was terminated following a
change in control of the Company or the Banks. These payments may have the effect of increasing the costs of
acquiring the Company. The combination of these provisions could effectively inhibit a non-negotiated merger or
other business combination, which could adversely impact the market price of our common stock.
Various factors could impact the price and trading activity in our common stock.
The price of the Company’s common stock can fluctuate significantly in response to a variety of factors,
including, but not limited to: actual or anticipated variations in our quarterly results of operations; earnings estimates
and recommendations of securities analysts; the performance and stock price of other companies that investors and
analysts deem comparable to the Company; news reports regarding trends and issues in the financial services
industry; actual or anticipated changes in the economy, the real estate market, and interest rates; speculation
regarding our involvement in industry consolidation; our capital markets activities; mergers and acquisitions
involving our peers; delays in, or a failure to realize the anticipated benefits of, an acquisition; speculation about, or
an actual change in, dividend payments; changes in legislation or regulation impacting the financial services
industry in particular, or publicly traded companies in general; regulatory enforcement or other actions against the
Company or the Banks or their affiliates; threats of terrorism or military conflicts; and general market fluctuations.
Fluctuations in our stock price may make it more difficult for you to sell your Company common stock at an
attractive price.
Furthermore, the capital and credit markets have been experiencing increased volatility and disruption for
several quarters and have reached significant lows in recent months. In several cases, the markets have produced
downward pressure on stock prices and credit capacity for financial institutions, without regard to those institutions’
underlying financial strength. If the current levels of market disruption and volatility continue or worsen, there can
be no assurance that the value of our shares will not decline further, which could have an adverse impact on our
ability to access capital in the financial markets and could adversely impact our financial condition and results of
operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
In addition to owning certain branches and other bank business facilities, we also lease a majority of our
branch offices and facilities under various lease and license agreements that expire at various times. (Please see Note
10 to the Consolidated Financial Statements, “Commitments and Contingencies: Lease and License Commitments”
in Item 8, “Financial Statements and Supplementary Data.”) We believe that our facilities are adequate to meet our
present and immediately foreseeable needs.
31
ITEM 3.
LEGAL PROCEEDINGS
In the ordinary course of our business, we are defendants in or parties to a number of legal proceedings. We
believe we have meritorious defenses with respect to these cases and intend to defend them vigorously. Please see
Note 10 to the Consolidated Financial Statements, “Commitments and Contingencies: Legal Proceedings” in Item 8,
“Financial Statements and Supplementary Data,” for a discussion of the status of certain legal matters.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
32
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
The common stock of the Company is traded on the New York Stock Exchange (the “NYSE”) under the
symbol “NYB.”
At December 31, 2008, the number of outstanding shares was 344,985,111 and the number of registered
owners was approximately 14,100. The latter figure does not include those investors whose shares were held for
them by a bank or broker at that date.
Dividends Declared per Common Share and Market Price of Common Stock
The following table sets forth the dividends declared per common share, and the intra-day high/low price
range and closing prices for the Company’s common stock, as reported by the NYSE, in each of the four quarters of
2008 and 2007:
Dividends
Declared per
Common Share
$0.25
0.25
0.25
0.25
$0.25
0.25
0.25
0.25
Market Price
High
Low
Close
$19.20
20.70
21.00
18.05
$17.62
17.95
19.87
19.50
$14.48
17.21
15.07
10.31
$16.08
16.77
15.80
16.60
$18.22
17.84
16.79
11.96
$17.59
17.02
19.05
17.58
2008
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2007
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Please see the discussion of “Liquidity” in Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” for information regarding restrictions on the Company’s ability to pay
dividends.
On June 26, 2008, our Chairman, President, and Chief Executive Officer, Joseph R. Ficalora, submitted to the
NYSE his Annual CEO certification confirming our compliance with the NYSE’s corporate governance listing
standards, as required by Section 303A.12(a) of the NYSE Listed Company Manual.
Stock Performance Graph
Notwithstanding anything to the contrary set forth in any of the Company’s previous filings under the
Securities Act of 1933 or the Securities Exchange Act of 1934 that might incorporate future filings, including this
Form 10-K, in whole or in part, the following stock performance graph shall not be incorporated by reference into
any such filings.
The following graph provides a comparison of total shareholder returns on the Company’s Common Stock
since December 31, 2003 with the cumulative total returns of a broad market index and a peer group index. The
S&P Mid-Cap 400 Index was chosen as the broad market index in connection with the Company’s trading activity
on the New York Stock Exchange. The peer group index chosen was the SNL Bank and Thrift Index, which
currently is comprised of 562 bank and thrift institutions, including the Company. The data for the indices included
in the graph were provided by SNL Financial.
33
Comparison of 5-Year Cumulative Total Return
Among New York Community Bancorp, Inc.,
S&P Mid-Cap 400 Index, and SNL Bank and Thrift Index
200
175
150
125
100
75
50
25
S
R
A
L
L
O
D
12/31/03
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
New York Community Bancorp, Inc.
S&P Mid-Cap 400 Index
SNL Bank and Thrift Index
ASSUMES $100 INVESTED ON DEC. 31, 2003
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2008
12/31/2003
12/31/2004
12/31/2005
12/31/2006
12/31/2007
12/31/2008
New York Community Bancorp, Inc.
$100.00
S&P Mid-Cap 400 Index
SNL Bank and Thrift Index
$100.00
$100.00
$75.30
$116.48
$111.98
$64.01
$131.10
$113.74
$66.27
$144.64
$132.90
$76.72
$156.17
$101.34
$55.45
$99.59
$58.28
34
Share Repurchase Program
From time to time, we repurchase shares of our common stock on the open market or through privately
negotiated transactions, and hold such shares in our Treasury account. Repurchased shares may be utilized for
various corporate purposes, including, but not limited to, merger transactions and the exercise of stock options.
During the three months ended December 31, 2008, we allocated $20,754 toward share repurchases, as
outlined in the following table:
(a)
Total Number
of Shares (or
Units)
Purchased(1)
(b)
Average Price
Paid per Share
(or Unit)
(c)
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
(d)
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs(2)
1,268
$16.37
1,268
1,350,292
--
--
--
1,350,292
--
1,268
--
$16.37
--
1,268
1,350,292
Period
Month #1:
October 1, 2008 through
October 31, 2008
Month #2:
November 1, 2008 through
November 30, 2008
Month #3:
December 1, 2008 through
December 31, 2008
Total
All shares were purchased in privately negotiated transactions.
(1)
(2) On April 20, 2004, the Board authorized the repurchase of up to five million shares. Of this amount, 1,350,292 shares
were still available for repurchase at December 31, 2008. Under said authorization, shares may be repurchased on the
open market or in privately negotiated transactions until completion or the Board’s earlier termination of the repurchase
authorization.
35
ITEM 6.
SELECTED FINANCIAL DATA
(dollars in thousands, except share data)
EARNINGS SUMMARY:
Net interest income (4)
Provision for loan losses
Non-interest income
Non-interest expense:
Operating expenses
Debt repositioning charges
Termination of interest rate swaps
Amortization of core deposit intangibles
Income tax (benefit) expense
Net income (5)(6)(7)(8)
Basic earnings per share (5)(6)(7)(8)
Diluted earnings per share (5)(6)(7)(8)
Dividends paid per common share
SELECTED RATIOS:
Return on average assets
Return on average stockholders’ equity
Operating expenses to average assets
Average stockholders’ equity to average assets
Efficiency ratio
Interest rate spread (4)
Net interest margin (4)
Dividend payout ratio
BALANCE SHEET SUMMARY:
Total assets
Loans, net of allowance for loan losses
Allowance for loan losses
Securities held to maturity
Securities available for sale
Deposits
Borrowed funds
Stockholders’ equity
Common shares outstanding
Book value per share (9)
Stockholders’ equity to total assets
ASSET QUALITY RATIOS:
Non-performing loans to total loans
Non-performing assets to total assets
Allowance for loan losses to non-performing loans
Allowance for loan losses to total loans
Net charge-offs to average loans
2008
$675,495
7,700
15,529
320,818
285,369
--
23,343
(24,090)
77,884
$0.23
0.23
1.00
0.25%
1.86
1.03
13.41
46.43
2.27
2.48
434.78
At or For the Years Ended December 31,
2005(3)
2006(2)
2007(1)
$616,530
--
111,092
299,575
3,190
--
22,758
123,017
279,082
$0.90
0.90
1.00
0.94%
7.13
1.01
13.21
41.17
2.13
2.38
111.11
$561,566
--
88,990
256,362
26,477
1,132
17,871
116,129
232,585
$0.82
0.81
1.00
0.83%
6.57
0.91
12.60
39.41
2.04
2.27
123.46
$595,367
--
97,701
236,621
--
--
11,733
152,629
292,085
$1.12
1.11
1.00
1.17%
9.15
0.95
12.83
34.14
2.61
2.74
90.09
2004
$799,343
--
(62,303)
193,632
--
--
11,440
176,882
355,086
$1.37
1.33
0.96
1.42%
11.24
0.78
12.65
26.27
3.63
3.70
72.18
$32,466,906
22,097,844
94,368
4,890,991
1,010,502
14,292,454
13,496,710
4,219,246
344,985,111
$12.25
$30,579,822
20,270,454
92,794
4,362,645
1,381,256
13,157,333
12,915,672
4,182,313
323,812,639
$12.95
$28,482,370
19,567,502
85,389
2,985,197
1,940,787
12,619,004
11,880,008
3,689,837
295,350,936
$12.56
$26,283,705
16,948,697
79,705
3,258,038
2,379,214
12,104,899
10,528,658
3,324,877
269,776,791
$12.43
$24,037,826
13,317,987
78,057
3,972,614
3,108,109
10,402,117
10,142,541
3,186,414
265,190,635
$12.23
13.00%
13.68%
12.95%
12.65%
13.26%
0.51%
0.35
83.00
0.43
0.029
0.11%
0.07
418.14
0.46
0.002
0.11%
0.08
402.72
0.43
0.002
0.16%
0.11
289.17
0.47
0.000
0.21%
0.12
277.31
0.58
0.001
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
The Company completed three business combinations in 2007: the acquisition of PennFed Financial Services, Inc. on
April 2, 2007; the acquisition of Doral Bank, FSB’s branch network in New York City and certain assets and liabilities on
July 26, 2007; and the acquisition of Synergy Financial Group, Inc. on October 1, 2007. Accordingly, the Company’s
2007 earnings reflect nine months, five months, and three months of combined operations with the respective institutions.
The Company acquired Atlantic Bank of New York on April 28, 2006. Accordingly, the Company’s 2006 earnings reflect
eight months of combined operations.
The Company acquired Long Island Financial Corp. on December 30, 2005, the last business day of the year.
The 2008 amount reflects the impact of a $39.6 million debt repositioning charge that was recorded in interest expense.
Please see the comparison of our 2008 and 2007 earnings on pages 63 through 71 of this report for a discussion of certain
gains and charges that increased/reduced our earnings in the respective periods.
Please see the comparison of our 2007 and 2006 earnings on pages 71 through 74 of this report for a discussion of certain
gains and charges that increased/reduced our earnings in the respective periods.
The 2005 amount includes a pre-tax merger-related charge of $36.6 million, recorded in operating expenses, which
resulted in an after-tax charge of $34.0 million, or $0.13 per diluted share.
The 2004 amount includes a $157.2 million pre-tax loss on the sale of securities in connection with the repositioning of the
balance sheet, and an $8.2 million pre-tax charge for the other-than-temporary impairment of certain perpetual preferred
FNMA securities, both of which were recorded in non-interest (loss) and resulted in a combined after-tax loss of $99.9
million, or $0.37 per diluted share.
Excludes unallocated Employee Stock Ownership Plan (“ESOP”) shares from the number of shares outstanding. Please
see “book value per share” in the Glossary earlier in this report.
36
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For the purpose of this discussion and analysis, the words “we,” “us,” “our,” and the “Company” are used
to refer to New York Community Bancorp, Inc. and our consolidated subsidiaries, including New York Community
Bank (the “Community Bank”) and New York Commercial Bank (the “Commercial Bank”) (collectively, the
“Banks”).
Executive Summary
The subprime crisis that began in mid-2007 evolved into a broad-based economic crisis in 2008. Against a
backdrop of declining values in the capital and real estate markets, our 2008 financial performance was highlighted
by the growth of our loan portfolio, the expansion of our net interest margin, and an increase in net interest income,
our primary earnings source.
While the details of our 2008 performance are discussed at length in the following pages, below is a brief
summary of the year’s achievements, and the impact on our performance of the weakened economy.
A Significant Level of Loan Production and Loan Growth
The decline in competition that began with the departure of the conduit lenders in the second half of 2007
continued with the departure of certain other major competitors in 2008. Capitalizing on the decline in competition,
we increased the volume of loans we produced to more traditional levels, together with the spreads on our multi-
family and commercial real estate (“CRE”) loans.
Loan originations totaled $5.9 billion in 2008, representing a 21.2% increase from $4.9 billion in the prior
year. Multi-family loans accounted for $3.2 billion of our 2008 originations and were up 29.8% from the year earlier
amount. With repayments having declined as refinancing activity dwindled, our loan portfolio grew 9.0% year-over-
year to $22.2 billion, partly reflecting an 11.9% increase in multi-family loans to $15.7 billion.
A Reduction in Funding Costs
In an attempt to encourage banks to lend and consumers to borrow, the Federal Open Market Committee (the
“FOMC”) reduced the target federal funds rate seven times in 2008, from a high of 4.25% at the start of January to a
range of zero to 0.25% on December 16th. We capitalized on the decline in short-term rates by reducing our cost of
funds over the course of the year.
In the second quarter of 2008, in particular, we prepaid $4.0 billion of wholesale and other borrowed funds
with an average interest rate of 5.19% and replaced them with $3.8 billion of lower-cost wholesale borrowings. The
debt repositioning resulted in a pre-tax charge of $325.0 million, of which $39.6 million was recorded as interest
expense. The remaining $285.4 million of the charge was recorded as non-interest expense.
While the after-tax impact of the $325.0 million charge reduced our second quarter and full-year earnings by
$199.2 million, or $0.60 per diluted share, the benefits of the debt repositioning were apparent in the third and fourth
quarters, when the resultant decline in our funding costs contributed to the expansion of our margin and a
meaningful increase in our net interest income.
Margin Expansion and Higher Net Interest Income
The combination of lower funding costs and increased loan production resulted in the expansion of our margin
and a significant level of net interest income growth in 2008. These accomplishments were achieved despite a 56.8%
reduction in prepayment penalty income, as fewer of our borrowers opted to refinance, and despite the impact of the
$39.6 million debt repositioning charge.
At 2.48%, our net interest margin was ten basis points wider than the year-earlier measure, and at $675.5
million, our net interest income was $59.0 million, or 9.6%, higher than the year-earlier amount. The benefit of our
loan growth and the reduction in funding costs is more readily apparent in a comparison of our margins and net
interest income for the fourth quarters of 2008 and 2007. At 2.87%, our fourth quarter 2008 margin was 51 basis
points wider than the year-earlier fourth quarter measure; at $201.6 million, our fourth quarter 2008 net interest
37
income was $47.2 million, or 30.6%, higher than the net interest income we recorded in the year-earlier three
months.
Asset Quality
Although the impact of the economic crisis was greater in other parts of the country, the region we serve
nonetheless experienced a decline in real estate values, a rise in unemployment and bankruptcies, and an increase in
office vacancies in 2008.
Against this backdrop, non-performing assets rose from $22.9 million, representing 0.07% of total assets, at
December 31, 2007, to $114.8 million, representing 0.35% of total assets, at December 31, 2008. Included in the
respective amounts were non-performing loans of $22.2 million and $113.7 million, representing 0.11% and 0.51%
of total loans. The increase in non-performing loans and assets was not specific to any one lending niche.
Net charge-offs rose to $6.1 million in 2008 from $431,000 in 2007, and represented 0.029% and 0.002% of
average loans in the respective years. Unlike the increase in non-performing loans, which was broad-based in nature,
the increase in net charge-offs was largely driven by losses on commercial and industrial (“C&I”), consumer, and
acquisition development, and construction (“ADC”) loans.
Notwithstanding the increases in our asset quality measures, we continued to compare favorably with our
industry peers.
In view of the decline in real estate values and the increasing weakness in the market, we limited our ADC
loan originations to advances that had been committed before the onset of the economic crisis, and also reduced the
size of our C&I loan portfolio. As a result, ADC and C&I loans represented 3.5% and 3.2% of total loans at the end
of December, as compared to 5.6% and 3.5%, respectively, at the prior year-end.
Capital Strength
On May 23, 2008, we issued 17,871,000 shares of common stock in an oversubscribed secondary common
stock offering, which generated net proceeds of $339.2 million. The capital raised in the offering more than offset
the reduction in capital that stemmed from the $199.2 million after-tax debt repositioning charge recorded in the
second quarter. In the second half of 2008, the repositioning of our debt contributed to the expansion of our net
interest margin and net interest income, and thus to the growth of our earnings and capital.
Stockholders’ equity rose $36.9 million year-over-year, to $4.2 billion, and represented 13.00% of total assets
at December 31, 2008, while tangible stockholders’ equity rose $61.3 million to $1.7 billion, representing 5.66% of
tangible assets at that date.
The growth of our stockholders’ equity and tangible stockholders’ equity was tempered by the distribution of
quarterly cash dividends totaling $333.5 million, and by two factors relating to the dramatic collapse of the capital
markets: a $22.4 million increase in net unrealized securities losses to $37.2 million, and a $43.6 million rise in the
unrecognized loss related to the funded status of our pension and post-retirement plans to $50.1 million. Excluding
the combined impact of these capital charges, tangible stockholders’ equity represented 5.94% of tangible assets at
December 31, 2008. (Please see the reconciliations of our stockholders equity and tangible stockholders’ equity,
total assets and tangible assets, and the related capital measures on page 76 of this report.)
In view of our continued capital strength, and our proven ability to raise capital when needed, we declined the
opportunity to accept an infusion of capital under the Capital Purchase Program of the U.S. Treasury’s Troubled
Asset Relief Program (“TARP”) on January 13, 2009.
The Collapse of the Capital Markets
The collapse of the capital markets that began with the failure of Bear Stearns in March 2008 accelerated in
September with the demise of Lehman Brothers Holdings, Inc. (“Lehman Brothers”). What followed was an
economic decline of unparalleled proportions, as significant losses at several financial industry giants contributed to
an environment of fear and volatility.
38
The collapse of the capital markets also had an impact on industry earnings, as many of the nation’s banks and
thrifts had investments in Lehman Brothers, and other financial institutions, including the government-sponsored
enterprises, Freddie Mac and Fannie Mae. Our exposure to these firms was limited as compared to many others.
Nonetheless, we recorded a $42.4 million other-than-temporary impairment (“OTTI”) charge on our investments in
Lehman Brothers and a $5.0 million OTTI charge on our investment in Freddie Mac in 2008. Reflecting these and
certain other investments that were impacted by the broad decline in the capital markets, we recorded a total OTTI
charge of $104.3 million in 2008, as compared to $57.0 million in the prior year. On an after-tax basis, the charges
reduced our 2008 earnings by $62.7 million, or $0.19 per diluted share.
Our 2008 Earnings
While our net interest income rose and our net interest margin expanded from the year-earlier measures, the
favorable impact on our 2008 earnings was masked by the adverse impact of the debt repositioning charge we
recorded in the second quarter and the OTTI charges we recorded in the last three quarters of the year. The
combined charges reduced our full-year 2008 earnings by $261.9 million to $77.9 million, and reduced our full-year
basic and diluted earnings per share by $0.79 to $0.23.
Government Intervention
To energize the economy and foster stability in the financial and capital markets, a series of new laws were
enacted by Congress and implemented by various U.S. Government agencies beginning in 2008. While we chose not
to participate in the U.S. Treasury’s Capital Purchase Program, despite our application having received approval, we
opted into both components of the FDIC’s Temporary Liquidity Guarantee Program (the “TLGP”). Under the
TLGP, non-interest-bearing transaction accounts will receive unlimited insurance coverage through the end of this
coming December, and certain senior unsecured debt issued between October 13, 2008 and June 30, 2009 will be
guaranteed by the FDIC through June 30, 2012. In December 2008, we issued $90.0 million of fixed rate senior
notes that will mature in June 2012, and the Community Bank issued an additional $512.0 million of senior notes
that will mature in December 2011. The notes are backed by the full faith and credit of the United States.
While the FDIC raised the level of deposits it insures from $100,000 to $250,000 per account in 2008, to calm
the fears of an increasingly unsettled public, it also increased the assessment fees paid by banks, beginning in 2009.
The increased fees will be in addition to an annual assessment rate of 100 basis points on the senior notes issued
under the TLGP in December, and will increase our operating expenses in 2009.
Recent Events
TARP Funds Declined
On January 13, 2009, the Board of Directors declined a capital infusion that had been offered on
December 31, 2008 by the U.S. Treasury under the Capital Purchase Program of the TARP of the Emergency
Economic Stabilization Act of 2008.
Dividend Declaration
On January 26, 2009, the Board of Directors declared a quarterly cash dividend of $0.25 per share, payable on
February 17, 2009 to shareholders of record at the close of business on February 6, 2009.
Critical Accounting Policies
We have identified the accounting policies below as being critical to understanding our financial condition and
results of operations. Certain accounting policies are considered to be critically important to the portrayal of our
financial condition, since they require management to make complex or subjective judgments, some of which may
relate to matters that are inherently uncertain. The inherent sensitivity of our consolidated financial statements to
these critical accounting policies, and the judgments, estimates, and assumptions used therein, could have a material
impact on our financial condition or results of operations.
We have identified the following to be critical accounting policies: the determination of the allowance for loan
losses; the determination of whether an impairment on securities is other-than-temporary; the determination of the
amount, if any, of goodwill impairment; and the valuation allowance for deferred tax assets.
39
The judgments used by management in applying the critical accounting policies discussed below may be
affected by a further and prolonged deterioration in the economic environment, which may result in changes to
future financial results.
Allowance for Loan Losses
The allowance for loan losses is increased by provisions for loan losses that are charged against earnings, and
is reduced by net charge-offs and/or reversals, if any, that are credited to earnings. A separate loan loss allowance is
established for the Community Bank and the Commercial Bank and, except as otherwise noted below, the process
for establishing the allowance for loan losses is the same for each.
Management establishes the allowances for loan losses through an assessment of probable losses in each of
the respective loan portfolios. Several factors are considered in this process, including the level of defaulted loans at
the close of each quarter; recent trends in loan performance; historical levels of loan losses; the factors underlying
such loan losses and loan defaults; projected default rates and loss severities; internal risk ratings; loan size;
economic, industry, and environmental factors; and loan impairment, as defined under 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.”
Under SFAS No. 114, a loan is classified as “impaired” when, based on current information and events, it is
probable that we will be unable to collect both the principal and interest due under the contractual terms of the loan
agreement. We apply SFAS No. 114 as necessary to certain larger multi-family; CRE; ADC; and C&I loans, and
exclude smaller balance homogenous loans and loans carried at the lower of cost or fair value, if any. We measure
impairment of a collateral-dependent loan based on the fair value of the collateral, less the estimated cost to sell. For
loans that are not collateral-dependent, impairment is measured by using the present value of expected cash flows,
discounted at the loan’s effective interest rate.
A valuation allowance is established when the fair value of the collateral, net of estimated costs, or the present
value of the expected cash flows is less than the recorded investment in the loan. Impaired loans totaled $63.4
million at December 31, 2008; we had no impaired loans at December 31, 2007.
In addition, the process of determining the appropriate levels for the Banks’ loan loss allowances for those
loans not considered for impairment under SFAS No. 114 includes, but is not limited to:
1. Periodic inspections of the loan collateral by qualified in-house property appraisers/inspectors, as
applicable;
2. Regular meetings of executive management with the pertinent Board committee, during which observable
trends in the local economy and/or the real estate market are discussed;
3. Assessment by the pertinent Board of Directors of the aforementioned factors when making a business
judgment regarding the impact of anticipated changes of the future level of the allowance for loan losses;
and
4. Analysis of the portfolio in the aggregate, as well as on an individual loan basis, taking into consideration
payment history, underwriting analyses, and internal risk ratings.
In establishing the loan loss allowances, management also considers the Banks’ current business strategies and
credit processes, including compliance with conservative guidelines established by the respective Boards of
Directors with regard to credit limitations, loan approvals, underwriting criteria, and loan workout procedures.
In accordance with the pertinent policies, the loan loss allowances are segmented to correspond to the various
types of loans in the loan portfolios. These loan categories are assessed with specific emphasis on the internal risk
ratings, underlying collateral, credit underwriting, and loan type, and these factors correspond to the respective
levels of quantified and inherent risk.
The assessments take into consideration loans that have been adversely rated, primarily through the valuation
of the collateral supporting each loan. “Adversely rated” loans are loans that are either non-performing or that
exhibit certain weaknesses that could jeopardize payment in accordance with the original terms. Larger loans are
assigned risk ratings based upon a periodic review of the credit files, while smaller loans exceeding 90 days in
40
arrears are assigned risk ratings based upon an aging schedule. Quantified risk factors are assigned for each risk-
rating category to provide an allocation to the overall loan loss allowance.
The remainder of each loan portfolio is then assessed, by loan type, with similar risk factors being considered,
including the borrower’s ability to pay and our past loan loss experience with each type of loan. These loans are also
assigned quantified risk factors, which result in allocations to the allowances for loan losses for each particular loan
or loan type in the portfolio.
In order to determine their overall adequacy, each of the respective loan loss allowances is reviewed quarterly
by management and by the Mortgage and Real Estate Committee of the Community Bank’s Board of Directors or
the Credit Committee of the Board of Directors of the Commercial Bank, as applicable.
While management uses the best available information to recognize losses on loans, future additions to the
respective loan loss allowances may be necessary, based on changes in economic and local market conditions
beyond management’s control, including declines in real estate values, and increases in vacancy rates and
unemployment. In addition, the Community Bank and/or the Commercial Bank may be required to take certain
charge-offs and/or recognize additions to their loan loss allowances, based on the judgment of regulatory agencies
with regard to information provided to them during their examinations.
We recognize interest income on loans using the interest method over the life of the loan. Using this method,
we defer certain loan origination and commitment fees, and certain loan origination costs, and amortize the net fee
or cost as an adjustment to the loan yield over the term of the related loan. When a loan is sold or repays, the
remaining net unamortized fee or cost is recognized in interest income.
A loan generally is classified as a “non-accrual” loan when it is 90 days past due. When a loan is placed on
non-accrual status, the Company ceases the accrual of interest owed, and previously accrued interest is charged
against interest income. A loan is generally returned to accrual status when the loan is less than 90 days past due
and/or the Company has reasonable assurance that the loan will be fully collectible. Interest income on non-accrual
loans is recorded when received in cash.
Investment Securities
The securities portfolio primarily consists of mortgage-related securities and, to a lesser extent, debt and
equity (“other”) securities. Securities that are classified as “available for sale” are carried at their estimated fair
value, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income or
loss in stockholders’ equity. Securities that we have the positive intent and ability to hold to maturity are classified
as “held to maturity” and carried at amortized cost.
The fair values of our securities—and particularly our fixed-rate securities—are affected by changes in market
interest rates and spreads. In general, as interest rates rise, the fair value of fixed-rate securities will decline; as
interest rates fall, the fair value of fixed-rate securities will increase. We conduct a periodic review and evaluation of
the securities portfolio to determine if the decline in the fair value of any security below its carrying value is other
than temporary. If we deem any decline in value to be other than temporary, the security is written down to its
current fair value, creating a new cost basis, and the resultant loss is charged against earnings and recorded in non-
interest income.
At December 31, 2008, the net unrealized losses on available-for-sale and held-to-maturity securities were
$54.3 million and $63.2 million, respectively. This impairment was deemed to be temporary based on the direct
relationship of the decline in fair value to the movements in interest rates, including wider credit spreads in some
cases; the effect of illiquidity on the market; the estimated remaining life and the credit quality of the investments;
and our ability and intent to hold these investments until there is a full recovery of the unrealized loss, which may
not be until maturity.
During 2008, we recorded charges of $104.3 million for the OTTI of certain capital trust notes, equity
securities, and corporate bonds. Included in this amount were charges of $42.4 million relating to our investment in
the corporate bonds and perpetual preferred stock of Lehman Brothers, and $5.0 million relating to our investment in
Freddie Mac perpetual preferred stock.
41
Management’s conclusion that these securities were other-than-temporarily impaired was based on the
significant decline in their fair values, and the unlikelihood of recovering the unrealized losses within a reasonable
period of time. To the extent that continued changes in interest rates, credit quality, and other factors that influence
the fair value of investments occur, we may be required to record additional charges for the OTTI of securities in
future periods.
Goodwill Impairment
Goodwill is presumed to have an indefinite useful life and is tested for impairment, rather than amortized, at
the reporting unit level, at least once a year. The goodwill impairment analysis is a two-step test. The first step
(“Step 1”) is used to identify potential impairment, and involves comparing each reporting unit’s estimated fair
value to its carrying value, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying
value, goodwill is considered not to be impaired. If the carrying value exceeds the estimated fair value, there is an
indication of potential impairment and the second step (“Step 2”) is performed to measure the amount.
Step 2 involves calculating an implied fair value of goodwill for each reporting unit for which impairment was
indicated in Step 1. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill
calculated in a business combination, i.e., by measuring the excess of the estimated fair value of the reporting unit,
as determined in Step 1, over the aggregate estimated fair values of the individual assets, liabilities, and identifiable
intangibles, as if the reporting unit was being acquired in a business combination at the impairment test date. If the
implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no
impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the
goodwill, an impairment charge is recorded for the excess. An impairment loss cannot exceed the carrying value of
goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of
goodwill impairment losses is not permitted.
According to SFAS No. 142, “Goodwill and Other Intangible Assets,” quoted market prices in active markets
are the best evidence of fair value and are to be used as the basis for measurement, when available. Other acceptable
valuation methods include present-value measurements based on multiples of earnings or revenues, or similar
performance measures. Differences in the identification of reporting units and in valuation techniques could result in
materially different evaluations of impairment.
For the purpose of goodwill impairment testing, management has determined that the Company has one
reporting unit. The Company performed its annual goodwill impairment test as of January 1, 2008, and determined
that the fair value of the reporting unit was in excess of its carrying value. Accordingly, as of the annual impairment
test date, there was no indication of goodwill impairment. The Company also performed its annual goodwill
impairment test as of January 1, 2009, and found no indication of goodwill impairment.
Historically, the Company has used the quoted market price of our common stock on the impairment test date
as the basis for determining fair value. As of January 1, 2009, the quoted market price of our common stock was
$11.96 per share, resulting in a market capitalization of $4.1 billion, as compared to a book value (common
stockholders’ equity) of $4.2 billion. Accordingly, management expanded the valuation methodology to also
incorporate a discounted cash flow analysis (“DCFA”). The DCFA utilized observable market data to the full extent
available. The discount rates utilized in the DCFA reflected market-based estimates of capital costs and discount
rates adjusted for management’s assessment of a market participant’s view with respect to execution, concentration,
and other risks associated with the projected cash flows. The results of the DCFA yielded a fair value of our
reporting unit that exceeded its book value. In addition to the DCFA, the Company considered the average market
price of its common stock for the one-month period subsequent to December 31, 2008, and found that the average
market price resulted in a market capitalization greater than the Company’s book value.
Furthermore, management utilized a market premium approach to determine if there was any indication of
goodwill impairment. This approach considers the market value of the Company’s common stock, and estimates the
fair value of the Company based on the market value of the stock plus a control premium, and compares that value
to the carrying amount of the Company’s stockholders’ equity. In determining the appropriate control premium,
management took several factors into consideration, among which were certain facts and circumstances unique to
the Company, as well as recent trends in market capitalization and control premiums of comparable transactions.
42
Income Taxes
We estimate income taxes payable based on the amount we expect to owe the various taxing authorities (i.e.,
federal, state, and local). Income taxes represent the net estimated amount due to, or to be received from, such taxing
authorities. In estimating income taxes, management assesses the relative merits and risks of the tax treatment of
transactions, taking into account statutory, judicial, and regulatory guidance in the context of our tax position. In this
process, management also relies on tax opinions, recent audits, and historical experience. Although we use the best
available information to record income taxes, underlying estimates and assumptions can change over time as a result
of unanticipated events or circumstances such as changes in tax laws and judicial guidance influencing our overall or
transaction-specific tax position.
We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and
the carryforward of certain tax attributes such as net operating losses. A valuation allowance is maintained for
deferred tax assets that we estimate are more likely than not to be unrealizable, based on available evidence at the
time the estimate is made. In assessing the need for a valuation allowance, we estimate future taxable income,
considering the feasibility of tax planning strategies and the realizability of tax loss carryforwards. Valuation
allowances related to deferred tax assets can be affected by changes to tax laws, statutory tax rates, and future
taxable income levels. In the event that we were to determine that we would not be able to realize all or a portion of
our net deferred tax assets in the future, we would reduce such amounts through a charge to income tax expense in
the period in which that determination was made. Conversely, if we were to determine that we would be able to
realize our deferred tax assets in the future in excess of the net carrying amounts, we would decrease the recorded
valuation allowance through a decrease in income tax expense in the period in which that determination was made.
Subsequently recognized tax benefits associated with valuation allowances recorded in a business combination
would be recorded as an adjustment to goodwill.
Balance Sheet Summary
Driven by a $1.8 billion, or 9.0%, increase in loans outstanding, total assets rose $1.9 billion, or 6.2%, year-
over-year to $32.5 billion at December 31, 2008. In addition to the increase in loans—a result of organic loan
production—the growth of our assets reflects a $157.6 million increase in securities.
Liabilities rose $1.9 billion year-over-year, to $28.2 billion, as deposits increased by $1.1 billion to $14.3
billion and borrowed funds increased by $581.0 million to $13.5 billion at December 31, 2008.
Stockholders’ equity rose $36.9 million year-over-year, to $4.2 billion, and represented 13.00% of total assets
at December 31, 2008. Excluding goodwill and core deposit intangibles, net, from the calculation, our tangible
stockholders’ equity rose $61.3 million year-over-year to $1.7 billion, representing 5.66% of tangible assets at that
date. (Please see the reconciliations of stockholders’ equity and tangible stockholders’ equity and the related
measures that appear on page 76 of this report.)
Loans
In 2008, we capitalized on a decline in competition to increase our loan production and to widen the spreads
on our multi-family and CRE loans. While competition began to decline in the previous year, at the start of the
subprime crisis, the dramatic changes that followed in the credit and capital markets provided us with an opportunity
to grow our loan portfolio. Loan originations totaled $5.9 billion during the year, and were up $1.0 billion, or 21.2%,
from the year-earlier amount.
As a result, the loan portfolio grew $1.8 billion, or 9.0%, year-over-year, to $22.2 billion, representing 68.4%
of total assets, at December 31, 2008.
Loan growth was supported by a decline in repayments, as the volatility in the financial markets discouraged
refinancing activity. Repayments totaled $4.1 billion in 2008, representing a $2.8 billion reduction from the level
recorded in the prior year.
43
Loan Origination Analysis
The following table summarizes our loan production for the years ended December 31, 2008 and 2007:
(dollars in thousands)
Mortgage Loan Originations:
Multi-family
Commercial real estate
Acquisition, development, and construction
1-4 family
Total mortgage loan originations
Other loan originations(1)
Total loan originations
For the Years Ended December 31,
2007
2008
Amount
$3,200,364
1,135,833
372,987
52,540
4,761,724
1,119,210
$5,880,934
Percent
of Total
54.42%
19.31
6.34
0.90
80.97
19.03
100.00%
Amount
$2,465,492
695,252
548,352
66,321
3,775,417
1,077,096
$4,852,513
Percent
of Total
50.81%
14.33
11.29
1.37
77.80
22.20
100.00%
(1)
Includes C&I loan originations of $1.1 billion and $1.0 billion in the twelve months ended December 31, 2008 and 2007,
respectively.
Multi-family Loans
Consistent with our emphasis on multi-family lending, multi-family loans represented $15.7 billion, or 70.9%,
of total loans at December 31, 2008 and were up $1.7 billion, or 11.9%, from the balance recorded at the prior year-
end. Multi-family loans accounted for $3.2 billion, or 54.4%, of our 2008 loan production, exceeding the year-
earlier volume by $734.9 million, or 29.8%. At December 31, 2008, the average multi-family loan had a balance of
$3.9 million and the portfolio had an average loan-to-value (“LTV”) ratio of 61.2%.
The increase in production was supported by the dramatic changes in our market. While the departure of the
conduit lenders brought a return to more rational pricing and production levels in the second half of 2007, the exit of
other major competitors and the conservatorship of Fannie Mae and Freddie Mac enabled us to significantly step up
our lending, and to price our loans at substantially wider spreads, in 2008.
Multi-family loans are typically made to long-term owners of buildings with apartments that are subject to
certain rent-control and –stabilization laws. The funds we lend are typically used by the borrowers to make
improvements to the buildings and the apartments within them. Upon completion of the improvements, the property
owners have the right to increase the rents paid by the tenants and, in doing so, create more cash flows to borrow
against in future years.
In addition to underwriting a multi-family loan on the basis of the building’s income and condition, we
consider the borrower’s credit history, profitability, and building management expertise. Borrowers are required to
present evidence of their ability to repay the loan from the building’s current rent rolls, their financial statements,
and related documents.
Our multi-family loans typically feature a term of ten years, with a fixed rate of interest for the first five years
of the loan, and an alternative rate of interest in years six through ten. The rate charged in the first five years is
generally based on the five-year Constant Maturity Treasury rate (the “five-year CMT”) plus a spread. During years
six through ten, the borrower has the option of selecting an annually adjustable rate that is tied to the prime rate of
interest, as reported in The New York Times, plus a spread, or a fixed rate that is tied to the five-year CMT, plus a
spread. For new originations, the fixed rate is now tied to the fixed advance rate of the Federal Home Loan Bank of
New York (the “FHLB-NY”) plus a spread. The fixed-rate option also requires the payment of an amount equal to
one percentage point of the then-outstanding loan balance. The minimum rate at repricing is equivalent to the rate in
the initial five-year term.
As the rent roll increases, the typical property owner seeks to refinance the mortgage, and generally does so
before the loan reprices in year six. While this cycle has repeated itself over the course of many decades, regardless
of market interest rates and conditions, refinancing activity was constrained throughout 2008 as economic
uncertainty increased, and may continue to be restrained while such uncertainty remains. Reflecting our current
portfolio, the expected weighted average life of the multi-family loan portfolio was 3.8 years at December 31, 2008.
44
Multi-family loans that refinance within the first five years are typically subject to an established prepayment
penalty schedule. Depending on the remaining term of the loan at the time of prepayment, the penalties normally
range from five percentage points to one percentage point of the then-current loan balance.
Our emphasis on multi-family loans is driven by several factors, including their structure, which reduces our
exposure to interest rate volatility to some degree. Another factor driving our focus on multi-family lending has been
the quality of the loans in our specific niche.
We primarily underwrite our multi-family loans based on the current cash flows produced by the building,
with a reliance on the income method of appraising the properties, rather than the sales approach. The sales
approach is subject to fluctuations in the real estate market, as well as general economic conditions, and is therefore
liable to be more risky in the event of a downward credit cycle turn. We also consider a variety of other factors,
including the physical condition of the underlying property; the net operating income of the mortgaged premises
prior to debt service and depreciation; the debt service coverage ratio, which is the ratio of the property’s net
operating income to its debt service; and the ratio of the loan amount to the appraised value of the property. The
multi-family loans we are originating today generally represent no more than 75% of the lower of the appraised
value or the sales price of the underlying property, and typically feature an amortization period of up to 30 years. In
addition to requiring a minimum debt service coverage ratio of 120% on multi-family buildings, we require a
security interest in the personal property at the premises, and an assignment of rents and leases.
While our multi-family lending niche has not been immune to the impact of the widespread economic
weakness, we believe that the multi-family loans we produce involve less credit risk than certain other types of
loans. In general, buildings that are subject to rent regulation have tended to be stable, with occupancy levels
remaining more or less constant over time. Because the rents are typically below market and the buildings securing
our loans are generally maintained in good condition, we believe that they are reasonably likely to retain their
tenants in adverse economic times. Nonetheless, the continued weakening of the economy in New York City could
result in an increase in non-performing multi-family loans.
Our success in this particular niche also reflects the solid relationships we have developed with the market’s
leading mortgage brokers, who are familiar with our lending practices, our underwriting standards, and our long-
standing practice of basing our loans on the cash flows produced by the properties. Because the multi-family market
is largely broker-driven, the process of producing such loans is significantly expedited, with loans taking four to six
weeks to process, and the related expenses substantially reduced.
At December 31, 2008, $14.7 billion, or 93.4%, of our multi-family loans were secured by rental apartment
buildings, with the remainder of the portfolio being secured by underlying mortgages on cooperative apartment
buildings. In addition, 74.2% of our multi-family loans were secured by buildings in New York City, with
Manhattan accounting for the largest share. Outside New York City, the State of New York was home to 5.8% of
our multi-family credits, with New Jersey and Pennsylvania accounting for 9.6% and 4.3%, respectively. The
remaining 6.1% of multi-family loans were secured by buildings outside our primary market, many of which are
owned by borrowers we have made loans to successfully within our local marketplace.
Commercial Real Estate (“CRE”) Loans
Loan growth was also fueled by an increase in CRE lending, as originations rose to $1.1 billion in 2008 from
$695.3 million in the prior year. CRE loans represented $4.6 billion, or 20.5%, of total loans at the end of December,
up $725.2 million, or 18.9%, from the year-earlier amount. At December 31, 2008, the average CRE loan had a
principal balance of $2.5 million and the portfolio had an average LTV ratio of 55.2%.
At December 31, 2008, 57.9% of our CRE loans were secured by properties in New York City, with
properties on Long Island and in New Jersey accounting for 17.7% and 12.6%, respectively. The CRE loans we
produce are secured by income-producing properties such as office buildings, retail centers, mixed-use buildings,
and multi-tenanted light industrial properties.
The pricing of our CRE loans is structured along the same lines as our multi-family credits, i.e., with a fixed
rate of interest for the first five years of the loan that is generally tied to the five-year CMT, plus a spread. For years
six through ten, the borrower generally has the option of selecting an annually adjustable rate that is based on the
prime rate of interest, or a fixed rate that is tied to the five-year CMT, plus a spread. For new CRE loan originations,
45
the fixed rate is now tied to the fixed advance rate of the FHLB-NY, plus a spread. The fixed-rate option also
requires the payment of one percentage point of the then-outstanding loan amount. The minimum rate at repricing is
equivalent to the rate featured in the initial five-year term.
Prepayment penalties also apply, with five percentage points of the then-current balance generally being
charged on loans that refinance in the first year, scaling down to one percentage point of the then-current balance on
loans that refinance in year five. Our CRE loans tend to refinance within five years of origination. Accordingly, the
expected weighted average life of the portfolio was 3.4 years at December 31, 2008.
The repayment of loans secured by commercial real estate is often dependent on the successful operation and
management of the underlying properties. To minimize our credit risk, we originate CRE loans in adherence with
conservative underwriting standards, and require that such loans qualify on the basis of the property’s current
income stream and debt service coverage ratio. The approval of a loan also depends on the borrower’s credit history,
profitability, and expertise in property management, and generally requires a debt service coverage ratio of 130%
and a maximum LTV ratio of 65%. In addition, the origination of CRE loans typically requires a security interest in
the personal property of the borrower and/or an assignment of the rents and/or leases.
Acquisition, Development, and Construction (“ADC”) Loans
While the growth of our loan portfolio was fueled by multi-family and CRE lending, the increases in these
portfolios were tempered by a reduction in ADC loans. As real estate values declined and the number of single
family homes for sale increased, we generally limited our ADC loan originations to advances that were committed
prior to the onset of the credit cycle turn. As a result, originations declined by $175.4 million, or 32.0%, from the
year-earlier volume to $373.0 million in 2008. ADC loans represented $778.4 million, or 3.5%, of total loans at
December 31, 2008, representing a 31.7% reduction from $1.1 billion, or 5.6% of total loans, at the prior year-end.
At December 31, 2008, 68.5% of the loans in the portfolio were for properties in New York City, with
Manhattan accounting for more than half of New York City’s share. Long Island accounted for 18.0% of our ADC
loans, with other parts of New York State and New Jersey accounting for 8.8%, combined. Limited ADC lending is
done outside our immediate market and, even then, to borrowers we have lent to successfully within our
marketplace.
The projects we have financed have primarily been for land acquisition, development, and construction of
multi-family and residential tract projects, and, to a lesser extent, for the construction of owner-occupied one-to
four-family homes and commercial properties. Such loans are typically originated for terms of 18 to 24 months, and
feature a floating rate of interest tied to prime, and a floor. They also generate origination fees that are recorded as
interest income and amortized over the life of the loan.
Because ADC loans are generally considered to have a higher degree of credit risk, borrowers are required to
provide a personal guarantee of repayment and completion during construction. The risk of loss on an ADC loan is
largely dependent upon the accuracy of the initial estimate of the property’s value upon completion of construction,
as compared to the estimated cost of construction, including interest, and the estimated time to sell or lease such
property. If the estimate of value proves to be inaccurate, or the length of time to sell or lease the property is greater
than anticipated, the property could have a value upon completion that is insufficient to assure full repayment of the
loan.
When applicable, it has been our practice to require that residential properties be pre-sold or that borrowers
secure permanent financing commitments from a recognized lender for an amount equal to, or greater than, the
amount of our loan. In some cases, we ourselves may provide permanent financing. We typically have required pre-
leasing for ADC loans on commercial properties.
One- to Four-Family Loans
One- to four-family loans represented $266.3 million, or 1.2%, of total loans outstanding at December 31,
2008, as compared to $380.8 million, representing 1.9%, at the prior year-end. The decrease reflects repayments and
the first quarter 2008 securitization of one- to four-family loans totaling $71.3 million that had been acquired in our
transaction with Synergy Financial Group, Inc. (“Synergy”) in October 2007. None of the one- to four-family loans
in our portfolio are subprime or Alt-A loans.
46
We originate one- to four-family loans on a pass-through basis, and sell the loans servicing-released and
without recourse, to a third-party conduit shortly after the loans are closed. Each loan that we originate through the
conduit program generates fees that are recorded as “other non-interest income” in our Consolidated Statements of
Income and Comprehensive Income.
In connection with this practice, which was adopted on December 1, 2000, we participate in a private-label
program with a nationally recognized third-party mortgage originator (the “conduit”), based on defined underwriting
criteria. The loans are marketed through our branch network, as well as on our web site. In addition, dedicated loan
representatives are available to meet with our customers and assist them with the application process.
In addition to ensuring that our customers are provided with an extensive range of one- to four-family
products, the conduit arrangement supports two of our primary objectives: managing our exposure to interest rate
risk and maintaining our efficiency.
Other Loans
Notwithstanding a $42.1 million rise in originations to $1.1 billion, other loans represented $873.4 million, or
3.9%, of total loans at December 31, 2008, as compared to $965.2 million, or 4.7% of total loans, at the prior year-
end.
C&I loans accounted for $713.1 million and $705.8 million of other loans at December 31, 2008 and 2007,
respectively, and for $1.1 billion and $1.0 billion of loans produced in the corresponding years.
C&I loans are tailored to meet the specific needs of our borrowers, and include term loans, demand loans,
revolving lines of credit, letters of credit, and loans that are partly guaranteed by the Small Business Administration.
A broad range of C&I loans, both collateralized and unsecured, are made available to businesses for working capital
(including inventory and accounts receivable), business expansion, the purchase of machinery and equipment, and
other general corporate needs. In determining the tenor and structure of a C&I loan, several factors are considered,
including its purpose, the collateral, and the anticipated sources of repayment. C&I loans are typically secured by
business assets and personal guarantees of the borrower, and include financial covenants to monitor the borrower’s
financial stability.
The interest rates on C&I loans can be fixed or floating, with floating rate loans being tied to prime or some
other market index, plus an applicable spread. Given the changes in interest rates in recent quarters, our floating rate
loans are increasingly featuring a floor rate of interest as well.
A benefit of C&I lending is the opportunity to establish full-scale banking relationships with our C&I
customers. As a result, many of our borrowers are now providing us with deposits, and many are taking advantage
of our cash management, investment, and trade finance services.
The remainder of the portfolio of other loans consists primarily of home equity loans and lines of credit, as
well as a variety of consumer loans, most of which were originated by our merger partners prior to their joining the
Company. We currently do not offer home equity loans or lines of credit.
47
Geographical Analysis of the Loan Portfolio
The following table presents a geographical analysis of our multi-family, CRE, and ADC loan portfolios at
December 31, 2008:
Multi-Family Loans
(dollars in thousands)
New York City:
Manhattan
Brooklyn
Bronx
Queens
Staten Island
Total New York City
Long Island
Other New York State
New Jersey
Pennsylvania
All other states
Total
Amount
$ 4,923,443
2,847,334
2,081,866
1,705,995
116,335
$11,674,973
445,044
469,187
1,505,859
671,549
961,652
$15,728,264
Percent
of Total
31.30%
18.10
13.24
10.85
0.74
74.23%
2.83
2.98
9.58
4.27
6.11
100.00%
At December 31, 2008
Commercial
Real Estate Loans
Amount
Percent
of Total
Acquisition, Development,
and Construction Loans
Percent
of Total
Amount
$1,575,745
315,918
201,080
512,243
29,070
$2,634,056
807,096
110,810
574,080
264,158
163,350
$4,553,550
34.60%
6.94
4.42
11.25
0.64
57.85%
17.72
2.43
12.61
5.80
3.59
100.00%
$303,260
87,755
14,258
92,050
36,072
$533,395
140,290
9,945
58,534
--
36,200
$778,364
38.96%
11.27
1.83
11.83
4.64
68.53%
18.02
1.28
7.52
--
4.65
100.00%
48
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9
4
Lending Authority
The loans we originate are subject to federal and state laws and regulations, and are underwritten in
accordance with loan underwriting policies and procedures approved by the Mortgage and Real Estate Committee of
the Board of Directors of the Community Bank (the “Mortgage Committee”), the Credit Committee of the Board of
Directors of the Commercial Bank (the “Credit Committee”), and the respective Boards of Directors as a whole.
In addition to the loans that we ourselves have originated, the portfolio includes loans that were acquired in
our various business combinations.
In accordance with the Banks’ policies, all loans of $10.0 million or more must be reported to the respective
Boards of Directors. In 2008, 104 of such loans were originated by the Banks, with an aggregate loan balance of
$2.7 billion at origination. In the prior year, 64 of such loans were originated by the Banks with an aggregate loan
balance at origination of $2.1 billion.
In addition, we place a limit on the amount of loans that may be made to one borrower. At December 31,
2008, the largest concentration of loans to one borrower consisted of a $480.0 million multi-family loan provided by
the Community Bank to Riverbay Corporation—Co-op City, a residential community with 15,372 units in the
Bronx, New York, which was created under New York State’s Mitchell-Lama Housing Program in the late 1960s to
provide affordable housing for middle-income residents of the State. The loan was originated on September 30,
2004 at an interest rate of 5.20%, which is scheduled to reprice to 6.20% on October 1, 2009. The loan has been
current since its origination.
Loan Maturity and Repricing Analysis
The following table sets forth the maturity or period to repricing of our loan portfolio at December 31, 2008.
Loans that have adjustable rates are shown as being due in the period during which the interest rates are next subject
to change.
Mortgage and Other Loans at
December 31, 2008
Multi-
Family
Commercial
Real Estate
Acquisition,
Development,
and Construction
One- to Four-
Family
Other
Total
Loans
$ 2,822,374
$ 500,247
$754,796
$ 24,350
$622,272 $ 4,724,039
11,272,338
1,633,552
3,042,199
1,011,104
12,905,890
4,053,303
9,362
14,206
23,568
69,438
172,519
161,785
89,382
14,555,122
2,920,763
241,957
251,167
17,475,885
$15,728,264
$4,553,550
$778,364
$266,307
$873,439 $22,199,924
(in thousands)
Amount due:
Within one year
After one year:
One to five years
Over five years
Total due or repricing
after one year
Total amounts due or
repricing, gross
The following table sets forth, as of December 31, 2008, the dollar amount of all loans due after December 31,
2009, and indicates whether such loans have fixed or adjustable rates of interest.
(in thousands)
Mortgage Loans:
Multi-family
Commercial real estate
Acquisition, development, and construction
1-4 family
Total mortgage loans
Other loans
Total loans
Due after December 31, 2009
Adjustable
Total
Fixed
$1,837,815
1,158,132
23,568
169,579
3,189,094
232,761
$3,421,855
$11,068,075
2,895,171
--
72,378
14,035,624
18,406
$14,054,030
$12,905,890
4,053,303
23,568
241,957
17,224,718
251,167
$17,475,885
50
Outstanding Loan Commitments
At December 31, 2008, we had outstanding loan commitments of $1.0 billion, including commitments to
originate $188.1 million of multi-family loans; $76.0 million of CRE loans; $250.0 million of ADC loans; and
$494.5 million of other loans, including $402.5 million of unadvanced lines of credit. Commitments to originate
one- to four-family loans totaled $27.1 million at December 31, 2008.
In addition to these loan commitments, we had commitments to issue financial stand-by, performance, and
commercial letters of credit of $23.4 million, $16.7 million, and $22.6 million, respectively, at year-end. The
commitments featured terms ranging from one to three years. Financial stand-by letters of credit obligate us to
guarantee payment of a specific financial obligation on behalf of certain borrowers, while performance stand-by
letters of credit obligate us to make payments in the event that a specified third party fails to perform under certain
non-financial contractual obligations. Commercial letters of credit act as a means of ensuring payment to a seller
upon shipment of goods to a buyer. Although commercial letters of credit are used to effect payment for domestic
transactions, the majority are used to settle payments in international trade. Typically, such letters of credit require
presentation of documents that describe the commercial transaction, and provide evidence of shipment and the
transfer of title.
The fees we collect in connection with the issuance of letters of credit are included in “fee income” in the
Consolidated Statements of Income and Comprehensive Income. Please see “Contractual Obligations and Off-
balance-sheet Commitments” later in this report for a further discussion of financial stand-by, performance, and
commercial letters of credit.
Asset Quality
The credit cycle turn that began with the subprime crisis in 2007 evolved into a broad-based economic decline
in 2008. While we experienced an increase in net charge-offs and non-performing loans, the degree to which we
were impacted by the mounting economic crisis was modest by comparison with many of our peers.
Net charge-offs rose to $6.1 million in 2008 from $431,000 in 2007, and represented 0.029% and 0.002% of
average loans, at the respective dates. While the net charge-offs we recorded in the prior year consisted of C&I and
consumer loans, our 2008 net charge-offs consisted primarily of C&I, consumer, and ADC loans.
Non-performing loans totaled $113.7 million and $22.2 million, respectively, at December 31, 2008 and 2007,
and represented 0.51% and 0.11% of total loans at the corresponding dates. The increase in non-performing loans
was attributable to an $87.0 million rise in non-accrual mortgage loans to $101.9 million and a $4.5 million rise in
non-accrual other loans to $11.8 million, year-over-year. The increase in non-accrual mortgage loans was also
broad-based in nature, without any specific loan type dominating the mix.
A loan generally is classified as a “non-accrual” loan when it is 90 days past due. When a loan is placed on
non-accrual status, we cease the accrual of interest owed, and previously accrued interest is reversed and charged
against interest income. A loan is generally returned to accrual status when the loan is less than 90 days past due and
we have reasonable assurance that the loan will be fully collectible.
Non-performing loans are reviewed regularly by management and reported on a monthly basis to the
Mortgage Committee, the Credit Committee, and the Boards of Directors of the Banks. When necessary, non-
performing loans are written down to their current appraised values, less certain transaction costs. Outside counsel
with experience in foreclosure proceedings are retained to institute such action with regard to borrowers who are
delinquent in repaying their loans.
Properties that are acquired through foreclosure are classified as “other real estate owned,” and recorded at the
lower of the unpaid principal balance or fair value at the date of acquisition, less the estimated cost of selling the
property. At December 31, 2008, other real estate owned consisted of three properties totaling $1.1 million, as
compared to five properties totaling $658,000 at the prior year-end. Other real estate owned is typically titled in the
name of a wholly-owned bank subsidiary.
It is our policy to require an appraisal of properties classified as other real estate owned shortly before
foreclosure and to re-appraise the properties on an as-needed basis until they are sold. We dispose of such properties
51
as quickly and prudently as possible, given current market conditions and the property’s condition, and are in the
process of marketing the properties that comprised our other real estate owned at year-end.
Reflecting the levels of non-performing loans and other real estate owned recorded, non-performing assets
rose $92.0 million year-over-year to $114.8 million, representing 0.35% of total assets at December 31, 2008.
To mitigate the potential for credit risk, we underwrite our loans in accordance with prudent credit standards.
In the case of multi-family and CRE loans, we look first at the consistency of the cash flows being generated to
determine the property’s economic value, and then at the market value of the property that collateralizes the loan.
The amount of the loan is then based on the lower of the two values, with the economic value more typically being
used.
The condition of the collateral property is another critical factor. Multi-family buildings and CRE properties
are inspected from rooftop to basement as a prerequisite to approval by management and the Mortgage or Credit
Committee, as applicable. In addition, a member of the Mortgage or Credit Committee participates in inspections on
multi-family loans originated in excess of $4.0 million. Similarly, a member of the Mortgage or Credit Committee
participates in inspections on CRE loans in excess of $2.5 million. Furthermore, independent appraisers, whose
appraisals are carefully reviewed by our experienced in-house appraisal officers, perform appraisals on collateral
properties.
In addition, we work with a select group of mortgage brokers who are familiar with our credit standards and
whose track record with our lending officers typically exceeds ten years.
To further manage our credit risk, our lending policies limit the amount of credit granted to any one borrower
and typically require a minimum debt service coverage ratio of 120%, except for CRE loans, which generally
require a minimum ratio of 130%. Although we typically will lend up to 75% of the appraised value on multi-family
buildings and up to 65% on commercial properties, the average LTV ratios of such credits were below those
amounts at December 31, 2008. Exceptions to these LTV limitations are reviewed on a case-by-case basis, requiring
the approval of the Mortgage or Credit Committee, as applicable.
The Boards of Directors also take part in the ADC lending process, with all ADC loans requiring the approval
of the Mortgage or Credit Committee, as applicable. In addition, a member of the pertinent committee participates in
inspections when the loan amount exceeds $2.5 million. We believe that the ADC loans in our portfolio have been
prudently underwritten. In addition, they primarily have been made to well-established builders who have worked
with us or our merger partners in the past. We typically lend up to 75% of the estimated as-completed market value
of multi-family and residential tract projects; however, in the case of home construction loans to individuals, the
limit is 80%. With respect to commercial construction loans, which are not our primary focus, we typically lend up
to 65% of the estimated as-completed market value of the property.
Credit risk is also managed through the loan disbursement process. Loan proceeds are disbursed periodically
in increments as construction progresses, and as warranted by inspection reports provided to us by our own lending
officers and/or consulting engineers.
C&I loans are typically underwritten on the basis of the cash flows produced by the borrower’s business, and
are generally collateralized by various business assets, including, but not limited to, inventory, equipment, and
accounts receivable. As a result, the capacity of the borrower to repay is substantially dependent on the degree to
which the business is successful. Furthermore, the collateral underlying the loan may depreciate over time, may not
be conducive to appraisal, and may fluctuate in value, based upon the business’ results. Accordingly, personal
guarantees are also a normal requirement for C&I loans.
Our loan portfolio has been deliberately structured to manage our exposure to both credit and interest rate risk.
The vast majority of the loans in our portfolio are intermediate-term credits, with multi-family and CRE loans
typically repaying or refinancing within three to five years of origination, and the duration of ADC loans ranging up
to 36 months, with 18 to 24 months more the norm. Furthermore, our multi-family loans are largely secured by
buildings with rent-regulated apartments that tend to maintain a high level of occupancy, regardless of economic
conditions in our marketplace.
52
The procedures we follow with respect to delinquent loans are generally consistent across all categories, with
late charges assessed, and notices mailed to the borrower, at specified dates. We attempt to reach the borrower by
telephone to ascertain the reasons for delinquency and the prospects for repayment. When contact is made with a
borrower at any time prior to foreclosure or recovery against collateral property, we attempt to obtain full payment,
and will consider a repayment schedule to avoid taking such action.
While we strive to originate loans that will perform fully, the magnitude of the current economic crisis has
resulted in an increase in non-performing loans and assets to levels that exceed our traditional amounts. In addition,
the level of net charge-offs has increased. In view of the declining economy and the increase in non-performing
assets and net charge-offs, we increased our allowance for loan losses by recording a loan loss provision of $7.7
million in 2008. No provision for loan losses was recorded in the prior year. Reflecting the 2008 provision and the
aforementioned net charge-offs, our loan loss allowance rose from $92.8 million at December 31, 2007 to $94.4
million at December 31, 2008. The latter amount was equivalent to 83.0% of non-performing loans and 0.43% of
total loans at the same date.
The manner in which the allowance for loan losses is established, and the assumptions made in that process,
are considered critical to our financial condition and results. Such assumptions are based on judgments that are
difficult, complex, and subjective regarding various matters of inherent uncertainty. The current economic
environment has increased the degree of uncertainty inherent in these judgments. Accordingly, the policies that
govern our assessment of the allowance for loan losses are considered “Critical Accounting Policies” and are
discussed under that heading earlier in this report.
Based upon all relevant and available information, management believes that the allowance for loan losses at
December 31, 2008 was adequate at that date.
53
Asset Quality Analysis
The following table presents information regarding our consolidated allowance for loan losses and non-
performing assets at each year-end in the five years ended December 31, 2008:
(dollars in thousands)
Allowance for Loan Losses:
Balance at beginning of year
Charge-offs
Recoveries
Provision for loan losses
Allowance acquired in merger transactions
Balance at end of year
Non-performing Assets:
Non-accrual mortgage loans
Other non-accrual loans
Loans 90 days or more delinquent and still
accruing interest
Total non-performing loans
Other real estate owned
Total non-performing assets
Ratios:
2008
At December 31,
2006
2007
2005
2004
$92,794
$85,389
$79,705
$78,057
(6,168)
42
7,700
--
$94,368
(431)
--
--
7,836
$92,794
(420)
--
--
6,104
$85,389
(21)
--
--
1,669
$79,705
$78,293
(236)
--
--
--
$78,057
$101,932
11,765
$14,891
7,301
$18,072
3,131
$15,551
1,338
$23,567
4,581
--
113,697
1,107
$114,804
--
22,192
658
$22,850
--
21,203
1,341
$22,544
10,674
27,563
1,294
$28,857
--
28,148
566
$28,714
Non-performing loans to total loans
Non-performing assets to total assets
Allowance for loan losses to non-performing
loans
Allowance for loan losses to total loans
Net charge-offs during the period to average
loans outstanding during the period
0.51%
0.35
0.11%
0.07
0.11%
0.08
0.16%
0.11
0.21%
0.12
83.00
0.43
418.14
0.46
402.72
0.43
289.17
0.47
277.31
0.58
0.029
0.002
0.002
0.000
0.002
We had no “troubled debt restructurings,” as defined in SFAS No. 15, “Accounting by Debtors and Creditors
for Troubled Debt Restructurings,” at any of the dates presented in the preceding table.
54
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5
5
Securities
Securities represented $5.9 billion, or 18.2%, of total assets at December 31, 2008, as compared to $5.7
billion, or 18.8%, of total assets at December 31, 2007.
The investment policies of the Company and the Banks are established by the respective Boards of Directors
and implemented by their respective Investment Committees, in concert with the respective Asset and Liability
Management Committees. The Investment Committees generally meet quarterly or on an as-needed basis to review
the portfolios and specific capital market transactions. In addition, the securities portfolios are reviewed monthly by
the Boards of Directors as a whole. Furthermore, the policies guiding the Company’s and the Banks’ investments are
reviewed at least annually by the respective Investment Committees, as well as by the respective Boards. While the
policies permit investment in various types of liquid assets, neither the Company nor the Banks currently maintain a
trading portfolio.
Our general investment strategy is to purchase liquid investments with various maturities to ensure that our
overall interest rate risk position stays within the required limits of our investment policies. In view of the volatility
in the capital markets in 2008, we largely limited our investments during the year to government-sponsored
enterprise (“GSE”) obligations (defined as GSE certificates; GSE collateralized mortgage obligations (“CMOs”) and
GSE debentures), all of which are backed by the U.S. government. At December 31, 2008, 89.9% of our securities
portfolio consisted of GSE obligations. The remainder of the portfolio was comprised of triple A-rated private label
CMOs, corporate bonds, trust preferred securities, corporate equities, and municipal obligations. We have no
investments that are backed by subprime or Alt-A loans.
Depending on management’s intent at the time of purchase, securities are classified as either “available for
sale” or “held to maturity.” While available-for-sale securities are intended to generate earnings, they also represent
a significant source of cash flows and liquidity for future loan production, the reduction of higher-cost funding, and
general operating activities. These cash flows stem from the repayment of principal and interest, in addition to the
sale of such securities. Held-to-maturity securities also generate cash flows from repayments and serve as a source
of earnings.
Securities expected to be held for an indefinite period of time are classified as available for sale. A decision to
purchase or sell these securities is based on economic conditions, including changes in interest rates, liquidity, and
our asset and liability management strategy. Available-for-sale securities represented $1.0 billion, or 17.1%, of total
securities at December 31, 2008, as compared to $1.4 billion, representing 24.0% of total securities, at the prior
year-end. Included in the respective year-end amounts were mortgage-related securities of $833.7 million and
$973.3 million, and other securities of $176.8 million and $407.9 million. The estimated weighted average life of the
available-for-sale securities portfolio was 5.6 years at December 31, 2008 and 7.5 years at December 31, 2007.
Reflecting the significant decline in market conditions, the after-tax net unrealized loss on securities available
for sale rose to $32.5 million at December 31, 2008 from $7.6 million at December 31, 2007. The respective after-
tax losses were recorded as a component of stockholders’ equity in the Consolidated Statements of Condition at the
corresponding dates.
Held-to-maturity securities represented $4.9 billion, or 82.9%, of total securities at December 31, 2008,
signifying a 12.1% increase from $4.4 billion at the prior year-end. At December 31, 2008, the fair value of
securities held to maturity represented 98.7% of their carrying value. Mortgage-related securities accounted for $3.2
billion and $2.5 billion, respectively, of the year-end 2008 and 2007 totals, with other securities representing the
remaining $1.7 billion and $1.9 billion, respectively. Included in the respective year-end amounts were GSE
obligations of $1.4 billion and $1.5 billion; capital trust notes of $220.4 million and $186.8 million; and corporate
bonds of $133.2 million and $166.0 million. The estimated weighted average lives of the held-to-maturity securities
portfolio were 5.2 years and 5.9 years at the corresponding dates.
As a result of the unprecedented volatility that has gripped the capital markets, we recorded total OTTI
charges of $104.3 million on certain of our securities in 2008. Included in these charges were $42.4 million on our
investments in Lehman Brothers and $5.0 million on our investment in Freddie Mac. In 2007, we recorded an OTTI
charge of $57.0 million in connection with the repositioning of our balance sheet following our acquisition of
PennFed Financial Services, Inc. (“PennFed”) in April of that year.
56
In the process of determining if and when a decline in fair value below amortized cost is other than temporary,
we consider, among other factors, the length of time and extent of the unrealized loss, the financial condition and
near-term prospects of the issuers, and our intent and ability to hold the investment until the earlier of its anticipated
recovery or maturity. When such a decline in value is deemed to be other than temporary, the security is written
down to a new cost basis and the resultant loss is charged against earnings.
Federal Home Loan Bank of New York Stock
The Community Bank and the Commercial Bank are members of the Federal Home Loan Bank of New York
(the “FHLB-NY”), one of 12 regional FHLBs comprising the FHLB system. Each regional FHLB manages its
customer relationships, while the 12 FHLBs use their combined size and strength to obtain their necessary funding
at the lowest possible cost. As members of the FHLB-NY, the Community Bank and the Commercial Bank are
required to acquire and hold shares of capital stock. Pursuant to this requirement, the Community Bank and the
Commercial Bank held FHLB-NY stock of $392.8 million and $8.2 million, respectively, at December 31, 2008.
FHLB-NY stock continued to be valued at par, with no impairment loss required, at that date.
For the fiscal years ended December 31, 2008 and 2007, dividends from the FHLB-NY to the Community
Bank amounted to $18.0 million and $31.5 million, respectively. Dividends from the FHLB-NY to the Commercial
Bank amounted to $487,000 and $871,000, respectively, in the corresponding years. A reduction in FHLB-NY
dividends received or an increase in the interest paid on future FHLB-NY advances would adversely impact the
Company’s net interest income. The FHLB-NY has stated that it expects to continue to pay dividends, but has
acknowledged that future economic events, regulatory actions, and other actions could impact their ability to pay
dividends. The FHLB-NY announced a reduction in the dividend that will be paid in the first quarter of 2009 from
the 3.5% that was paid in the fourth quarter of 2008 to 3.00%. In addition, a reduction in the capital levels of the
FHLB-NY could adversely impact our ability to redeem our shares and the value thereof.
Bank-Owned Life Insurance (“BOLI”)
At December 31, 2008, our investment in BOLI was $691.4 million, as compared to $664.4 million at
December 31, 2007. The increase in our investment reflects the increase in the cash surrender value of the
underlying policies during 2008.
BOLI is reported at the total cash surrender value of the policies in the Consolidated Statements of Condition,
and the income generated by the increase in the cash surrender value of the policies is recorded in “non-interest
income” in the Consolidated Statements of Income and Comprehensive Income. Please see the discussion of
Emerging Issues Task Force (“EITF”) Issue No. 06-4 under “Impact of Recent Accounting Pronouncements” in
Note 2, “Summary of Significant Accounting Policies,” in Item 8, “Financial Statements and Supplementary Data.”
Goodwill and Core Deposit Intangibles (“CDI”)
We record goodwill and CDI in our Consolidated Statements of Condition in connection with our various
business combinations.
At December 31, 2008, goodwill totaled $2.4 billion, representing a $1.0 million decrease from the year-
earlier amount. CDI totaled $87.8 million at December 31, 2008, representing a $23.3 million reduction from the
year-earlier balance, reflecting twelve months of amortization expense.
Sources of Funds
On a stand-alone basis, the Company has four primary funding sources for the payment of dividends, share
repurchases, and other corporate uses: dividends paid to the Company by the Banks; funding raised through the
issuance of debt instruments; capital raised through the issuance of stock; and repayments of, and income from,
investment securities.
On a consolidated basis, our funding primarily stems from the cash flows generated through the repayment of
loans and securities; the cash flows generated through the sale of securities; the deposits we acquire in our business
combinations or gather through our branch network, as well as brokered deposits; and the use of borrowed funds,
primarily in the form of wholesale borrowings.
57
In 2008, loan repayments totaled $4.1 billion, as compared to $6.9 billion in the prior year. Cash flows from
the repayment and sale of securities totaled $2.5 billion and $11.5 million, respectively, and were offset by
purchases of securities totaling $2.7 billion over the course of the year. In 2007, securities repayments and sales
generated cash flows of $933.9 million and $2.1 billion, respectively. Consistent with our emphasis on lending, the
cash flows from loans were primarily invested in organic loan production, while the cash flows from securities were
invested in GSE obligations.
Deposits
As previously indicated, we are a leading depository in the Metro New York/New Jersey region, where we
operate 215 banking offices through our two subsidiary banks. The magnitude of our franchise reflects our strategy
of growing through acquisitions, with eight transactions completed from November 2000 to October 2007. While
the majority of our deposits have thus been acquired or gathered through our branch network, our mix of deposits
also includes brokered certificates of deposit (“CDs”) and brokered money market accounts. Depending on the
availability and pricing of such wholesale funding sources, we typically refrain from pricing our retail deposits at the
higher end of the market in order to contain or reduce our funding costs.
At December 31, 2008, deposits totaled $14.3 billion, representing a $1.1 billion increase from the balance
recorded at the prior year-end. Core deposits (defined as NOW and money market accounts, savings accounts, and
non-interest-bearing deposits) rose $1.3 billion year-over-year, to $7.5 billion, and represented 52.4% of total
deposits at the current year-end.
NOW and money market accounts represented $3.8 billion of the December 31, 2008 total, and were up $1.4
billion from the balance recorded at December 31, 2007. Included in the balance at the current year-end were
brokered money market accounts of $1.5 billion, as compared to $2.9 million at the prior year-end.
The increase in deposits was also due to a $115.0 million rise in savings accounts to $2.6 billion, which
tempered the impact of a $226.0 million decline in non-interest-bearing accounts to $1.0 billion.
CDs represented $6.8 billion, or 47.6%, of total deposits at December 31, 2008, and were down $116.1
million from the balance recorded at December 31, 2007. The reduction reflects our strategy of allowing the run-off
of higher-cost deposits in a year when their retention would have required us to match or exceed the higher rates
being paid by certain competitors. Included in the year-end 2008 balance of CDs were brokered CDs of $1.6 billion,
representing a $1.0 billion increase from the year-earlier amount. The balance of CDs at December 31, 2008 also
includes CDs in excess of $100,000 which feature preferential rates of interest and are accepted by both the
Community Bank and the Commercial Bank.
Borrowed Funds
The cost of our borrowed funds is largely based on short-term rates of interest, the level of which is partially
impacted by the actions of the FOMC. The FOMC reduces, maintains, or increases the target federal funds rate as it
deems necessary. During 2008, the target federal funds rate was reduced from 4.25% at the start of the year to a
range of zero to 0.25% in mid-December. Rather than raise the rates on our NOW and money market accounts and
CDs, we opted to engage in a strategic reduction of such higher-cost retail funding, and increased our use of
wholesale and other borrowings at a time when they featured more attractive rates. Accordingly, the balance of
wholesale borrowings rose $149.5 million to $12.3 billion at December 31, 2008.
FHLB-NY advances represented $7.7 billion of wholesale borrowings at December 31, 2008, and were down
$74.3 million from the balance recorded at December 31, 2007. The Community Bank and the Commercial Bank
are both members of, and have lines of credit with, the FHLB-NY. Pursuant to blanket collateral agreements with
the Banks, our FHLB-NY advances and overnight line-of-credit borrowings are secured by a pledge of certain
eligible collateral in the form of loans and securities.
Also included in wholesale borrowings at year-end 2008 were repurchase agreements of $4.5 billion,
representing a $73.8 million increase from the balance at December 31, 2007. Repurchase agreements are contracts
for the sale of securities owned or borrowed by the Banks with an agreement to repurchase those securities at an
agreed-upon price and date. Our repurchase agreements are primarily collateralized by GSE obligations, and may be
entered into with the FHLB-NY or certain brokerage firms. The brokerage firms we utilize are subject to an ongoing
58
internal financial review to ensure that we borrow funds only from those dealers whose financial strength will
minimize the risk of loss due to default. In addition, a master repurchase agreement must be executed and on file for
the brokerage firms we use. Also included in wholesale borrowings were overnight federal funds purchased of
$150.0 million; there were no such borrowings outstanding at December 31, 2007.
A significant portion of our wholesale borrowings at year-end 2008 consisted of callable advances and
callable repurchase agreements. At December 31, 2008, $7.3 billion of our wholesale borrowings were callable in
2009; $1.6 billion and $2.2 billion were callable in 2010 and 2011, respectively. Given the current interest rate
environment, we do not expect these borrowings to be called.
We also had borrowed funds in the form of junior subordinated debentures at December 31, 2008 and 2007
that totaled $484.2 million and $484.8 million, respectively. Please see Note 8 to the Consolidated Financial
Statements, “Borrowed Funds,” in Item 8, “Financial Statements and Supplementary Data,” for a further discussion
of these borrowed funds.
Other borrowings totaled $669.4 million at December 31, 2008, and were up $432.2 million year-over-year.
The increase reflects the issuance of $602.0 million of fixed rate senior notes under the TLGP in December, and was
tempered by the maturity of a $75.0 million senior note acquired in our 2003 acquisition of Roslyn Bancorp, Inc.
(“Roslyn”) and the repurchase of $94.2 million of preferred stock of subsidiaries.
Please see Note 8 to the Consolidated Financial Statements, “Borrowed Funds,” in Item 8, “Financial
Statements and Supplementary Data” for a further discussion of our borrowed funds.
Liquidity, Contractual Obligations and Off-Balance-Sheet Commitments, and Capital Position
Liquidity
We manage our liquidity to ensure that cash flows are sufficient to support our operations, and to compensate
for any temporary mismatches between sources and uses of funds caused by erratic loan and deposit demand.
As discussed under “Sources of Funds,” the loans we produce are funded through four primary sources:
(1) cash flows from the repayment of loans and securities; (2) cash flows from the sale of securities; (3) the deposits
we acquire in connection with our business combinations and those we gather organically through our branch
network, as well as brokered deposits; and (4) borrowed funds, primarily in the form of wholesale borrowings.
While borrowed funds and the scheduled amortization of securities and loans are generally more predictable
funding sources, deposit flows and loan and securities repayments are less predictable in nature, as they are subject
to external factors beyond our control. Among these are changes in the economy and local real estate values,
competition from other financial institutions and non-traditional financial services companies; and changes in short-
and intermediate-term interest rates. Depending on the volume and cost of deposits acquired in our business
combinations, we may opt not to compete aggressively for deposits, and may also allow our higher-cost deposits to
run off.
Our principal investing activity is multi-family lending, which is supplemented by the production of CRE and,
to a lesser extent, ADC and C&I loans. In 2008, loan originations totaled $5.9 billion, including multi-family loans
and CRE loans of $3.2 billion and $1.1 billion, respectively. The growth of our loan portfolio in the last year was
primarily funded with cash flows from loan repayments, borrowed funds, and brokered deposits, while the cash
flows from the sale and repayment of securities were primarily reinvested into GSE securities. As a result, the net
cash used by investing activities in 2008 totaled $2.1 billion.
In 2008, the net cash provided by financing activities totaled $1.7 billion, primarily reflecting a $1.1 billion
net increase in cash flows from deposits and the net proceeds of $339.2 million from our common stock offering in
May 2008. These inflows were partially offset by the use of $333.5 million for the payment of cash dividends. In
addition, our operating activities provided net cash of $244.8 million in 2008.
We monitor our liquidity on a daily basis to ensure that sufficient funds are available to meet our financial
obligations. Our most liquid assets are cash and cash equivalents, which totaled $203.2 million at December 31,
59
2008. Additional liquidity stems from our portfolio of available-for-sale securities, which totaled $1.0 billion at the
end of December, and from the Banks’ approved lines of credit with the FHLB-NY.
CDs due to mature in one year or less from December 31, 2008 totaled $5.9 billion, representing 86.8% of
total CDs at that date. Our ability to retain these CDs and to attract new deposits depends on numerous factors,
including customer satisfaction, the rates of interest we pay on our deposits, the types of products we offer, and the
attractiveness of their terms. As previously mentioned, there are times that we may choose not to compete for
deposits, depending on the availability of lower-cost funding sources, the competitiveness of the market and its
impact on pricing, and our need for such deposits to fund loan demand.
In 2008, the primary sources of funds for the Company on an unconsolidated basis (i.e., the “Parent
Company”) included dividend payments from the Banks and the sale and repayment of investment securities. The
ability of the Community Bank and the Commercial Bank to pay dividends and other capital distributions to the
Parent Company is generally limited by New York State banking law and regulations, and by certain regulations of
the FDIC. In addition, the New York State Superintendent of Banks (the “Superintendent”), the FDIC, and the
Federal Reserve Bank, for reasons of safety and soundness, may prohibit the payment of dividends that are
otherwise permissible by regulation.
Under New York State Banking Law, a New York State-chartered stock-form savings bank or commercial
bank may declare and pay dividends out of its net profits, unless there is an impairment of capital. However, the
approval of the Superintendent is required if the total of all dividends declared in a calendar year would exceed the
total of a bank’s net profits for that year, combined with its retained net profits for the preceding two years. In 2008,
the Banks paid dividends totaling $100.0 million to the Parent Company, leaving $146.3 million that they could
dividend to the Parent Company without regulatory approval at December 31st. In addition, the Parent Company
had $129.3 million in cash and cash equivalents at year-end 2008, together with $9.6 million of available-for-sale
securities. If either of the Banks applies to the Superintendent for approval to make a dividend or capital distribution
in excess of the dividend amounts permitted under the regulations, there can be no assurance that such an application
would be approved by the regulatory authorities.
Contractual Obligations and Off-Balance-Sheet Commitments
In the normal course of business, we enter into a variety of contractual obligations in order to manage our
assets and liabilities, fund loan growth, operate our branch network, and address our capital needs.
For example, we offer CDs to our customers under contract, and borrow funds under contract from the FHLB-
NY and various brokerage firms. These contractual obligations are reflected in the Consolidated Statements of
Condition under “deposits” and “borrowed funds,” respectively. At December 31, 2008, we recorded CDs of $6.8
billion and long-term debt (defined as borrowed funds with an original maturity in excess of one year) of $12.5
billion.
We also are obligated under certain non-cancelable operating leases on the buildings and land we use in
operating our branch network and in performing our back-office responsibilities. These obligations are not included
in the Consolidated Statements of Condition and totaled $182.4 million at December 31, 2008.
Contractual Obligations
The following table sets forth the maturity profile of the aforementioned contractual obligations:
(in thousands)
One year or less
One to three years
Three to five years
More than five years
Total
Certificates of
Deposit
$5,901,229
663,080
181,948
50,714
$6,796,971
Long-Term Debt(1)
$ 434
625,876
1,374,889
10,482,611
$12,483,810
Operating
Leases
$ 25,397
47,281
39,546
70,178
$182,402
Total
$ 5,927,060
1,336,237
1,596,383
10,603,503
$19,463,183
(1)
Includes FHLB-NY advances, repurchase agreements, junior subordinated debentures, preferred stock of subsidiaries,
and senior notes.
60
We had no contractual obligations to purchase loans or securities at December 31, 2008.
At December 31, 2008, we had significant commitments to extend credit in the form of mortgage and other
loan originations. These off-balance-sheet commitments consist of agreements to extend credit, as long as there is no
violation of any condition established in the contract under which the loan is made. Commitments generally have
fixed expiration dates or other termination clauses and may require payment of a fee.
At December 31, 2008, commitments to originate mortgage loans amounted to $541.2 million; commitments
to originate other loans amounted to $494.5 million, including unadvanced lines of credit. The majority of our loan
commitments were expected to be funded within 90 days of that date.
In addition, we had off-balance-sheet commitments to issue commercial, performance, and financial stand-by
letters of credit of $22.6 million, $16.7 million, and $23.4 million, respectively, at December 31, 2008.
Commercial letters of credit act as a means of ensuring payment to a seller upon shipment of goods to a buyer.
Although commercial letters of credit are used to effect payment for domestic transactions, the majority of the
transactions we execute are used to settle payments in international trade. Typically, such letters of credit require
presentation of documents that describe the commercial transaction, and provide evidence of shipment, and the
transfer of title.
Performance letters of credit are primarily issued for the benefit of local municipalities on behalf of certain of
our borrowers. These borrowers are mainly developers of residential subdivisions with whom we currently have a
lending relationship. Performance letters of credit obligate us to make payments in the event that a specified third
party fails to perform under non-financial contractual obligations.
Financial stand-by letters of credit primarily are issued for the benefit of other financial institutions or
municipalities, on behalf of certain of our current borrowers, and obligate us to guarantee payment of a specified
financial obligation.
The following table sets forth our off-balance-sheet commitments relating to outstanding loan commitments
and letters of credit at December 31, 2008:
(in thousands)
Mortgage Loan Commitments:
Multi-family loans
Commercial real estate loans
Acquisition, development, and construction loans
1–4 family loans
Total mortgage loan commitments
Other loan commitments
Total loan commitments
Commercial, performance, and financial stand-by letters of credit
Total commitments
$ 188,119
75,961
249,951
27,137
$ 541,168
494,457
$1,035,625
62,741
$1,098,366
Based upon the current strength of our liquidity position, we expect that our funding will be sufficient to fulfill
these obligations and commitments when they are due.
Capital Position
Stockholders’ equity rose $36.9 million from the balance recorded at December 31, 2007 to $4.2 billion at
December 31, 2008. The latter amount was equivalent to 13.00% of total assets, and a book value of $12.25 per
share, while the year-end 2007 amount was equivalent to 13.68% of total assets and a book value of $12.95 per
share. The calculations of book value per share at December 31, 2008 and 2007 were based on 344,353,808 shares
and 322,834,839 shares, respectively.
We calculate book value per share by subtracting the number of unallocated Employee Stock Ownership Plan
(“ESOP”) shares at the end of a period from the number of shares outstanding at the same date, and then divide our
total stockholders’ equity by the resultant number of shares. Primarily reflecting the issuance of 17,871,000 shares in
the second quarter, the number of shares outstanding rose to 344,985,111 at December 31, 2008 from 323,812,639 at
61
December 31, 2007. Included in the respective year-end amounts were unallocated ESOP shares of 631,303 and
977,800. (Please see the definition of book value per share that appears in the Glossary on page 3 of this report.)
The increase in stockholders’ equity in 2008 was largely due to the secondary offering of common stock we
completed in the second quarter, which generated net proceeds of $339.2 million. The increase was tempered by
three significant factors, the first of which was the distribution of dividends totaling $333.5 million in the form of
four quarterly cash dividends of $0.25 per share, or $1.00 per share, annualized. The other two factors reflect the
impact of the decline in the capital markets. Primarily reflecting a reduction in the value of our pension plan assets,
we recorded a $50.1 million charge to stockholders’ equity in connection with our pension and post-retirement
obligations, which exceeded the year-earlier charge by $43.6 million. In addition, we recorded after-tax net
unrealized securities losses of $37.2 million, reflecting a year-over-year increase of $22.4 million. The two charges
to stockholders’ equity are reflected in the accumulated other comprehensive loss, net of tax (the “AOCL”) in our
Consolidated Statements of Condition. The AOCL rose $66.0 million from the balance at December 31, 2007 to
$87.3 million at December 31, 2008.
Tangible stockholders’ equity rose $61.3 million from the balance at December 31, 2007 to $1.7 billion at
December 31, 2008. As discussed in greater detail on page 76, we calculate our tangible stockholders’ equity by
subtracting the goodwill and CDI stemming from our various business combinations from the balance of
stockholders’ equity. At December 31, 2008, we recorded goodwill of $2.4 billion and CDI, net, of $87.8 million, as
compared to $2.4 billion and $111.1 million, respectively, at the prior year-end. The year-over-year increase in
tangible stockholders’ equity reflects the benefit of the net proceeds from the aforementioned secondary common
stock offering.
The ratio of tangible stockholders’ equity to tangible assets declined from 5.83% at December 31, 2007 to
5.66% at December 31, 2008, primarily reflecting the increase in AOCL. Excluding AOCL from the calculation, the
ratio of adjusted tangible stockholders’ equity to adjusted tangible assets rose from 5.90% at December 31, 2007 to
5.94% at December 31, 2008. (Please see the reconciliations of stockholders’ equity and tangible stockholders’
equity and the related measures on page 76 of this report.)
Consistent with our focus on capital strength and preservation, the level of stockholders’ equity at
December 31, 2008 continued to exceed the minimum federal requirements for a bank holding company. The
following tables set forth our total risk-based, Tier 1 risk-based, and leverage capital amounts and ratios on a
consolidated basis at December 31, 2008 and 2007, and the respective minimum regulatory requirements:
Regulatory Capital Analysis
At December 31, 2008
(dollars in thousands)
Total risk-based capital
Tier 1 risk-based capital
Leverage capital
At December 31, 2007
(dollars in thousands)
Total risk-based capital
Tier 1 risk-based capital
Leverage capital
Actual
Amount
$2,430,510
2,336,142
2,336,142
Ratio
11.96%
11.49
7.84
Actual
Amount
$2,414,558
2,321,764
2,321,764
Ratio
12.58%
12.10
8.32
Minimum
Required
Ratio
8.00%
4.00
4.00
Minimum
Required
Ratio
8.00%
4.00
4.00
Although the U.S. Treasury approved our application for a $596.0 million capital infusion under the Capital
Purchase Program of the TARP, we announced our decision to decline the infusion on January 13, 2009. That
decision was largely based on the strength of our capital position at December 31, 2008.
Pursuant to a final rule adopted by the Federal Reserve Board in 2005, bank holding companies are allowed to
continue, on a limited basis, the inclusion of trust preferred securities in Tier 1 capital. Under this rule, trust
preferred securities and other elements of restricted core capital are subject to stricter quantitative limits. It is
currently management’s expectation that our regulatory capital ratios will continue to exceed the minimum levels
62
required, despite the stricter quantitative limits applied under the final rule, which will become effective on
March 31, 2009.
The capital strength of the Company is paralleled by the solid capital position of the Banks. At December 31,
2008, the capital ratios for the Community Bank and the Commercial Bank continued to exceed the minimum levels
required for classification as “well capitalized” institutions under the Federal Deposit Insurance Corporation
Improvement Act of 1991, as further discussed in Note 16 to the Consolidated Financial Statements, “Regulatory
Matters,” in Item 8, “Financial Statements and Supplementary Data.”
RESULTS OF OPERATIONS: 2008 and 2007 COMPARISON
Earnings Summary
Our 2008 earnings were highlighted by a $59.0 million, or 9.6%, increase in net interest income to $675.5
million, and by a ten-basis point increase in our net interest margin to 2.48%. The increases were driven by double-
digit loan growth and by a meaningful reduction in our cost of funds. The increase in net interest income occurred
despite a $32.8 million decline in prepayment penalty income to $24.9 million, which was equivalent to a nine-basis
point reduction in our average asset yield.
The reduction in our funding costs was partly due to the steady decline in the target federal funds rate, but also
to certain strategic actions we took during the year. In May and June 2008, we prepaid $4.0 billion of higher-cost
borrowed funds, as previously mentioned, and replaced those funds with $3.8 billion of wholesale borrowings
featuring lower interest rates.
While the repositioning of our debt contributed to the expansion of our margin and net interest income in the
third and fourth quarters, it generated a pre-tax charge of $325.0 million in the second quarter of the year. Of the
latter amount, $39.6 million was recorded as interest expense, thus reducing our net interest income by that amount
to the aforementioned level and our net interest margin by 15 basis points to the measure cited above. The remaining
$285.4 million of the pre-tax charge was recorded in non-interest expense.
Primarily reflecting the $285.4 million debt repositioning charge, and a $21.2 million increase in operating
expenses to $320.8 million, non-interest expense rose $304.0 million to $629.5 million year-over-year. The increase
in operating expenses in large part reflects the full-year impact of our acquisitions of PennFed, Synergy, and 11
branches of Doral Bank, FSB (“Doral”), in New York City, which not only increased our number of branches, but
also our staffing and general and administrative (“G&A”) expense.
On an after-tax basis, the combined debt repositioning charge reduced our 2008 earnings by $199.2 million, or
$0.60 per common and diluted share.
The decline in the capital markets also had an impact on our 2008 performance, as we recorded total losses of
$104.3 million on the OTTI of securities during the year. The OTTI charges reduced our 2008 non-interest income
to $15.5 million and, on an after-tax basis, reduced our 2008 earnings by $62.7 million, or $0.19 per diluted share.
In view of the weakening economy and the increase in non-performing assets, we also recorded a $7.7 million
provision for loan losses in 2008. Reflecting the loan loss provision and net charge-offs of $6.1 million, the
allowance for loan losses rose to $94.4 million at the end of the year.
While our 2008 earnings were highlighted by the increase in net interest income and the expansion of our net
interest margin, the benefits of these increases were exceeded by the combined after-tax impact of the debt
repositioning and OTTI charges, which reduced our earnings by $261.9 million, or $0.79 per basic and diluted share.
Reflecting the impact of the latter amount on our performance, we recorded earnings of $77.9 million, or $0.23 per
basic and diluted share in 2008. Our results for 2008 include an income tax benefit of $24.1 million.
In 2007, we recorded earnings of $279.1 million, equivalent to $0.90 per basic and diluted share. Our 2007
earnings reflected the nine-month benefit of the PennFed transaction, the five-month benefit of the Doral
transaction, and the three-month benefit of the transaction with Synergy. In addition, our 2007 earnings reflected the
following after-tax gains and charges:
63
(cid:120) A $44.8 million gain on the sale of our Atlantic Bank headquarters in Manhattan;
(cid:120) A $2.6 million benefit from certain tax audit developments;
(cid:120) A $1.2 million net gain on the sale of securities;
(cid:120) A $38.7 million loss on the OTTI of securities recorded in connection with the post-PennFed repositioning
of our balance sheet;
(cid:120) A $2.2 million charge for the prepayment of wholesale borrowings in connection with the repositioning of
our balance sheet following the acquisition of PennFed;
(cid:120) A $2.1 million charge for the merger-related allocation of ESOP shares in connection with our PennFed
and Synergy transactions;
(cid:120) A $1.2 million loss on debt redemption, in connection with the early redemption of certain trust preferred
securities; and
(cid:120) A $650,000 charge relating to our membership interest in Visa U.S.A.
The net effect of these after-tax gains and charges was a $3.8 million, or $0.01 per share, contribution to our
2007 earnings and our basic and diluted earnings per share.
Net Interest Income
The level of net interest income is a function of the average balance of our interest-earning assets, the average
balance of our interest-bearing liabilities, and the spread between the yield on such assets and the cost of such
liabilities. These factors are influenced by both the pricing and mix of our interest-earning assets and our interest-
bearing liabilities which, in turn, are impacted by various external factors, including the local economy, competition
for loans and deposits, the monetary policy of the FOMC, and market interest rates.
The cost of our deposits and borrowed funds is largely based on short-term rates of interest, the level of which
is partially impacted by the actions of the FOMC. The FOMC reduces, maintains, or increases the target federal
funds rate (the rate at which banks borrow from one another), as it deems necessary. While the target federal funds
rate held at 5.25% through September 18, 2007, it was lowered to 4.25% by the end of that year. As a result of the
steady economic decline that followed, the target federal funds rate was lowered seven times in 2008 in an effort to
re-energize the economy. As home sales continued to fall and unemployment continued to increase, the FOMC
reduced the target federal funds rate to an historically low range of zero to 0.25% on December 16, 2008.
As a result of the decline in short-term interest rates, we substantially reduced our cost of deposits, as well as
our cost of borrowed funds over the course of the year. With a number of competitors offering excessive rates to
attract deposits, we chose to utilize lower-cost funds to fuel our loan and asset growth. Consistent with our practice
of using wholesale funds when they present an attractively priced alternative to retail funding, we increased our use
of lower-cost brokered deposits in 2008.
To further reduce our funding costs, we also decided to reposition our borrowed funds in the second quarter of
the year. While the debt repositioning charge added $39.6 million to the year’s interest expense and 31 basis points
to our average cost of funds (thus reducing our net interest income and net interest margin by the same figures), the
benefits of the debt repositioning were reflected in our third and fourth quarter 2008 measures, and will continue to
be reflected in our performance in the quarters ahead.
The yields generated by our loans and other interest-earning assets are typically driven by intermediate-term
interest rates, which are set by the market and generally vary from day to day. Although the disparity between short-
and long-term rates resulted in an inverted yield curve in 2006 and the first half of 2007, the yield curve flattened
out midway through that year and then began to grow steeper as short-term rates began to decline at a faster pace
than long-term interest rates. As this disparity between short- and long-term rates continued, the yield curve grew
even steeper, benefiting our net interest income and our margin in 2008.
Our net interest income also reflects the benefit of the increase in lending, as the departure of certain
competitors from our market enabled us to increase our loan production, and thus offset the impact of a decline in
refinancing activity. In the face of mounting uncertainty about the financial and real estate markets, many of the
property owners we lend to chose to postpone the refinancing of their multi-family and CRE loans in the past year.
64
As a result, prepayment penalty income declined by 56.8% from $57.6 million in 2007 to $24.9 million in 2008.
While the decline in prepayment penalty income reduced the average yields on our loans and assets, the impact of
these reductions was significantly exceeded by the benefit of the increase in the average balances.
As a result of these factors, our net interest income rose $59.0 million, or 9.6%, year-over-year, to $675.5
million, and our net interest margin rose ten basis points to 2.48%. The benefits of our actions during the year are
more fully reflected in our fourth quarter 2008 measures. In the last three months of 2008, and despite a $2.1 million
decline in prepayment penalty income to $2.4 million, our net interest income rose $47.2 million, or 30.6%, year-
over-year to $201.6 million, and our net interest margin rose 51 basis points year-over-year, to 2.87%.
Interest Income
The $38.4 million increase in interest income was driven by a $1.3 billion rise in the average balance of
interest-earning assets to $27.2 billion and tempered by a 15-basis point decline in the average yield to 5.90%. Loans
generated $1.3 billion of the interest income recorded in 2008, representing a $42.9 million increase from the year-
earlier level. The latter increase was the result of a $1.4 billion rise in the average balance of loans to $20.8 billion,
which exceeded the impact of a 22-basis point decline in the average yield to 6.05%. Significantly, the increase in
our interest income was achieved despite the aforementioned decline in prepayment penalty income, as refinancing
activity declined.
Securities accounted for $341.9 million of the interest income produced in 2008, representing a $22.3 million
increase from the year-earlier amount. The increase was fueled by a $374.4 million rise in the average balance to
$6.2 billion, together with a three-basis point rise in the average yield to 5.47%. The higher balance reflects our
investments in GSE obligations during the year.
The interest income produced by money market investments declined $26.9 million to $2.9 million, as the
average balance of such assets declined $487.8 million to $106.7 million and the average yield fell 226 basis points
to 2.76%. The decline in the average balance primarily reflects the allocation of cash flows into loan production and
the decline in the average yield reflects the year-long reduction in market interest rates.
Interest Expense
The $20.6 million decrease in interest expense was the net effect of a 29-basis point decline in the average
cost of funds to 3.63% and a $1.3 billion increase in the average balance of interest-bearing liabilities to $25.6
billion.
The level of interest expense recorded in 2008 was increased by the debt repositioning charge recorded in the
second quarter. In addition to adding $39.6 million to the interest expense produced in 2008 by borrowed funds and
interest-bearing liabilities, the debt repositioning charge added 31 and 15 basis points to the respective average costs
of such funds. The interest expense produced by borrowed funds rose $56.9 million year-over-year, to $581.2
million, as the average balance rose $899.3 million to $12.9 billion, offsetting a 29-basis point decrease in the
average cost of funds to 3.63%.
Interest-bearing deposits produced interest expense of $348.4 million in 2008, reflecting a year-over-year
reduction of $77.4 million, as a $439.2 million increase in the average balance to $12.7 billion was more than offset
by a 73-basis point decline in the average cost to 2.74%. CDs accounted for $271.6 million of the interest expense
produced in 2008, reflecting a year-over-year reduction of $36.1 million. The decrease was the net effect of a $127.9
million rise in the average balance of CDs to $6.8 billion, and a 62-basis point drop in the average cost of such funds
to 3.99%.
The interest expense produced by savings accounts also declined in 2008, to $22.1 million, from $27.6 million
in the year-earlier twelve months. The decrease stemmed from a 25-basis point decline in the average cost of such
funds to 0.84%, which more than offset the impact of an $87.4 million rise in the average balance to $2.6 billion.
NOW and money market accounts produced 2008 interest expense of $54.6 million, representing a year-over-year
reduction of $35.7 million. The decline was the net effect of a $205.5 million increase in the average balance to $3.1
billion and a 135-basis point decline in the average cost to 1.74%. The higher average balance reflects our increased
use of brokered deposits, while the decline in the average cost reflects the year-long decrease in short-term interest
rates.
65
Non-interest-bearing deposits averaged $1.2 billion in 2008, down $21.7 million from the average balance
recorded in the year-earlier twelve months.
Interest Rate Spread and Net Interest Margin
The same factors that contributed to the growth of our net interest income contributed to the expansion of our
interest rate spread and net interest margin in 2008. At 2.27%, our spread was 14 basis points higher than the year-
earlier measure; at 2.48%, our margin was up 10 basis points year-over-year. The extent to which these measures
expanded in 2008 was constrained by the 15 basis points that were added by the aforementioned debt repositioning
charge to our average cost of funds.
In addition, the average yields we recorded on our average balances of loans and interest-earning assets were
reduced by the aforementioned decline in prepayment penalty income stemming primarily from multi-family and
CRE loans. Prepayment penalty income added 22 basis points to each of our spread and margin in 2007; in contrast,
prepayment penalty income added nine basis points to each of our spread and margin in 2008.
Accordingly, it should be noted that the level of prepayment penalty income in any given period depends on
the volume of loans that refinance or prepay during that time. Such activity is largely dependent on current market
conditions, including real estate values, the perceived or actual direction of market interest rates, and the contractual
repricing and maturity dates of our multi-family and CRE loans. As a result, the level of prepayment penalty income
we record is unpredictable.
66
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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 our 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
December 31, 2008
Compared to Year Ended
December 31, 2007
Increase/(Decrease)
Due to
Year Ended
December 31, 2007
Compared to Year Ended
December 31, 2006
Increase/(Decrease)
Due to
Volume
Rate
Net
Volume
Rate
Net
$ 82,848
20,479
(17,357)
85,970
$(39,905)
1,850
(9,531)
(47,586)
$ 42,943
22,329
(26,888)
38,384
$ 32,770
2,126
28,424
63,320
$66,111
28,461
153
94,725
$ 98,881
30,587
28,577
158,045
6,877
992
6,020
40,189
23
54,101
$ 31,869
(42,624)
(6,505)
(42,169)
16,661
(45)
(74,682)
$ 27,096
(35,747)
(5,513)
(36,149)
56,850
(22)
(20,581)
$ 58,965
(18,678)
266
32,901
37,136
2
51,627
$ 11,693
(25,709)
(7,031)
9,732
9,466
58,478
25,577
60,630
23,494
(50)
(52)
51,454
103,081
$43,271 $ 54,964
(in thousands)
INTEREST-EARNING ASSETS:
Mortgage and other loans, net
Securities
Money market investments
Total
INTEREST-BEARING LIABILITIES:
NOW and money market accounts
Savings accounts
Certificates of deposit
Borrowed funds
Mortgagors’ escrow
Total
Change in net interest income
Provision for Loan Losses
The provision for loan losses is based on management’s assessment of the adequacy of the loan loss
allowance. This assessment is made periodically and considers several factors, including the current and historical
performance of the loan portfolio and its inherent risk characteristics; the level of non-performing loans and charge-
offs; local economic conditions; the direction of real estate values; and current trends in regulatory supervision.
Notwithstanding the historical strength of the Company’s asset quality measures, we recorded a provision for
loan losses in 2008. Although net charge-offs represented 0.029% of average loans for the year, and non-performing
loans represented 0.51% of total loans at the end of December, the weakening of the economy, coupled with an
increase in net charge-offs and non-performing assets, contributed to the need to record a provision for loan losses in
2008.
Accordingly, for the twelve months ended December 31, 2008, the provision for loan losses totaled $7.7
million, exceeding the $6.1 million of net charge-offs recorded over the course of the year. The net effect was a
year-over-year increase of $1.6 million in the loan loss allowance to $94.4 million at December 31, 2008. No loan
loss provision was recorded in the prior twelve-month period.
Please see “Critical Accounting Policies” and “Asset Quality” earlier in this report for a detailed discussion of
the factors considered by management in determining the allowance for loan losses.
Non-Interest Income
The non-interest income we produce stems from several sources, some of which are ongoing and some of
which are not. Among our ongoing sources of non-interest income are “fee income” in the form of retail deposit fees
and charges on loans; income from our investment in BOLI; and “other income” derived from such varied sources
as the sale of third-party investment products; the sale of one- to four-family loans on a conduit basis; and revenues
from our wholly-owned subsidiary, Peter B. Cannell & Co., Inc. (“PBC”), an investment advisory firm.
In 2008, these ongoing sources of non-interest income totaled $102.3 million, $820,000 shy of the level
recorded in the prior year. While BOLI income rose $2.5 million year-over-year to $28.6 million, the increase was
68
offset by a $979,000 decline in fee income to $41.2 million, coupled with a $2.3 million reduction in other income
to $32.5 million. The decline in other income was limited by a $2.6 million increase in the revenues produced
through the sale of third-party investment products, as the merger-related expansion of our branch network in 2007
resulted in an increase in our customer base. Also included in other income in 2008 was a Visa-related gain of $1.6
million, which included $1.1 million resulting from the mandatory redemption of shares received in connection with
Visa, Inc.’s initial public offering in the first quarter of 2008, and $500,000 which served to reduce a portion of the
$1.0 million Visa-related charge recorded in fourth quarter 2007 operating expenses.
Among the reasons for the decline in other income was a $1.7 million reduction in the revenues produced by
PBC, given the broad decline in the capital markets in 2008. In addition, the decline in other income reflects the
decision to discontinue the outsourcing of payment services relating to teller checks and money orders, and to
assume this function in house.
While these ongoing revenue sources contributed to our non-interest income in 2008 and 2007, certain other
factors exceeded their impact in each of these years. In 2008, our non-interest income was substantially reduced by
the aforementioned OTTI charges on securities of $104.3 million, a reflection of the decline in the capital markets
over the course of the year. The impact of the OTTI charges on our 2008 non-interest income was only partly offset
by a $17.0 million gain on debt repurchase and by a $573,000 net gain on the sale of securities, both occurring in the
fourth quarter of the year.
In the second quarter of 2007, we recorded an OTTI charge on securities of $57.0 million, in anticipation of
selling the impaired securities later in the year. The sale of securities was consistent with our practice of
repositioning our balance sheet following a merger transaction; in April 2007, we had completed our acquisition of
PennFed. The impact of the OTTI charge on our 2007 non-interest income, and of a $1.8 million pre-tax loss on debt
repurchase, was exceeded by the benefit of a $64.9 million gain on the sale of our Atlantic Bank headquarters in
Manhattan, together with a $1.9 million net gain on the sale of securities, in the same year.
Largely reflecting the OTTI charges in 2008 and the gain on the sale of our Atlantic Bank headquarters in
2007, non-interest income totaled $15.5 million in the current twelve-month period, as compared to $111.1 million
in the prior twelve-month period.
Non-Interest Income Analysis
The following table summarizes our sources of non-interest income in 2008, 2007, and 2006, and the year-
over-year changes in 2008 and 2007:
(dollars in thousands)
Fee income
BOLI
Net gain on sale of securities
Gain (loss) on debt repurchases
Loss on mark-to-market of interest rate
swaps
Loss on other-than-temporary impairment
of securities
Gain on sale of bank-owned property
Other income:
PBC
Third-party investment product sales
Gain on sale of 1-4 family and other loans
Other
Total other income
Total non-interest income
Non-Interest Expense
For the Year
Ended Dec. 31,
2008
$ 41,191
28,644
573
16,962
% Change
2007 to 2008
(2.32)%
9.57
(69.65)
1,017.86
For the Year
Ended Dec. 31,
2007
$ 42,170
26,142
1,888
(1,848)
% Change
2006 to 2007
9.07 %
For the Year
Ended Dec. 31,
2006
$38,662
10.64
(37.75)
0.59
23,627
3,033
(1,859)
--
--
--
100.00
(6,071)
(104,317)
--
(83.15)
(100.00)
(56,958)
64,879
N/A
100.00
13,205
12,188
326
6,757
32,476
$ 15,529
(11.41)
27.77
(53.76)
(30.12)
(6.73)
(86.02)%
14,905
9,539
705
9,670
34,819
$111,092
9.75
32.49
1.73
(7.35)
9.11
24.84 %
(313)
--
13,581
7,200
693
10,437
31,911
$88,990
Non-interest expense has two primary components: operating expenses, which include compensation and
benefits, occupancy and equipment, and G&A expenses; and the amortization of the CDI stemming from our
various business combinations.
69
Operating expenses totaled $320.8 million in 2008, as compared to $299.6 million in 2007, as compensation
and benefits expense rose $10.8 million to $170.0 million, occupancy and equipment expense rose $2.1 million to
$70.7 million, and G&A expense rose $8.4 million to $80.2 million. While each of these increases reflects the full-
year impact of our 2007 business combinations, a number of other factors contributed to the year-over-year increase.
For example, the higher level of compensation and benefits expense reflects normal salary increases, together
with the distribution of stock awards under the terms of our shareholder-approved management and stock incentive
plans. The increase in G&A expense largely reflects an increase in professional fees, higher advertising costs, and an
increase in FDIC insurance premiums.
In 2007, our compensation and benefits expense was increased by a $2.2 million charge relating to the
allocation of ESOP shares in connection with our PennFed and Synergy acquisitions. No comparable charge was
recorded in 2008. In addition, our 2007 G&A expense was increased by a $1.0 million pre-tax charge relating to our
membership interest in Visa, U.S.A., a subsidiary of Visa, Inc. (“Visa”). Of the latter amount, $500,000 was
reversed through non-interest income in the first quarter of 2008.
In October 2007, Visa completed a reorganization in contemplation of its initial public offering, which
subsequently occurred in the first quarter of 2008. As part of that reorganization, the Community Bank and the
former Synergy Bank, along with many other banks across the nation, received shares of common stock of Visa. In
accordance with U.S. generally accepted accounting principles (“GAAP”), we did not recognize any value for our
common stock ownership interest in Visa.
Visa claims that all Visa, U.S.A. member banks are obligated to share with it in losses stemming from certain
litigation against it and certain other named member banks (the “Covered Litigation”). Visa set aside a portion of the
proceeds from its initial public offering in an escrow account to fund any judgments or settlements that may arise
from the Covered Litigation, and plans to reduce the amount of shares to be allocated to the Visa U.S.A. member
banks by amounts necessary to cover such liability. Nevertheless, Visa U.S.A. member banks were required to
record a liability for the fair value of their related contingent obligation to Visa U.S.A., based on the percentage of
their membership interest. The Visa litigation charge was established based on our best estimate of the combined
membership interests of the Community Bank and the former Synergy Bank with regard to both settled and pending
litigation in which Visa is involved.
The amortization of CDI rose $585,000 to $23.3 million in 2008, reflecting the full-year impact of our
acquisitions of PennFed, Synergy, and Doral’s New York City-based branch network in 2007.
Operating expenses and CDI totaled $344.2 million in 2008, as compared to $322.3 million in 2007.
Nonetheless, non-interest expense rose to $629.5 million from $325.5 million year-over-year. In 2008, our non-
interest expense was increased by the pre-tax debt repositioning charge of $285.4 million, which significantly
exceeded the $3.2 million debt repositioning charge recorded in the year-earlier twelve months.
Income Tax (Benefit) Expense
Income tax (benefit) expense includes federal, New York State, and New York City income taxes, as well as
non-material income taxes from other jurisdictions. In 2008, we recorded an income tax benefit of $24.1 million, as
compared to income tax expense of $123.0 million in the prior year.
The income tax benefit recorded in 2008 reflects the combined impact of the debt repositioning charge of
$325.0 million and OTTI charges of $104.3 million on our pre-tax income. Reflecting these factors, income before
income tax expense totaled $53.8 million, and the effective tax rate equaled a negative 44.8%, in 2008. This
anomaly was the result of the relatively constant level of certain favorable permanent differences and tax credits in a
year when pre-tax income was reduced by the factors described above. In addition, the tax benefits recognized in
2008 include the release of a valuation allowance for the utilization of net operating losses to offset future New York
State taxes, and the tax-free redemption of securities issued by subsidiaries of the Community Bank. While the pre-
tax income we recorded in 2007 was reduced by a pre-tax OTTI charge of $57.0 million, the impact was largely
offset by the $64.9 million gain on the sale of our Atlantic Bank headquarters in New York. Accordingly, income
before income tax expense was $402.1 million in 2007, and the effective tax rate was 30.6%.
70
On April 23, 2008, new tax laws were enacted by New York State that were effective as of calendar year
2008. Included in these tax laws is a provision which requires the inclusion, for New York State tax purposes, of
income earned by a subsidiary taxed as a Real Estate Investment Trust (“REIT”) for federal tax purposes, regardless
of the location in which the REIT subsidiary conducts its business or the timing of its distribution of earnings. This
tax provision replaced the tax laws enacted in 2007 to address income earned by REIT subsidiaries. The full
inclusion of such income will be completely phased in by 2011, at which time, the law is scheduled to sunset. This
new provision resulted in a small deferred tax benefit in 2008 and did not have an impact on our current income tax
expense for the year. However, the new provision will add approximately 2% to our overall effective tax rate,
beginning in 2009.
Please see Note 9 to the Consolidated Financial Statements, “Federal, State, and Local Taxes,” within Item 8,
“Financial Statements and Supplementary Data,” for a further discussion of the Company’s income tax expense.
RESULTS OF OPERATIONS: 2007 and 2006 COMPARISON
Earnings Summary
We recorded earnings of $279.1 million in 2007, signifying a $46.5 million, or 20.0%, increase from the year-
earlier level and a $0.09, or 11.1%, increase in diluted earnings per share to $0.90. Our basic earnings per share also
equaled $0.90 in 2007, signifying a year-over-year increase of $0.08, or 9.8%.
Several factors contributed to the year-over-year increase in our 2007 net income. Net interest income rose
$55.0 million, or 9.8%, to $616.5 million, partly reflecting a $28.1 million, or 95.2%, increase in prepayment
penalty income that was primarily derived from multi-family and CRE loans. The latter increase contributed to a 36-
basis point rise in the average yield on our interest-earning assets, which grew $1.2 billion year-over-year to $25.9
billion, and to an 11-basis point increase in our net interest margin to 2.38%. We also realized an $8.9 million, or
9.5%, increase in revenues from fee income, BOLI income, and other income to $103.1 million, which combined
with the increase in net interest income to offset a $23.7 million increase in non-interest expense to $325.5 million.
Largely reflecting our acquisition-driven expansion, operating expenses rose $43.2 million to $299.6 million, and
CDI amortization rose $4.9 million to $22.8 million. The growth of our earnings was also tempered by a $6.9
million increase in income tax expense to $123.0 million, the net effect of a $53.4 million rise in pre-tax income and
a reduction in the effective tax rate to 30.6%.
Also reflected in our 2007 earnings were the after-tax gains and charges described in the comparison of our
2008 and 2007 earnings, which resulted in a $3.8 million contribution to our 2007 net income, and a $0.01 per share
contribution to our basic and diluted earnings per share.
Our 2007 earnings also reflect the nine-month benefit of the PennFed transaction, the five-month benefit of
the Doral transaction, and the three-month benefit of the transaction with Synergy.
While our 2006 earnings reflected the eight-month benefit of our acquisition of Atlantic Bank of New York
(“Atlantic Bank”) on April 2nd, the following after-tax charges reduced our 2006 earnings by $31.0 million, and our
basic and diluted earnings per share by $0.11:
(cid:120)
Charges of $18.0 million for the prepayment of wholesale borrowings and $769,000 for the termination of
our interest rate swap agreements, which were recorded in connection with the repositioning of our balance
sheet following the acquisition of Atlantic Bank;
(cid:120) A $5.4 million charge for the merger-related allocation of ESOP shares in connection with our acquisition
of Atlantic Bank;
(cid:120) A $3.6 million loss on the mark-to-market of certain interest rate swaps;
(cid:120) A $2.0 million charge recorded in connection with the retirements of our chairman and senior lending
consultant; and
(cid:120) A $1.2 million loss on debt redemption, in connection with the early redemption of certain trust preferred
securities.
71
Net Interest Income
Net interest income totaled $616.5 million in 2007, representing a $55.0 million, or 9.8%, increase from the
level recorded in 2006. Although interest expense rose $103.1 million year-over-year to $950.2 million, the increase
was exceeded by a $158.0 million rise in interest income to $1.6 billion during that time.
The increase in net interest income was driven by a combination of factors, including the steepening of the
yield curve that began midway through the year. In the first six months of 2006, the FOMC raised the federal funds
rate to 5.25%, where it remained until September 18, 2007. From that date through the end of the year, the FOMC
reduced the federal funds rate to 4.25%. While the increase in intermediate-term rates failed to keep pace with the
increase in short-term rates of interest in 2006—resulting in a yield curve inversion—the yield curve began to move
from inverted to flat midway through the year in 2007, and then began to grow steeper as short-term rates began to
decline at a faster pace than long-term interest rates.
In addition, the level of net interest income recorded in 2007 benefited significantly from an increase in
prepayment penalty income, especially in the first nine months of the year. Reflecting an increase in property sales
and refinancing activity during that time, prepayment penalty income rose $28.1 million, or 95.2%, to $57.6 million
in the twelve months ended December 31, 2007 from the level recorded in the twelve months ended December 31,
2006.
Our net interest income also reflected the benefit of our three business combinations, which contributed to the
growth of our interest-earning assets and, in the case of the PennFed acquisition, provided us with an opportunity to
reposition our balance sheet. The cash flows produced through the sale of PennFed’s loans in the second quarter
were deployed into higher-yielding assets over the course of the year. On the liability side of the balance sheet, the
transactions provided us with an infusion of deposits, enabling us to run off some of our higher-cost funding, which
further contributed to the growth of our net interest income and net interest margin.
Another step taken during the year to enhance our net interest income and margin was the redemption of
certain trust preferred securities bearing higher rates of interest, and the funding of these redemptions through the
issuance of trust preferred securities featuring lower interest rates.
Interest Income
The 11.2% increase in interest income was driven by a $1.2 billion rise in the average balance of interest-
earning assets to $25.9 billion and a 36-basis point increase in the average yield to 6.05%. Loans generated $1.2
billion of the interest income recorded during the year, representing a $98.9 million increase from the level recorded
in the twelve months ended December 31, 2006. The latter increase was the result of a $542.8 million rise in the
average balance of loans to $19.4 billion and a 35-basis point rise in the average yield to 6.27%. In addition to the
aforementioned increase in prepayment penalty income, the higher average yield reflects the replenishment of the
loan portfolio with higher-yielding loans.
Securities accounted for $319.6 million of the interest income recorded in 2007, the result of a $42.6 million
increase in the average balance to $5.9 billion and a 48-basis point increase in the average yield, to 5.44%. During
the year, the Company sold securities totaling $2.1 billion and utilized a portion of the cash flows generated to invest
in GSE obligations that featured higher yields than the securities they replaced.
To a lesser extent, the rise in interest income stemmed from a $28.6 million increase in the interest income
produced by money market investments, the result of a $566.8 million rise in the average balance of such assets, to
$594.5 million, and a 50-basis point rise in the average yield to 5.02%. During the year, our liquidity was enhanced
by the cash flows from the sale of acquired assets, a portion of which was placed in money market investments
pending reinvestment into higher-yielding securities and loans.
Interest Expense
The 12.2% increase in interest expense was the result of a $1.1 billion increase in the average balance of
interest-bearing liabilities to $24.3 billion and a 27-basis point increase in the average cost of funds to 3.92%.
Interest-bearing deposits produced interest expense of $425.8 million in 2007, reflecting a year-over-year increase of
$42.5 million, as the average balance rose to $12.3 billion and the average cost rose 30 basis points to 3.47%. CDs
72
accounted for the bulk of the rise in deposit-driven interest expense, generating 2007 interest expense of $307.8
million, a year-over-year increase of $58.5 million. The latter increase was the result of a $743.3 million rise in the
average balance of CDs to $6.7 billion, and a 41-basis point rise in the average cost of such funds to 4.61%.
The interest expense produced by savings accounts also rose in 2007, to $27.6 million from $17.9 million in
2006. The increase stemmed from a $36.6 million rise in the average balance of such funds to $2.5 billion and a 37-
basis point rise in the average cost to 1.09%. The increase in interest expense was partly offset by a $25.7 million
reduction in the interest expense produced by NOW and money market accounts to $90.3 million, as the average
balance of such funds declined by $593.8 million and the average cost declined 21 basis points to 3.09%. The higher
average balances of CDs and savings accounts were largely attributable to our three acquisitions, while the reduction
in NOW and money market accounts reflects our efforts to reduce our higher-cost funds over the course of the year.
Non-interest-bearing deposits averaged $1.2 billion in 2007, and were up $82.2 million from the average
balance in 2006.
Interest Rate Spread and Net Interest Margin
The same factors that contributed to the growth of our net interest income in 2007 contributed to the
expansion of our interest rate spread and net interest margin over the course of the year. At 2.13%, our spread was
nine basis points higher than the year-earlier measure; at 2.38%, our margin was up 11 basis points year-over-year.
Provision for Loan Losses
The quality of our loan portfolio was consistently solid over the course of 2007. Non-performing loans
represented 0.11% of total loans at December 31, 2007, the same as the year-earlier measure, and non-performing
assets represented 0.07% of total assets, reflecting a year-over-year improvement of one basis point. In addition, the
allowance for loan losses rose $7.4 million to $92.8 million at December 31, 2007, as the transaction-related
additions to our loan loss allowance exceeded the modest level of loans we charged off. In 2007 and 2006, charge-
offs totaled $431,000 and $420,000, each representing 0.002% of average loans.
In view of these factors, and others considered in management’s assessment, no provision for loan losses was
recorded during the twelve months ended December 31, 2007 or 2006.
Non-Interest Income
In 2007, our ongoing sources of non-interest income—fee income, BOLI income, and other income—
reflected an improvement from the levels recorded in 2006. Fee income rose $3.5 million, or 9.1%, to $42.2 million,
largely reflecting the acquisition-driven increase in depository accounts. We also realized a $2.5 million, or 10.6%,
increase in BOLI income, the result of an increase in the underlying cash value of our investment, and the addition
of $54.6 million in BOLI through the acquisitions of PennFed and Synergy. Other income rose 9.1% during this
time, to $34.8 million, as an expected decline in joint venture income was exceeded by increased revenues from the
sale of third-party investment products and an increase in the revenues produced by PBC.
While these ongoing revenue sources contributed to an increase in non-interest income in 2007, certain other
factors had a more significant impact. Most notably, the sale of our Atlantic Bank headquarters in Manhattan
generated a pre-tax gain of $64.9 million; we also recorded net gains on the sale of securities of $1.9 million during
the year. These favorable factors were largely tempered by a $57.0 million pre-tax loss on the OTTI of securities,
recorded in the second quarter, in anticipation of selling those securities in the third quarter of the year as previously
discussed. The level of non-interest income also reflects a $1.8 million pre-tax loss on debt redemption, in
connection with the early redemption of certain trust preferred securities.
In 2006, the level of non-interest income was reduced by a $313,000 loss on the OTTI of securities; a $1.9
million loss on debt redemption; and a $6.1 million loss on the mark-to-market of certain interest rate swaps. These
negative factors were only partly offset by net gains of $3.0 million on the sale of securities.
Reflecting the year-over-year increase in fee income, BOLI income, and other income, and the impact of the
additional factors cited above, we recorded non-interest income of $111.1 million in 2007, signifying a 24.8%
increase from $89.0 million in 2006.
73
Non-Interest Expense
Largely reflecting our acquisition-driven expansion, operating expenses rose $43.2 million to $299.6 million
in 2007 from the level recorded in the prior year. The increase was the result of a $20.5 million rise in compensation
and benefits expense to $159.2 million; an $11.8 million increase in occupancy and equipment expense to $68.5
million; and a $10.9 million increase in G&A expense to $71.8 million.
In addition to the acquisition-driven growth of our branch and back-office staff, the rise in compensation and
benefits expense reflected normal salary increases and expenses recorded in connection with certain stock incentive
awards. The increase in 2007 compensation and benefits expense was partly offset by a year-over-year reduction in
the merger-related charge stemming from the allocation of ESOP shares in connection with our bank acquisitions, to
$2.2 million from $5.7 million in 2006.
The increase in occupancy and equipment expense stemmed from the addition of 56 locations to our branch
network, which was only nominally offset by the sale of two in-store branches in Westchester County and the
closure of two traditional branches on Long Island during the year. The increase in G&A expense stemmed from a
variety of sources, including acquisition-related professional fees and marketing costs.
Also included in 2007 G&A expense was a $1.0 million Visa litigation charge relating to our membership
interest in Visa, as discussed in the comparison of our 2008 and 2007 non-interest expense.
Reflecting the CDI acquired in connection with our PennFed, Doral, and Synergy transactions, the
amortization of CDI rose to $22.8 million in 2007 from $17.9 million in 2006.
In addition to these ongoing expense items, the level of non-interest expense recorded in 2007 was increased
by a $3.2 million charge for the prepayment of wholesale borrowings. In 2006, the prepayment of wholesale
borrowings generated a charge of $26.5 million; in addition, we recorded a $1.1 million charge for the termination
of certain interest rate swaps in non-interest expense during that year.
As a result of these charges, and the year-over-year increases in operating expenses and CDI amortization,
non-interest expense rose 7.8% year-over-year to $325.5 million in 2007 from $301.8 million in 2006.
Income Tax Expense
Income tax expense totaled $123.0 million in 2007, $6.9 million higher than the year-earlier amount.
Although pre-tax income rose $53.4 million year-over-year, to $402.1 million, the increase was partly tempered by a
reduction in the effective tax rate to 30.6% from 33.3% during this time.
The higher effective tax rate in 2006 was, in part, attributable to the non-deductibility of the merger-related
charge that was recorded for the allocation of ESOP shares in connection with our acquisition of Atlantic Bank in
April of that year. While a merger-related charge was also incurred in connection with our PennFed and Synergy
acquisitions in 2007, the amount of the pre-tax charge in 2006 exceeded the 2007 amount by $3.5 million, as
previously discussed under “non-interest expense.” In addition, our 2006 income tax expense included the
establishment of certain deferred tax valuation allowances.
As a result of developments and settlements of IRS and New York tax audits, the Company adjusted its
reserve for unrecognized tax benefits and related interest accrual in 2007. These tax adjustments had an immaterial
impact on the Company’s income tax expense for the year.
74
QUARTERLY FINANCIAL DATA
The following table sets forth selected unaudited quarterly financial data for the years ended December 31,
2008 and 2007:
(in thousands, except per share data)
Net interest income
Provision for loan losses
Non-interest income (loss)
Non-interest expense
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
4th(1)
$201,607
5,600
29,023
86,655
138,375
36,143
$102,232
$0.30
$0.30
2008
3rd (2)
$181,879
400
(19,332 )
84,335
77,812
19,748
$ 58,064
$0.17
$0.17
2nd(3)
1st
$ 130,550 $161,459
--
28,497
84,850
105,106
32,735
$ 72,371
$0.22
$0.22
1,700
(22,659)
373,690
(267,499)
(112,716)
$(154,783)
$(0.47)
$(0.47)
2007
4th
$154,408
--
26,498
87,913
92,993
25,613
$ 67,380
$0.21
$0.21
3rd(4)
$154,852
--
84,442
78,655
160,639
49,730
$110,909
$0.36
$0.35
2nd(5)
1st
--
(23,929)
84,608
52,545
16,571
$161,082 $146,188
--
24,081
74,347
95,922
31,103
$ 35,974 $ 64,819
$0.22
$0.22
$0.12
$0.12
(1)
(2)
(3)
(4)
(5)
Includes a pre-tax loss of $10.6 million on the other-than-temporary impairment of securities and a non-taxable $16.0
million gain on debt repurchase, which were recorded in non-interest income. On an after-tax basis, the combination
increased our net income in the quarter by $9.8 million, or $0.03 per diluted share, after-tax.
Includes a pre-tax loss of $44.2 million on the other-than-temporary impairment of securities which was recorded in non-
interest income. On an after-tax basis, the charge was equivalent to $26.7 million, or $0.08 per diluted share.
Includes a pre-tax debt repositioning charge of $325.0 million and a litigation settlement charge of $3.4 million, both of
which were recorded in non-interest expense. Also includes a loss of $49.6 million on the other-than-temporary
impairment of securities which was recorded in non-interest income. On an after-tax basis, the collective charges were
equivalent to $231.3 million, or $0.70 per diluted share.
Includes a pre-tax gain of $64.9 million on the sale of bank-owned property that was recorded in non-interest income and
was equivalent to $44.8 million, or $0.14 per diluted share, after-tax.
Includes a pre-tax loss of $57.0 million on the other-than-temporary impairment of securities and a $1.8 million loss on
debt redemption, both of which were recorded in non-interest income. Also includes a charge of $3.2 million for the
prepayment of wholesale borrowings which was recorded in non-interest expense. On an after-tax basis, the collective
charges were equivalent to $42.1 million, or $0.13 per diluted share.
IMPACT OF INFLATION
The Consolidated Financial Statements and notes thereto presented in this report have been prepared in
accordance with GAAP, which require that we measure our financial condition and operating results in terms of
historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.
The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, nearly all of
a bank’s assets and liabilities are monetary in nature. As a result, interest rates have a greater impact on our
performance than general levels of inflation. Interest rates do not necessarily move in the same direction, or to the
same extent, as the prices of goods and services.
IMPACT OF ACCOUNTING PRONOUNCEMENTS
Please refer to Note 2 to the Consolidated Financial Statements, “Summary of Significant Accounting
Policies,” in Item 8, “Financial Statements and Supplementary Data,” for a discussion of the impact of recent
accounting pronouncements on our financial condition and results of operations.
75
RECONCILIATION OF STOCKHOLDERS’ EQUITY AND TANGIBLE STOCKHOLDERS’ EQUITY,
TOTAL ASSETS AND TANGIBLE ASSETS, AND THE RELATED MEASURES
Although tangible stockholders’ equity, adjusted tangible stockholders’ equity, tangible assets, and adjusted
tangible assets are not measures that are calculated in accordance with GAAP, our management uses these non-
GAAP measures in its analysis of our performance. We believe that these non-GAAP measures are important
indications of our ability to grow both organically and through business combinations and, with respect to tangible
stockholders’ equity and adjusted tangible stockholders’ equity, our ability to pay dividends and to engage in various
capital management strategies.
We calculate tangible stockholders’ equity by subtracting from stockholders’ equity the sum of our goodwill
and CDI, and calculate tangible assets by subtracting the same sum from our total assets. To calculate our ratio of
tangible stockholders’ equity to tangible assets, we divide our tangible stockholders’ equity by our tangible assets,
both of which include the accumulated comprehensive loss, net of tax (“AOCL”). The AOCL consists of after-tax
net unrealized losses on securities and pension and post-retirement obligations, and is recorded in our Consolidated
Statements of Condition. We also calculate our ratio of tangible stockholders’ equity to tangible assets excluding the
AOCL, as its components are impacted by changes in market conditions, including interest rates, which fluctuate.
This ratio is referred to below and earlier in this report as the ratio of “adjusted tangible stockholders’ equity to
adjusted tangible assets.”
Neither tangible stockholders’ equity, adjusted tangible stockholders’ equity, tangible assets, adjusted tangible
assets, nor the related tangible capital measures should be considered in isolation or as a substitute for stockholders’
equity or any other capital measure prepared in accordance with GAAP. Moreover, the manner in which we
calculate these non-GAAP capital measures may differ from that of other companies reporting measures of capital
with similar names.
Reconciliations of our stockholders’ equity, tangible stockholders’ equity, and adjusted tangible stockholders’
equity; our total assets, tangible assets, and adjusted tangible assets; and the related measures at December 31, 2008
and 2007 follow:
(dollars in thousands)
Total stockholders’ equity
Less: Goodwill
Core deposit intangibles
Tangible stockholders’ equity
Total assets
Less: Goodwill
Core deposit intangibles
Tangible assets
December 31,
2008
$ 4,219,246
(2,436,401)
(87,780)
$ 1,695,065
$32,466,906
(2,436,401)
(87,780)
$29,942,725
2007
$ 4,182,313
(2,437,404)
(111,123)
$ 1,633,786
$30,579,822
(2,437,404)
(111,123)
$28,031,295
Stockholders’ equity to total assets
13.00%
13.68%
Tangible stockholders’ equity to tangible assets
5.66%
5.83%
Tangible stockholders’ equity
Add back: Accumulated other comprehensive loss, net of tax
Adjusted tangible stockholders’ equity
Tangible assets
Add back: Accumulated other comprehensive loss, net of tax
Adjusted tangible assets
$1,695,065
87,319
$1,782,384
$29,942,725
87,319
$30,030,044
$1,633,786
21,315
$1,655,101
$28,031,295
21,315
$28,052,610
Adjusted tangible stockholders’ equity to adjusted tangible assets
5.94%
5.90%
76
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We manage our assets and liabilities to reduce our exposure to changes in market interest rates. The asset and
liability management process has three primary objectives: to evaluate the interest rate risk inherent in certain
balance sheet accounts; to determine the appropriate level of risk, given our business strategy, operating
environment, capital and liquidity requirements, and performance objectives; and to manage that risk in a manner
consistent with guidelines approved by the Boards of Directors of the Company, the Community Bank, and the
Commercial Bank.
Market Risk
As a financial institution, we are focused on reducing our exposure to interest rate volatility, which represents
our primary market risk. Changes in market interest rates represent the greatest challenge to our financial
performance, as such changes can have a significant impact on the level of income and expense recorded on a large
portion of our interest-earning assets and interest-bearing liabilities, and on the market value of all interest-earning
assets, other than those possessing a short term to maturity. To reduce our exposure to changing rates, the Board of
Directors and management monitor interest rate sensitivity on a regular or as needed basis so that adjustments in the
asset and liability mix can be made when deemed appropriate.
The actual duration of mortgage loans and mortgage-related securities can be significantly impacted by
changes in prepayment levels and market interest rates. The level of prepayments may be impacted by a variety of
factors, including the economy in the region where the underlying mortgages were originated; seasonal factors;
demographic variables; and the assumability of the underlying mortgages. However, the largest determinants of
prepayments are market interest rates and the availability of refinancing opportunities.
To manage our interest rate risk in 2008, we continued to pursue the core components of our business model:
(1) We placed an emphasis on the origination and retention of intermediate-term assets, primarily in the form of
multi-family and CRE loans; (2) We utilized the cash flows from loan and securities repayments to fund our loan
production, as well as our more limited investments in GSE securities; (3) We capitalized on the decline in the
federal funds rate to reduce our retail funding costs; and (4) We utilized wholesale funding sources, including
brokered deposits, to support our loan production when such funding presented an attractively priced alternative to
retail funds. To further reduce our funding costs, we prepaid $4.0 billion of higher-cost borrowed funds and replaced
them with $3.8 billion of lower-cost wholesale borrowings, and we issued $602.0 million of fixed rate senior notes
($512.0 million maturing on December 16, 2011 and $90.0 million maturing on June 22, 2012) under the TLGP.
Interest Rate Sensitivity Analysis
The matching of assets and liabilities may be analyzed by examining the extent to which such assets and
liabilities are “interest rate sensitive” and by monitoring a bank’s interest rate sensitivity “gap.” An asset or liability
is said to be interest rate sensitive within a specific time frame if it will mature or reprice within that period of time.
The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing
or repricing within a specific time frame and the amount of interest-bearing liabilities maturing or repricing within
that same period of time. In a rising interest rate environment, an institution with a negative gap would generally be
expected, absent the effects of other factors, to experience a greater increase in the cost of its interest-bearing
liabilities than it would in the yield on its interest-earning assets, thus producing a decline in its net interest income.
Conversely, in a declining rate environment, an institution with a negative gap would generally be expected to
experience a lesser reduction in the yield on its interest-earning assets than it would in the cost of its interest-bearing
liabilities, thus producing an increase in its net interest income.
In a rising interest rate environment, an institution with a positive gap would generally be expected to
experience a greater increase in the yield on its interest-earning assets than it would in the cost of its interest-bearing
liabilities, thus producing an increase in its net interest income. Conversely, in a declining rate environment, an
institution with a positive gap would generally be expected to experience a lesser reduction in the cost of its interest-
bearing liabilities than it would in the yield on its interest-earning assets, thus producing a decline in its net interest
income.
At December 31, 2008, our one-year gap was a positive 0.16%, as compared to a positive 3.37% at
December 31, 2007. The movement of our one-year gap was partly attributable to the extension of our wholesale
77
borrowings to terms exceeding one year. In contrast to December 31, 2007, when 20.3% of our borrowed funds
were expected to mature or be called within a twelve-month period, 10.0% of our borrowed funds were expected to
mature or be called within one year at December 31, 2008. The movement in our one-year gap also reflects the
extended maturity of other securities, in addition to the shortened maturities of our money market accounts which
resulted from the increase in brokered funds.
The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding
at December 31, 2008 which, based on certain assumptions stemming from our historical experience, are expected to
reprice or mature in each of the future time periods shown. Except as stated below, the amounts of assets and
liabilities shown as repricing or maturing during a particular time period were determined in accordance with the
earlier of (1) the term to repricing, or (2) the contractual terms of the asset or liability. The table provides an
approximation of the projected repricing of assets and liabilities at December 31, 2008 on the basis of contractual
maturities, anticipated prepayments (including anticipated calls on wholesale borrowings), and scheduled rate
adjustments within a three-month period and subsequent selected time intervals. For loans and mortgage-related
securities, prepayment rates were assumed to range up to 18% annually. Savings accounts, Super NOW accounts,
and NOW accounts were assumed to decay at an annual rate of 5% for the first five years and 15% for the years
thereafter. With the exception of those accounts having specified repricing dates, money market accounts were
assumed to decay at an annual rate of 20% for the first five years and 50% in the years thereafter.
Prepayment and deposit decay rates can have a significant impact on our estimated gap. While we believe our
assumptions to be reasonable, there can be no assurance that the assumed prepayment and decay rates noted above
will approximate actual future loan prepayments and deposit withdrawal activity.
78
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Certain shortcomings are inherent in the method of analysis presented in the preceding Interest Rate
Sensitivity Analysis. For example, although certain assets and liabilities may have similar maturities or periods to
repricing, they may react in varying degrees to changes in market interest rates. The interest rates on certain types of
assets and liabilities may fluctuate in advance of the market, while interest rates on other types may lag behind
changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have features that restrict
changes in interest rates both on a short-term basis and over the life of the asset. Furthermore, in the event of a
change in interest rates, prepayment and early withdrawal levels would likely deviate from those assumed in
calculating the table. Finally, the ability of some borrowers to repay their adjustable-rate loans may be adversely
impacted by an increase in market interest rates.
Net Portfolio Value
Interest rate sensitivity is also monitored through the use of a model that generates estimates of the change in
our net portfolio value (“NPV”) over a range of interest rate scenarios. NPV is defined as the net present value of
expected cash flows from assets, liabilities, and off-balance-sheet contracts. The NPV ratio, under any interest rate
scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The
model assumes estimated loan prepayment rates, reinvestment rates, and deposit decay rates similar to those utilized
in formulating the preceding Interest Rate Sensitivity Analysis.
The following table sets forth our NPV as of December 31, 2008:
(dollars in thousands)
Change in
Interest Rates
(in basis points) (1)(2)
-100
--
+100
+200
Market Value
of Assets
$33,755,153
33,332,942
32,381,207
31,641,640
Market Value
of Liabilities
$30,830,586
29,985,952
29,354,535
28,848,534
Net Portfolio
Value
$2,924,567
3,346,990
3,026,672
2,793,106
Net Change
$(422,423)
--
(320,318)
(553,884)
Portfolio Market
Value Projected
% Change
to Base
(12.62)%
--
(9.57)
(16.55)
(1)
(2)
The impact of a 100-basis point reduction in interest rates includes inherent limitations given the current level of the
federal funds rate and other short-term interest rates.
The impact of a 200-basis point reduction in interest rates is not presented in view of the current level of the federal funds
rate and other short-term interest rates. The impact of a 100-basis point reduction in interest rates includes inherent
limitations, given the current level of the federal funds rate and other short-term interest rates.
The net changes in NPV presented in the preceding table are within the parameters approved by the Boards of
Directors of the Company and the Banks.
As with the Interest Rate Sensitivity Analysis, certain shortcomings are inherent in the methodology used in
the preceding interest rate risk measurements. Modeling changes in NPV requires that certain assumptions be made
which may or may not reflect the manner in which actual yields and costs respond to changes in market interest
rates. In this regard, the NPV Analysis presented above assumes that the composition of our interest rate sensitive
assets and liabilities existing at the beginning of a period remains constant over the period being measured, and also
assumes that a particular change in interest rates is reflected uniformly across the yield curve, regardless of the
duration to maturity or repricing of specific assets and liabilities. Furthermore, the model does not take into account
the benefit of any strategic actions we may take to further reduce our exposure to interest rate risk. Accordingly,
while the NPV Analysis provides an indication of our interest rate risk exposure at a particular point in time, such
measurements are not intended to, and do not, provide a precise forecast of the effect of changes in market interest
rates on our net interest income, and may very well differ from actual results.
Net Interest Income Simulation
In addition to the analyses of gap and NPV, we utilize an internal net interest income simulation to manage
our sensitivity to interest rate risk. The simulation incorporates various market-based assumptions regarding the
impact of changing interest rates on our future levels of financial assets and liabilities. The assumptions used in this
simulation are inherently uncertain. Actual results may differ significantly from those presented in the table that
follows, due to several factors, including the frequency, timing, and magnitude of changes in interest rates; changes
80
in spreads between maturity and repricing categories; and prepayments, coupled with any actions taken to counter
the effects of any such changes.
Based on the information and assumptions in effect at December 31, 2008, the following table sets forth the
estimated percentage change in future net interest income for the next twelve months, assuming a gradual increase
or decrease in interest rates during such time:
Change in Interest Rates
(in basis points)(1)(2)
+200 over one year
+100 over one year
- 100 over one year
Estimated Percentage Change in
Future Net Interest Income
(2.09)%
(0.90)
(0.75)
(1)
(2)
In general, short- and long-term rates are assumed to increase or decrease in parallel fashion across all four quarters and
then remain unchanged.
The impact of a 200-basis point reduction in interest rates is not presented in view of the current level of the federal funds
rate and other short-term interest rates. The impact of a 100-basis point reduction in interest rates includes inherent
limitations, given the current level of the federal funds rate and other short-term interest rates.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Consolidated Financial Statements and notes thereto and other supplementary data begin on page 82.
81
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
New York Community Bancorp, Inc:
We have audited the accompanying consolidated statements of condition of New York Community Bancorp, Inc.
and subsidiaries (the “Company”) as of December 31, 2008 and 2007, 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, 2008. 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 the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of New York Community Bancorp, Inc. and subsidiaries as of December 31, 2008 and 2007, and
the results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2008, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company’s internal control over financial reporting as of December 31, 2008, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 2, 2009 expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
New York, New York
March 2, 2009
82
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
New York Community Bancorp, Inc.:
We have audited the internal control over financial reporting of New York Community Bancorp, Inc. and
subsidiaries (the “Company”) as of December 31, 2008, based on criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express
an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated statements of condition of the Company as of December 31, 2008 and 2007, 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, 2008, and our report dated March 2, 2009 expressed
an unqualified opinion on those consolidated financial statements.
New York, New York
March 2, 2009
83
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(in thousands, except share data)
ASSETS:
Cash and cash equivalents
Securities available for sale:
Mortgage-related securities ($811,152 and $944,225 pledged, respectively)
Other securities ($78,847 and $140,032 pledged, respectively)
Total available-for-sale securities
Securities held to maturity:
Mortgage-related securities ($3,131,098 and $2,414,157 pledged, respectively)
(fair value of $3,199,414 and $2,432,987, respectively)
Other securities ($1,359,912 and $1,477,966 pledged, respectively)
(fair value of $1,628,387 and $1,891,207, respectively)
Total held-to-maturity securities
Total securities
Loans, net of deferred loan fees and costs
Less: Allowance for loan losses
Loans, net
Federal Home Loan Bank of New York (“FHLB-NY”) stock, at cost
Premises and equipment, net
Goodwill
Core deposit intangibles, net
Bank-owned life insurance
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Deposits:
NOW and money market accounts
Savings accounts
Certificates of deposit
Non-interest-bearing accounts
Total deposits
Borrowed funds:
FHLB-NY advances
Repurchase agreements
Federal funds purchased
Junior subordinated debentures
Other borrowings
Total borrowed funds
Mortgagors’ escrow
Other liabilities
Total liabilities
Stockholders’ equity:
Preferred stock at par $0.01 (5,000,000 shares authorized; none issued)
Common stock at par $0.01 (600,000,000 shares authorized; 344,985,111 and
323,812,639 shares issued and outstanding at each of the respective dates)
Paid-in capital in excess of par
Retained earnings
Unallocated common stock held by Employee Stock Ownership Plan (“ESOP”)
Accumulated other comprehensive loss, net of tax:
Net unrealized loss on available for sale securities, net of tax
Net unrealized loss on securities transferred from available for sale to held to maturity,
net of tax
Net unrealized loss on pension and post-retirement obligations, net of tax
Total accumulated other comprehensive loss, net of tax
Total stockholders’ equity
Commitments and contingencies
Total liabilities and stockholders’ equity
See accompanying notes to the consolidated financial statements.
84
December 31,
2008
2007
$ 203,216
$ 335,743
833,684
176,818
1,010,502
973,324
407,932
1,381,256
3,164,856
2,479,483
1,726,135
4,890,991
5,901,493
22,192,212
(94,368)
22,097,844
400,979
217,762
2,436,401
87,780
691,429
430,002
$32,466,906
1,883,162
4,362,645
5,743,901
20,363,248
(92,794)
20,270,454
423,069
214,906
2,437,404
111,123
664,431
378,791
$30,579,822
$ 3,818,952
2,629,168
6,796,971
1,047,363
14,292,454
$ 2,456,756
2,514,189
6,913,036
1,273,352
13,157,333
7,708,064
4,485,000
150,000
484,216
669,430
13,496,710
83,194
375,302
28,247,660
7,782,390
4,411,220
--
484,843
237,219
12,915,672
78,468
246,036
26,397,509
--
--
3,450
4,181,599
123,511
(1,995)
3,238
3,812,718
390,757
(3,085)
(32,506)
(7,625)
(4,706)
(50,107 )
(87,319)
4,219,246
(7,211)
(6,479)
(21,315)
4,182,313
$32,466,906
$30,579,822
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Years Ended December 31,
2007
2008
2006
$1,260,291
341,895
2,943
1,605,129
$1,217,348
319,566
29,831
1,566,745
$1,118,467
288,979
1,254
1,408,700
54,599
22,075
271,615
581,241
104
929,634
675,495
7,700
667,795
41,191
28,644
573
(104,317 )
16,962
--
--
32,476
15,529
90,346
27,588
307,764
524,391
126
950,215
616,530
--
616,530
42,170
26,142
1,888
(56,958 )
(1,848 )
64,879
--
34,819
111,092
116,055
17,856
249,286
463,761
176
847,134
561,566
--
561,566
38,662
23,627
3,033
(313 )
(1,859 )
--
(6,071 )
31,911
88,990
169,970
70,654
80,194
320,818
285,369
--
23,343
629,530
53,794
(24,090 )
$ 77,884
159,217
68,543
71,815
299,575
3,190
--
22,758
325,523
402,099
123,017
$ 279,082
138,705
56,735
60,922
256,362
26,477
1,132
17,871
301,842
348,714
116,129
$ 232,585
(22,376 )
(43,628 )
$ 11,880
37,289
9,449
$ 325,820
3,732
--
$ 236,317
$0.23
$0.23
$0.90
$0.90
$0.82
$0.81
(in thousands, except per share data)
INTEREST INCOME:
Mortgage and other loans
Securities
Money market investments
Total interest income
INTEREST EXPENSE:
NOW and money market accounts
Savings accounts
Certificates of deposit
Borrowed funds
Mortgagors’ escrow
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
NON-INTEREST INCOME:
Fee income
Bank-owned life insurance
Net gain on sale of securities
Loss on other-than-temporary impairment of securities
Gain (loss) on debt repurchases
Gain on sale of bank-owned property
Loss on mark-to-market of interest rate swaps
Other
Total non-interest income
NON-INTEREST EXPENSE:
Operating expenses:
Compensation and benefits
Occupancy and equipment
General and administrative
Total operating expenses
Debt repositioning charges
Termination of interest rate swaps
Amortization of core deposit intangibles
Total non-interest expense
Income before income taxes
Income tax (benefit) expense
Net income
Other comprehensive income, net of tax:
Change in net unrealized losses on securities
Change in pension and post-retirement obligations
Total comprehensive income, net of tax
Basic earnings per share
Diluted earnings per share
See accompanying notes to the consolidated financial statements.
85
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)
COMMON STOCK (Par Value: $0.01):
Years Ended December 31,
2007
2006
2008
Balance at beginning of year
Shares issued for exercise of stock options (1,415,990; 3,081,431; and 192,982,
$ 3,238 $ 2,954 $ 2,734
respectively)
Shares issued for restricted stock awards (1,881,850; 725,491; and 48,000, respectively)
Shares issued in stock offerings (17,871,000; 0; and 21,713,502, respectively)
Shares issued for exercise of warrants related to BONUSES Units (3,632 in 2008)
Shares issued for business combinations (24,654,781 in 2007)
Balance at end of year
14
19
179
--
--
3,450
30
7
--
--
247
3,238
2
1
217
--
--
2,954
PAID-IN CAPITAL IN EXCESS OF PAR:
Balance at beginning of year
Allocation of ESOP stock
Exercise of stock options
Restricted stock activity
Exercise of warrants related to BONUSES Units
Common shares issued in stock offerings
Common shares issued for business combinations
Tax effect of stock plans
Cash-in-lieu of fractional shares
Balance at end of year
RETAINED EARNINGS:
Balance at beginning of year
Net income
Dividends paid on common stock ($1.00 per share in each year)
Effect of adopting Emerging Issues Task Force Issue No. 06-4
Effect of accounting change regarding pension and post-retirement benefits measurement
date pursuant to Statement of Financial Accounting Standards No. 158
Effect of adoption of Financial Accounting Standards Board Interpretation No. 48
(“FIN 48”)
Balance at end of year
TREASURY STOCK:
Balance at beginning of year
Purchase of common stock (115,416; 9,424; and 143,592 shares, respectively)
Shares issued in stock offering (2,786,498 shares in 2006)
Exercise of stock options (115,416; 9,424; and 976,755 shares, respectively)
Cash-in-lieu of fractional shares
Balance at end of year
UNALLOCATED COMMON STOCK HELD BY ESOP:
Balance at beginning of year
Earned portion of ESOP
Balance at end of year
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX:
Balance at beginning of year
Pension and post-retirement obligations, net of tax of $10,697, from the adoption of
Statement of Financial Accounting Standards No. 158
Other comprehensive (loss) income, net of tax:
3,812,718
4,702
15,714
7,869
48
338,974
--
1,574
--
4,181,599
3,338,227
7,082
62,837
3,644
--
--
403,074
(2,139 )
(7 )
3,812,718
3,009,542
9,739
4,705
43
--
314,093
--
105
--
3,338,227
390,757
77,884
(333,509)
(12,709)
421,313
279,082
(310,205 )
--
475,501
232,585
(286,773)
--
1,088
--
--
--
123,511
567
390,757
--
421,313
--
(2,208)
--
2,208
--
--
(3,085)
1,090
(1,995)
--
(168 )
--
168
--
--
(100,169)
(2,415)
85,806
16,780
(2)
--
(4,604 )
1,519
(3,085 )
(6,874)
2,270
(4,604)
(21,315)
(68,053 )
(55,857)
--
--
(15,928)
Change in net unrealized loss on securities available for sale, net of tax of $55,795;
$(1,164); and $(1,609), respectively
(87,269)
1,786
2,430
Amortization of net unrealized loss on securities transferred from available for sale
to held to maturity, net of tax of $(1,606); $(1,403); and $(2,070), respectively
Change in pension and post-retirement obligations, net of tax of $27,891 and
$(6,148)
Less: Reclassification adjustment for net gain on sale of securities and loss on
other-than-temporary impairment of securities, net of tax of $(41,356);
$(21,727); and $1,208, respectively
Other comprehensive (loss) income, net of tax
Balance at end of year
Total stockholders’ equity
2,505
2,160
3,127
(43,628)
9,449
--
62,388
(66,004)
(87,319)
33,343
46,738
(21,315 )
$4,219,246 $4,182,313
(1,825)
3,732
(68,053)
$3,689,837
See accompanying notes to the consolidated financial statements.
86
NEW YORK COMMUNITY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Years Ended December 31,
2007
2008
2006
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$ 77,884 $ 279,082 $ 232,585
Provision for loan losses
Depreciation and amortization
Accretion of discounts, net
Net change in net deferred loan origination costs and fees
Amortization of core deposit intangibles
Net gain on sale of securities
Net gain on sale of loans
Gain on sale of bank-owned property
Stock plan-related compensation
Loss on other-than-temporary impairment of securities
Changes in assets and liabilities:
(Increase) decrease in deferred tax asset, net
(Increase) decrease in other assets
Increase (decrease) in other liabilities
Origination of loans held for sale
Proceeds from sale of loans originated for sale
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from repayment of securities held to maturity
Proceeds from repayment of securities available for sale
Proceeds from sale of securities available for sale
Purchase of securities held to maturity
Purchase of securities available for sale
Net redemption (purchase) of FHLB-NY stock
Adjustments to intangible assets, net
Net (increase) decrease in loans
Purchase of loans
Proceeds from sale of loans
Net proceeds from sale of bank-owned property
Purchase of premises and equipment, net
Net cash acquired in (used for) business acquisitions
Net cash (used in) provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits
Net increase (decrease) in short-term borrowings
Net (decrease) increase in long-term borrowings
Net increase (decrease) in mortgagors’ escrow
Tax effect of stock plans
Cash dividends paid on common stock
Treasury stock purchases
Net cash received from stock option exercises
Net cash received from warrant exercises
Proceeds from issuance of common stock, net
Proceeds from issuance of treasury shares
Cash-in-lieu of fractional shares
Net cash provided by (used in) financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental information:
Cash paid for interest
Cash paid for income taxes
Non-cash investing activities:
Mortgage loans securitized and transferred to mortgage-related
securities available for sale
Transfers to other real estate owned from loans
7,700
19,731
(19,946)
5,448
23,343
(573)
(326)
--
13,680
104,317
(31,095)
(75,596)
120,193
(47,385)
47,375
244,750
--
18,989
(3,477)
1,585
22,758
(1,888)
(705)
(64,879)
12,252
56,958
32,904
(38,698)
(15,272)
(66,181)
62,792
296,220
--
15,463
(2,929)
(55)
17,871
(3,033)
(693)
--
12,052
313
53,278
40,781
(74,505)
(60,152)
59,701
290,677
2,295,852
230,016
11,543
(2,735,893)
(12,320)
22,090
--
(1,886,497)
(45,500)
25,035
--
(22,587)
--
(2,118,261)
637,596
296,345
2,115,530
(2,010,035)
(517,954)
18,692
--
582,909
(180,465)
823,065
99,608
(8,803)
159,172
2,015,660
278,974
516,601
1,245,014
--
(195,577)
(61,487)
(553)
(1,414,958)
--
--
--
(11,524)
(325,765)
30,725
1,135,121
1,012,900
(431,887)
4,726
1,574
(333,509)
(2,208)
15,041
73
339,153
--
--
1,740,984
(132,527)
335,743
(1,282,572)
(407,380)
1,242,019
270
105
(286,773)
(2,415)
14,183
--
314,313
85,806
(2)
(322,446)
(1,044)
231,803
$ 203,216 $ 335,743 $ 230,759
(2,020,041)
(308,200)
400,699
(10,899)
(2,139)
(310,205)
(168)
44,064
--
--
--
(7)
(2,206,896)
104,984
230,759
$950,637
13,121
$984,340
98,100
$878,048
14,018
$71,307
982
$593,816
706
$ --
47
Note: The fair values of non-cash assets acquired, excluding goodwill and core deposit intangibles, and of liabilities assumed in the acquisitions of PennFed Financial Services, Inc. on April 2,
2007, Synergy Financial Group, Inc. on October 1, 2007; and in the Doral Bank, FSB transaction on July 26, 2007, were as follows: PennFed - $2.2 billion and $2.2 billion, respectively;
Synergy - $868.2 million and $821.0 million, respectively; and Doral - $375.3 million and $504.4 million, respectively. The fair values of non-cash assets acquired, excluding goodwill and core
deposit intangibles, and of liabilities assumed in the acquisition of Atlantic Bank of New York on April 28, 2006 were $2.5 billion and $2.4 billion, respectively.
See accompanying notes to the consolidated financial statements.
87
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
Organization
Formerly known as Queens County Bancorp, Inc., New York Community Bancorp, Inc. (on a stand-alone
basis, the “Parent Company” or, collectively with its subsidiaries, the “Company”) was organized under Delaware
law on July 20, 1993 and is the holding company for New York Community Bank and New York Commercial Bank
(hereinafter referred to as the “Community Bank” and the “Commercial Bank,” respectively, and collectively as the
“Banks”). In addition, for the purpose of these Consolidated Financial Statements, the “Community Bank” and the
“Commercial Bank” refer not only to the respective banks but also to their respective subsidiaries.
The Community Bank is the primary banking subsidiary of the Company. Founded on April 14, 1859 and
formerly known as Queens County Savings Bank, the Community Bank converted from a state-chartered mutual
savings bank to the capital stock form of ownership on November 23, 1993, at which date the Company issued its
initial offering of common stock (par value: $0.01 per share) at a price of $25.00 per share. The Commercial Bank
was established on December 30, 2005.
Reflecting nine stock splits, the Company’s initial offering price adjusts to $0.93 per share. All share and per
share data presented in this report have been adjusted to reflect the impact of the stock splits.
The Company changed its name to New York Community Bancorp, Inc. on November 21, 2000 in
anticipation of completing the first of eight business combinations that expanded its footprint well beyond Queens
County to encompass all five boroughs of New York City, Long Island, and Westchester County in New York, and
seven counties in the northern and central parts of New Jersey.
Reflecting this strategy of growing through acquisitions, the Community Bank currently operates 178
branches, four of which operate directly under the Community Bank name. The remaining 174 branches operate
through six divisional banks—four in New York (Queens County Savings Bank, Roslyn Savings Bank, Richmond
County Savings Bank, and Roosevelt Savings Bank) and two in New Jersey (Garden State Community Bank and
Synergy Bank). In May 2009, the branches that currently operate through the Synergy Bank division are expected to
commence operations under the Garden State Community Bank name.
The Commercial Bank currently operates 37 branches in Manhattan, Queens, Brooklyn, Westchester County,
and Long Island, including 18 branches that operate under the name “Atlantic Bank.”
Basis of Presentation
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 U.S. generally accepted accounting principles (“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. Such estimates that are particularly susceptible to change in the near term are used in
connection with the determination of the allowance for loan losses; the evaluation of goodwill for impairment; the
evaluation of other-than-temporary impairment on securities; and the evaluation of the need for a valuation
allowance on the deferred tax assets. The current economic environment has increased the degree of uncertainty
inherent in these material estimates.
The accompanying consolidated financial statements include the accounts of the Company and its wholly-
owned subsidiaries. All inter-company accounts and transactions are eliminated in consolidation. The Company
currently has unconsolidated subsidiaries in the form of nine wholly-owned statutory business trusts, which were
formed to issue guaranteed capital debentures (“capital securities”). Please see Note 8, “Borrowed Funds,” for
additional information regarding these trusts.
88
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
For cash flow reporting purposes, cash and cash equivalents include cash on hand, amounts due from banks,
and money market investments, which include federal funds sold with original maturities of less than 90 days. At
December 31, 2008 and 2007, the Company’s cash equivalents included $8.3 million and $20.4 million,
respectively, of interest-bearing deposits in other financial institutions, as well as federal funds sold of $4.2 million
and $38.8 million, respectively.
In accordance with the monetary policy of the Board of Governors of the Federal Reserve System, the
Company was required to maintain reserves with the Federal Reserve Bank of New York of $84.2 million and $53.6
million at December 31, 2008 and 2007, respectively, in the form of vault cash and deposits. The Company was in
compliance with this requirement at both dates.
Securities Held to Maturity and Available for Sale
The Company’s securities portfolio consists of mortgage-backed securities and collateralized mortgage
obligations (together, “mortgage-related securities”) and debt and equity securities (together, “other securities”).
Securities that are classified as “available for sale” are carried at estimated fair value, with any unrealized gains and
losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders’ equity. Securities
that the Company has the positive intent and ability to hold to maturity are classified as “held to maturity” and are
carried at amortized cost.
The fair values of the Company’s securities are affected by changes in interest rates, credit spreads, and
market illiquidity. In general, as interest rates rise, the fair value of fixed-rate securities will decline; as interest rates
fall, the market value of fixed-rate securities will increase. The Company conducts a periodic review and evaluation
of the securities portfolio to determine if the decline in the fair value of any security below its carrying value is other
than temporary. If the Company deems any decline in value to be other than temporary, the security is written down
to its current fair value, creating a new cost basis, and the resulting loss is charged against earnings and recorded in
non-interest income.
Premiums and discounts on securities are amortized to expense and accreted to income using a method that
approximates the interest method over the remaining period to contractual maturity, adjusted for anticipated
prepayments. Dividend and interest income are recognized when earned. The cost of securities sold is based on the
specific identification method.
Loans
Loans, net, are carried at unpaid principal balances, including unearned discounts, purchase accounting (i.e.,
acquisition-date fair value) adjustments, net deferred loan origination costs or fees, and the allowance for loan
losses. Loans held for sale are carried at the lower of aggregate cost or aggregate estimated fair value. One- to four-
family loans held for sale are originated on a pass-through basis in order to minimize the Company’s exposure to
credit and interest rate risk. Applications are taken and processed by a third-party conduit and sold to the conduit or
its affiliates, servicing-released and without recourse, shortly after the loans are closed.
The allowance for loan losses is increased by provisions for loan losses that are charged against earnings, and
reduced by net charge-offs or reversals. A separate loan loss allowance is established for the Community Bank and
the Commercial Bank and, except as otherwise noted below, the process for establishing the allowance for loan
losses is the same for each.
Management establishes the allowances for loan losses through an assessment of probable losses in each of
the respective loan portfolios. Several factors are considered in this process, including the level of defaulted loans at
the close of each quarter; recent trends in loan performance; historical levels of loan losses; the factors underlying
such loan losses and loan defaults; projected default rates and loss severities; internal risk ratings; loan size;
economic, industry, and environmental factors; and loan impairment, as defined under 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.”
89
Under SFAS No. 114, a loan is classified as “impaired” when, based on current information and events, it is
probable that the Company will be unable to collect both the principal and interest due under the contractual terms
of the loan agreement. The Company applies SFAS No. 114 as necessary to certain larger multi-family; commercial
real estate (“CRE”); acquisition, development, and construction (“ADC”); and commercial and industrial (“C&I”)
loans. SFAS No. 114 is not applied to smaller balance homogenous loans and loans carried at the lower of cost or
fair value, if any. The Company measures impairment of a collateral-dependent loan based on the fair value of the
collateral, less the estimated cost to sell. For loans that are not collateral-dependent, impairment is measured by
using the present value of expected cash flows, discounted at the loan’s effective interest rate.
A valuation allowance is established when the fair value of the collateral, net of estimated costs, or the present
value of the expected cash flows, is less than the recorded investment in the loan. Impaired loans totaled $63.4
million at December 31, 2008; the Company had no impaired loans at December 31, 2007.
In addition, the process of determining the appropriate level for the Banks’ loan loss allowances for those
loans not considered under SFAS No. 114 includes, but is not limited to:
1.
2.
3.
4.
Periodic inspections of the loan collateral by qualified in-house property appraisers/inspectors, as
applicable;
Regular meetings of executive management with the pertinent Board committee, during which
observable trends in the local economy and/or the real estate market are discussed;
Assessment by the pertinent Board of Directors of the aforementioned factors when making a business
judgment regarding the impact of anticipated changes of the future level of the allowance for loan
losses; and
Analysis of the portfolio in the aggregate, as well as on an individual loan basis, taking into
consideration payment history, underwriting analyses, and internal risk ratings.
In establishing the loan loss allowances, management also considers the Banks’ current business strategies and
credit processes, including compliance with conservative guidelines established by the respective Boards of
Directors with regard to credit limitations, loan approvals, underwriting criteria, and loan workout procedures.
In accordance with the pertinent policies, the loan loss allowances are segmented to correspond to the various
types of loans in the loan portfolios. These loan categories are assessed with specific emphasis on the internal risk
ratings, underlying collateral, credit underwriting, and loan type. These factors correspond to the respective levels of
quantified and inherent risk.
The assessments take into consideration loans that have been adversely rated, primarily through the valuation
of the collateral supporting each loan. “Adversely rated” loans are loans that are either non-performing or that
exhibit certain weaknesses that could jeopardize payment in accordance with the original terms. Larger loans are
assigned risk ratings based upon a routine review of the credit files, while smaller loans exceeding 90 days in arrears
are assigned risk ratings based upon an aging schedule. Quantified risk factors are assigned for each risk-rating
category to provide an allocation to the overall loan loss allowance.
The remainder of each loan portfolio is then assessed, by loan type, with similar risk factors being considered,
including the borrower’s ability to pay and our past loan loss experience with each type of loan. These loans are also
assigned quantified risk factors, which result in allocations to the allowances for loan losses for each particular loan
or loan type in the portfolio.
In order to determine their overall adequacy, each of the respective loan loss allowances is reviewed quarterly
by management and by the Mortgage and Real Estate Committee of the Community Bank’s Board of Directors or
the Credit Committee of the Board of Directors of the Commercial Bank, as applicable.
While management uses the best available information to recognize losses on loans, future additions to the
respective loan loss allowances may be necessary, based on changes in economic and local market conditions
beyond management’s control, including declines in real estate values and increases in vacancy rates and
unemployment. In addition, the Community Bank and/or the Commercial Bank may be required to charge off
certain loans and/or increase the allowance for loan losses through the provision for loan losses, based on the
judgment of regulatory agencies with regard to information provided to them during their examinations.
90
The Company recognizes interest income on loans using the interest method over the life of the loan. Using
this method, the Company defers certain loan origination and commitment fees, and certain loan origination costs,
and amortizes the net fee or cost as an adjustment to the loan yield over the term of the related loan. When a loan is
sold or repays, the remaining net unamortized fee or cost is recognized in interest income.
A loan generally is classified as a “non-accrual” loan when it is 90 days past due. When a loan is placed on
non-accrual status, the Company ceases the accrual of interest owed, and previously accrued interest is charged
against interest income. A loan is generally returned to accrual status when the loan is less than 90 days past due
and/or the Company has reasonable assurance that the loan will be fully collectible. Interest income on non-accrual
loans is recorded when received in cash.
Goodwill
Goodwill is presumed to have an indefinite useful life and is tested for impairment, rather than amortized, at
the reporting unit level, at least once a year. The goodwill impairment analysis is a two-step test. The first step
(“Step 1”) is used to identify potential impairment, and involves comparing each reporting unit’s estimated fair
value to its carrying value, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying
value, goodwill is not considered to be impaired. If the carrying value exceeds the estimated fair value, there is an
indication of potential impairment and the second step (“Step 2”) is performed to measure the amount.
Step 2 involves calculating an implied fair value of goodwill for each reporting unit for which impairment was
indicated in Step 1. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill
calculated in a business combination, i.e., by measuring the excess of the estimated fair value of the reporting unit,
as determined in Step 1, over the aggregate estimated fair values of the individual assets, liabilities, and identifiable
intangibles, as if the reporting unit was being acquired in a business combination at the impairment test date. If the
implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no
impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the
goodwill, an impairment charge is recorded for the excess. An impairment loss cannot exceed the carrying value of
goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of
goodwill impairment losses is not permitted.
According to SFAS No. 142, “Goodwill and Other Intangible Assets,” quoted market prices in active markets
are the best evidence of fair value and are to be used as the basis for measurement, when available. Other acceptable
valuation methods include present-value measurements based on multiples of earnings or revenues, or similar
performance measures. Differences in the identification of reporting units and in valuation techniques could result in
materially different evaluations of impairment.
For the purpose of goodwill impairment testing, management has determined that the Company has one
reporting unit. The Company performed its annual goodwill impairment test as of January 1, 2008, and determined
that the fair value of the reporting unit was in excess of its carrying value. Accordingly, as of the annual impairment
test date, there was no indication of goodwill impairment. The Company also performed its annual goodwill
impairment test as of January 1, 2009, and found no indication of goodwill impairment.
Historically, the Company has used the quoted market price of our common stock on the impairment test date
as the basis for determining fair value. As of January 1, 2009, the quoted market price of our common stock was
$11.96 per share, resulting in a market capitalization of $4.1 billion, as compared to a book value (common
stockholders’ equity) of $4.2 billion. Accordingly, management expanded the valuation methodology to also
incorporate a discounted cash flow analysis (“DCFA”). The DCFA utilized observable market data to the full extent
available. The discount rates utilized in the DCFA reflected market-based estimates of capital costs and discount
rates adjusted for management’s assessment of a market participant’s view with respect to execution, concentration,
and other risks associated with the projected cash flows. The results of the DCFA yielded a fair value of our
reporting unit that exceeded its book value. In addition to the DCFA, the Company considered the average market
price of its common stock for the one-month period subsequent to December 31, 2008, and found that the average
market price resulted in a market capitalization greater than the Company’s book value.
Furthermore, management utilized a market premium approach to determine if there was any indication of
goodwill impairment. This approach considers the market value of the Company’s common stock, and estimates the
fair value of the Company based on the market value of the stock plus a control premium, and compares that value
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to the carrying amount of the Company’s stockholders’ equity. In determining the appropriate control premium,
management took several factors into consideration, among which were certain facts and circumstances unique to
the Company, as well as recent trends in market capitalization and control premiums of comparable transactions.
Based on the combined results of these valuation methodologies, management determined that there was no
indication of goodwill impairment as of January 1, 2009.
The changes in the carrying amount of goodwill for the years ended December 31, 2008 and 2007 are as
follows:
(in thousands)
Balance at beginning of year
Goodwill recorded in acquisitions
FIN 48 adjustments
Purchase accounting adjustments
Balance at end of year
Core Deposit Intangibles
December 31,
2008
$2,437,404
--
--
(1,003)
$2,436,401
2007
$2,148,108
291,070
(3,466)
1,692
$2,437,404
Core deposit intangibles (“CDI”) are a measure of the value of checking and savings deposits acquired in
business combinations. The fair value of the CDI stemming from any given business combination is based on the
present value of the expected cost savings attributable to the core deposit funding, relative to an alternative source of
funding. CDI are amortized over the estimated useful lives of the existing deposit relationships acquired, but do not
exceed 10 years. The Company evaluates such identifiable intangibles for impairment when an indication of
impairment exists. No impairment charges were required to be recorded in 2008, 2007, or 2006. If an impairment
loss is determined to exist in the future, the loss will be reflected as an expense in the Consolidated Statement of
Income and Comprehensive Income for the period in which such impairment was identified.
Premises and Equipment, Net
Premises, furniture, fixtures, and equipment are carried at cost less the accumulated depreciation computed on
a straight-line basis over the estimated useful lives of the respective assets (generally 20 years for premises and three
to ten years for furniture, fixtures, and equipment). Leasehold improvements are carried at cost less the accumulated
amortization computed on a straight-line basis over the shorter of the related lease term or the estimated useful life
of the improvement.
Depreciation and amortization are included in “occupancy and equipment expense” in the Consolidated
Statements of Income and Comprehensive Income, and amounted to $19.7 million, $19.0 million, and $15.5 million
for the years ended December 31, 2008, 2007, and 2006, respectively.
Other Real Estate Owned
Real estate properties acquired through, or in lieu of, foreclosure are to be sold or rented, and are reported at
the lower of cost or fair value at the date of acquisition. “Cost” represents the unpaid balance of the loan at the
acquisition date, plus the expenses incurred to bring the property to a saleable condition, when appropriate.
Following foreclosure, management periodically performs a valuation of the property and the real estate is carried at
the lower of the carrying amount or fair value, less the estimated selling costs. Revenues and expenses from
operations and changes in the valuation allowance, if any, are included in “other operating expenses.” At
December 31, 2008 and 2007, the Company had other real estate owned of $1.1 million and $658,000, respectively.
These amounts are included in “other assets” in the Consolidated Statements of Condition. There were no valuation
allowances for other real estate owned at December 31, 2008, 2007, or 2006, and no provisions for the years ended
at those dates.
Income Taxes
Income tax (benefit) expense consists of income taxes that are currently payable and deferred income taxes.
Deferred income tax expense (benefit) is determined by recognizing deferred tax assets and liabilities for future tax
consequences, attributable to temporary differences between the financial statement carrying amounts of existing
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assets and liabilities and their respective tax bases. 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. The Company assesses the deferred tax assets and establishes a valuation allowance when
realization of a deferred asset is not considered to be “more likely than not.” The Company considers its expectation
of future taxable income in evaluating the need for a valuation allowance.
The Company estimates income taxes payable based on the amount it expects to owe the various tax
authorities (i.e., federal, state, and local). Income taxes represent the net estimated amount due to, or to be received
from, such taxing authorities. In estimating income taxes, management assesses the relative merits and risks of the
appropriate tax treatment of transactions, taking into account statutory, judicial, and regulatory guidance in the
context of the Company’s tax position. In this process, management also relies on tax opinions, recent audits, and
historical experience. Although the Company uses the best available information to record income taxes, underlying
estimates and assumptions can change over time as a result of unanticipated events or circumstances such as changes
in tax laws and judicial guidance influencing its overall tax position.
In July 2006, the Financial Accounting Standards Board (the “FASB”) issued FIN 48, “Accounting for
Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109.” FIN 48 prescribes a recognition
threshold and measurement attribute for use in connection with the obligation of a company to recognize, measure,
present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take
on a tax return. Only tax positions that meet a “more likely than not” threshold may be recognized. The Company
adopted FIN 48 effective January 1, 2007. For a more detailed discussion of the impact of adopting FIN 48, please
see the discussion in Note 9, “Federal, State, and Local Taxes.”
Stock Options and Incentives
On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based Payments” (“SFAS
No. 123R”), using the modified prospective approach. Accordingly, the Company recognizes compensation costs
related to share-based payments at fair value on the date of grant and recognizes such costs in the financial
statements over the vesting period during which the employee provides service in exchange for the award. On
December 30, 2005, the Board of Directors of the Company accelerated the vesting of, and vested, all unvested
options to acquire the Company’s common stock that were outstanding at that date (the “Acceleration”) under its
stock option plans. A total of 1.4 million stock options were impacted by the Acceleration. All other terms and
conditions of the accelerated stock options remained unchanged.
The Company did not grant any stock options during the years ended December 31, 2008, 2007, or 2006;
accordingly, there were no unvested stock options outstanding at any time during those years, and no compensation
and benefits expense relating to stock options was recorded during those years.
Under the New York Community Bancorp, Inc. 2006 Stock Incentive Plan (the “2006 Stock Incentive Plan”),
which was approved by the Company’s shareholders at its Annual Meeting on June 7, 2006, shares are available for
grant as stock options, restricted stock, or other forms of related rights. At December 31, 2008, the Company had
6,354,659 shares available for grant under the 2006 Stock Incentive Plan. Compensation cost related to restricted
stock grants is recognized on a straight-line basis over the vesting period. For a more detailed discussion of the
Company’s stock-based compensation, please see Note 12, “Stock-related Benefit Plans.”
Retirement Plans
The Company’s pension benefit obligations and post-retirement health and welfare benefit obligations, and the
related costs, are calculated using actuarial concepts, within the framework of SFAS No. 87, “Employers’
Accounting for Pensions” and SFAS No. 106, “Employers’ Accounting for Post-retirement Benefits Other than
Pensions,” respectively. The measurement of such obligations and expenses requires that certain assumptions be
made regarding several factors, most notably including the discount rate and the expected return on plan assets. The
Company evaluates these critical assumptions on an annual basis. Other factors considered by the Company in its
evaluation include retirement patterns, mortality, turnover, and the rate of compensation increase.
Under SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Post-retirement Plans
– an amendment of FASB Statement Nos. 87, 88, 106, and 132R,” actuarial gains and losses, prior service costs or
credits, and any remaining transition assets or obligations that have not been recognized under previous accounting
93
standards must be recognized in “accumulated other comprehensive income or loss,” net of tax effects, until they are
amortized as a component of net periodic benefit cost. In addition, under SFAS No. 158, the measurement date (i.e.,
the date at which plan assets and the benefit obligation are measured for financial reporting purposes) is required to
be the company’s fiscal year-end, beginning December 31, 2008. Accordingly, the Company adopted a year-end
measurement date for its pension and post-retirement benefit plans as of that date.
Earnings per Share (Basic and Diluted)
SFAS No. 128, “Earnings per Share,” requires all entities with complex capital structures to provide a dual
presentation of basic and diluted earnings per share (“EPS”) on the face of their income statements, and to provide a
reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income available to holders of common stock by the
weighted average number of shares outstanding for the period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that would then share in the earnings of the entity.
The following table presents the Company’s computation of basic and diluted EPS for the years ended
December 31, 2008, 2007, and 2006:
(in thousands, except share and per share amounts)
Net income
Weighted average common shares outstanding
Basic earnings per common share
Weighted average common shares outstanding
Additional dilutive shares using average market price for the
period under the treasury stock method (1)
Total weighted average shares for diluted earnings per share
Diluted earnings per common share and common share
equivalents
Years Ended December 31,
2007
$279,082
309,535,954
$0.90
309,535,954
2008
$77,884
334,657,211
$0.23
334,657,211
2006
$232,585
284,877,310
$0.82
284,877,310
713,854
335,371,065
1,567,038
311,102,992
1,384,182
286,261,492
$0.23
$0.90
$0.81
(1) Options to purchase 2,848,931 shares, 3,069,474 shares, and 3,536,071 shares of the Company’s common stock at a
weighted average price of $19.21, $19.16, and $19.07, respectively, were outstanding as of December 31, 2008, 2007, and
2006, but were excluded from the computation of diluted earnings per share for the respective years because the exercise
prices of the stock options exceeded the average market prices of the Company’s common shares during these years.
On April 20, 2004, the Board of Directors authorized the repurchase of up to five million shares of the
Company’s common stock. At December 31, 2008, the Company had 1,350,292 shares still available for repurchase
under the April 20, 2004 authorization.
Segment Reporting
In accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,”
the Company has determined that all of its activities constitute one reportable operating segment.
Bank-Owned Life Insurance
The Company has purchased life insurance policies on certain employees. These Bank-owned Life Insurance
(“BOLI”) policies are recorded in the Consolidated Statements of Condition at their cash surrender value. Income
from these policies and changes in the cash surrender value are recorded in “non-interest income” in the
Consolidated Statements of Income and Comprehensive Income. The Company’s investment in BOLI generated
income of $28.6 million, $26.1 million, and $23.6 million, respectively, during the years ended December 31, 2008,
2007, and 2006. At December 31, 2008 and 2007, the Company’s investment in BOLI totaled $691.4 million and
$664.4 million, respectively.
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Impact of Recent Accounting Pronouncements
In October 2008, the FASB issued FASB Staff Position No. 157-3, “Determining the Fair Value of a Financial
Asset When the Market for That Asset Is Not Active” (“FSP FAS 157-3”), with an immediate effective date,
including prior periods for which financial statements have not been issued. FSP FAS 157-3 amends SFAS No. 157
to clarify the application of fair value in inactive markets and allows for the use of management’s internal
assumptions about future cash flows, with appropriately risk-adjusted discount rates, when relevant observable
market data does not exist. The objective of SFAS No. 157 has not changed and continues to be the determination of
the price that would be received in an orderly transaction that is not a forced liquidation or distressed sale at the
measurement date. FSP FAS 157-3 has not had a material effect on the Company’s financial position or results of
operations.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging
Activities—an amendment of SFAS No. 133.” SFAS No. 161 requires enhanced disclosures about derivative
instruments and hedged items that are accounted for under SFAS No. 133 and related interpretations. SFAS No. 161
will be effective for interim and annual financial statements for periods beginning after November 15, 2008, with
early adoption permitted. SFAS No. 161 is not expected to have an impact on the Company’s financial condition or
results of operations as the Company does not currently engage in such activities.
In December 2007, the FASB issued SFAS No. 141R, “Business Combinations (revised 2007).” SFAS
No. 141R improves reporting by creating greater consistency in the accounting and financial reporting of business
combinations, resulting in more complete, comparable, and relevant information for investors and other users of
financial statements. To achieve this goal, the new standard requires the acquiring entity in a business combination
to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-
date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer
to disclose the information necessary to evaluate and understand the nature and financial effect of the business
combination. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or
after the beginning of the first fiscal year that commences after December 15, 2008. The Company will apply the
impact of SFAS No. 141R to any business combinations that may occur after the effective date, and believes that the
standard could materially impact its accounting for such acquisitions.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements.” SFAS No. 160 improves the relevance, comparability, and transparency of financial information
provided to investors by requiring all entities to report noncontrolling (minority) interests in subsidiaries in the same
way, i.e., as equity in the consolidated financial statements. In addition, SFAS No. 160 eliminates the diversity that
currently exists in accounting for transactions between an entity and noncontrolling interests by requiring that they
be treated as equity transactions. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008 and
is not expected to have a material impact on the Company’s financial condition or results of operations.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities—including an amendment of FASB Statement No. 115.” SFAS No. 159 provides companies with the
option of electing fair value as an alternative measurement for most financial assets and liabilities. It also establishes
presentation and disclosure requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and liabilities. SFAS No. 159 requires companies to
provide additional information that will help investors and other users of financial statements to more easily
understand the effect of a company’s choice to use fair value on its earnings. It also requires entities to display the
fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance
sheet. Under SFAS No. 159, fair value is used for both the initial and subsequent measurement of the designated
assets and/or liabilities, with the changes in value recognized in earnings. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007. The Company adopted SFAS No. 159 on January 1, 2008, but did not elect the
fair value option for any eligible financial assets or liabilities through December 31, 2008.
In 2006, the Emerging Issues Task Force of the FASB reached final consensus on accounting for life
insurance in Issue No. 06-4, “Accounting for Deferred Compensation and Post-retirement Benefit Aspects of
Endorsement Split-Dollar Life Insurance Arrangements” (“EITF Issue No. 06-4”). EITF Issue No. 06-4 concluded
that an employer, entering into an endorsement split-dollar life insurance arrangement that provides an employee
with a post-retirement benefit, has not effectively settled the obligation by purchasing the life insurance. Therefore, a
liability for the future benefits should be recognized in accordance with SFAS No. 106, “Employers’ Accounting for
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Post-retirement Benefits Other than Pensions,” or Accounting Principles Board (“APB”) Opinion No. 12, “Omnibus
Opinion – 1967.” The consensus on EITF Issue No. 06-4 is effective for fiscal years beginning after December 15,
2007, with the effect of adoption recognized as a change in accounting principle either through a cumulative-effect
adjustment to retained earnings as of the beginning of the year of adoption, or through retrospective application to
all prior periods. In connection with the Company’s adoption of EITF Issue No. 06-4 on January 1, 2008, the
Company recorded a $12.7 million cumulative-effect reduction to retained earnings in recognition of the associated
post-retirement benefit obligations. During the second quarter of 2008, the Company recorded a partial curtailment
of this obligation, which had an immaterial impact on its consolidated financial statements.
NOTE 3: BUSINESS COMBINATIONS, CDI, AND OTHER INTANGIBLE ASSETS
Synergy Financial Group, Inc.
On October 1, 2007, the Company acquired Synergy Financial Group, Inc. (“Synergy”), the holding company
for Synergy Bank, for an aggregate purchase price of $166.6 million. Pursuant to the Agreement and Plan of Merger
announced on May 13, 2007, Synergy merged with and into the Company, and Synergy Bank merged with and into
the Community Bank. Under the terms of the agreement, Synergy shareholders received 0.80 of a share of Company
common stock for each share of Synergy common stock held at the effective date of the merger. The Company
issued 8,676,840 shares of common stock to satisfy the tax-free exchange, the value of which was determined based
on the average closing price of the Company’s common stock for the two days prior to, and the two days following,
the announcement of the acquisition.
In connection with the Synergy transaction, the Company recorded goodwill of $88.7 million, none of which
is estimated to be deductible for income tax purposes. In addition, CDI of $4.5 million was recognized in connection
with the Synergy acquisition and is being amortized on an accelerated basis over an estimated useful life of ten
years.
The purpose of the Synergy acquisition was to further expand the Company’s footprint and deposit market
share in central New Jersey and to provide additional cash flows for investment into higher-yielding loans and
securities. The transaction added 21 branches to the Community Bank’s franchise, including one in Mercer County,
five in Middlesex County, four in Monmouth County, and 11 in Union County.
PennFed Financial Services, Inc.
On April 2, 2007, the Company acquired PennFed Financial Services, Inc. (“PennFed”) for an aggregate
purchase price of $271.8 million. Pursuant to the Agreement and Plan of Merger announced on November 2, 2006,
PennFed merged with and into the Company, and its primary subsidiary, Penn Federal Savings Bank, merged with
and into the Community Bank. Under the terms of the agreement, PennFed shareholders received 1.222 shares of
Company common stock for each share of PennFed stock held at the effective date of the merger. The Company
issued 15,977,941 shares of common stock to satisfy the tax-free exchange, the value of which was determined
based on the average closing price of the Company’s common stock for the two days prior to, and the two days
following, the announcement of the acquisition.
In connection with the PennFed transaction, the Company recorded goodwill of $189.5 million, none of which
is estimated to be deductible for income tax purposes. In addition, CDI of $20.9 million was recognized in
connection with the PennFed acquisition and is being amortized on an accelerated basis over an estimated useful life
of ten years.
The purpose of the PennFed acquisition was to expand the Company’s footprint and deposit market share in
New Jersey, and to provide additional cash flows for investment into higher-yielding loans and securities. The
acquisition added 24 branches to the Community Bank franchise, increasing its deposit market share in Essex,
Hudson, and Union counties, where it previously had eight branches, and expanding its footprint into the central
New Jersey counties of Middlesex, Monmouth, and Ocean.
Doral Bank, FSB Branch Network
On March 15, 2007, the Company announced that the Commercial Bank and Doral Bank, FSB (“Doral”), the
New York City-based subsidiary of Doral Financial Corporation, had signed a definitive purchase and assumption
96
agreement, pursuant to which the Commercial Bank would acquire Doral’s branch network in New York City, as
well as certain of its assets and liabilities. The transaction was completed on July 26, 2007, adding two branches in
Manhattan, six in Queens, and three in Brooklyn to the Commercial Bank franchise, and boosting the number of
Commercial Bank branches overall. In addition, the transaction provided the Company with assets of $494.4
million, including loans of $206.1 million and securities of $155.3 million; wholesale borrowings of $124.2 million;
and deposits of $377.5 million, for which the Company paid a premium of 2.6%.
In accordance with SFAS No. 141, “Business Combinations,” the Company recorded goodwill of $11.8
million and CDI of $2.1 million in connection with the Doral transaction. The CDI is being amortized on an
accelerated basis over an estimated useful life of ten years.
The primary purpose of the transaction was to expand the Commercial Bank’s footprint and deposit market
share in New York City.
CDI and Other Intangible Assets
As noted in the preceding discussion, the Company has CDI stemming from its various business combinations
with other banks and thrifts.
The Company also had mortgage servicing rights (“MSRs”) of $3.6 million at December 31, 2008. MSRs are
included, together with other identifiable intangible assets, in “other assets” in the Consolidated Statements of
Condition at December 31, 2008 and 2007. MSRs are carried at the lower of the initial carrying value, adjusted for
amortization, or fair value, and are amortized in proportion to, and over the period of, estimated net servicing
income. MSRs are periodically evaluated for impairment based on the difference between the carrying amount and
current fair value. If it is determined that impairment exists, the resultant loss is charged against earnings.
The following table sets forth the changes in MSRs for the years ended December 31, 2008 and 2007:
(in thousands)
Balance, beginning of year
Acquired in acquisitions
Additions recorded in loan securitizations
Impairment losses
Amortization
Balance, end of year
2008
$ 5,438
--
502
(463)
(1,909)
$ 3,568
2007
$ 970
581
5,413
(98)
(1,428)
$ 5,438
The following table summarizes the gross carrying and accumulated amortization amounts of the Company’s
intangible assets as of December 31, 2008:
(in thousands)
Core deposit intangibles
Mortgage servicing rights
Other identifiable intangible assets
Total
Gross Carrying
Amount
$190,332
11,178
1,325
$202,835
Accumulated
Amortization
$(102,552)
(7,610)
(1,200)
$(111,362)
Net Carrying
Amount
$87,780
3,568
125
$91,473
For the year ended December 31, 2008, amortization expenses related to CDI and to other identifiable
intangibles totaled $23.3 million and $89,000, respectively. The Company assessed the useful lives of its intangible
assets at December 31, 2008 and deemed them to be appropriate. There were no impairment losses recorded for the
years ended December 31, 2008, 2007, or 2006.
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The following table summarizes the estimated future expense stemming from the amortization of the
Company’s CDI, MSRs, and other identifiable intangible assets:
(in thousands)
2009
2010
2011
2012
2013
2014 and thereafter
Total remaining intangible assets
NOTE 4: SECURITIES
Core Deposit
Intangibles
$21,962
20,582
16,723
11,874
9,586
7,053
$87,780
Mortgage
Servicing Rights
$1,386
895
693
402
178
14
$3,568
Other
Identifiable
Intangible Assets
$ 88
37
--
--
--
--
$125
Total
$23,436
21,514
17,416
12,276
9,764
7,067
$91,473
The following tables summarize the Company’s portfolio of securities held to maturity at December 31, 2008
and 2007:
(in thousands)
Mortgage-related Securities:
GSE(1) certificates
GSE CMOs(2)
Other mortgage-related securities
Total mortgage-related securities
Other Securities:
GSE debentures
Corporate bonds
Capital trust notes
Total other securities
Total securities held to maturity
(1) Government-sponsored enterprises
(2) Collateralized mortgage obligations
(in thousands)
Mortgage-related Securities:
GSE certificates
GSE CMOs
Other mortgage-related securities
Total mortgage-related securities
Other Securities:
GSE debentures
Corporate bonds
Capital trust notes
Total other securities
Total securities held to maturity
Amortized
Cost
$ 282,441
2,875,878
6,537
$3,164,856
$1,372,593
133,165
220,377
$1,726,135
$4,890,991
Amortized
Cost
$ 250,510
2,222,355
6,618
$2,479,483
$1,530,414
165,992
186,756
$1,883,162
$4,362,645
December 31, 2008
Gross
Unrealized
Gain
Gross
Unrealized
Loss
$12,515
40,944
--
$53,459
$ 3,574
153
--
$ 3,727
$57,186
$ --
18,901
--
$ 18,901
$ --
26,561
74,914
$101,475
$120,376
December 31, 2007
Gross
Unrealized
Gain
Gross
Unrealized
Loss
$ 7,734
16,467
--
$24,201
$ 7,413
6,327
1,629
$15,369
$39,570
$ --
70,697
--
$70,697
$ --
1,644
5,680
$ 7,324
$78,021
Fair Value
$ 294,956
2,897,921
6,537
$3,199,414
$1,376,167
106,757
145,463
$1,628,387
$4,827,801
Fair Value
$ 258,244
2,168,125
6,618
$2,432,987
$1,537,827
170,675
182,705
$1,891,207
$4,324,194
The Company had $401.0 million and $423.1 million of FHLB-NY stock, at cost, at December 31, 2008 and
2007, respectively. The Company is required to maintain this investment in order to have access to funding
resources provided by the FHLB-NY.
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The following tables summarize the Company’s portfolio of securities available for sale at December 31, 2008
and 2007:
(in thousands)
Mortgage-related Securities:
GSE certificates
GSE CMOs
Private label CMOs
Total mortgage-related securities
Other Securities:
GSE debentures
Corporate bonds
State, county, and municipal
Capital trust notes
Preferred stock
Common stock
Total other securities
Total securities available for sale
(in thousands)
Mortgage-related Securities:
GSE certificates
GSE CMOs
Private label CMOs
Total mortgage-related securities
Other Securities:
GSE debentures
U.S. Treasury obligations
Corporate bonds
State, county, and municipal
Capital trust notes
Preferred stock
Common stock
Total other securities
Total securities available for sale
Amortized
Cost
$ 180,132
519,389
139,332
$ 838,853
$ 59,478
44,812
6,528
30,339
31,400
53,343
$ 225,900
$1,064,753
Amortized
Cost
$ 217,855
599,936
155,213
$ 973,004
$ 178,389
1,098
55,818
6,526
71,149
59,900
48,537
$ 421,417
$1,394,421
December 31, 2008
Gross
Unrealized
Gain
Gross
Unrealized
Loss
$ 5,160
9,727
--
$14,887
$ 2,481
--
--
--
150
151
$ 2,782
$17,669
$ --
154
19,902
$20,056
$ --
16,609
387
9,926
14,010
10,932
$51,864
$71,920
December 31, 2007
Gross
Unrealized
Gain
Gross
Unrealized
Loss
$ 3,984
6,848
--
$10,832
$ 9,535
14
38
3
1,786
--
211
$11,587
$22,419
$ 4
7,762
2,746
$10,512
$ --
--
6,930
78
5,975
8,812
3,277
$25,072
$35,584
Fair Value
$ 185,292
528,962
119,430
$ 833,684
$ 61,959
28,203
6,141
20,413
17,540
42,562
$ 176,818
$1,010,502
Fair Value
$ 221,835
599,022
152,467
$ 973,324
$ 187,924
1,112
48,926
6,451
66,960
51,088
45,471
$ 407,932
$1,381,256
The following table summarizes the gross proceeds, gross realized gains, and gross realized losses from the
sale of available-for-sale securities during the years ended December 31, 2008, 2007, and 2006:
(in thousands)
Gross proceeds
Gross realized gains
Gross realized losses
2008
$11,543
573
--
December 31,
2007
$2,115,530
9,195
7,307
2006
$1,245,014
3,263
230
In connection with the second quarter 2007 repositioning of the balance sheet following the PennFed
acquisition, the Company securitized $593.8 million of the one- to four-family loans that had been acquired in the
transaction, in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities.” The resultant securities were recorded in the available-for-sale securities portfolio at
an initial cost basis of $588.4 million and were subsequently sold in the third quarter of 2007.
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The Company conducts periodic reviews to identify and evaluate each investment that has an unrealized loss,
in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” FASB Staff
Position FAS No. 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments” (“FSP FAS 115-1”), and FASB Staff Position EITF 99-20-1, “Amendments to the Impairment
Guidance of EITF Issue No. 99-20.” An unrealized loss exists when the current fair value of an individual security is
less than its amortized cost basis. Unrealized losses on available-for-sale securities that are determined to be
temporary in nature are recorded, net of tax, in accumulated other comprehensive loss (“AOCL”). Unrealized losses
identified as other than temporary are charged directly against earnings in the Consolidated Statement of Income and
Comprehensive Income.
Among the factors considered in determining that an unrealized loss is temporary in nature is management’s
intent and ability to hold each investment for a period of time sufficient to allow for an anticipated recovery in fair
value. For the investments in the preceding tables, management has determined that the unrealized losses are
temporary in nature, given that it has the positive intent and ability to hold each investment until the earlier of its
anticipated recovery or maturity. Other factors considered in determining whether a loss is temporary include the
length of time and the extent to which fair value has been below cost; the severity of the impairment; the cause of
the impairment; the financial condition and near-term prospects of the issuer; activity in the market of the issuer
which may indicate adverse credit conditions; and the forecasted recovery period using current estimates of
volatility in market interest rates (including liquidity and risk premiums).
Management’s assertion regarding its intent and ability to hold investments considers a number of factors,
including a quantitative estimate of the expected recovery period (which may extend to maturity), and
management’s intended strategy with respect to the identified security or portfolio. If management does not have the
intent and ability to hold the security for a sufficient time period, the unrealized loss is charged directly to earnings
in the Consolidated Statement of Income and Comprehensive Income.
The unrealized losses on the Company’s GSE CMOs were primarily caused by movements in market interest
rates and spread volatility, rather than credit risk. The Company purchased these investments either at par or at a
discount relative to their face amount, and the contractual cash flows of these investments are guaranteed by an
agency of the U.S. government. Accordingly, it is expected that the securities would not be settled at a price that is
less than the amortized cost of the Company’s investment. Because the Company has the ability and positive intent
to hold these investments until a recovery of fair value, which may be at maturity, the Company did not consider
these investments to be other-than-temporarily impaired at December 31, 2008.
The Company’s unrealized losses in corporate bonds and capital trust notes relate to investments in various
financial institutions. The unrealized losses were primarily caused by market interest rate volatility and a significant
widening of interest rate spreads across market sectors relating to the continued illiquidity and uncertainty in the
financial markets. These securities were purchased based on an individual assessment of the financial institutions
issuing such securities. This assessment included, but was not limited to, a review of credit ratings (if any), as well
an underwriting process designed to determine the financial institutions’ creditworthiness.
The Company reviews both quarterly financial information as well as other information that is released by
each financial institution to determine the continued creditworthiness of the securities issued by them. The
contractual terms of these investments do not permit settling the securities at prices that are less than the amortized
costs of the investments; therefore, the Company expects that these investments would not be settled at a price that
is less than their amortized costs. The Company continues to monitor these investments and currently believes that it
is probable that it will be able to collect all amounts due according to their contractual terms. Because the Company
has the ability and positive intent to hold these investments until a recovery of fair value, which may be at maturity,
it did not consider these investments to be other-than-temporarily impaired at December 31, 2008. It is possible that
these securities will perform worse than is currently expected, which could lead to adverse changes in cash flows on
these securities and potential other-than-temporary impairment (“OTTI”) losses in the future. Events that may occur
in the future at the financial institutions that issued these securities may trigger material unrecoverable declines in
fair values for the Company’s investments and therefore future potential OTTI losses. Such events include, but are
not limited to, government intervention, deteriorating asset quality and significantly higher loan loss provisions, net
operating losses, and further illiquidity in the financial markets.
The unrealized losses on the Company’s private label CMOs were primarily caused by market interest rate
volatility and a significant widening of interest rate spreads across market sectors relating to the continued illiquidity
103
and uncertainty in the financial markets, rather than to credit risk. At December 31, 2008, the Company owned two
private label securities each of which was rated AAA by two rating agencies. Both of these CMOs have some level
of credit enhancement, and neither is collateralized with subprime loans. These securities were purchased based on
the underlying loan characteristics such as loan-to-value ratio, credit scores, property type, location, and the level of
credit enhancement. Current characteristics of each security owned, such as delinquency and foreclosure levels,
credit enhancement, and projected losses and coverage, are reviewed periodically by management. Accordingly, it is
expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment.
Because the Company has the ability and positive intent to hold these investments until a recovery of fair value,
which may be until maturity, the Company did not consider these investments to be other-than-temporarily impaired
at December 31, 2008. It is possible that the underlying loan collateral of these securities will perform worse than is
currently expected, which could lead to adverse changes in cash flows on these securities and future OTTI losses.
Events that could trigger material unrecoverable declines in fair values, and therefore potential OTTI losses for these
securities in the future, include, but are not limited to: deterioration of credit metrics, significantly higher levels of
default and severity of loss on the underlying collateral, deteriorating credit enhancement, and further illiquidity in
the financial markets.
At December 31, 2008, the equity securities portfolio consisted of perpetual preferred and common stock, and
mutual funds. In analyzing its investments in perpetual preferred stock for other-than-temporary impairment, the
Company uses an impairment model that is applied to debt securities, consistent with recent guidance provided by
the U.S. Securities and Exchange Commission.
The unrealized losses on the Company’s equity securities were primarily caused by market volatility and a
significant widening of interest rate spreads across market sectors related to the continued illiquidity and uncertainty
in the marketplace. The Company evaluated the near-term prospects of each security in the portfolio, together with
the severity and duration of impairment. Based on this evaluation, and the Company’s ability and intent to hold
these investments for a reasonable period of time sufficient to realize a forecasted recovery of fair value, the
Company did not consider these investments to be other-than-temporarily impaired at December 31, 2008.
Nonetheless, it is possible that these equity securities will perform worse than currently expected, which could
lead to adverse changes in their fair value and to the Company’s recording OTTI losses in future periods. Events that
could trigger material declines in the fair values of these securities in the future include, but are not limited to,
deterioration in the equity markets; a decline in the quality of the loan portfolios of the companies in which the
Company has invested; and the recording of higher loan loss provisions and net operating losses by such companies.
The investment securities designated as having a continuous loss position for twelve months or more at
December 31, 2008 consisted of 14 mortgage-related securities, two municipal bonds, three corporate debt
obligations, 16 capital trust notes, and five equity securities. At December 31, 2007, the investment securities
designated as having a continuous loss position for twelve months or more consisted of 28 mortgage-related
securities, five municipal bonds, four corporate debt obligations, and three capital trust notes. At December 31, 2008
and 2007, the combined market value of these securities represented unrealized losses of $130.8 million and $88.5
million, respectively. At December 31, 2008, the fair value of securities having a continuous loss position for twelve
months or more was 12.5% below their collective amortized cost of $1.1 billion. At December 31, 2007, the fair
value of such securities was 5.2% below their collective amortized cost of $1.7 billion.
In 2008, the Company recorded a $104.3 million loss on the OTTI of certain securities in the Consolidated
Statement of Income and Comprehensive Income. Included in the $104.3 million loss were $42.4 million of Lehman
Brothers Holdings, Inc. (“Lehman Brothers”) perpetual preferred stock and corporate bonds; $5.0 million of Freddie
Mac preferred stock; $40.5 million of capital trust notes, including income notes; $5.4 million of other equity
securities; and $11.0 million of corporate bond issues.
In the second quarter of 2007, the Company recorded a $57.0 million loss on the OTTI of certain available-
for-sale mortgage-related securities. The OTTI was recorded in connection with the repositioning of the balance
sheet that followed the acquisition of PennFed. In July 2007, the Company sold the impaired securities at a pre-tax
loss of $7.3 million, which was recognized in non-interest income in the three months ended September 30, 2007. In
2006, the Company recorded a $313,000 loss on the OTTI of certain equity securities.
104
NOTE 5: LOANS
The following table sets forth the composition of the loan portfolio at December 31, 2008 and 2007:
(in thousands)
Mortgage Loans:
Multi-family
Commercial real estate
Acquisition, development, and construction
1-4 family
Total mortgage loans
Net deferred loan origination fees
Mortgage loans, net
Other Loans:
Commercial and industrial
Consumer
Lease financing, net
Total other loans
Net deferred loan origination fees
Total other loans, net
Less: Allowance for loan losses
Loans, net
December 31,
2008
2007
$15,728,264
4,553,550
778,364
266,307
21,326,485
(6,940)
$21,319,545
$ 713,099
158,907
1,433
$ 873,439
(772)
872,667
94,368
$22,097,844
$14,052,298
3,828,334
1,138,851
380,824
19,400,307
(1,512)
$19,398,795
$ 705,810
255,055
4,340
$ 965,205
(752)
964,453
92,794
$20,270,454
During the three months ended March 31, 2008, the Company securitized $71.3 million of the one- to four-
family loans that had been acquired in the acquisition of Synergy in the fourth quarter of 2007, in accordance with
SFAS No. 140. The resultant securities were recorded, and have been retained, in the held-to-maturity securities
portfolio. In connection with the securitization, the Company also recorded a $502,000 mortgage servicing right
asset which is being amortized over a period of seven years.
The Company is primarily a multi-family mortgage lender, with a significant portion of its loan portfolio
secured by buildings in New York City with a preponderance of apartments that are rent-controlled and/or rent-
stabilized. At December 31, 2008, approximately 74% of the multi-family loan portfolio was secured by properties
in New York City, with Manhattan accounting for approximately 42% of New York City’s share.
The Company also originates CRE loans, primarily in New York City, New Jersey, and Long Island, and, to a
lesser extent, ADC loans, and C&I loans. ADC loans are primarily originated for multi-family and residential tract
projects in New York City and Long Island, while C&I loans are made to small and mid-size businesses on both a
secured and unsecured basis, throughout our market, for working capital, business expansion, and the purchase of
machinery and equipment.
Payments on multi-family and CRE loans generally depend on the income produced by the underlying
properties which, in turn, depends on their successful operation and management. Accordingly, the ability of the
Company’s borrowers to repay these loans may be impacted by adverse conditions in the local real estate market
and the local economy. While the Company generally requires that such loans be qualified on the basis of the
collateral property’s current cash flows, appraised value, and debt service coverage ratio, among other factors, there
can be no assurance that our underwriting policies will protect us from credit-related losses or delinquencies.
ADC financing typically involves a greater degree of credit risk than longer-term financing on improved,
owner-occupied real estate. Risk of loss on an ADC loan depends largely upon the accuracy of the initial estimate of
the property’s value at completion of construction or development, compared to the estimated costs (including
interest) of construction. If the estimate of value proves to be inaccurate, the loan may be under-secured. While the
Company seeks to minimize these risks by maintaining consistent lending policies and rigorous underwriting
standards, an error in such estimates or a downturn in the local economy or real estate market could have a material
adverse effect on the quality of our ADC loan portfolio, thereby resulting in material losses or delinquencies.
105
The Company seeks to minimize the risks involved in C&I lending by underwriting such loans on the basis of
the cash flows produced by the business; by requiring that such loans be collateralized by various business assets,
including inventory, equipment, and accounts receivable, among others; and by requiring personal guarantees.
However, the capacity of a borrower to repay a C&I loan is substantially dependent on the degree to which his or
her business is successful. In addition, the collateral underlying such loans may depreciate over time, may not be
conducive to appraisal, or may fluctuate in value, based upon the business’ results.
Although the Metro New York region fared better in 2008 than many other parts of the country, our
marketplace was nonetheless impacted by the widespread economic decline. The ability of our borrowers to repay
their loans, and the value of the collateral securing such loans, could be adversely impacted by further significant
changes in local economic conditions, such as a decline in real estate values or a rise in unemployment. This, in turn,
could not only result in the Company experiencing an increase in charge-offs and/or non-performing assets, but
could also necessitate an increase in the provision for loan losses. These events would have an adverse impact on the
Company’s results of operations and capital, if they were they to occur.
The Company also originates one- to four-family mortgage loans, but on a pass-through basis, and sells such
loans shortly after closing to a third-party conduit, without recourse and servicing-released. Under the conduit
program, the Company sold one- to four-family loans totaling $47.0 million, $62.1 million, and $59.0 million in
2008, 2007, and 2006, respectively, and recorded aggregate net gains of $326,000, $705,000, and $693,000,
respectively, on such sales. Loans originated and held for sale through the conduit program are included in
“consumer loans” in the preceding table. The Company had $336,000 of one- to four-family loans held for sale at
December 31, 2008, and none at December 31, 2007.
The Company services mortgage loans for various third parties, including, but not limited to, Savings Bank
Life Insurance (“SBLI”), FNMA, FHLMC, and the State of New York Mortgage Agency (“SONYMA”). At
December 31, 2008, the unpaid principal balance of serviced loans amounted to $884.1 million; at December 31,
2007 and 2006, the unpaid principal balance of serviced loans amounted to $933.7 million and $310.4 million,
respectively. The custodial escrow balances maintained in connection with such loans amounted to $11.7 million,
$5.5 million, and $5.2 million, respectively, at the corresponding dates.
NOTE 6: ALLOWANCE FOR LOAN LOSSES
The following table summarizes activity in the allowance for loan losses for the years ended December 31,
2008, 2007, and 2006:
(in thousands)
Balance, beginning of year
Provision for loan losses
Charge-offs
Recoveries
Allowance acquired in merger transactions
Balance, end of year
December 31,
2007
2008
$92,794
7,700
(6,168)
42
--
$94,368
$85,389
--
(431)
--
7,836
$92,794
2006
$79,705
--
(420 )
--
6,104
$85,389
The Company recorded a provision for loan losses of $7.7 million during 2008; no provision was recorded in
2007 or 2006. Non-accrual loans amounted to $113.7 million, $22.2 million, and $21.2 million, respectively, at
December 31, 2008, 2007, and 2006. There were no loans 90 days or more delinquent and still accruing interest at
any of these dates.
The interest income that would have been recorded under the original terms of non-accrual loans at
December 31, 2008 and the interest income actually recorded in the years ended December 31, 2008, 2007, and
2006, are summarized below:
(in thousands)
Interest income that would have been recorded
Interest income actually recorded
Interest income foregone
2008
$ 7,841
(4,065)
$ 3,776
December 31,
2007
$1,832
(844)
$ 988
2006
$2,214
(399 )
$1,815
106
At December 31, 2008 and 2006, the Company had $63.4 million and $12.7 million of impaired loans,
respectively. At December 31, 2008, there was a $1.2 million valuation allowance relating to impaired loans. There
was no valuation allowance for impaired loans at December 31, 2006. The Company had no impaired loans at
December 31, 2007. The average balances of impaired loans in 2008, 2007, and 2006 were $21.4 million, $8.0
million, and $19.0 million, respectively, and the interest income recorded on these loans, which was not materially
different from cash-basis interest income, amounted to $3.6 million, $2.0 million, and $3.0 million, in the respective
years.
In conjunction with the Synergy transaction and the acquisition of Atlantic Bank of New York (“Atlantic
Bank”) in 2006, the Company acquired certain loans for which there was, at the time of acquisition, evidence of
deteriorating credit quality and for which it was probable that not all contractually required payments would be
collected. Those loans are segregated from the remaining acquired portfolios and are being accounted for under
Statement of Position 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer” (“SOP 03-
3”). The Company also considered if there was evidence of deteriorating credit quality for the loans acquired in the
PennFed acquisition and determined that none of these loans were required to be accounted for in accordance with
SOP 03-3.
The carrying amounts of loans accounted for under SOP 03-3 are included in “Loans, net” in the Consolidated
Statements of Condition. The contractual principal amounts outstanding and the carrying amounts (net of
nonaccretable differences) of such loans at December 31, 2008 and 2007 are summarized as follows:
(in thousands)
Commercial and industrial loans
Acquisition, development, and construction loans and
commercial real estate loans
Other loans
Auto leases
Total contractual principal amounts
Total net carrying amount
2008
$ --
--
27
--
$27
$ 5
2007
$3,146
1,480
552
122
$5,300
$3,466
The Company did not record any accretable yield relating to these loans.
The following table summarizes loans that were acquired in business combinations in 2007 and 2006 for
which it was probable at the time of acquisition that not all contractually required payments would be collected. No
business combinations were completed in 2008.
(in thousands)
Contractually required payments receivable at acquisition:
Commercial real estate loans and acquisition, development, and construction loans
Other loans
Commercial and industrial loans
Total
Nonaccretable difference (expected losses and foregone interest) at acquisition
Cash flows expected to be collected at acquisition
Accretable yield (interest component of expected cash flows)
Basis in acquired loans at acquisition
2007
2006
$1,480
552
--
$2,032
504
$1,528
--
$1,528
$189
--
709
$898
275
$623
--
$623
There were no loans acquired that were not accounted for using the income recognition model of SOP 03-3. In
addition, the Company was able to reasonably estimate the cash flows expected to be collected in connection with
these loans.
107
NOTE 7: DEPOSITS
The following table sets forth a summary of the weighted average interest rates for each type of deposit at
December 31, 2008 and 2007:
December 31,
Amount
(dollars in thousands)
NOW and money market accounts $ 3,818,952
2,629,168
Savings accounts
6,796,971
Certificates of deposit
Non-interest-bearing accounts
1,047,363
$14,292,454
Total deposits
2008
Percent of
Total
26.72%
18.39
47.56
7.33
100.00%
Weighted
Average
Rate(1)
1.03%
0.63
3.46
--
2.04%
Amount
$ 2,456,756
2,514,189
6,913,036
1,273,352
$13,157,333
2007
Weighted
Average
Percent of
Rate(1)
Total
18.67% 2.84%
19.11
52.54
9.68
1.10
4.53
--
100.00% 3.12%
(1)
Excludes the effect of purchase accounting adjustments for certificates of deposit.
At December 31, 2008 and 2007, the aggregate amounts of deposits that had been reclassified as loan balances
(i.e., overdrafts) were $3.2 million and $6.3 million, respectively.
The scheduled maturities of certificates of deposit (“CDs”) at December 31, 2008 were as follows:
(in thousands)
1 year or less
More than 1 year through 2 years
More than 2 years through 3 years
More than 3 years through 4 years
More than 4 years through 5 years
Over 5 years
Total certificates of deposit
$5,901,229
583,649
79,431
106,505
75,443
50,714
$6,796,971
The following table presents a summary of CDs in amounts of $100,000 or more, by remaining term to
maturity, at December 31, 2008:
(in thousands)
Total
0 – 3
Months
$1,691,167
CDs of $100,000 or More Maturing Within
6 – 12
Months
$628,992
Over 12
Months
$260,959
3 – 6
Months
$590,770
Total
$3,171,888
At December 31, 2008 and 2007, the aggregate amounts of CDs of $100,000 or more were $3.2 billion and
$2.7 billion, respectively.
Included in total deposits at December 31, 2008 and 2007 were brokered deposits of $3.1 billion and $590.5
million, respectively. Brokered deposits had weighted average interest rates of 2.25% and 5.14% at the respective
year-ends. Brokered money market accounts represented $1.5 billion and $2.9 million, respectively, of the year-end
2008 and 2007 totals. Brokered CDs represented $1.6 billion and $587.6 million of brokered deposits at the
respective year-ends. All of the brokered CDs at December 31, 2008 will mature in less than one year from that date.
108
NOTE 8: BORROWED FUNDS
The following table summarizes the Company’s borrowed funds at December 31, 2008 and 2007:
(in thousands)
FHLB-NY advances
Repurchase agreements
Federal funds purchased
Junior subordinated debentures
Senior notes
Preferred stock of subsidiaries
Total borrowed funds
December 31,
2008
$ 7,708,064
4,485,000
150,000
484,216
601,630
67,800
$13,496,710
2007
$ 7,782,390
4,411,220
--
484,843
75,219
162,000
$12,915,672
Accrued interest on borrowed funds is included in “other liabilities” in the Consolidated Statements of
Condition, and amounted to $47.8 million and $60.3 million, respectively, at December 31, 2008 and 2007.
In the second quarter of 2008, the Company recorded a pre-tax charge of $325.0 million (the “debt
repositioning charge”) for the prepayment of $4.0 billion of higher-cost wholesale and other borrowings that were
replaced with $3.8 billion of lower-cost wholesale borrowings. (Wholesale borrowings consist of FHLB-NY
advances, repurchase agreements, and federal funds purchased.) In accordance with EITF Issue No. 96-19,
“Debtor’s Accounting for a Modification or Exchange of Debt Instruments,” charges of $39.6 million that were
incurred in connection with the prepayment and replacement of wholesale borrowings transacted with the same
counterparty were amortized over the term of the new borrowings and recorded in 2008 interest expense. In
accordance with SFAS No. 140, charges of $285.4 million that were incurred in connection with the prepayment of
wholesale borrowings that were replaced by funds obtained through different counterparties were immediately
recorded in non-interest expense.
The Company recorded losses of $1.8 million and $1.9 million, respectively, in its 2007 and 2006 non-interest
income, in connection with the write-off of unamortized issuance costs stemming from the redemption of certain
trust preferred securities. During these years, the Company also recorded respective charges of $3.2 million and
$26.5 million for the prepayment of wholesale borrowings, in connection with the repositioning of the balance sheet
following the acquisitions of PennFed and Atlantic Bank.
FHLB-NY Advances
FHLB-NY advances totaled $7.7 billion and $7.8 billion at December 31, 2008 and 2007, respectively. The
contractual maturities and the next call dates of the outstanding FHLB-NY advances at December 31, 2008 were as
follows:
(dollars in thousands)
Year of Maturity
2009
2010
2011
2012
2013
2015
2016
2017
2018
2025
Contractual Maturity
Earlier of Contractual Maturity
or Next Call Date
Weighted
Average
Interest Rate(1)
0.50%
--
4.43
3.93
3.25
3.79
4.35
4.23
3.54
7.82
3.92%
Amount
$ 503,334
--
114,135
200,000
85,000
400,000
2,115,000
3,640,312
650,000
283
$7,708,064
Amount
$6,382,781
550,000
775,000
--
--
--
--
--
--
283
$7,708,064
Weighted
Average
Interest Rate(1)
3.99%
3.60
3.64
--
--
--
--
--
--
7.82
3.92%
(1)
Excludes the effect of purchase accounting adjustments.
109
FHLB-NY advances include both straight fixed-rate advances and advances under the FHLB-NY convertible
advance program, which gives the FHLB-NY the option of either calling the advance after an initial lock-out period
of up to five years and quarterly thereafter until maturity, or a one-time call at the initial call date.
The following table sets forth certain information regarding FHLB-NY advances at or for the years ended
December 31, 2008, 2007, and 2006:
(dollars in millions)
Average balance during the year
Maximum balance at any month-end during the year
Balance outstanding at end of year
Weighted average interest rate during the year(1)
Weighted average interest rate at end of year(1)
(1)
Excludes the effect of purchase accounting adjustments.
At or For the Years Ended December 31,
2006
2008
2007
$6,360
$7,119
$7,763
7,241
7,782
8,223
7,241
7,782
7,708
4.28 %
4.46 %
4.72 %
4.21
4.39
3.92
At December 31, 2008, short-term FHLB-NY advances totaled $502.9 million. There were no short-term
FHLB-NY advances at December 31, 2007.
At December 31, 2008 and 2007, the Banks had a combined overnight line of credit of $500.0 million and
$300.0 million, respectively, with the FHLB-NY. At December 31, 2008, borrowings under this line of credit
amounted to $152.9 million; there were no borrowings under this line of credit at December 31, 2007. At
December 31, 2008, the Company also had access to funds through a $200.0 million one-month facility with the
FHLB-NY. There were no borrowings outstanding under this facility at December 31, 2008 or 2007. FHLB-NY
advances and overnight line-of-credit borrowings are secured by a pledge of certain eligible collateral, which may
consist of eligible loans or mortgage-related securities.
The interest expense on FHLB-NY advances was $364.2 million, $304.4 million, and $247.6 million,
respectively, for the years ended December 31, 2008, 2007, and 2006.
Repurchase Agreements
Repurchase agreements totaled $4.5 billion and $4.4 billion at December 31, 2008 and 2007, respectively. The
following table provides the contractual maturities and weighted average interest rates of repurchase agreements,
and the amortized cost and fair value, including accrued interest, of the securities collateralizing the repurchase
agreements, at December 31, 2008:
Mortgage-Related
Securities
GSE Debentures and
U.S. Treasury Obligations
Other
(dollars in
thousands)
Contractual
Amount
Maturity
Up to 30 days
$ 360,000
Over 90 days(2) 4,125,000
$4,485,000
Total
Weighted
Average
Interest
Rate(1)
0.66 %
3.56
3.33
Amortized
Cost
$ 222,876
3,682,770
$3,905,646
Fair Value
Amortized
Cost
$ 227,404 $ 25,147
1,186,225
$3,932,592 $1,211,372
3,705,188
Excludes the effect of purchase accounting adjustments.
(1)
(2) Contractual maturities range from four to ten years.
Fair Value
Amortized
Fair Value
Cost
$ 25,146 $172,578 $142,336
--
$1,216,257 $172,578 $142,336
1,191,111
--
At December 31, 2008, short-term repurchase agreements amounted to $360.0 million. There were no short-
term repurchase agreements at December 31, 2007.
110
A more detailed analysis of the contractual maturities and the next call dates of the outstanding repurchase
agreements at December 31, 2008 follows:
(dollars in thousands)
Year of Maturity
2009
2010
2011
2012
2013
2016
2017
2018
Contractual Maturity
Earlier of Contractual Maturity
or Next Call Date
Weighted
Average
Interest Rate(1)
0.66%
--
--
3.75
3.08
4.14
4.08
3.31
3.33%
Amount
$ 360,000
--
--
200,000
800,000
345,000
1,080,000
1,700,000
$4,485,000
Amount
$1,885,000
1,050,000
1,550,000
--
--
--
--
--
$4,485,000
Weighted
Average
Interest Rate(1)
3.42%
3.06
3.39
--
--
--
--
--
3.33%
(1)
Excludes the effect of purchase accounting adjustments.
At December 31, 2008 and 2007, the accrued interest on repurchase agreements amounted to $14.2 million
and $19.9 million, respectively. The interest expense on repurchase agreements was $166.5 million, $153.7 million,
and $147.1 million, respectively, for the years ended December 31, 2008, 2007, and 2006.
Federal Funds Purchased
The Company had $150.0 million of federal funds purchased at December 31, 2008. There were no federal
funds purchased at December 31, 2007. Federal funds purchased at December 31, 2008, had a contractual maturity
of less than 90 days.
In 2008, 2007, and 2006, the average balance of federal funds purchased amounted to $24.6 million, $20.8
million, and $38.6 million, respectively, and had a weighted average interest rate of 1.04%, 3.30%, and 4.31%,
respectively. The interest expense produced by federal funds purchased was $257,000, $687,000, and $1.7 million,
respectively, for the years ended December 31, 2008, 2007, and 2006.
111
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On November 4, 2002, the Company completed a public offering of 5,500,000 Bifurcated Option Note Unit
SecuritiES (“BONUSESSM Units”), including 700,000 that were sold pursuant to the exercise of the underwriters’
over-allotment option, at a public offering price of $50.00 per share. The Company realized net proceeds from the
offering of approximately $267.3 million. Each BONUSES Unit consists of a capital security issued by New York
Community Capital Trust V, a trust formed by the Company, and a warrant to purchase 2.4953 shares of the
common stock of the Company (for a total of approximately 13.7 million common shares) at an effective exercise
price of $20.04 per share. Each capital security has a maturity of 49 years, with a coupon, or distribution rate, of
6.00% on the $50.00 per share liquidation amount. The warrants and capital securities were non-callable for five
years from the date of issuance and were not called by the Company when the five-year period passed on
November 4, 2007. During 2008, 1,456 warrants were exercised and, accordingly, the Company issued 3,632 shares
of common stock.
The gross proceeds of the BONUSES Units totaled $275.0 million and were allocated between the capital
security and the warrant comprising such units in proportion to their relative values at the time of issuance. The
value assigned to the warrants was $92.4 million, and was recorded as a component of additional “paid-in capital” in
the Company’s consolidated financial statements. The value assigned to the capital security component was $182.6
million. The $92.4 million difference between the assigned value and the stated liquidation amount of the capital
securities is treated as an original issue discount and amortized to “interest expense” over the 49-year life of the
capital securities on a level-yield basis. At December 31, 2008, this discount totaled $91.6 million. Issuance costs
related to the BONUSES Units totaled $7.7 million (with $5.1 million allocated to the capital security) and were
reflected in “other assets” in the Consolidated Statements of Condition. As of December 31, 2007, all such costs had
been fully amortized. The portion of issuance costs allocated to the warrants totaled $2.6 million and was treated as
a reduction in paid-in capital.
In addition to the trust established in connection with the issuance of the BONUSES Units, the Company has
eight business trusts of which it owns all of the common securities: Haven Capital Trust II, Queens County Capital
Trust I, Queens Statutory Trust I, New York Community Capital Trust X, LIF Statutory Trust I, PennFed Capital
Trust II, PennFed Capital Trust III, and New York Community Capital Trust XI (the “Trusts”). The Trusts were
formed for the purpose of issuing Company Obligated Mandatorily Redeemable Capital Securities of Subsidiary
Trusts Holding Solely Junior Subordinated Debentures (collectively, the “Capital Securities”), and are described in
the preceding table. Dividends on the Capital Securities are payable either quarterly or semi-annually and are
deferrable, at the Company’s option, for up to five years. As of December 31, 2008, all dividends were current. As
each of the Capital Securities was issued, the Trusts used the offering proceeds to purchase a like amount of Junior
Subordinated Deferrable Interest Debentures (the “Debentures”) of the Company. The Debentures bear the same
terms and interest rates as the related Capital Securities. The Company has fully and unconditionally guaranteed all
of the obligations of the Trusts. Under current applicable regulatory guidelines, a portion of the Capital Securities
qualifies as Tier I capital, and the remainder qualifies as Tier II capital.
Interest expense on junior subordinated debentures was $35.1 million, $40.3 million, and $42.7 million,
respectively, for the years ended December 31, 2008, 2007, and 2006.
In the second quarter of 2003, the Company entered into four interest rate swap agreements which effectively
converted four of the Company’s capital securities from fixed-rate to variable-rate instruments. In accordance with
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” the Company concluded in the
first quarter of 2006 that its interest rate swap transactions did not qualify for the short-cut accounting method.
Accordingly, during said quarter, the Company re-designated three of the swaps associated with these transactions
as fair value hedges under the long-haul accounting method, in order to qualify them for fair value hedge accounting
under SFAS No. 133, effective March 31, 2006. In connection with this action, a pre-tax mark-to-market loss on
interest rate swaps of $6.1 million was recorded in “non-interest income” in the Consolidated Statement of Income
and Comprehensive Income for the year ended December 31, 2006. In the second quarter of 2006, in connection
with the repositioning of its liabilities following the Atlantic Bank acquisition, the Company terminated its interest
rate swap agreements. The termination resulted in a pre-tax charge of $1.1 million which is recorded in “non-interest
expense” in the Consolidated Statement of Income and Comprehensive Income for the year ended December 31,
2006.
113
Senior Notes
On December 22, 2008, New York Community Bancorp, Inc. (on a stand-alone basis) completed an offering
of $90.0 million of 2.55% Fixed Rate Senior Notes due June 22, 2012, at a price of 99.875%. Interest is payable
semi-annually in arrears on June 22nd and December 22nd of each year, commencing on June 22, 2009. These notes
are guaranteed (for an annual assessment rate of 100 basis points, which is included in interest expense over the life
of the debt) by the Federal Deposit Insurance Corporation (the “FDIC”) under the Temporary Liquidity Guarantee
Program (the “TLGP”) and are backed by the full faith and credit of the United States. These notes may not be
redeemed prior to their stated maturity. The senior notes issued by the Company are its direct, unconditional,
unsecured, and general obligation, and rank equally with all other senior unsecured indebtedness of the Company.
On December 17, 2008, the Community Bank completed an offering of $512.0 million of 3.00% Fixed Rate
Senior Notes due December 16, 2011, at a price of 99.949%. Interest is payable semi-annually in arrears on
June 16th and December 16th of each year, commencing on June 16, 2009. These notes are also FDIC-guaranteed
(for an annual assessment rate of 100 basis points) under the TLGP, and are backed by the full faith and credit of the
United States. These notes may not be redeemed prior to their stated maturity, except if the Company becomes
obligated to pay additional amounts because of changes in certain U.S. withholding tax requirements. In addition,
the senior notes issued by the Community Bank are its direct, unconditional, unsecured, and general obligation, and
rank equally with all other senior unsecured indebtedness of the Community Bank.
On November 21, 2001, Roslyn Bancorp, Inc. (“Roslyn”), which merged with and into the Company on
October 31, 2003, issued $75.0 million of 7.50% unsecured senior notes at par. These notes matured on December 1,
2008. On November 13, 2002, Roslyn issued $115.0 million of 5.75% unsecured senior notes at a price of 99.785%;
these notes matured on November 15, 2007.
Interest expense on senior notes amounted to $6.1 million, $10.1 million, and $9.8 million in the years ended
December 31, 2008, 2007, and 2006, respectively.
Preferred Stock of Subsidiaries
On April 7, 2003, the Company, through its then second-tier subsidiary, CFS Investments New Jersey, Inc.,
completed the sale of $60.0 million of capital securities of Richmond County Capital Corporation (“RCCC”), a
wholly-owned real estate investment trust (“REIT”) of the Company, in a private placement transaction. The private
placement was made to “Qualified Institutional Buyers,” as defined in Rule 144A of the Rules and Regulations
promulgated under the Securities Act of 1933, as amended (the “33 Act”). The capital securities consisted of $10.0
million, or 100 shares, of Richmond County Capital Corporation Series B Non-Cumulative Exchangeable Fixed-
Rate Preferred Stock, stated value of $100,000 per share (the “Series B Preferred Stock”) and $50.0 million, or 500
shares, of Richmond County Capital Corporation Series C Non-Cumulative Exchangeable Floating-Rate Preferred
Stock, stated value of $100,000 per share (the “Series C Preferred Stock”). Dividends on the Series B Preferred
Stock are payable quarterly at an annual rate of 8.25% of its stated value. The Series B Preferred Stock may be
redeemed by the Company on or after July 15, 2024. Dividends on the Series C Preferred Stock are payable
quarterly at an annual rate equal to LIBOR plus 3.25% of its stated value. The Series C Preferred Stock may be
redeemed by the Company on or after July 15, 2008. The dividend rate on the Series C Preferred Stock resets
quarterly.
In the fourth quarter of 2008, RCCC repurchased 155 shares, or $15.5 million, of its previously issued Series
C Non-Cumulative Exchangeable Floating-Rate Preferred Stock. As a result, the Company recorded a pre-tax gain
of $5.9 million in non-interest income for the three months ended December 31, 2008. In the first quarter of 2008,
RCCC repurchased $8.0 million of its previously issued Series B Non-Cumulative Exchangeable Fixed-Rate
Preferred Stock. As a result, the Company recorded a pre-tax gain of $926,000 in non-interest income for the three
months ended March 31, 2008.
On October 27, 2003, Roslyn Real Estate Asset Corp. (“RREA”), a wholly-owned REIT of the Company,
which was acquired by the Company in its merger with Roslyn Bancorp, Inc. (“Roslyn”), completed the sale of
$102.0 million of capital securities in a private placement transaction. The private placement was made to
“Qualified Institutional Buyers,” as defined in Rule 144A of the Rules and Regulations promulgated under the 33
Act. The capital securities consisted of $12.5 million, or 125 shares, of RREA Series C Non-Cumulative
Exchangeable Fixed-Rate Preferred Stock, liquidation preference of $100,000 per share (the “RREA Series C
114
Preferred Stock”) and $89.5 million, or 895 shares, of RREA Series D Non-Cumulative Exchangeable Floating-Rate
Preferred Stock, liquidation preference of $100,000 per share (the “RREA Series D Preferred Stock”). Dividends on
the RREA Series C Preferred Stock are payable quarterly at an annual rate of 8.95% of its stated value. The RREA
Series C Preferred Stock may be redeemed by the Company on or after September 30, 2023. Dividends on the
RREA Series D Preferred Stock were payable quarterly at an annual rate equal to 4.79% for the period from
September 30, 2003 to, but excluding, December 31, 2003, and payable thereafter at an annual rate equal to LIBOR
plus 3.65% of its stated value. The RREA Series D Preferred Stock may be redeemed by the Company on or after
September 30, 2008. The dividend rate on the RREA Series D Preferred Stock resets quarterly.
In the fourth quarter of 2008, RREA repurchased 267 shares, or $26.7 million, of its previously issued RREA
Series D Non-Cumulative Exchangeable Floating-Rate Preferred Stock. As a result, the Company recorded a pre-tax
gain of $10.1 million in non-interest income for the three months ended December 31, 2008. In the second quarter of
2008, RREA repurchased $11.5 million of its previously issued Series C Non-Cumulative Exchangeable Fixed-Rate
Preferred Stock, and $32.5 million of its previously issued RREA Series D Non-Cumulative Exchangeable Floating-
Rate Preferred Stock. As a result, the Company recorded a pre-tax gain of $1.4 million in the second quarter of
2008.
Dividends on preferred stock of subsidiaries are reported as interest expense and amounted to $9.2 million,
$15.1 million, and $14.9 million, respectively, for the years ended December 31, 2008, 2007, and 2006.
Shelf Registration Statement
On October 31, 2005, the Company filed a shelf registration statement (the “2005 Shelf Registration
Statement”) that allows the Company to periodically offer and sell, individually or in any combination, the
following securities, up to a total of $1.0 billion: debt securities, trust preferred securities, warrants to purchase other
securities, depository shares, stock purchase contracts, and stock purchase units (a combination of one or more stock
purchase contracts and certain beneficial interests), preferred stock, common stock, and units (which include a
combination of any of the preceding securities). The 2005 Shelf Registration Statement, which also served to de-
register approximately $195 million of securities that were unissued under a previous shelf registration statement
dated May 16, 2003, was declared effective on December 21, 2005.
Under the 2005 Shelf Registration Statement, the Company issued 24,500,000 shares of its common stock on
April 18, 2006 at an offering price of $16.35 per share, generating gross proceeds of $400.6 million; and 17,871,000
shares of its common stock on May 23, 2008 at an offering price of $19.35 per share, generating gross proceeds of
$345.8 million. The 2005 Shelf Registration Statement was replaced by a Shelf Registration Statement filed by the
Company on July 3, 2008 (the “2008 Shelf Registration Statement”). Under the 2008 Shelf Registration Statement,
the Company may periodically offer and sell an indeterminate number of the following securities, individually or in
any combination, at indeterminate prices, aggregate initial offering prices, or principal amounts, as the case may be:
debt securities, trust preferred securities, warrants to purchase other securities, depository shares, stock purchase
contracts, stock purchase units, preferred stock, common stock, and units.
115
NOTE 9: FEDERAL, STATE, AND LOCAL TAXES
The following table summarizes the components of the Company’s net deferred tax asset at December 31,
2008 and 2007:
(in thousands)
Deferred Tax Assets:
Allowance for loan losses
Compensation and related benefit obligations
Fair value adjustments on securities (including OTTI)
Purchase accounting adjustments on loans
Net operating loss and tax credit carry forwards
Purchase accounting adjustments on borrowed funds
Merger-related costs
Other
Gross deferred tax assets
Valuation allowance
Deferred tax asset after valuation allowance
Deferred Tax Liabilities:
Amortizable intangibles
Premises and equipment
Prepaid pension cost
Other
Gross deferred tax liabilities
Net deferred tax asset
December 31,
2008
2007
$ 37,373
24,082
68,431
16,454
15,808
1,107
2,293
8,581
174,129
(1,367)
172,762
(23,664)
(9,644)
(1,970)
(2,738)
(38,016)
$134,746
$ 34,428
29,713
15,504
23,139
4,501
8,450
3,267
7,783
126,785
(3,874)
122,911
(32,473)
(11,852)
(11,153)
(6,233)
(61,711)
$ 61,200
The net deferred tax asset, which is included in “other assets” in the Consolidated Statements of Condition at
December 31, 2008 and 2007, 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.
In 2008, a valuation allowance of $1.4 million was established as an offset of a portion of the New Jersey
(“NJ”) deferred tax assets, reflecting the potential failure of the Company to utilize certain NJ net operating loss
carryforwards and deductible temporary differences in a manner that would reduce future NJ tax liability. A $3.9
million valuation allowance at December 31, 2007 that related to the potential utilization of New York State
(“NYS”) net operating losses was no longer necessary at December 31, 2008 and was recognized as a deferred tax
benefit reflected in net income for 2008. A change in NYS tax law (which results in the inclusion of income earned
by REIT subsidiaries as part of the measure of NYS taxable income of the combined bank tax return group) and the
impact of the debt repositioning charge were factors in this determination. The Company has determined that at
December 31, 2008, all NYS net operating loss carryforwards, federal tax credit carryforwards and deductible
temporary differences are more likely than not to provide a benefit in reducing future NYS and New York City
(“New York”) and federal tax liabilities, as applicable.
The gross deferred tax assets include the tax effects of NYS net operating loss carryforwards of $282.0
million, none of which will expire prior to 2026. In addition, the Company has a federal alternative minimum tax
credit carryover of $2.3 million which is available over an indefinite period to reduce future federal regular income
taxes.
116
The following table summarizes the Company’s income tax (benefit) expense for the years ended
December 31, 2008, 2007, and 2006:
(in thousands)
Federal – current
State and local – current
Total current
Federal – deferred
State and local – deferred
Total deferred
Total income tax (benefit) expense
2008
$ 4,108
3,987
8,095
(8,981)
(23,204)
(32,185)
$(24,090)
December 31,
2007
$ 94,784
9,985
104,769
26,757
(8,509)
18,248
$123,017
2006
$ 57,321
2,332
59,653
42,878
13,598
56,476
$116,129
The following table presents a reconciliation of statutory federal income tax expense to combined actual
income tax (benefit) expense for the years ended December 31, 2008, 2007, and 2006:
(in thousands)
Statutory federal income tax expense at 35%
State and local income taxes, net of federal income tax benefit
Effect of tax deductibility of ESOP
Non-taxable income and expense of BOLI
Federal tax credits
Repurchase of shares issued by subsidiaries
Other, net
Total income tax (benefit) expense
2008
$ 18,828
(12,490)
(4,942)
(12,371)
(6,015)
(6,756)
(344)
$(24,090)
December 31,
2007
$140,735
959
(3,778)
(9,150)
(5,766)
--
17
$123,017
2006
$122,050
10,355
(2,650)
(8,269)
(6,061)
--
704
$116,129
FIN 48 prescribes a recognition threshold and measurement attribute for use in connection with the obligation
of a company to recognize, measure, present, and disclose in its financial statements uncertain tax positions that the
company has taken or expects to take on a tax return. Upon adoption of FIN 48, only tax positions that meet a “more
likely than not” threshold at the effective date may be recognized or may continue to be recognized. The Company’s
adoption of FIN 48 on January 1, 2007 decreased its income tax liability for unrecognized tax benefits by $4.1
million through a $3.5 million reduction in goodwill and a $567,000 increase in retained earnings. After its adoption
of FIN 48, the Company had $26.8 million of unrecognized gross tax benefits on January 1, 2007. As of
December 31, 2008, the Company had $24.2 million of unrecognized gross tax benefits. Gross tax benefits do not
reflect the federal tax effect associated with state tax amounts.
The total amount of net unrecognized tax benefits at December 31, 2008 that would affect the effective tax
rate, if recognized, was $19.3 million, with the balance of such net unrecognized tax benefits relating to potential
adjustments to paid-in capital. In accordance with FAS 141R, effective January 1, 2009, any change to the balance
of unrecognized tax benefits relating to the tax liabilities of pre-acquisition tax years of an acquired company will be
recognized as an adjustment to income tax expense rather than as an adjustment to goodwill attributed to the
purchase.
Interest and penalties (if any) related to the underpayment of income taxes are classified as a component of
income tax expense in the Consolidated Statements of Income and Comprehensive Income. Accrued interest on tax
liabilities was $2.2 million at December 31, 2008 and $2.0 million at December 31, 2007.
117
The following table summarizes changes in the liability for unrecognized gross tax benefits:
(in thousands)
Uncertain tax positions at beginning of year
Additions for tax positions relating to current year operations
Additions for tax positions relating to prior tax years
Subtractions for tax positions relating to prior tax years
Reductions in balance due to settlements
Uncertain tax positions at end of year
For the Years Ended December 31,
2008
$24,704
--
518
--
(1,069)
$24,153
2007
$ 26,753
--
8,254
(38)
(10,265)
$ 24,704
The Company and its acquired companies have filed tax returns in many states. The following are the more
significant tax filings which are open for examination:
(cid:120) Federal tax filings of the Company and acquired companies for the tax years 2002 through the present;
(cid:120) New York State tax filings of the Company for the tax years 2007 through the present;
(cid:120) New York City tax filings of the Company for the tax years 2005 through the present;
(cid:120) New Jersey tax filings of the Company and its acquired companies for varying periods, including 2003
through the present; and
(cid:120) Federal tax filings of the Company and certain acquired companies for tax years 1996, 2000, and 2001,
which are otherwise closed to an assessment of tax, remain subject to examination, with any tax adjustment
limited to the denial of some or all of the amounts of tax refunds filed by the Company relating to such
years.
It is reasonably possible that there will be developments within the next twelve months, including audit
resolutions, which will necessitate an adjustment to the balance of unrecognized tax benefits. Total unrecognized tax
benefits may be reduced by up to $15 million during this period. The Company believes that the range of possible
adjustments for each tax position is not significant when compared to the aggregate balance of unrecognized gross
tax benefits.
As a savings institution, the Community Bank is subject to special provisions in the federal and New York tax
laws regarding its tax bad debt reserves and, for New York purposes, its allowable tax bad debt deduction. At each
of December 31, 2008 and 2007, the Community Bank’s federal, New York State, and New York City tax bad debt
base-year reserves were $61.5 million, $109.5 million, and $119.3 million, respectively. Related net deferred tax
liabilities of $21.5 million, $4.9 million, and $1.6 million, respectively, have not been recognized since the
Community Bank does not expect that these reserves will become taxable in the foreseeable future. Under the tax
laws, events that would result in taxation of certain of these reserves include (1) redemptions of the Community
Bank’s stock or certain excess distributions by the Community Bank to the Company; and (2) failure of the
Community Bank to maintain a specified qualifying assets ratio or to meet other thrift definition tests for New York
tax purposes.
NOTE 10: COMMITMENTS AND CONTINGENCIES
Pledged Assets
At December 31, 2008 and 2007, respectively, the Company had pledged mortgage-related securities held to
maturity with carrying values of $3.1 billion and $2.4 billion. The Company also had pledged other securities held to
maturity with carrying values of $1.4 billion and $1.5 billion at the corresponding dates. In addition, the Company
had pledged available-for-sale mortgage-related securities and other securities with respective carrying values of
$811.2 million and $78.8 million at December 31, 2008, and of $944.2 million and $140.0 million at December 31,
2007. The pledged securities primarily serve as collateral for the Company’s repurchase agreements.
118
Loan Commitments and Letters of Credit
At December 31, 2008 and 2007, the Company had commitments to originate loans, including unadvanced
lines of credit, of approximately $1.0 billion and $1.2 billion, respectively. The majority of the outstanding loan
commitments at December 31, 2008 and 2007 had adjustable interest rates, and were expected to close within 90
days. The Company had commitments to originate loans held for sale of $300,000 at December 31, 2008; at
December 31, 2007, the Company had no commitments to originate loans for sale.
The following table sets forth our off-balance-sheet commitments relating to outstanding loan commitments
and letters of credit at December 31, 2008:
(in thousands)
Mortgage Loan Commitments:
Multi-family loans
Commercial real estate loans
Acquisition, development, and construction loans
1–4 family loans
Total mortgage loan commitments
Other loan commitments
Total loan commitments
Commercial, performance, and financial stand-by letters of credit
Total commitments
Lease and License Commitments
$ 188,119
75,961
249,951
27,137
$ 541,168
494,457
$1,035,625
62,741
$1,098,366
At December 31, 2008, the Company was obligated under various non-cancelable operating lease and license
agreements with renewal options on properties used primarily for branch operations. The Company currently
expects to renew such agreements upon their expiration in the normal course of business. The agreements contain
periodic escalation clauses that provide for increases in the annual rent, commencing at various times during the
lives of the agreements, which are primarily based on increases in real estate taxes and cost-of-living indices.
The projected minimum annual rental commitments under these agreements, exclusive of taxes and other
charges, are summarized as follows:
(in thousands)
2009
2010
2011
2012
2013
2014 and thereafter
Total minimum future rentals
$ 25,397
24,575
22,706
21,239
18,307
70,178
$182,402
The rental expense under these leases is included in “occupancy and equipment expense” in the Consolidated
Statements of Income and Comprehensive Income, and amounted to approximately $26.1 million, $22.9 million,
and $20.8 million in the years ended December 31, 2008, 2007, and 2006, respectively. Rental income on bank-
owned properties, netted in occupancy and equipment expense, was approximately $2.4 million, $2.7 million, and
$1.8 million in the corresponding periods. Minimum future rental income under non-cancelable sublease agreements
aggregated $1.9 million at December 31, 2008.
Financial Guarantees
The Company provides guarantees and indemnifications to its customers to enable them to complete a wide
variety of business transactions and to enhance their credit standing. In accordance with FASB Interpretation No. 45,
“Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of
Indebtedness of Others,” such guarantees are recorded at their respective fair values in “other liabilities” in the
Consolidated Statements of Condition, and amounted to $240,000 at December 31, 2008. The Company deems the
fair value of the guarantees to equal the consideration received.
119
The following table summarizes the Company’s guarantees and indemnifications at December 31, 2008:
(in thousands)
Financial stand-by letters of credit
Performance stand-by letters of credit
Commercial letters of credit
Loans with recourse/indemnification
Expires Within
One Year
$22,443
8,319
22,561
--
$53,323
Expires After
One Year
$1,004
8,414
--
369
$9,787
Total
Outstanding
Amount
$23,447
16,733
22,561
369
$63,110
Maximum
Potential Amount
of Future
Payments
$23,447
16,733
22,561
369
$63,110
The maximum potential amount of future payments represents the notional amounts that could be funded and
lost under the guarantees and indemnifications if there were a total default by the guaranteed parties or
indemnification provisions were triggered as applicable, without consideration of possible recoveries under recourse
provisions or from collateral held or pledged.
The Company collects a fee upon the issuance of letters of credit. These fees are initially recorded by the
Company as a liability and are recognized as income at the expiration date of the respective guarantees. In addition,
the Company requires adequate collateral, typically in the form of real property or personal guarantees, upon its
issuance of performance, financial stand-by, and commercial letters of credit. In the event that a borrower defaults,
loans with recourse or indemnification obligate the Company to purchase loans that the Company has sold or
otherwise transferred to a third party. Also outstanding at December 31, 2008 were $636,000 of bankers’
acceptances.
In 2007, the Company recorded a $1.0 million pre-tax charge relating to its membership interest in Visa,
U.S.A., a subsidiary of Visa, Inc. (“Visa”). Of the latter amount, $500,000 was reversed through non-interest income
in the first quarter of 2008.
In October 2007, Visa completed a reorganization in contemplation of its initial public offering, which was
subsequently completed in March 2008. As part of that reorganization, the Community Bank and the former
Synergy Bank, along with many other banks across the nation, received shares of common stock of Visa. In
accordance with U.S. generally accepted accounting principles, the Company did not recognize any value for this
common stock ownership interest.
Visa claims that all Visa, U.S.A. member banks are obligated to share with it in losses stemming from certain
litigation against it and certain other named member banks (the “Covered Litigation”). Visa set aside a portion of the
proceeds from its initial public offering in an escrow account to fund any judgments or settlements that may arise
from the Covered Litigation, and reduced the amount of shares allocated to the Visa U.S.A. member banks by
amounts necessary to cover such liability. Nevertheless, Visa U.S.A. member banks were required to record a
liability for the fair value of their related contingent obligation to Visa U.S.A., based on the percentage of their
membership interest. The $1.0 million liability established in 2007 was based on the Company’s best estimate of the
combined membership interest of the Community Bank and the former Synergy Bank with regard to both settled and
pending litigation in which Visa is involved.
In connection with its initial public offering, Visa required the mandatory redemption of shares received by
the member banks. Accordingly, the Company recorded a $1.1 million Visa-related gain in the first quarter of 2008.
In addition, the Company reversed $500,000 of the $1.0 million Visa litigation charge that was recorded in the
fourth quarter of 2007, as noted above. The $500,000 that remained at December 31, 2008 will be used to fund any
future litigation relating to Visa. Depending on the outcome of the Covered Litigation, the Company could incur an
increase or a reduction in the value of its membership interest in Visa, the amount of which is not expected to be
material.
Legal Proceedings
In the ordinary course of business, the Company and its subsidiaries are defendants in or parties to a number
of legal proceedings. We believe we have meritorious defenses with respect to these cases and intend to defend them
vigorously.
120
On May 6, 2005, sixteen of the Company’s current or former officers and directors were named as defendants
in a putative derivative action filed by an alleged shareholder on behalf of the Company in the United States District
Court for the Eastern District of New York. The same shareholder previously had sent the Company’s Board of
Directors a letter reciting many of the allegations made in a putative class action that since has been dismissed with
prejudice. The putative class action alleged, among other things, that the Registration Statement issued in connection
with the Company’s merger with Roslyn and other documents and statements made by executive management in
connection therewith were inaccurate and misleading, contained untrue statements of material facts, omitted other
facts necessary to make the statements made not misleading, and concealed and failed to adequately disclose
material facts, pertaining to, among other things, the Company’s business plans and its exposure to interest rate risk.
The alleged shareholder subsequently demanded that the Board take a variety of actions allegedly required to
address those allegations. The Board appointed a committee of independent directors to evaluate what response, if
any, to make to this letter. Nevertheless, the putative derivative plaintiff filed this action repeating the same
allegations as were made in the letter and purporting to seek on behalf of the Company money damages, restitution,
and equitable relief against the defendants for various alleged breaches of duty and alleged corporate waste. On
August 15, 2005, the plaintiff filed an amended complaint, repeating the same substantive allegations of fact. On
September 30, 2005, the defendants filed motions to dismiss this action, and on February 9, 2009, the case was
dismissed in its entirety. The Company would vigorously defend against any appeal to this decision, and believes
that it has meritorious defenses against any such appeal. If such an appeal were taken and the matter were to
proceed, management is not in a position to determine whether resolution of this case would have a material adverse
effect on the Company.
121
NOTE 11: EMPLOYEE BENEFITS
Retirement Plans
On April 1, 2002, three separate pension plans for employees of the former Queens County Savings Bank, the
former CFS Bank, and the former Richmond County Savings Bank were merged together and renamed the “New
York Community Bancorp Retirement Plan” (the “New York Community Plan”). The pension plan for employees
of the former Roslyn Savings Bank was merged into the New York Community Plan on September 30, 2004. The
pension plan for employees of the former Atlantic Bank of New York was merged into the New York Community
Plan on March 31, 2008. The New York Community Plan and the former Atlantic Bank Retirement Plan
(collectively, the “Plans”) are presented on a consolidated basis for 2007 in the disclosures that follow, unless
otherwise noted. The New York Community Plan covers substantially all employees who had attained minimum
age, service, and employment status requirements prior to the date when the individual plans were frozen by the
banks of origin. Once frozen, the plans ceased to accrue additional benefits, service, and compensation factors, and
became closed to employees who would otherwise have met eligibility requirements after the “freeze” date. In
connection with the acquisition of Atlantic Bank, the Company froze the Atlantic Bank Retirement Plan (the
“Atlantic Plan”) on April 28, 2006. All plans are subject to the provisions of ERISA.
The following tables set forth certain information regarding the New York Community Plan, based on the
measurement date indicated:
(in thousands)
Change in Benefit Obligation:
Benefit obligation at beginning of year
Adjustment for measurement date change
Interest cost
Actuarial loss (gain)
Annuity payments
Settlements
Benefit obligation at end of year
Change in Plan Assets:
Fair value of assets at beginning of year
Actual (loss) return on plan assets
Contributions
Annuity payments
Settlements
Administrative expenses
Fair value of assets at end of year
Funded status (included in other assets)
Changes recognized in other comprehensive income for the year ended December 31:
Adjustment for measurement date change
Amortization of prior service cost
Amortization of actuarial gain
Net actuarial loss (gain) arising during the year
Total recognized in other comprehensive loss (income) for the year (pre-tax)
Accumulated other comprehensive loss (pre-tax) not yet recognized
in net periodic benefit cost at December 31:
Prior service cost
Actuarial loss, net
Total accumulated other comprehensive loss (pre-tax)
December 31,
2008
October 1,
2007
$106,000
1,604
6,414
4,158
(7,088)
(1,383)
$109,705
$134,439
(47,281)
39,160
(7,088)
(1,383)
--
$117,847
$8,142
$ (100)
(202)
(196)
69,357
$68,859
$111,129
--
6,340
(4,435)
(5,588)
(1,446)
$106,000
$124,784
16,995
--
(5,588)
(1,446)
(306)
$134,439
$28,439
$ --
(202)
(1,011)
(10,801)
$(12,014)
$ 398
79,166
$79,564
$ 650
10,055
$10,705
In 2009, an estimated $7.0 million of unrecognized net actuarial loss and $202,000 of prior service cost for the
defined benefit pension plan will be amortized from accumulated other comprehensive loss into net periodic benefit
cost. The comparable amounts recognized as net periodic benefit cost in 2008 were $196,000 and $202,000,
122
respectively. The discount rates used to determine the benefit obligation at December 31, 2008 and 2007 were 6.1%
and 6.3%, respectively.
The discount rate reflects rates at which the benefit obligation could be effectively settled. To determine this
rate, the Company considers rates of return on high-quality fixed-income investments that are currently available
and are expected to be available during the period until payment of the pension benefits. The expected future
payments are discounted based on a portfolio of high-quality rated bonds (AA or better) for which the Company
relies on the Citigroup Pension Liability Index, which is developed from the Citigroup Pension Discount Curve
published as of the measurement date.
The components of net periodic pension credit were as follows for the years indicated:
(in thousands)
Components of Net Periodic Pension Credit:
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of unrecognized actuarial loss
Net periodic pension credit
Years Ended December 31,
2007
2008
2006
$ 6,414
(14,845)
202
196
$ (8,033)
$ 6,340
(10,323)
202
1,011
$ (2,770)
$ 5,386
(8,940)
202
1,524
$(1,828)
The following table indicates the weighted average assumptions used in determining the net periodic benefit
cost for the years indicated:
Years Ended December 31,
2007
2008
2006
Weighted Average Assumptions:
Discount rate
Expected rate of return on plan assets
6.3%
9.0
5.9%
8.6
5.7%
8.6
New York Community Plan assets are invested in diversified investment funds of the RSI Retirement Trust
(the “Trust”), a series of no-load private placement funds, and in the Company’s common stock. At December 31,
2008 and 2007, the amounts of New York Community Plan assets invested in the Company’s common stock were
$11.5 million and $10.6 million, respectively. The investment funds include equity mutual funds and bond mutual
funds, each with its own investment objectives, strategies, and risks, as detailed in the Trust’s prospectus. The Trust
has been given partial discretion by the Plan Sponsor to determine the appropriate strategic asset allocation versus
plan liabilities, as governed by the Trust’s Statement of Investment Objectives and Guidelines (the “Guidelines”).
The long-term investment objective is to be invested 65% in equity securities (equity mutual funds) and 35%
in debt securities (bond mutual funds). If the New York Community Plan is underfunded under the Guidelines, the
bond fund portion will be temporarily increased to 50% in order to lessen asset value volatility. When the New York
Community Plan is no longer underfunded, the bond fund portion will be returned to 35%. The New York
Community Plan is not currently underfunded under the Guidelines. Asset rebalancing is scheduled when the
investment mix varies more than 10% from the target (i.e., within a 20% target range).
The investment goal of the New York Community Plan is to achieve investment results that will contribute to
the proper funding of the pension plan by exceeding the rate of inflation over the long-term. In addition, investment
managers for the Trust are expected to provide above-average performance when compared to their peers.
Performance volatility is monitored, and risk and volatility are further managed by the distinct investment objectives
of each of the Trust funds and by the diversification within each fund.
Atlantic Plan assets were invested in seven diversified investment funds managed by SEI Investment
Management Co., a series of no-load open-ended mutual funds, and in the Company’s common stock. At
December 31, 2007, the amount of Atlantic Plan assets invested in the Company’s common stock was $3.7 million.
The investment funds included four equity mutual funds and three bond mutual funds, each with its own investment
objectives, investment strategies, and risks, as detailed in the funds’ prospectuses.
123
Current Asset Allocation
The weighted average asset allocation for the New York Community Plan as of December 31, 2008 and
October 1, 2007, and for the Atlantic Plan as of October 1, 2007, were as follows:
Asset Category:
Equity securities
Debt securities
Total
New York Community
Plan Assets at
December 31, 2008
Plan Assets at
October 1, 2007
Atlantic
Plan Assets at
October 1, 2007
60%
40
100%
71%
29
100%
60%
40
100%
Determination of Long-Term Rate of Return
The long-term rate of return on assets assumption was set based on historical returns earned by equities and
fixed income securities, adjusted to reflect expectations of future returns as applied to the plan’s target allocation of
asset classes. Equities and fixed income securities were assumed to earn real rates of return in the ranges of 5% to
9% and 2% to 6%, respectively. The long-term inflation rate was estimated to be 3%. When these overall return
expectations are applied to the plan’s target allocation, the result is an expected rate of return of 7% to 11%.
Expected Contributions
The Company currently expects to contribute approximately $35 million to the New York Community Plan in
2009.
Expected Future Annuity Payments
The following annuity payments, which reflect expected future service, as appropriate, are expected to be paid
by the New York Community Plan during the years indicated:
(in thousands)
2009
2010
2011
2012
2013
2014-2018
Total
Qualified Savings Plans
$ 6,757
6,941
7,057
7,924
7,301
36,714
$72,694
The Company maintains a defined contribution qualified savings plan (the “New York Community Bank
Employee Savings Plan”) in which all full-time employees are able to participate after one year of service and
having attained age 21. No matching contributions have been made by the Company to this plan since 1993.
Deferred Compensation Plan
The Company maintains an unfunded deferred compensation plan for former directors of the Company. The
unfunded balances are reflected in “other liabilities” in the Company’s Consolidated Statements of Condition and
amounted to $209,000 and $203,000 at December 31, 2008 and 2007, respectively.
Post-Retirement Health and Welfare Benefits
The Company offers certain post-retirement benefits, including medical, dental, and life insurance, to retired
employees, depending on age and years of service at the time of retirement (the “Health & Welfare Plan”). The costs
of such benefits are accrued during the years that an employee renders the necessary service.
124
The following tables set forth certain information regarding the Health & Welfare Plan based on the
measurement dates indicated:
(in thousands)
Change in Benefit Obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Adjustment for measurement date change
Actuarial loss
Premiums/claims paid
Plan amendments
Benefit obligation at end of year
Change in Plan Assets:
Fair value of assets at beginning of year
Employer contribution
Premiums/claims paid
Fair value of assets at end of year
Funded status (included in other liabilities)
December 31,
2008
October 1,
2007
$16,151
8
936
235
2,519
(3,386 )
--
$16,463
$ --
3,386
(3,386 )
$ --
$(16,463 )
$20,243
9
1,139
--
5
(1,622 )
(3,623 )
$16,151
$ --
1,622
(1,622 )
$ --
$(16,151 )
Changes recognized in other comprehensive income for the year ended December 31:
Adjustment for measurement date change
Prior service cost arising during the year
Amortization of prior service cost
Amortization of actuarial gain
Net loss arising during the year
Total recognized in other comprehensive loss (income) for the year (pre-tax)
Accumulated other comprehensive loss (pre-tax) not yet recognized in net periodic
benefit cost at December 31:
Prior service cost
Actuarial loss (net)
Total accumulated other comprehensive loss (pre-tax)
At both December 31, 2008 and 2007, the discount rate was 5.9%.
$ 28
--
249
(137 )
2,519
$2,659
$ --
(3,623 )
(42 )
(117 )
5
$(3,777 )
$(3,277 )
5,943
$ 2,666
$(3,588 )
3,595
$ 7
The estimated net actuarial loss (gain) and the prior service liability that will be amortized from accumulated
other comprehensive loss into net periodic benefit cost over the next fiscal year amount to $314,000 and ($249,000),
respectively.
The following table indicates the components of net periodic benefit cost for the years indicated:
(in thousands)
Components of Net Periodic Benefit Cost:
Service cost
Interest cost
Amortization of prior service cost
Amortization of unrecognized actuarial loss
Net periodic benefit cost
Years Ended December 31,
2006
2008
2007
$ 8
936
(249 )
137
$ 832
$ 9
1,139
42
117
$1,307
$ 8
1,050
43
69
$1,170
125
The following table indicates the assumptions used in determining the net periodic benefit cost for the years
indicated:
Weighted Average Assumptions:
Discount rate
Current medical trend rate
Years Ended December 31,
2006
2007
2008
6.1%
7.8
5.9%
9.0
5.5%
9.5
Had the assumed medical trend rate at December 31, 2008 increased by 1% in each future year, the
accumulated post-retirement benefit obligation at that date would have increased by $3,000; the aggregate of the
benefits earned and the interest components of 2008 net post-retirement benefit cost would have increased by
$19,000. Had the assumed medical trend rate decreased by 1% in each future year, the accumulated post-retirement
benefit obligation at December 31, 2008 would have declined by $9,000; the aggregate of the benefits earned and
the interest components of 2008 net post-retirement benefit cost would have declined by $31,000.
The impact of applying FASB Staff Position No. 106-2, “Accounting and Disclosure Requirements Related to
The Medicare Prescription Drug, Improvement and Modernization Act of 2003,” to the Company’s accumulated
post-retirement benefit obligation as of December 31, 2008 was a $643,000 reduction in said obligation and a
$21,000 reduction in the net periodic benefit cost for 2008.
Investment Policies and Strategies
The Health & Welfare Plan is an unfunded non-qualified pension plan and is not expected to hold assets for
investment at any time. Any contributions made to the Health & Welfare Plan will be used to immediately pay plan
premiums and claims as they come due.
Expected Contributions
The Company expects to contribute $1.9 million to the Health & Welfare Plan to pay premiums and claims for
the fiscal year ending December 31, 2009.
Expected Future Payments for Premiums and Claims
The following amounts are expected to be paid for premiums and claims during the years indicated under the
Health & Welfare Plan:
(in thousands)
2009
2010
2011
2012
2013
2014-2018
Total
$ 1,932
1,942
1,884
1,526
1,454
6,189
$14,927
126
NOTE 12: STOCK-RELATED BENEFIT PLANS
New York Community Bank Employee Stock Ownership Plan
At the time of the Community Bank’s conversion to stock form, the Company loaned $19.4 million to the
New York Community Bank Employee Stock Ownership Plan (the “ESOP”) to purchase 18,583,440 shares of the
Company’s common stock. In the second quarter of 2002, the Company loaned an additional $14.8 million to the
ESOP for the purchase of 906,667 shares of the common stock that were sold in a secondary offering on May 14,
2002. In 2002, the two loans were consolidated into a single loan which is being repaid at a fixed interest rate of
4.75% over a period of time not to exceed 30 years.
The Community Bank is obligated to repay the loan by making periodic contributions. The 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 ESOP share account. At December 31, 2008 and 2007, the loan had
outstanding balances of $1.8 million and $2.8 million, respectively.
As the loan is repaid, shares are released from a suspense account and allocated among participants on the
basis of compensation, as described in the ESOP, in the year of allocation. The Community Bank made no
contributions to the ESOP during 2008, 2007, or 2006. The dividends and investment income on ESOP shares that
were used for debt service in 2008, 2007, and 2006 amounted to approximately $1.0 million, $1.5 million, and $2.3
million, respectively.
All full-time employees who have attained 21 years of age and who have completed twelve consecutive
months of credited service are eligible to participate in the ESOP, with benefits vesting on a seven-year basis,
starting with 20% in the third year of employment and continuing in 20% increments in each successive year.
Benefits are payable upon death, retirement, disability, or separation from service, and may be paid in stock.
However, in the event of a change in control, as defined in the ESOP, any unvested portion of benefits shall vest
immediately.
In 2008, 2007, and 2006, the Company allocated 346,497; 482,764; and 721,834 shares, respectively, to
participants in the ESOP. At December 31, 2008, a total of 15,161,672 shares were held in the ESOP, including
631,303 shares, with a market value of $7.6 million, that were still available for future allocation. The Community
Bank recognizes compensation expense for the ESOP based on the average market price of the Company’s common
stock during the year in which the allocation is made. For the years ended December 31, 2008, 2007, and 2006, the
Company recorded ESOP-related compensation expense of $5.8 million, $8.6 million, and $12.0 million,
respectively. Included in the 2007 and 2006 amounts were special merger-related ESOP allocation expenses of $2.2
million and $5.7 million, respectively.
Supplemental Executive Retirement Plan
In 1993, the Community Bank also established a Supplemental Executive Retirement Plan (“SERP”), which
provided additional unfunded, non-qualified benefits to certain participants in the ESOP in the form of Company
common stock. The SERP was frozen in 1999. At both December 31, 2008 and 2007, the SERP maintained $3.1
million of trust-held assets, based upon the cost of said assets. Trust-held assets, consisting entirely of Company
common stock, amounted to 1,018,939 and 959,917 shares at December 31, 2008 and 2007, respectively. The cost
of these shares is reflected as a reduction of paid-in capital in excess of par in the Consolidated Statements of
Condition. The Company recorded no SERP-related compensation expense in 2008, 2007, or 2006.
Stock Incentive and Stock Option Plans
At December 31, 2008, the Company had 6,354,659 shares available for grant as options, restricted stock, or
other forms of related rights under the New York Community Bancorp, Inc. 2006 Stock Incentive Plan (the “2006
Stock Incentive Plan”), which was approved by the Company’s shareholders at its Annual Meeting on June 7, 2006.
During 2008, 2007, and 2006, 1,945,400; 732,991; and 48,000 shares of restricted stock were granted under the
2006 Stock Incentive Plan, with an average fair value of $14.32, $17.69, and $16.53 per share on the respective
grant dates. The shares of restricted stock that were granted in 2008 vest over a period of five years. Compensation
cost related to the restricted stock grants is recognized on a straight-line basis over the vesting period, and totaled
$7.9 million, $3.7 million, and $43,000 for the years ended December 31, 2008, 2007, and 2006, respectively.
127
A summary of activity with regard to restricted stock awards in the year ended December 31, 2008 is
presented in the following table:
Unvested at beginning of year
Granted
Vested
Cancelled
Unvested at end of year
For the Year Ended
December 31, 2008
Number of Shares
757,991
1,945,400
(283,496)
(73,550)
2,346,345
Weighted Average
Grant Date
Fair Value
$17.64
14.32
17.63
15.83
14.95
As of December 31, 2008, unrecognized compensation cost relating to unvested restricted stock totaled $28.7
million. This amount will be recognized over a remaining weighted average period of 3.9 years.
In addition, the Company had eleven stock option plans at December 31, 2008: the 1993 and 1997 New York
Community Bancorp, Inc. Stock Option Plans; the 1993 and 1996 Haven Bancorp, Inc. Stock Option Plans; the
1998 Richmond County Financial Corp. Stock Compensation Plan; the T R Financial Corp. 1993 Incentive Stock
Option Plan; the Roslyn Bancorp, Inc. 1997 and 2001 Stock-based Incentive Plans; the 1998 Long Island Financial
Corp. Stock Option Plan; and the 2003 and 2004 Synergy Financial Group Stock Option Plans (all eleven plans
collectively referred to as the “Stock Option Plans”). All stock options granted under the Stock Option Plans expire
ten years from the date of grant.
At the time of grant, all options were to have vested in whole or in part over two to five years from the date of
issuance, with all options becoming 100% exercisable in the event that employment were terminated due to death,
disability, normal retirement, or in the event of a change in control of the Community Bank or the Company. On
December 30, 2005, the Board of Directors of the Company accelerated the vesting of, and vested, all unvested
stock options that were outstanding at that date. A total of 1.4 million options held by 179 individuals were impacted
by the Acceleration. All other terms and conditions of the accelerated options remain unchanged. As a result of the
Acceleration, the Company was able to avoid recognizing compensation expense that it otherwise would have had to
recognize in 2006, 2007, and 2008 under SFAS No. 123R.
In connection with its adoption of SFAS No. 123R on January 1, 2006, using the modified prospective
approach, the Company recognizes compensation costs related to share-based payments at fair value on the date of
grant, and recognizes such costs in the financial statements over the vesting period during which the employee
provides service in exchange for the award. However, as there were no unvested options at January 1, 2006, or at
any time during 2006, 2007, or 2008, the Company did not record any compensation and benefits expense relating to
stock options during those years.
Currently, the Company issues new shares of common stock to satisfy the exercise of options. The Company
may also use common stock held in Treasury to satisfy the exercise of options. In such event, the difference between
the average cost of Treasury shares and the exercise price is recorded as an adjustment to retained earnings or paid-
in capital on the date of exercise. At December 31, 2008, 2007, and 2006, respectively, there were 13,702,712;
15,763,696; and 19,019,717 stock options outstanding. The number of shares available for future issuance under the
Stock Option Plans was 800 at December 31, 2008.
128
The status of the Stock Option Plans at December 31, 2008 and changes that occurred during the year ended at
that date are summarized below:
Stock options outstanding, beginning of year
Exercised
Forfeited
Stock options outstanding, end of year
Options exercisable at year-end
For the Year Ended
December 31, 2008
Number of Stock
Options
15,763,696
(1,924,780)
(136,204)
13,702,712
13,702,712
Weighted Average
Exercise Price
$15.05
11.82
15.53
15.50
15.50
The intrinsic value of stock options outstanding and exercisable at December 31, 2008 was $1.6 million. The
intrinsic values of options exercised during the years ended December 31, 2008, 2007, and 2006 were $14.1 million,
$9.1 million, and $5.8 million, respectively.
NOTE 13: FAIR VALUE MEASUREMENTS
On January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements,” which, among other
things, defines fair value; establishes a consistent framework for measuring fair value; and expands disclosure for
each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. SFAS
No. 157 clarifies that fair value is an “exit” price, representing the amount that would be received when selling an
asset, or paid when transferring a liability, in an orderly transaction between market participants. Fair value is thus a
market-based measurement that should be determined based on assumptions that market participants would use in
pricing an asset or liability. As a basis for considering such assumptions, SFAS No. 157 establishes a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
(cid:120)
(cid:120)
(cid:120)
Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or
liabilities in active markets.
Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in
active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for
substantially the full term of the financial instrument.
Level 3 – Inputs to the valuation methodology are significant unobservable inputs that reflect a company’s
own assumptions about the assumptions that market participants use in pricing an asset or liability.
A financial instrument’s categorization within this valuation hierarchy is based upon the lowest level of input
that is significant to the fair value measurement.
The following table presents, by SFAS No. 157 valuation hierarchy, assets that were measured at fair value on
a recurring basis as of December 31, 2008, and that were included in the Company’s Consolidated Statement of
Condition at that date:
Fair Value Measurements at December 31, 2008 Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
$42,562
Significant Other
Observable Inputs
(Level 2)
$953,350
Significant
Unobservable
Inputs
(Level 3)
$14,590
Total Fair
Value
$1,010,502
(in thousands)
Securities available for sale
Instruments for which unobservable inputs are significant to their fair value measurement (i.e., Level 3)
include certain less liquid securities. Level 3 assets accounted for 0.04% of the Company’s total assets at
December 31, 2008.
The Company reviews and updates the fair value hierarchy classifications on a quarterly basis. Changes from
one quarter to the next that are related to the observability of inputs to a fair value measurement may result in a
reclassification from one hierarchy level to another.
129
A description of the methods and significant assumptions utilized in estimating the fair value of available-for-
sale securities follows:
Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation
hierarchy. Level 1 securities include highly liquid government securities and exchange-traded securities.
If quoted market prices are not available for the specific security, then fair values are estimated by using
pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. These pricing
models primarily use market-based or independently sourced market parameters as inputs, including, but not limited
to, yield curves, interest rates, equity or debt prices, and credit spreads. In addition to observable market
information, models also incorporate transaction details, such as maturity and cash flow assumptions. Securities
valued in this manner would generally be classified within Level 2 of the valuation hierarchy and primarily include
such instruments as mortgage-related securities and corporate debt.
In certain cases where there is limited activity or less transparency around inputs to the valuation, securities
are classified within Level 3 of the valuation hierarchy. In valuing collateralized debt obligations (“CDOs”), which
include pooled trust preferred securities and income notes, the determination of fair value may require
benchmarking to similar instruments or analyzing default and recovery rates. Therefore, CDOs are valued using a
model based on the specific collateral composition and cash flow structure of the security. Key inputs to the model
consist of market spread data for each credit rating, collateral type, and other relevant contractual features. In
instances where quoted price information is available, that price is considered when arriving at the security’s fair
value. CDOs are classified within Level 3.
Each of the methods described above may produce a fair value estimate that may not be indicative of net
realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods
are appropriate and consistent with those of other market participants, the use of different methodologies or
assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair
value at the reporting date.
Changes in Level 3 Fair Value Measurements
The following table presents information for recurring assets classified by the Company within Level 3 of the
valuation hierarchy for the twelve months ended December 31, 2008:
(in thousands)
Beginning balance
Change in unrealized losses included in other comprehensive loss
Other-than-temporary impairment loss
Principal amortization
Ending balance
Assets Measured at Fair Value on a Nonrecurring Basis
Available-for-Sale
Securities
Twelve Months Ended
December 31, 2008
$ 65,952
726
(51,500 )
(588 )
$ 14,590
Certain assets are measured at fair value on a nonrecurring basis. Such instruments are subject to fair value
adjustments under certain circumstances (e.g., when there is evidence of impairment). For the Company, such assets
include goodwill, CDI, other real estate owned, other long-lived assets, loans held for sale, certain impaired loans,
and MSRs, all of which are generally classified within Level 3 of the valuation hierarchy. With the exception of a
$463,000 fair value adjustment relating to the Company’s MSRs and a $1.2 million adjustment relating to impaired
loans (which was taken into consideration in computing the required balance for the allowance for loan losses), no
amounts were recorded in the 2008 Consolidated Statement of Income and Comprehensive Income due to fair value
adjustments on such assets.
130
Other Fair Value Disclosures
SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” requires the disclosure of fair value
information about the Company’s on- and off-balance-sheet financial instruments. Quoted market prices, when
available, are used as the measure of fair value. In cases where quoted market prices are not available, fair values are
based on present-value estimates or other valuation techniques. Such fair values are significantly affected by the
assumptions used, the timing of future cash flows, and the discount rate.
Because assumptions are inherently subjective in nature, estimated fair values cannot be substantiated by
comparison to independent market quotes. Furthermore, in many cases, the estimated fair values provided would not
necessarily be realized in an immediate sale or settlement of the instrument.
The following table summarizes the carrying values and estimated fair values of the Company’s on-balance-
sheet financial instruments at December 31, 2008 and 2007:
(in thousands)
Financial Assets:
Cash and cash equivalents
Securities held to maturity
Securities available for sale
FHLB-NY stock
Loans, net
Financial Liabilities:
Deposits
Borrowed funds
Mortgagors’ escrow
December 31,
2008
2007
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
$ 203,216
4,890,991
1,010,502
400,979
22,097,844
$14,292,454
13,496,710
83,194
$ 203,216
4,827,801
1,010,502
400,979
22,891,568
$14,361,809
15,165,647
83,194
$ 335,743
4,362,645
1,381,256
423,069
20,270,454
$13,157,333
12,915,672
78,468
$ 335,743
4,324,194
1,381,256
423,069
20,660,655
$13,182,409
13,554,895
78,468
The methods and significant assumptions used to estimate fair values for the Company’s financial instruments
are as follows:
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks and federal funds sold. The estimated fair values
of cash and cash equivalents are assumed to equal their carrying values, as these financial instruments are either due
on demand or have short-term maturities.
Securities Held to Maturity and Available for Sale
If quoted market prices are not available for the specific security, then fair values are estimated by using
pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. These pricing
models primarily use market-based or independently sourced market parameters as inputs, including, but not limited
to, yield curves, interest rates, equity or debt prices, and credit spreads. In addition to observable market
information, models also incorporate transaction details, such as maturity and cash flow assumptions.
Federal Home Loan Bank of New York Stock
The fair value of FHLB-NY stock approximates the carrying amount, which is at cost.
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). The estimated fair values of mortgage and other loans are computed by discounting the
anticipated cash flows from the respective portfolios. The discount rates reflect current market rates for loans with
similar terms to borrowers of similar credit quality. The estimated fair values of non-performing mortgage and other
loans are based on recent collateral appraisals.
131
The methods used to estimate fair value are extremely sensitive to the assumptions and estimates used. While
management has attempted to use assumptions and estimates that best reflect the Company’s loan portfolio and
current market conditions, a greater degree of subjectivity is inherent in these values than in those determined in
active markets. 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 (i.e., NOW and money market accounts, savings
accounts, and non-interest-bearing accounts) are equal to the carrying amounts payable on demand. The fair values
of CDs represent contractual cash flows, discounted using interest rates currently offered on deposits with similar
characteristics and remaining maturities. These estimated fair values do not include the intangible value of core
deposit relationships, which comprise a significant portion of the Company’s deposit base.
Borrowed Funds
The estimated fair value of borrowed funds is based on either bid quotations received from securities dealers
or on the discounted value of contractual cash flows with interest rates currently in effect for borrowed funds with
similar maturities and structure.
Mortgagors’ Escrow
The fair value of mortgagors’ escrow approximates the carrying value.
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 such off-
balance-sheet financial instruments were insignificant at December 31, 2008 and 2007.
NOTE 14: RESTRICTIONS ON SUBSIDIARY BANKS
Various legal restrictions limit the extent to which the Company’s subsidiary banks can supply funds to the
Parent Company and its non-bank subsidiaries. The Company’s subsidiary banks would require the approval of the
Superintendent of the New York State Banking Department if the dividends they declared in any calendar year were
to exceed the total of their respective net profits for that year combined with their respective retained net profits for
the preceding two calendar years, less any required transfer to paid-in capital. The term “net profits” is defined as
the remainder of all earnings from current operations plus actual recoveries on loans and investments and other
assets, after deducting from the total thereof all current operating expenses, actual losses, if any, and all federal and
local taxes. In 2008, the Banks together paid dividends of $100.0 million to the Parent Company; at December 31,
2008, the Banks together could have paid additional dividends of $146.3 million to the Parent Company without
regulatory approval.
132
NOTE 15: PARENT COMPANY ONLY FINANCIAL INFORMATION
Following are the condensed financial statements for New York Community Bancorp, Inc. (Parent Company
December 31,
2008
2007
$ 129,306
10,000
9,568
4,581,446
2,848
86,618
$4,819,786
$ 89,888
484,216
26,436
600,540
4,219,246
$4,819,786
$ 104,416
10,000
46,773
4,562,190
2,735
25,867
$4,751,981
$ 75,219
484,843
9,606
569,668
4,182,313
$4,751,981
Years Ended December 31,
2007
$ 6,911
200,000
--
1,220
(1,848)
--
1,415
207,698
60,633
2006
$ 8,145
560,000
--
495
(1,859)
(6,071)
1,288
561,998
63,575
2008
$ 4,566
100,000
(35,332)
--
--
--
1,104
70,338
53,297
17,041
(47,607)
147,065
(22,373)
498,423
(20,754)
64,648
13,236
$ 77,884
169,438
109,644
$279,082
519,177
(286,592)
$ 232,585
only):
Condensed Statements of Condition
(in thousands)
ASSETS:
Cash and cash equivalents
Securities held to maturity
Securities available for sale
Investments in subsidiaries
Receivable from subsidiaries
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Senior notes
Junior subordinated debentures
Other liabilities
Total liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
Condensed Statements of Income
(in thousands)
Interest income
Dividends received from subsidiaries
Loss on other-than-temporary impairment of securities
Gain on sale of securities
Loss on debt redemption
Loss on mark-to-market of interest rate swaps
Other income
Gross income
Operating expenses
Income before income tax benefit and equity in undistributed
(overdistributed) earnings of subsidiaries
Income tax benefit
Income before equity in undistributed (overdistributed) earnings
of subsidiaries
Equity in undistributed (overdistributed) earnings of subsidiaries
Net income
133
Condensed Statements of Cash Flows
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Change in other assets
Change in other liabilities
Net gain on sale of securities
Loss on other-than-temporary impairment of securities
Other, net
Equity in (undistributed) overdistributed earnings of subsidiaries
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available for sale
Proceeds from sale and repayment of securities
(Investments in) payments from subsidiaries, net
Net cash acquired in business combinations
Net cash (used in) provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net
Treasury stock purchases
Cash dividends paid on common stock
Net cash received from exercise of stock options
Net cash received from exercise of warrants
Redemption of junior subordinated debentures
Issuance of junior subordinated debentures
Issuance of senior notes
Repayment of senior notes
Cash-in-lieu of fractional shares
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
NOTE 16: REGULATORY MATTERS
Years Ended December 31,
2007
2006
2008
$ 77,884
(61,386)
19,725
--
35,332
6,998
(13,236)
65,317
--
3,106
(76,971)
--
(73,865)
339,153
(2,208)
(333,509)
15,041
73
--
--
89,888
(75,000)
--
33,438
24,890
104,416
$ 129,306
$ 279,082
20,423
(47,087)
(1,220)
--
1,350
(109,644)
142,904
(29,158)
12,556
44,551
2,698
30,647
--
(168)
(310,205)
44,064
--
(83,123)
82,475
--
(115,000)
(7)
(381,964)
(208,413)
312,829
$ 104,416
$ 232,585
11,681
25,420
(495)
--
(677)
286,592
555,106
--
8,427
(396,480)
--
(388,053)
400,119
(2,415)
(286,773)
14,183
--
(125,034)
123,712
--
--
(2)
123,790
290,843
21,986
$ 312,829
The Company is subject to examination, regulation, and periodic reporting under the Bank Holding Company
Act of 1956, as amended, which is administered by the Federal Reserve Board of Governors (the “FRB”). The FRB
has adopted capital adequacy guidelines for bank holding companies (on a consolidated basis) that are substantially
similar to those of the FDIC.
The following tables present the regulatory capital ratios for the Company at December 31, 2008 and 2007, in
comparison with the minimum amounts and ratios required by the FRB for capital adequacy purposes:
At December 31, 2008
(dollars in thousands)
Total regulatory capital
Minimum for capital
adequacy purposes
Excess
Leverage Capital
Ratio
7.84%
Amount
$2,336,142
Risk-Based Capital
Tier 1
Total
Amount
$2,336,142
Ratio
11.49%
Amount
$2,430,510
Ratio
11.96%
1,192,108
$1,144,034
4.00
3.84%
813,069
$1,523,073
4.00
7.49%
1,626,138
$ 804,372
8.00
3.96%
134
At December 31, 2007
(dollars in thousands)
Total regulatory capital
Minimum for capital
adequacy purposes
Excess
Leverage Capital
Ratio
8.32%
Amount
$2,321,764
Risk-Based Capital
Tier 1
Total
Amount
$2,321,764
Ratio
12.10%
Amount
$2,414,558
Ratio
12.58%
1,116,168
$1,205,596
4.00
4.32%
767,443
$1,554,321
4.00
8.10%
1,534,886
$ 879,672
8.00
4.58%
On May 23, 2008, the Company issued 17,871,000 shares of common stock in an offering that generated gross
proceeds of $345.8 million and net proceeds (i.e., after issuance costs) of $339.2 million. Of the latter amount,
$199.2 million served to offset the after-tax impact on stockholders’ equity of prepaying $4.0 billion of wholesale
and other borrowings in the second quarter of 2008; the remaining proceeds were used for general corporate
purposes.
The Banks are subject to regulation, examination, and supervision by the New York State Banking
Department and the Federal Deposit Insurance Corporation (the “Regulators”). The Banks are also governed by
numerous federal and state laws and regulations, including the FDIC Improvement Act of 1991 (“FDICIA”), which
established five categories of capital adequacy 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. Capital amounts and classification are also
subject to the Regulators’ qualitative judgments about components of capital and risk weightings, among other
factors.
The quantitative measures established to ensure capital adequacy require that banks maintain minimum
amounts and ratios of leverage capital to average assets, and of Tier 1 and total capital to risk-weighted assets (as
such measures are defined in the regulations). At December 31, 2008, the Banks exceeded all the capital adequacy
requirements to which they were subject.
As of December 31, 2008, the most recent notifications from the FDIC categorized the Community Bank and
the Commercial Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, a bank must maintain a minimum leverage capital ratio of 5.00%; a minimum Tier 1
risk-based capital ratio of 6.00%; and a minimum total risk-based capital ratio of 10.00%. In the opinion of
management, no conditions or events have transpired since said notification to change these capital adequacy
classifications.
The following tables present the actual capital amounts and ratios for the Community Bank at December 31,
2008 and 2007 in comparison to the minimum amounts and ratios required for capital adequacy purposes:
At December 31, 2008
(dollars in thousands)
Total regulatory capital
Minimum for capital
adequacy purposes
Excess
At December 31, 2007
(dollars in thousands)
Total regulatory capital
Minimum for capital
adequacy purposes
Excess
Leverage Capital
Ratio
7.13%
Amount
$1,982,876
Risk-Based Capital
Tier 1
Total
Amount
$1,982,876
Ratio
10.65%
Amount
$2,067,985
Ratio
11.10%
1,112,965
$ 869,911
4.00
3.13%
744,902
$1,237,974
4.00
6.65%
1,489,804
$ 578,181
8.00
3.10%
Leverage Capital
Ratio
7.69%
Amount
$1,982,073
Risk-Based Capital
Tier 1
Total
Amount
$1,982,073
Ratio
11.29%
Amount
$2,067,725
Ratio
11.78%
1,031,119
$ 950,954
4.00
3.69%
701,929
$1,280,144
4.00
7.29%
1,403,859
$ 663,866
8.00
3.78%
135
The following tables present the actual capital amounts and ratios for the Commercial Bank at December 31,
2008 and 2007 in comparison to the minimum amounts and ratios required for capital adequacy purposes:
Leverage Capital
Ratio
10.33%
Amount
$253,797
Risk-Based Capital
Tier 1
Total
Amount
$253,797
Ratio
12.77%
Amount
$263,083
Ratio
13.23%
98,298
$155,499
4.00
6.33%
79,521
$174,276
4.00
8.77%
159,042
$104,041
8.00
5.23%
Leverage Capital
Ratio
9.10%
Amount
$257,089
Risk-Based Capital
Tier 1
Total
Amount
$257,089
Ratio
11.91%
Amount
$264,259
Ratio
12.24%
113,043
$144,046
4.00
5.10%
86,347
$170,742
4.00
7.91%
172,695
$ 91,564
8.00
4.24%
At December 31, 2008
(dollars in thousands)
Total regulatory capital
Minimum for capital
adequacy purposes
Excess
At December 31, 2007
(dollars in thousands)
Total regulatory capital
Minimum for capital
adequacy purposes
Excess
ITEM 9.
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Under the supervision, and with the participation, of our Chief Executive Officer and Chief Financial Officer,
our management evaluated the effectiveness of the design and operation of the Company’s disclosure controls and
procedures pursuant to Rule 13a-15(b), as adopted by the Securities and Exchange Commission (the “SEC”) under
the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of
the end of the period covered by this annual report.
Disclosure controls and procedures are the controls and other procedures that are designed to ensure that
information required to be disclosed in the reports that the Company files or submits under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company files or submits under the Exchange Act is
accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure.
(b) Management’s Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over
financial reporting. Our system of internal control is designed under the supervision of management, including our
Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of the Company’s financial statements for external reporting purposes in
accordance with U.S. generally accepted accounting principles (“GAAP”).
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide
reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that receipts and expenditures are made only in accordance with the authorization of
management and the Boards of Directors of the Company and the Banks; and provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets
that could have a material effect on our financial statements.
136
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that the controls
may become inadequate because of changes in conditions or that the degree of compliance with policies and
procedures may deteriorate.
As of December 31, 2008, management assessed the effectiveness of the Company’s internal control over
financial reporting based upon the framework established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based upon its assessment,
management believes that the Company’s internal control over financial reporting as of December 31, 2008 is
effective using these criteria.
Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2008 has been audited by KPMG LLP, an independent registered public accounting firm that audited
the Company’s consolidated financial statements as of and for the year ended December 31, 2008, as stated in their
report, included in Item 8 on page 82, which expresses an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2008.
(c) Changes in Internal Control over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report
relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Information regarding our directors, executive officers, and corporate governance appears in our Proxy
Statement for the Annual Meeting of Shareholders to be held on June 10, 2009 (hereafter referred to as our “2009
Proxy Statement”), under the captions “Information with Respect to Nominees, Continuing Directors, and Executive
Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Meetings and Committees of the Board of
Directors,” and “Corporate Governance,” and is incorporated herein by this reference.
A copy of our Code of Business Conduct and Ethics, which applies to our Chief Executive Officer, Chief
Operating Officer, Chief Financial Officer, and Chief Accounting Officer, as officers of the Company, and all other
senior financial officers of the Company designated by the Chief Executive Officer from time to time, is available at
our web sites, www.myNYCB.com, www.NewYorkCommercialBank.com, and www.NYCBfamily.com, and will
be provided, without charge, upon written request to the Corporate Secretary at 615 Merrick Avenue, Westbury, NY
11590.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation appears in our 2009 Proxy Statement, under the captions
“Compensation Committee Report,” “Compensation Committee Interlocks and Insider Participation,”
“Compensation Discussion and Analysis,” “Executive Compensation,” and “Director Compensation,” and is
incorporated herein by this reference.
137
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The following table provides information regarding the Company’s equity compensation plans at
December 31, 2008:
Plan category
Number of securities to be
issued upon exercise of
outstanding options,
warrants, and rights
Weighted-average exercise
price of outstanding
options, warrants, and
rights
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(a)
(b)
(c)
Equity compensation plans
approved by security holders
Equity compensation plans
not approved by security
holders
Total
13,702,712
--
13,702,712
$15.50
--
$15.50
6,355,459
--
6,355,459
Information regarding security ownership of certain beneficial owners appears in our 2009 Proxy Statement,
under the captions “Security Ownership of Certain Beneficial Owners” and “Information with Respect to Nominees,
Continuing Directors, and Executive Officers,” and is incorporated herein by this reference.
Information regarding security ownership of certain beneficial owners and management appears in our 2009
Proxy Statement, under the caption “Information with Respect to the Nominees, Continuing Directors, and
Executive Officers,” and is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information regarding certain relationships and related transactions appears in our 2009 Proxy Statement,
under the captions “Transactions with Certain Related Persons” and “Corporate Governance,” and is incorporated
herein by this reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information regarding principal accounting fees and services appears in our 2009 Proxy Statement, under the
caption “Audit and Non-audit Fees,” and is incorporated herein by this reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) Documents Filed as Part of this Report
1. Financial Statements
The following are incorporated by reference from Item 8 hereof:
Reports of Independent Registered Public Accounting Firm;
Consolidated Statements of Condition at December 31, 2008 and 2007;
Consolidated Statements of Income and Comprehensive Income for each of the years in the three-year
period ended December 31, 2008;
(cid:120)
(cid:120)
(cid:120)
138
(cid:120)
(cid:120)
Consolidated Statements of Changes in Stockholders’ Equity for each of the years in the three-year period
ended December 31, 2008;
Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31,
2008; and
(cid:120) Notes to the Consolidated Financial Statements.
The following are incorporated by reference from Item 9A hereof:
(cid:120) Management’s Report on Internal Control over Financial Reporting; and
(cid:120)
Changes in Internal Control over Financial Reporting.
2. Financial Statement Schedules
Financial statement schedules have been omitted because they are not applicable or because the required
information is provided in the Consolidated Financial Statements or Notes thereto.
3. Exhibits Required by Securities and Exchange Commission Regulation S-K
The following exhibits are filed as part of this Form 10-K and this list includes the Exhibit Index.
Exhibit No.
2.1
2.2
3.1
3.2
3.3
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
Stock Purchase Agreement between New York Community Bancorp, Inc. and NBG International
Holdings B.V., dated as of October 10, 2005(1)
Unconditional Guaranty Agreement between New York Community Bancorp, Inc. and the National
Bank of Greece, dated as of October 10, 2005(1)
Amended and Restated Certificate of Incorporation(2)
Certificates of Amendment of Amended and Restated Certificate of Incorporation(3)
Amended and Restated Bylaws(4)
Specimen Stock Certificate(5)
Registrant will furnish, upon request, copies of all instruments defining the rights of holders of long-
term debt instruments of the registrant and its consolidated subsidiaries.
Form of Employment Agreement between New York Community Bancorp, Inc. and Joseph R.
Ficalora, Robert Wann, Thomas R. Cangemi, James J. Carpenter, and John J. Pinto(6)
Retirement Agreement between New York Community Bancorp, Inc. and Michael F. Manzulli(7)
Retirement Agreement between New York Community Bancorp, Inc. and James J. O’Donovan (7)
Synergy Financial Group, Inc. 2003 Stock Option Plan (as assumed by New York Community
Bancorp, Inc. effective October 1, 2007)(8)
Synergy Financial Group, Inc. 2004 Stock Option Plan (as assumed by New York Community
Bancorp, Inc. effective October 1, 2007)(8)
Form of Change in Control Agreements among the Company, the Bank, and Certain Officers(9)
Form of Queens County Bancorp, Inc. 1993 Incentive Stock Option Plan(10)
Form of Queens County Bancorp, Inc. 1993 Incentive Stock Option Plan for Outside Directors (10)
Form of Queens County Savings Bank Employee Severance Compensation Plan(9)
Form of Queens County Savings Bank Outside Directors’ Consultation and Retirement Plan (9)
Form of Queens County Bancorp, Inc. Employee Stock Ownership Plan and Trust(9)
Incentive Savings Plan of Queens County Savings Bank(11)
139
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
11.0
12.0
21.0
23.0
31.1
31.2
32.0
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Retirement Plan of Queens County Savings Bank(9)
Supplemental Benefit Plan of Queens County Savings Bank(12)
Excess Retirement Benefits Plan of Queens County Savings Bank(9)
Queens County Savings Bank Directors’ Deferred Fee Stock Unit Plan(9)
New York Community Bancorp, Inc. 1997 Stock Option Plan(13)
Richmond County Financial Corp. 1998 Stock-Based Incentive Plan(14)
Amended and Restated Roslyn Bancorp, Inc. 1997 Stock-Based Incentive Plan(15)
Roslyn Bancorp, Inc. 2001 Stock-Based Incentive Plan(15)
Long Island Financial Corp. 1998 Stock Option Plan, as amended(16)
TR Financial Corp. 1993 Incentive Stock Option Plan, as amended and restated(15)
Haven Bancorp, Inc. Incentive Stock Option Plan, as amended and restated(17)
Haven Bancorp, Inc. 1996 Stock Option Plan, as amended and restated(17)
Haven Bancorp, Inc. Stock Option Plan for Outside Directors, as amended and restated(17)
Amended and Restated Bayonne Bancshares 1995 Stock Option Plan (as assumed by Richmond
County Financial Corp.) (14)
Richmond County Financial Corp. Stock Compensation Plan(14)
New York Community Bancorp, Inc. Management Incentive Compensation Plan(18)
New York Community Bancorp, Inc. 2006 Stock Incentive Plan(18)
Statement Re: Computation of Per Share Earnings (See Note 2 to the Consolidated Financial
Statements.)
Statement Re: Ratio of Earnings to Fixed Charges (attached hereto)
Subsidiaries information incorporated herein by reference to Part I, “Subsidiaries”
Consent of KPMG LLP, dated March 2, 2009 (attached hereto)
Rule 13a-14(a) Certification of Chief Executive Officer of the Company in accordance with Section
302 of the Sarbanes-Oxley Act of 2002 (attached hereto)
Rule 13a-14(a) Certification of Chief Financial Officer of the Company in accordance with Section
302 of the Sarbanes-Oxley Act of 2002 (attached hereto)
Section 1350 Certifications of the Chief Executive Officer and Chief Financial Officer of the
Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 (attached hereto)
Incorporated herein by reference into this document from the Exhibits to Form 8-K filed with the Securities
and Exchange Commission on October 14, 2005
Incorporated by reference to Exhibits filed with the Company’s Form 10-Q for the quarterly period ended
March 31, 2001 (File No. 0-22278)
Incorporated by reference to Exhibits filed with the Company’s Form 10-K for the year ended December 31,
2003 (File No. 1-31565)
Incorporated herein by reference into this document from the Exhibits to Form 8-K filed with the Securities
and Exchange Commission on June 20, 2007
Incorporated by reference to Exhibits filed with the Company’s Registration Statement on Form S-1,
Registration No. 33-66852
Incorporated by reference to Exhibits filed with the Company’s Form 8-K filed with the Securities and
Exchange Commission on March 9, 2006
Incorporated by reference to Exhibits filed with the Company’s Form 10-Q for the quarterly period ended
March 31, 2007 (File No. 001-31565)
Incorporated herein by reference into this document from the Exhibits to Form S-8, Registration Statement
filed on June 23, 2007, Registration No. 333-135279
140
(9)
Incorporated by reference to Exhibits filed with the Registration Statement on Form S-1, Registration No. 33-
66852
(10) Incorporated herein by reference into this document from the Exhibits to Form S-8, Registration Statement
filed on October 27, 1994, Registration No. 33-85684
(11) Incorporated herein by reference into this document from the Exhibits to Form S-8, Registration Statement
filed on October 27, 1994, Registration No. 33-85682
(12) Incorporated herein by reference into this document from the Exhibits filed with the 1995 Proxy Statement for
the Annual Meeting of Shareholders held on April 19, 1995
(13) Incorporated by reference to Exhibits filed with the 1997 Proxy Statement for the Annual Meeting of
Shareholders held on April 16, 1997, as amended as reflected in the Company’s Proxy Statement for the
Annual Meeting of Shareholders held on May 15, 2002
(14) Incorporated herein by reference into this document from the Exhibits to Form S-8, Registration Statement
filed on July 31, 2001, Registration No. 333-66366
(15) Incorporated by reference into this document from the Exhibits to Form S-8, Registration Statement filed on
November 10, 2003, Registration No. 333-110361
(16) Incorporated by reference into this document from the Exhibits to Form S-8, Registration Statement filed on
January 9, 2006, Registration No. 333-130908
(17) Incorporated by reference into this document from the Exhibits to Form S-8, Registration Statement filed on
December 15, 2000, Registration No. 333-51998
(18) Incorporated by reference into this document from the Exhibits filed with the 2006 Proxy Statement for the
Annual Meeting of Shareholders held on June 7, 2006
141
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
March 2, 2009
New York Community Bancorp, Inc.
(Registrant)
/s/ Joseph R. Ficalora
Joseph R. Ficalora
Chairman, President, and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Joseph R. Ficalora
Joseph R. Ficalora
Chairman, President, and
Chief Executive Officer
(Principal Executive Officer)
/s/ John J. Pinto
John J. Pinto
Executive Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
/s/ Dominick Ciampa
Dominick Ciampa
Director
/s/ Hanif W. Dahya
Hanif W. Dahya
Director
/s/ William C. Frederick, M.D.
William C. Frederick, M.D.
Director
/s/ Michael J. Levine
Michael J. Levine
Director
/s/ James J. O’Donovan
James J. O’Donovan
Director
/s/ Spiros J. Voutsinas
Spiros J. Voutsinas
Director
3/2/09
3/2/09
3/2/09
3/2/09
3/2/09
3/2/09
3/2/09
3/2/09
3/2/09
/s/ Thomas R. Cangemi
Thomas R. Cangemi
Senior Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
3/2/09
/s/ Donald M. Blake
Donald M. Blake
Director
/s/ Maureen E. Clancy
Maureen E. Clancy
Director
/s/ Robert S. Farrell
Robert S. Farrell
Director
/s/ Max L. Kupferberg
Max L. Kupferberg
Director
/s/ Hon. Guy V. Molinari
Hon. Guy V. Molinari
Director
/s/ John M. Tsimbinos
John M. Tsimbinos
Director
/s/ Robert Wann
Robert Wann
Senior Executive Vice President, Chief
Operating Officer, and Director
3/2/09
3/2/09
3/2/09
3/2/09
3/2/09
3/2/09
142
STATEMENT RE: RATIO OF EARNINGS TO FIXED CHARGES
EXHIBIT 12.0
(dollars in thousands)
Including Interest Paid on Deposits:
Earnings before income taxes
Combined fixed charges:
Interest expense on deposits
Interest expense on borrowed funds
Appropriate portion (1/3) of rent expenses
Total fixed charges
Earnings before income taxes and fixed charges
Ratio of earnings to fixed charges
Excluding Interest Paid on Deposits:
Earnings before income taxes
Combined fixed charges:
Interest expense on borrowed funds
Appropriate portion (1/3) of rent expenses
Total fixed charges
Earnings before income taxes and fixed charges
Ratio of earnings to fixed charges
Years Ended December 31,
2007
2008
2006
$ 53,794
$ 402,099
$ 348,714
348,393
581,241
9,250
$938,884
$992,678
425,824
524,391
8,315
$ 958,530
$1,360,629
383,373
463,761
6,940
$ 854,074
$1,202,788
1.06x
1.42x
1.41x
$ 53,794
$402,099
$348,714
581,241
9,250
$590,491
$644,285
1.09x
524,391
8,315
$532,706
$934,805
463,761
6,940
$470,701
$819,415
1.75x
1.74x
143
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.0
The Board of Directors
New York Community Bancorp, Inc.:
We consent to the incorporation by reference in the registration statements (Nos. 333-146512, 333-135279, 333-
130908, 333-110361, 333-105901, 333-89826, 333-66366, 333-51998, and 333-32881) on Form S-8, and the
registration statements (Nos. 333-129338, 333-105350, 333-100767, 333-86682, 333-150442, and 333-152147) on
Form S-3 of New York Community Bancorp, Inc. (the “Company”) of our reports dated March 2, 2009 relating to
(i) the consolidated statements of condition of New York Community Bancorp, Inc. and subsidiaries as of
December 31, 2008 and 2007, 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,
2008, and (ii) the effectiveness of internal control over financial reporting as of December 31, 2008, which reports
appear in the December 31, 2008 annual report on Form 10-K of New York Community Bancorp, Inc.
New York, New York
March 2, 2009
144
NEW YORK COMMUNITY BANCORP, INC.
CERTIFICATIONS
EXHIBIT 31.1
I, Joseph R. Ficalora, certify that:
1. I have reviewed this annual report on Form 10-K of New York Community Bancorp, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
DATE: March 2, 2009
BY: /s/ Joseph R. Ficalora
Joseph R. Ficalora
Chairman, President, and Chief Executive Officer
(Duly Authorized Officer)
145
NEW YORK COMMUNITY BANCORP, INC.
CERTIFICATIONS
EXHIBIT 31.2
I, Thomas R. Cangemi, certify that:
1. I have reviewed this annual report on Form 10-K of New York Community Bancorp, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
DATE: March 2, 2009
BY: /s/ Thomas R. Cangemi
Thomas R. Cangemi
Senior Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
146
NEW YORK COMMUNITY BANCORP, INC.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADDED BY
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.0
In connection with the Annual Report of New York Community Bancorp, Inc. (the “Company”) on Form 10-K for
the fiscal year ended December 31, 2008 as filed with the Securities and Exchange Commission (the “Report”), the
undersigned certify, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of
2002, that:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company as of and for the period covered by the Report.
DATE: March 2, 2009
BY: /s/ Joseph R. Ficalora
Joseph R. Ficalora
Chairman, President, and Chief Executive Officer
(Duly Authorized Officer)
BY: /s/ Thomas R. Cangemi
Thomas R. Cangemi
Senior Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
147
Corporate Directory
NEW YORK COMMUNITY
BANCORP, INC.
Board of directors*
Joseph r. ficalora
Chairman, President, and
Chief Executive Officer
donald M. Blake
President and Chief Executive Officer
Joseph J. Blake & Associates, Inc.
dominick ciampa
Principal and Partner
The Ciampa Organization
Maureen e. clancy
Chief Financial Officer and Owner
Clancy & Clancy Brokerage Ltd.
Hanif “Wally” dahya
Chief Executive Officer
The Y Company LLC
robert s. farrell
President
H. S. Farrell, Inc.
William c. frederick, M.d.
Surgeon (retired)
St. Vincent’s Hospital
Max L. Kupferberg
Chairman of the Board of Directors
Kepco, Inc.
Michael J. Levine
Principal
Norse Realty Group, Inc. & Affiliates;
Partner, Levine & Schmutter, CPAs
Hon. Guy V. Molinari
Richmond County
Borough President (retired);
Former U.S. Congressman
and New York State Assemblyman;
Managing Partner, The Molinari Group;
Of Counsel, Russo Scamardella & D’Amato
James J. o’donovan
Senior Executive Vice President
and Chief Lending Officer (retired)
New York Community Bank
John M. tsimbinos, Jr.
Chairman and
Chief Executive Officer (retired)
TR Financial Corp. and
Roosevelt Savings Bank
spiros J. Voutsinas
President
Atlantic Bank Division
New York Commercial Bank
robert Wann
Senior Executive Vice President
and Chief Operating Officer
* Directors of New York Community
Bancorp, Inc. also serve as directors
of New York Community Bank and
New York Commercial Bank.
executiVe officers
Joseph r. ficalora
Chairman, President,
and Chief Executive Officer
robert Wann
Senior Executive Vice President
and Chief Operating Officer
thomas r. cangemi
Senior Executive Vice President
and Chief Financial Officer
James J. carpenter
Senior Executive Vice President
and Chief Lending Officer
ilene a. angarola
Executive Vice President
and Director, Investor Relations
robert d. Brown
Executive Vice President
and Chief Information Officer
andrew Kaplan
Executive Vice President and
Director, Financial Solutions Group;
President, CFS Investments, Inc.
anthony M. Lewis
Executive Vice President
and Director, Regulatory Oversight
John J. Pinto
Executive Vice President
and Chief Accounting Officer
r. Patrick Quinn, esq.
Executive Vice President,
Chief Corporate Governance Officer,
and Corporate Secretary
Louis riccio
Executive Vice President
and Director, Branch Administration
Bernard a. terlizzi
Executive Vice President
and Director, Human Resources
robert J. tolomer
Executive Vice President
and Director, Credit Oversight
Barbara tosi-renna
Executive Vice President
and Director, Retail Operations
affiLiate officers
NEW YORK COMMERCIAL BANK
spiros J. Voutsinas
President
Atlantic Bank Division
dennis d. Jurs
Executive Vice President
and Chief Lending Officer
Kenneth M. scheriff
Executive Vice President
and Regional Manager, Commercial Lending
PETER B. CANNELL & CO., INC.
Joseph B. Werner
Chairman, President, and
Chief Executive Officer
STANdARd FUNdING CORP.
angelo J. Mangia
President and Chief Executive Officer
2008 Annual Report
diVisionaL BanK directors
Joseph r. ficalora
Chairman
Queens County Savings Bank Division
Michael f. Manzulli
Chairman
Richmond County Savings Bank Division
spiros J. Voutsinas
President
Atlantic Bank Division
John r. Bransfield, Jr.
President
The Roslyn Savings Bank Division
nicolas Bornozis
President
Capital Link Inc.
thomas J. calabrese, Jr.
Vice President, Operations
Daniel Gale Agency
Godfrey H. carstens, Jr.
President
Carstens Electrical Supply
John catsimatidis
Chairman and Chief Executive Officer
Red Apple Group
andre Gregory
President
Sete Consultants & Services, Inc.
Msgr. thomas J. Hartman
President Emeritus
Radio and Television for the
Diocese of Rockville Centre;
Founder, The Thomas Hartman
Foundation for Parkinson’s Research
andrew J. Jacovides
Former Ambassador, Cyprus
James L. Kelley, esq.
Partner
Lahr, Dillon, Manzulli, Kelley & Penett, P.C.
savas Konstantinides
President and Chief Executive Officer
Omega Brokerage
Venetia Kontogouris
Managing Director
Trident Capital
spiros Milonas
President
Ionian Management Inc.
Mitchell rutter
President
Essex Capital Partners
Hon. claire shulman
Queens Borough President (retired);
President and Chief Executive Officer
Flushing Willets Point Corona LDC
John M. tsimbinos, Jr.
Chairman and
Chief Executive Officer (retired)
TR Financial Corp. and
Roosevelt Savings Bank
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615 Merrick Avenue, Westbury, New York 11590
(516) 683-4100 www.myNYCB.com