In Re: New York Community Bancorp, Inc. Securities ...securities.stanford.edu/.../2005106_r01c_04CV4165.pdf · for the eastern district of new york in re: new york community bancorp,

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NEW YORK

IN RE: NEW YORK COMMUNITY BANCORP, INC., SECURITIES LITIGATION

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Case No. 04-CV-4165 (DRH)(JO) CONSOLIDATED AND AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS OF FEDERAL SECURITIES LAWS JURY TRIAL DEMANDED

Case 2:04-cv-04165-ADS-AKT Document 43-1 Filed 10/06/2005 Page 1 of 141

Table of Contents

Page

NATURE OF THE ACTION.............................................................................................. 1

JURISDICTION AND VENUE.......................................................................................... 4

PARTIES ............................................................................................................................. 5

PLAINTIFFS’ CLASS ACTION ALLEGATIONS ......................................................... 10

SUBSTANTIVE ALLEGATIONS ................................................................................... 12

NYCB’s Core Multi-Family Mortgage Lending Business ........................................13

NYCB’s Investment Securities Portfolio ...................................................................15

NYCB’s Growth Through Mergers and Acquisitions ...............................................20

NYCB’s Core Multi-Family Lending Business Was Deteriorating Prior to and Throughout The Class Period.....................................................................................22

NYCB’s Increased Dependence On The Carry Trade ...............................................23

DEFENDANTS’ MATERIALLY FALSE AND MISLEADING STATEMENTS......... 29

The Roslyn Merger.....................................................................................................29

THE TRUTH BEGINS TO EMERGE.............................................................................. 74

ADDITIONAL SCIENTER ALLEGATIONS ................................................................. 91

NYCB’s Merger With Roslyn....................................................................................92

NYCB’s Follow-On Offering During The Class Period............................................92

NYCB’s Interest Rate Sensitivity Analyses...............................................................93

Defendants’ Attempts to Sell the Company...............................................................94

THE INDIVIDUAL DEFENDANTS’ GUIDANCE TO SECURITIES ANALYSTS.... 96

UNDISCLOSED ADVERSE INFORMATION............................................................... 98

LOSS CAUSATION ......................................................................................................... 99


APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE..................................................................................................................... 101

NO SAFE HARBOR....................................................................................................... 102

COUNT I VIOLATION OF SECTION 10(B) OF THE EXCHANGE ACT AGAINST AND RULE 10B-5 PROMULGATED THEREUNDER AGAINST NYCB AND THE INDIVIDUAL DEFENDANTS.........................................................103

COUNT II VIOLATION OF SECTION 20(A) OF THE EXCHANGE ACT AGAINST THE INDIVIDUAL DEFENDANTS ..................................................................107

COUNT III FOR VIOLATIONS OF SECTION 14(A) OF THE EXCHANGE ACT AND RULE 14A-9(A) OF THE SEC AGAINST NYCB AND THE INDIVIDUAL DEFENDANTS...........................................................................108

COUNT IV FOR VIOLATIONS OF SECTION 14(E) OF THE EXCHANGE ACT AGAINST NYCB AND THE INDIVIDUAL DEFENDANTS..........................111

COUNT V FOR VIOLATIONS OF SECTION 11 OF THE SECURITIES ACT AGAINST DEFENDANTS NYCB, FICALORA, MANZULLI, WANN, BLAKE, BURKE, CIAMPA, FARRELL, FREDERICK, KUPFERBERG, MILLER, O’DONOVAN AND PILESKI IN CONNECTION WITH THE ROSLYN MERGER ..............112

COUNT VI FOR VIOLATIONS OF SECTION 12(A)(2) OF THE SECURITIES ACT AGAINST NYCB, FICALORA, MANZULLI, WANN, BLAKE, BURKE, CIAMPA, FARRELL, FREDERICK, KUPFERBERG, MILLER, O’DONOVAN AND PILESKI IN IN CONNECTION WITH THE ROSLYN MERGER.........118

COUNT VII FOR VIOLATIONS OF SECTION 15 OF THE SECURITIES ACT AGAINST THE INDIVIDUAL DEFENDANTS IN CONNECTION WITH THE ROSLYN MERGER....................................................................................123

COUNT VIII FOR VIOLATIONS OF SECTION 11 OF THE SECURITIES ACT AGAINST DEFENDANTS NYCB, FICALORA, WANN, MANZULLI, BURKE, CANGEMI, BLAKE, CIAMPA, FARRELL, FREDERICK, KUPFERBERG,

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MILLER AND PILESKI IN CONNECTION WITH THE JANUARY 2004 OFFERING...........................................................................................................124

COUNT IX FOR VIOLATIONS OF SECTION 12(A)(2) OF THE SECURITIES ACT AGAINST NYCB, FICALORA, WANN, MANZULLI, BURKE, CANGEMI, BLAKE, CIAMPA, FARRELL, FREDERICK, KUPFERBERG, MILLER AND PILESKI IN CONNECTION WITH THE JANUARY 2004 OFFERING .........130

COUNT X FOR VIOLATIONS OF SECTION 15 OF THE SECURITIES ACT AGAINST THE INDIVIDUAL DEFENDANTS IN CONNECTION WITH THE JANUARY 2004 OFFERING..............................................................................135

PRAYER FOR RELIEF .................................................................................................. 136

JURY DEMAND............................................................................................................. 136

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Lead Plaintiffs Bernard Drucker and Metzler Investment GmbH, and plaintiff Neil

Mulligan (collectively, “plaintiffs”), by their attorneys, for their Consolidated and

Amended Class Action Complaint allege the following based upon knowledge with

respect to their own acts and upon other facts obtained through an investigation

conducted by and under the supervision of plaintiffs’ counsel, which included reviewing

and analyzing information and financial data obtained from numerous public and

proprietary sources including, without limitation, LEXIS-NEXIS, Dow Jones and the

Bloomberg wire service, United States Securities and Exchange Commission (“SEC”)

filings by New York Community Bancorp, Inc. (“NYCB” or the “Company”) and its

officers and directors, securities analysts’ reports and advisories about the Company,

press releases and other public statements issued by the Company and media reports

about the Company. Plaintiffs’ counsel’s investigation also included interviews of

former employees of NYCB and of companies acquired by NYCB who are

knowledgeable about the Company’s business practices and about the industry and

markets in which the Company operates. Based upon the substantial facts already

uncovered, plaintiffs believe that substantial additional evidentiary support will exist for

the allegations set forth herein after a reasonable opportunity for discovery.

NATURE OF THE ACTION

1. This is a federal securities class action brought on behalf of a class

consisting of all persons and entities, other than defendants, who purchased or otherwise

acquired NYCB securities between June 27, 2003 and July 1, 2004, inclusive (the “Class

Period”), including holders of Roslyn Bancorp, Inc. (“Roslyn”) common stock who


acquired shares of NYCB common stock in connection with the merger of Roslyn and

NYCB (the “Roslyn merger”), approved by shareholders of both companies on October

29, 2003 pursuant to a Joint Proxy Statement and Prospectus (the “Roslyn merger Proxy

Statement”), and persons and entities who purchased NYCB common stock in connection

with a secondary public offering completed by the Company in January 2004 (the

“January 2004 offering”) pursuant, or traceable, to a Prospectus and Prospectus

Supplement (collectively, the “January 2004 offering Prospectus”) dated January 26,

2004 (the “Class”), seeking to pursue remedies under the Securities Exchange Act of

1934 (the “Exchange Act”) and the Securities Act of 1933 (the “Securities Act”).

2. NYCB is one of the largest thrifts in the United States engaged primarily in

retail banking, the production of multi-family and residential construction loans and in

the sale of third-party investment products and financial services. NYCB describes itself

as a community bank of over one hundred branches that operates through seven

community divisions, each enjoying a strong local identity. NYCB’s stated business

strategy was to service local neighborhoods, maintain local traditions and loyalties, and

meet local needs. The Company attempted to set itself apart from the mega-banks, like

Citibank and Chase, by using its community banking approach to attract customers.

3. Prior to and throughout the Class Period, NYCB touted itself as being a

conservative financial institution. It repeatedly assured the investing public that it was

one of the few financial institutions that would not be adversely affected by interest rate

increases, primarily due to its core business in multi-family lending. In publicly

disseminated press releases and SEC filings NYCB reported, quarter after quarter of

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positive financial results because of its “niche” multi-family loan products.

Consequently, the Company forecasted increasingly higher earnings and revenue targets.

4. However, increased competition in its niche market by national lending

institutions such as Fannie Mae and Washington Mutual, as well as increases in interest

rates, had severely limited NYCB’s ability to grow its core business and meet earnings

forecasts. As a result, NYCB was only able to achieve significant growth and meet its

aggressive earnings targets through: (a) a series of acquisitions of other thrifts; and (b) a

risky leveraged investment strategy that left the bank acutely exposed to increases in

short-term interest rates.

5. Through its acquisitions of other financial institutions, NYCB was able to

show immediate accretion to its earnings and increases in its deposits and assets. It

would further mark up the value of the assets that it had acquired on its own balance

sheet to show additional growth.

6. In an attempt to generate additional earnings apart from its core lending

business and growth by acquisition strategy, NYCB also engaged in the “carry trade” - a

highly risky investment strategy usually employed by hedge funds. The carry trade

required the leveraging of the Company’s assets to purchase billions of dollars worth of

mortgage-backed securities, which exposed the Company to significant risk if and when

short-term interest rates were to increase.

7. During the Class Period, defendants failed to disclose to the investing

public, including the holders of Roslyn common stock, the true extent of the risks

involved in the carry trade, which were well known to defendants due to NYCB’s

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continual modeling of its exposure to interest rate risks. They further failed to disclose

that NYCB’s multi-family loan portfolio would be adversely affected by increases in

interest rates because the yield on its loan portfolio would decrease. Thus, in direct

contrast to defendants’ public statements that NYCB was a highly risk adverse

community bank that was uniquely positioned to respond to rising interest rates, NYCB

was, in fact, a highly-leveraged institution that was extremely vulnerable to interest rate

increases. When rates ultimately increased such that NYCB could no longer obscure the

true nature of its investment portfolios, NYCB first tried to sell itself to a larger financial

institution that could easily absorb the investment portfolio. When that failed, the

Company slashed its high-risk investment portfolio, which resulted in an immediate $95

million loss and the loss of millions of dollars in future income.

JURISDICTION AND VENUE

8. The claims asserted herein arise under and pursuant to Sections 11, 12(a)(2)

and 15 of the Securities Act [15 U.S.C. §§ 77k, 77l(2) and 77o], Sections 10(b), 14(a) and

(e), and 20(a) of the Exchange Act [15 U.S.C. §§78j(b), 78n(a) and (e), and 78t(a)], and

Rule 10b-5 promulgated thereunder by the SEC [17 C.F.R. §240.10b-5].

9. This Court has jurisdiction over the subject matter of this action pursuant to

Section 22 of the Securities Act [15 U.S.C. § 77v] and 28 U.S.C. §§ 1331 and 1337 and

Section 27 of the Exchange Act [15 U.S.C. § 78aa].

10. Venue is proper in this District pursuant to Section 22 of the Securities Act,

Section 27 of the Exchange Act and 28 U.S.C. § 1391(b). NYCB maintains its principal

executive offices in this District, many of the acts charged herein, including the

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preparation and dissemination of materially false and misleading information, occurred in

substantial part in this District and NYCB conducts business in this District.

11. In connection with the acts alleged in this Complaint, defendants, directly

or indirectly, used the means and instrumentalities of interstate commerce, including, but

not limited to, the mails, interstate telephone communications and the facilities of the

national securities markets.

PARTIES

12. Lead Plaintiff Metzler Investment GmbH, as set forth in its accompanying

certification, which is incorporated by reference herein and attached as Exhibit A,

acquired shares of NYBC common stock during the Class period, and was damaged

thereby.

13. Lead Plaintiff Bernard Drucker, as set forth in his accompanying

certification, which is incorporated by reference herein and attached as Exhibit B, was a

holder of shares of Roslyn common stock whose shares were exchanged for NYCB

shares, and was damaged thereby.

14. Additional plaintiff Neil Mulligan, as set forth in his accompanying

certification, which is incorporated by reference herein and attached as Exhibit C,

purchased NYCB securities pursuant to, or traceable to, the January 2004 offering

Prospectus.

15. Defendant NYCB is organized under the laws of Delaware with its

principal executive offices located at 615 Merrick Avenue, Westbury, New York. NYCB

describes itself as one of the largest thrifts in the United States and as a holding company

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for New York Community Bank (New York Community Bank and NYCB are

collectively referred to as “NYCB”). NYCB serves its customers in the metropolitan

New York region through a network of branches. NYCB specializes in the production of

multi-family and residential construction loans and in the sale of third-party investment

products and financial services.

16. Defendant Joseph R. Ficalora (“Ficalora”) was, at all relevant times, Chief

Executive Officer, President and a Director of NYCB. Ficalora has held these positions

since the Company’s inception on July 20, 1993. During the Class Period, Ficalora

signed the Company’s 10-K for the year ended December 31, 2003 (the “2003 10-K”),

the Company’s 10-Qs for the quarters ended June 30, 2003 (the “June 2003 10-Q”),

September 30, 2003 (the “September 2003 10-Q”), March 31, 2004 (the “March 2004 10-

Q”), the Roslyn merger Proxy Statement and the January 2004 offering Prospectus.

According to several former NYCB employees, defendant Ficalora was an extreme

“micro-manager.” A former Vice-President of Investments for NYCB stated that “not a

person in the bank, down to a teller, got a raise without him approving it, that’s how

much of a micro-manager he was. He knew everything that was going on in the

[Company].… [T]he man had his hands in every aspect of the institution.” A former

NYCB Senior Vice President of Retail Banking further commented on Ficalora’s micro-

management style: “Nobody buys a pencil without Joe Ficalora approving it. Nobody

goes to the bathroom without Joe Ficalora approving it.… [N]othing gets done without

his approval.… [N]othing gets done without Ficalora’s blessing.”

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17. Defendant Joseph L. Mancino (“Mancino”) became Co-Chairman of

NYCB’s Board of Directors, and Chairman and Chief Executive Officer of the Roslyn

Savings Division of NYCB on November 1, 2003 (the effective date of the Roslyn

merger). Prior to that date, Mancino was the Chairman, President and Chief Executive

Officer of Roslyn.

18. Defendant Michael F. Manzulli (“Manzulli”) was, at all relevant times, Co-

Chairman of NYCB’s Board of Directors. During the Class Period, Manzulli signed the

Roslyn merger Proxy Statement and the January 2004 offering Prospectus.

19. Defendant Michael Puorro (“Puorro”) became the Chief Financial Officer

of NYCB on November 1, 2003. Prior to that date, Puorro had served as Treasurer and

Chief Financial Officer of Roslyn since 1996. During the Class Period, Puorro signed the

2003 10-K, the September 2003 10-Q and the March 2004 10-Q.

20. Defendant Robert Wann (“Wann”) was, at all relevant times, a Senior

Executive Vice President of NYCB. He was the Chief Financial Officer of NYCB from

January 2002 through October 31, 2003. After the Roslyn merger, on November 1, 2003,

Wann became the Chief Operating Officer of NYCB. During the Class Period, Wann

signed the June 2003 10-Q, the Roslyn merger Proxy Statement and the January 2004

offering Prospectus.

21. Defendant Anthony E. Burke (“Burke”) was, at all relevant times, a Senior

Executive Vice President of NYCB and a director of NYCB. Burke was the Chief

Operating Officer of NYCB from August 2001 until October 31, 2003. During the Class

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Period, Burke signed the Roslyn merger Proxy Statement and the January 2004 offering

Prospectus.

22. Defendant James J. O’Donovan (“O’Donovan”) was, at all relevant times,

Executive Vice President and a director of NYCB. O’Donovan was the Chief Lending

Officer of NYCB from October 31, 2003 to November 2004. During the Class Period,

O’Donovan signed the Roslyn merger Proxy Statement.

23. Defendant Thomas R. Cangemi (“Cangemi”) was Executive Vice President

through October 31, 2003. Cangemi was the director of the Capital Markets Group of

NYCB and responsible for the Company’s investments throughout the Class Period.

Cangemi was named Senior Executive Vice President on November 1, 2003 and was

named Chief Financial Officer of NYCB on April 5, 2005. During the Class Period,

Cangemi signed the January 2004 offering Prospectus.

24. Defendant Ficalora, Mancino, Manzulli, Puorro, Wann, Burke, O’Donovan

and Cangemi are referred to herein as the “Individual Defendants.”

25. During the Class Period, the Individual Defendants, as senior executive

officers and/or directors of NYCB, were privy to confidential and proprietary information

concerning NYCB, its operations, finances, financial condition and present and future

business prospects. The Individual Defendants also had access to material adverse non-

public information concerning NYCB, as discussed in detail below. Because of their

positions with NYCB, the Individual Defendants had access to non-public information

about its business, finances, products, markets and present and future business prospects

via access to internal corporate documents, conversations and connections with other

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corporate officers and employees, attendance at management and board of directors

meetings and committees thereof and via reports and other information provided to them

in connection therewith. Because of their possession of such information, the Individual

Defendants knew or recklessly disregarded the fact that the adverse facts specified herein

had not been disclosed to, and were being concealed from, the investing public.

26. The Individual Defendants are liable as direct participants in, and as co-

conspirators to, the wrongs complained of herein. In addition, the Individual Defendants,

by reason of their status as senior executive officers and/or directors, were “controlling

persons” within the meaning of Section 15 of the Securities Act and Section 20 of the

Exchange Act and had the power and influence to cause the Company to engage in the

unlawful conduct complained of herein. Because of their positions of control, the

Individual Defendants were able to and did, directly or indirectly, control the conduct of

NYCB’s business.

27. The Individual Defendants, because of their positions with the Company,

and/or because of their presence when false representations about NYCB were made by

other NYCB officers and employees, controlled and/or possessed the authority to control

the contents of its reports, press releases and presentations to securities analysts, and,

through them, to the investing public. The Individual Defendants were provided with

copies of the Company’s reports and press releases alleged herein to be misleading prior

to or shortly after their issuance and had the ability and opportunity to prevent their

issuance or cause them to be corrected. Thus, the Individual Defendants had the

opportunity to commit the fraudulent acts alleged herein.

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28. Defendants Donald M. Blake (“Blake”), Dominick Ciampa (“Ciampa”),

Robert S. Farrell (“Farrell”), William C. Frederick (“Frederick”), Max L. Kupferberg

(“Kupferberg”), Howard C. Miller (“Miller”) and John A. Pileski (“Pileski”) were, at all

relevant times, directors of NYCB. During the Class Period, Blake, Ciampa, Farrell,

Frederick, Kupferberg, Miller and Pileski signed the Roslyn merger Proxy Statement and

the January 2004 offering Prospectus.

PLAINTIFFS’ CLASS ACTION ALLEGATIONS

29. Plaintiffs bring this action as a class action pursuant to Federal Rule of

Civil Procedure 23(a) and (b)(3) on behalf of a Class consisting of all persons and entities

who purchased or otherwise acquired NYCB securities between June 27, 2003 and July

1, 2004, inclusive, and who were damaged thereby. Excluded from the Class are

defendants, the officers and/or directors of the Company, at all relevant times, members

of their immediate families and their legal representatives, heirs, successors or assigns

and any entity in which defendants have or had a controlling interest.

30. The members of the Class are so numerous that joinder of all members is

impracticable. As of August 2, 2004, NYCB had approximately 264.7 million shares of

common stock outstanding that were actively traded on the New York Stock Exchange

under the symbol “NYB.” While the exact number of Class members is unknown to

plaintiffs at this time and can only be ascertained through appropriate discovery,

plaintiffs believe that there are hundreds or thousands of members in the proposed Class.

Record owners and other members of the Class may be identified from records

maintained by NYCB or its transfer agent and may be notified of the pendency of this

10


action by mail, using the form of notice similar to that customarily used in securities class

actions.

31. Plaintiffs’ claims are typical of the claims of the members of the Class, as

all members of the Class are similarly affected by defendants’ wrongful conduct in

violation of federal law that is complained of herein.

32. Plaintiffs will fairly and adequately protect the interests of the members of

the Class, are ready, willing and able to direct, manage and control the prosecution of this

action, have knowledge of the action, and have retained counsel competent and

experienced in class and securities litigation.

33. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the Class.

Among the questions of law and fact common to the Class are:

(a) whether the federal securities laws were violated by defendants’ acts as alleged herein;

(b) whether statements made by defendants to the investing public during the Class Period, including those contained in the documents filed by defendants with the SEC in connection with the Roslyn merger and the January 2004 offering, misrepresented material facts about the business, operations and financial statements of NYCB; and

(c) to what extent the members of the Class have sustained damages and the proper measure of damages.

34. A class action is superior to all other available methods for the fair and

efficient adjudication of this controversy since joinder of all members is impracticable.

Furthermore, as the damages suffered by individual Class members may be relatively

small, the expense and burden of individual litigation make it impossible for members of

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the Class to individually redress the wrongs done to them. There will be no difficulty in

the management of this action as a class action.

SUBSTANTIVE ALLEGATIONS

35. The material adverse information set forth below was omitted from and/or

misrepresented in: (a) defendants’ public statements, including those concerning the

Company’s supposed aversion to risk and its purported ability to manage interest rate risk

(including those statements disseminated through securities analysts); (b) the Roslyn

merger Proxy Statement, which was filed with the SEC and disseminated to Roslyn

shareholders in connection with the Roslyn merger and the January 2004 offering

Prospectus; and (c) NYCB’s publicly filed financial statements.

36. First, defendants failed to disclose that by growing earnings via acquisitions

rather than growing its core multi-family lending business internally, and due to

weakness in the lending business, NYCB had become increasingly dependent on the

carry trade to support its earnings growth and projections. Moreover, defendants failed to

disclose the extent of the risks of its activity in the carry trade to the investing public even

though NYCB employed advanced internal modeling techniques to measure its interest

rate risk.

37. Second, defendants falsely represented that NYCB was uniquely able to

thrive in an environment of rising interest rates and that its business prospects remained

strong, without disclosing that its heavily leveraged securities portfolio was extremely

vulnerable to increases in short-term interest rates, and that competition and rising

interest rates were lowering the yields from NYCB’s multi-family loans.

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38. Third, defendants failed to disclose that NYCB was pursuing an overly

aggressive leveraging strategy in order to make it appear to be a more attractive

acquisition candidate.

39. If NYCB had made appropriate disclosures regarding the risks that existed

in connection with the carry trade leveraged investment strategy, its vulnerability to

rising interest rates, and the weakening in its core multi-family lending business that

required it to place more and more emphasis on its investment strategy, among other

things, Roslyn shareholders would have rejected the merger at the negotiated exchange

rate. Nothing could have been more material to holders of Roslyn common stock who

acquired shares of NYCB common stock in connection with the Roslyn merger, and to

those who purchased or otherwise acquired NYCB stock during the Class Period.

NYCB’s Core Multi-Family Mortgage Lending Business

40. NYCB describes itself as one of the largest thrifts in the United States.

NYCB serves its customers in the metropolitan New York region through a network of

branches, including Queens County Savings Bank, Roslyn Savings Bank, Richmond

County Savings Bank, Roosevelt Savings Bank, CFS Bank, First Savings Bank of New

Jersey, and Ironbound Bank.

41. NYCB’s core banking business was traditionally its multi-family mortgage

loans to owners of rent-controlled and rent-stabilized buildings in New York City. As of

June 30, 2003, at the beginning of the Class Period, the Company’s multi-family loan

portfolio totaled $5.9 billion and accounted for over 80% of loans outstanding.

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42. The Company’s multi-family loans are generally originated for a term of

ten years, with a fixed rate of interest in years one through five and a rate that adjusts

annually with the prime rate of interest, plus a margin of 2.50%, in each of years six

through ten. Payments on loans secured by multi-family buildings are generally

dependent on the income produced by such properties, which, in turn, is dependent on

their successful operation or management. Accordingly, repayment of such loans may be

subject to adverse conditions in the real estate market or the local economy.

43. NYCB funded its loan production through a mix of funding sources,

including the deposits gathered through the Company’s branch network; cash flows

generated by securities sales and redemptions; interest income on investments; principal

and interest payments on loans; wholesale borrowings; and other borrowed funds.

44. In addition to its multi-family loan portfolio, NYCB generated a small

portion of its income from (a) a portfolio of commercial real estate loans that are

primarily secured by mixed-use office buildings and shopping centers anchored by

national credit-rated tenants in the New York metropolitan area; (b) loans for the

construction and development of one-to-four family homes and residential subdivisions,

and multi-family buildings and commercial properties; (c) fee income from loans and

retail deposits; and (d) other non-interest income from such sources as its investment in

Bank-owned Life Insurance, its equity interest in an investment advisory firm, its real

estate joint ventures and the sale of third-party investment products.

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NYCB’s Investment Securities Portfolio

45. As stated in the 2003 10-K, the investment policy of the Company is

established by its Board of Directors and implemented by an Investment Committee,

together with certain executive officers. The 2003 10-K also asserts that the investment

policy is primarily designed to provide and maintain liquidity; to generate a favorable

return on investments without incurring undue prepayment, interest rate and credit risk;

and to complement NYCB’s lending activities. Decisions regarding the securities

investment portfolio are the responsibility of NYCB’s Senior Executive Vice President

and head of the Capital Markets Group (during the Class Period, this was defendant

Cangemi). All transactions are periodically reviewed by the Investment Committee and

are reported to the Company’s Board of Directors on a monthly basis.

46. During the Class Period, the Company’s investment policy significantly

emphasized mortgage-backed securities. Mortgage-backed securities are created when a

mortgage provider such as a savings association, commercial bank or mortgage company

sells its residential loans to a federally sponsored credit agency or a private institution.

The agency or institution will then “pool” the mortgages together and issue to investors

what are known as mortgage pass-through certificates, with underlying mortgage loans as

collateral. When a homeowner makes a monthly mortgage payment, this payment is

“passed-through” to the mortgage security holder as interest and return of principal on a

monthly basis. In this manner, a mortgage security returns the principal invested over the

term of the security rather than all at once at maturity. Therefore, although all mortgage-

backed securities have a stated final maturity, they are assumed to have an “average life,”

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which can be defined as the average time that each principal dollar in the pool is expected

to be outstanding, based on certain assumptions about prepayment rates.

47. The Company’s investment strategy involving mortgage-backed securities,

known as the carry trade, essentially relied on a series of bets made against rising interest

rates. The carry trade is constructed by mortgage-backed securities being financed, or

“carried,” by borrowing in the money market with repurchase agreement money. A

repurchase agreement is a form of short-term borrowing, usually on an overnight basis,

whereby one party sells the other a security at a specified price with a commitment to buy

the security back at a later date for another specified price. While a repurchase

agreement is legally the sale and subsequent repurchase of a security, its economic effect

is that of a secured loan. Economically, the party purchasing the security makes funds

available to the seller and holds the security as collateral.

48. The carry trade takes advantage of differences in yields when short-term

interest rates are low and long-term interest rates are high. A comparison of these

differences is called the “yield curve.” Relying on this mismatch of interest rates can

produce significant gains when the yield curve is steep (i.e., the spread between long-

term and short-term interest rates is wider). For example, if a bank purchases a long-term

fixed income instrument, such as a mortgage-backed security that yields 4 percent and

finances the purchase by borrowing at the Federal funds rate, at 3 percent for instance,

the difference (or spread) is profit for the bank. NYCB produced significant income

using this investment technique prior to and throughout the Class Period.

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http://www.riskglossary.com/articles/collateral.htm

http://www.riskglossary.com/articles/collateral.htm

49. There are material risks associated with the carry trade which, as discussed

below, NYCB failed to adequately disclose to the investing public and Roslyn

shareholders. The carry trade relies on the spread between long-term interest rates and

short-term interest rates. That spread produces both net income and potential mark-to-

market gains on the mortgage backed securities. However, when the treasury yield curve

flattens because short-term rates increase but long-term rates do not increase at a similar

rate, a bank is exposed in two ways. First, the spread is reduced and net income from the

difference in the spread decreases. This is known as a “margin squeeze.” Second,

because the mortgage-backed securities are classified as available-for-sale (as opposed to

held-to-maturity), under accounting rules, those securities are marked-to-market and the

bank must realize a loss on the decline in value. Accordingly, the more leveraged NYCB

became, the more vulnerable it was to increases in short-term rates, which would result in

a decrease in net income and force the bank to recognize losses in the value of its

investment portfolio.

50. The impact that rising interest rates will have on a bank’s profitability

depends on the construction of its balance sheet and the slope of the yield curve. At the

low end of the risk spectrum are banks with high concentrations of low-cost retail

deposits like checking accounts, and an earnings assets mix heavily biased in favor of

floating-rate commercial loans. As interest rates go up, these banks tend to perform better

since their loans will reprice faster than their deposits. NYCB falsely portrayed itself as

this type of institution throughout the Class Period and told the investing public that it

was relatively unexposed to interest-rate risk or interest rate neutral.

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51. At the high end of the risk spectrum are those banks with an earnings asset

mix that includes a significant percentage of mortgage-backed securities and a heavy

reliance on short-term wholesale funds like repurchase agreements or higher-cost retail

deposits like certificates of deposit. As rates rise, the trading value of existing securities

carrying a lower interest rate drops -- potentially saddling these institutions with

substantial unrealized losses in their investment portfolios. Under current mark-to-

market accounting rules, a bank is forced to write down the value of the securities if they

are categorized as available-for-sale -- which is essentially a trading account. Although

the bank would not suffer an economic loss if it held the securities to maturity, any write-

down would result in a charge against its tangible capital. Accordingly, as interest rates

rise, the unrealized loss from the market value decline of the mortgage-backed securities

can increase exponentially.

52. In addition, a rise in short-term interest rates will drive up a bank’s loan

funding costs, which will further decrease its profitability. When short-term interest rates

rise, and long-term rates do not (or rise at a lower rate), then a bank will be borrowing at

higher rates in order to fund its loan portfolio, thereby narrowing its return. In addition, a

bank’s lending business is impacted because when rates have gone higher, fewer

borrowers refinance and instead opt to hold onto their lower rate mortgages. Thus, the

bank loses prepayment penalties and fee income on new loans.

53. Accordingly, when short-term rates rise, it can affect a bank’s retail lending

side and its wholesale investment business, and since wholesale deposits, like repurchase

agreements (which are priced according to short-term interest rates), reprice faster than

18


mortgage-backed securities, a bank can find itself caught in a margin squeeze, which

would decrease its profitability.

54. Although, as discussed below, NYCB was on the high-risk side of the

spectrum throughout the Class Period, it stated in its Form 10-Qs filed during the Class

Period that it purportedly managed its assets and liabilities to reduce its exposure to

changes in market interest rates. For example, the March 2004 10-Q stated, in relevant

part:

The asset and liability management process has three primary objectives: to evaluate the interest rate risk inherent in certain balance sheet accounts; to determine the appropriate level of risk, given the Company’s business strategy, operating environment, capital and liquidity requirements, and performance objectives; and to manage that risk in a manner consistent with the Board of Directors’ approved guidelines.

The Company’s primary market risk lies in it exposure to interest rate volatility. The Company accordingly manages its assets and liabilities to reduce its exposure to changes in market interest rates.

55. Defendants were aware at all times of NYCB’s potential exposure to

interest rate changes, because, as part of its management of the interest rate risk of its

securities portfolio, NYCB would regularly undertake an interest rate sensitivity analysis.

As explained in the June 2003 10-Q:

The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring a bank’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that period of time. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time frame and the amount of interest-bearing liabilities maturing or repricing within that same period of time. In a rising interest rate environment, an institution with a negative gap would generally be expected, absent the effects of other factors, to

19


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.

56. The June 2003 10-Q also acknowledged that the Company was constantly

modeling the impact on the Company of potential changes in interest rates:

The Company also monitors changes in the net present value of the expected future cash flows of its assets and liabilities, which is referred to as the net portfolio value, or NPV. To monitor its sensitivity to changes in interest rates, the Company models the effect of instantaneous increases and decreases in interest rates of 200 basis points on its assets and liabilities.

57. During the Class Period, NYCB misrepresented its ability to manage

interest rate risk. As more fully discussed below, NYCB repeatedly assured investors

during the Class Period that it could manage its interest rate risk in a rising environment.

The truth was that it could not and defendants knew or recklessly disregarded that its

securities portfolio was vulnerable to interest rate increases.

NYCB’s Growth Through Mergers and Acquisitions

58. Aside from its lending and investment activities, NYCB’s balance sheet

and earnings capability were impacted by several mergers with other banking institutions

during the three years preceding the Class Period. As a result of these mergers, NYCB

was able to show significant growth, including growth as a result of immediate accretion

to its earnings, increased deposits, increased fee income and increases in its lending

activity, even though these mergers did not provide significant earnings growth

20


opportunities for NYCB’s core lending business. Through its acquisitions, the Company

had expanded from $1.9 billion in assets and $1 billion in deposits three years before the

start of the Class Period to $23.4 billion in assets and $12.1 billion in deposits by the end

of the Class Period. The Company’s three acquisitions accounted for $17 billion of its

$23.4 billion in assets and $11.0 billion of the $12.1 billion in its deposits. Commenting

on the Company’s acquisition strategy to increase earnings, defendant Ficalora stated as

follows in the Company’s 2003 Annual Report:

While enhancing our efficiency has been one key benefit of our merger transactions, the contribution they’ve made to our earnings growth has been paramount. Before the merger with Roslyn, our 2004 projections called for diluted earnings per share of $1.73, at the midpoint. Today, we are projecting diluted earnings per share in the range of $2.17 to $2.20. The Roslyn merger is thus expected to be 25% to 27% accretive to 2004 earnings, which are expected to be 33% to 35% higher than our 2003 diluted core earnings per share. Our transactions with Haven Bancorp and Richmond County Financial Corp. were also highly accretive. In 2002, the combined accretion from these two mergers exceeded 129%.

59. On November 30, 2000, Haven Bancorp, Inc. (“Haven”), the parent

company of CFS Bank merged with and into the Company, and on January 31, 2001,

CFS Bank merged with and into NYCB. The Haven merger was touted as a merger-of-

equals, with NYCB the continuing entity. Prior to the merger with Haven, NYCB was

the smaller of the two banking institutions. It was the fiftieth largest depositary in New

York State and controlled approximately $1 billion in deposits, while Haven was the

State’s thirty-fifth largest depositary with $2.1 billion in deposits. At the time of the

announcement of the Haven merger, it was expected to be 25% accretive to NYCB’s

earnings.

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60. Recognizing the benefits of the merger with Haven and the resulting

growth in its earnings, defendants followed the Haven transaction with a merger with

Richmond County Financial Corp. (“Richmond County”), the parent company of

Richmond County Savings Bank, on July 31, 2001. Prior to the merger, Richmond

County had $2.4 billion in deposits. After the merger, the combined entity had $5.6

billion in deposits and $8.7 billion in assets. At the time of the announcement of the

Richmond County transaction, it was expected to be 11-16% accretive to NYCB’s

earnings.

NYCB’s Core Multi-Family Lending Business Was Deteriorating Prior to and Throughout The Class Period

61. NYCB’s niche market in multi-family lending was becoming increasingly

competitive as a result of other banks, such as Washington Mutual and Fannie Mae,

increasing their emphasis on this market by offering lower rates and better terms than

NYCB. As a result, in order to continue to increase its loan originations, NYCB was

forced to lower its interest rates, which lowered its overall yield. As more fully described

by RBC Capital Markets in its June 27, 2003 analyst report concerning NYCB:

Multi-Family Lending … Its Not What It Used To Be: Multi-family lending in the Metro New York market (NYB’s primary business) has become a competitive pressure cooker. Fannie Mae [], Washington Mutual [] and others are competing aggressively on rates to build market share. In particular, anecdotal evidence suggests that in some cases, [Fannie Mae] is pricing as much as 50-75 points below market. many multi-family lenders in the region, including Fannie, Roslyn Bancorp [] and Washington Mutual (to name a few) are also reportedly competing more aggressively on terms. Anecdotal evidence suggests high quality borrowers are able to negotiate terms to in some cases include fixed interest rates for initial periods in excess of traditional five years, and many good borrowers are also finding it possible to reduce historically onerous prepayment penalties.

22


Secular Commoditization of the Product May Be Underway: Fannie Mae has become far more aggressive in its search for high quality multi-family paper, by striking flow-through deals with strong regional multi-family loan originators Independence Community [] and Dime Community[]. Washington Mutual, one of the country’s largest multi-family originators outside the Metro New York market, also has its sights firmly set on growing aggressively in NYB’s back yard. The Metro New York multi-family market is huge, with plenty of high quality product to go around, in our opinion. But to the extent that giants like [Fannie Mae] and [Washington Mutual] appear to be willing to compete aggressively for this product, the smaller players may have no choice but to play along. We still view multi-family lending as a very attractive business, and continue to view NYB as one of the best lenders in the area. But, the profitability characteristics of the business are under full scale attack. Therefore, much like the single-family mortgage lending business, increasing scale will be necessary to offset contracting spreads, in our opinion.

62. Prior to the start of the Class Period, NYCB’s yield had begun to shrink. In

the first quarter of 2003, the average yield on the Company’s loan portfolio was 7.56%.

In the second quarter of 2003, the average yield was down to 7.45%. Thus, even if

NYCB was able to increase its loan originations at a steady pace, its income would

decrease due to the declining yields.

NYCB’s Increased Dependence On The Carry Trade

63. Faced with decreasing yields and increasing competition in its core multi-

family lending business, by the beginning of the Class Period NYCB had begun deriving

an increasingly lower percentage of its income from its core business. In 2002, the core

lending business had provided 67.2% of NYCB’s interest income. In the first half of

2003, the core lending business was responsible for only 63.5% of NYCB’s interest

income. In contrast to its public statements, NYCB was moving away from its risk

23


averse core lending business and making increasingly larger bets on the future of interest

rates.

64. At the time of the announcement of the Roslyn merger, NYCB reported

that as of June 30, 2003, it had $5.3 billion in securities, of which mortgage-backed

securities totaled $3.5 billion, representing 28% of the Company’s $12.4 billion in assets.

Roslyn reported that as of June 30, 2003, it had $6.8 billion in securities, of which

mortgage-backed securities totaled $5.5 billion, representing 51% of Roslyn’s $10.8

billion in assets.

65. As discussed below, at the time the Roslyn merger was announced, the

Company stated it would dispose of $3.5 billion of securities as part of its plan to

restructure the combined company’s balance sheet to make it less vulnerable to increases

in short-term interest rates. Defendants told investors it would deleverage Roslyn’s

balance sheet by selling securities and using the proceeds to fund its core multifamily

loan business. Defendants also stated that the Company would use excess cash flow to

reduce its wholesale borrowings. These actions evidence that defendants knew or had

access to information as early as June 2003, when NYCB performed its due diligence of

Roslyn prior to the announcement of the Roslyn merger, that there were significant

interest rate risks associated with its mortgage-backed securities portfolio.

66. Defendants knew or had access to additional information in the fourth

quarter of 2003 that the Company’s mortgage-backed securities portfolio was in fact

vulnerable to increases in short-term interest rates. However, at no time during the Class

Period did defendants adequately disclose the Company’s vulnerability to increases in

24


interest rates, the risks associated with the carry trade or that it was unable to manage its

interest rate risks.

67. According to a former Vice-President of Investments for NYCB, the

Company was aware at least as early as the end of 2003 that its securities portfolio would

be negatively impacted if interest rates were to rise. This former Vice-President’s basis

for this information came from several conversations with two of NYCB’s internal

accountants who had reviewed NYCB’s securities portfolio. He stated that the

accountants said, “We got problems here. We’ve had a chance to review the portfolio and

to see the numbers. This is going to hit the fan.” The former Vice-President elaborated,

saying that “NYCB knew that God forbid interest rates [went] up, they knew that there

were going to be problems based on the portfolio that they owned.” The accountants

further told the former Vice-President that “there was trouble brewing and that there were

potentially big problems” and that the prospect of rising interest rates was a factor that

could cause the “demise of the portfolio.”

68. For the year ended December 31, 2003, NYCB reported that it had

deleveraged $2.3 billion of securities, putting its securities portfolio at $9.5 billion. At

this time, mortgage-backed securities totaled $7.5 billion, representing 32.1% of the

Company’s assets. In discussing this deleveraging, defendant Ficalora stated:

I’d say that interest rate sensitivity, we’re neutral on that. We’re pretty well in the place that we hoped to be and I think that puts us truly in the right place given the uncertainties of where rates are going to be in the periods ahead.

25


69. But the deleveraging did not last, as defendants knew that, apart from the

Roslyn merger, much of the Company’s earnings growth in 2003 had come from the

Company’s portfolio of mortgage-backed securities. For example, NYCB’s net interest

income rose to $172.8 million for the fourth quarter of 2003, 48.6% ($84 million) of

which represented interest income from mortgage-backed and mortgage-related

securities. In contrast, in the quarter immediately prior to the start of the Class Period

(the quarter ended June 30, 2003), mortgage-backed and mortgaged-related securities

were responsible for only 30.7% of the Company’s net interest income. Buoyed by those

results and concerned about missing their rosy projections, defendants ignored their

disclosed deleveraging strategy and recklessly plowed money back into mortgage-backed

securities. For example, from September 30, 2003 through March 31, 2004, which

includes the post-Roslyn merger deleveraging, NYCB’s mortgage investments increased

from $743 million to $9.5 billion, and the ratio of mortgage investments to total assets

increased from 5.8% to 35.7%.

70. Indeed, for the quarter ended March 31, 2004, the quarter immediately after

when NYCB had deleveraged its balance sheet to purportedly limit its exposure to

interest rates, the Company increased the size of its securities portfolio to $12.1 billion,

representing 45% of the Company’s $26.5 billion in assets. At this time, mortgage-

backed securities totaled $9.5 billion, representing 36% of the Company’s assets, and an

increase of 27% during the quarter.

71. After the Roslyn merger, and even as it was releveraging its securities

portfolio in the first quarter of 2004, the Company represented to investors that it would

26


pursue a risk-averse policy, stick to its core business, and reduce its exposure to credit

and interest-rate risk. In this regard, NYCB disclosed in the 2003 10-K, which was filed

on March 15, 2004, that:

In the fourth quarter of 2003, management shifted its focus in the wake of the Roslyn merger to a strategy of balance sheet repositioning. While the increase in multi-family loans figured significantly in this process, the downsizing of the securities portfolio was also paramount. To reduce its exposure to credit and interest-rate risk, and begin to restore the mix of assets to its pre-merger configuration, the Company sold $1.1 billion of the securities acquired in the Roslyn merger, and invested the proceeds into loans and mortgage-backed and –related securities featuring higher yields. Prepayments also produced a significant level of cash flows in the third and fourth quarters; these too were deployed into higher yielding loans and securities.

72. NYCB’s concealment of the risks related to, and the reasons for, its

investments in mortgage-backed securities rendered its filings with the SEC and its

statements to investors throughout the Class Period materially false and/or misleading

because (a) NYCB’s participation in these transactions violated its own risk-management

policies as disclosed to investors, thus exposing investors to far greater risk than those of

which they were aware, including risks of financial losses; (b) NYCB’s failure to disclose

the facts behind its net interest income falsely led investors to believe that earnings came

from sustainable sources, even though NYCB knew that the net interest income stemmed

from activities that were not consistent with those of a prudently run bank. According to

Eric Heaton, a managing director in the financial institutions group at Merrill Lynch and

Co. in New York, “A well-run bank doesn’t make bets in terms of where interest rates

will go . . . .”

27


73. At the end of the Class Period, NYCB announced that it would be taking an

immediate charge of $95 million or $0.35 per share to account for the sale of $5 billion of

mortgage-backed securities to pay down the same amount of debt. At that time,

defendant Ficalora stated, in contrast to his prior representations as to NYCB’s aversion

to risks, that the sale of the securities was effectuated to “stabilize itself and reduce

interest rate risk.”

74. It was material for investors to know that NYCB through its own activities

was exposing itself to massive risks in order to cover the anticipated shortfall in the

Company’s core business. It was material for investors to know that NYCB was

engaging in conduct that would damage NYCB’s reputation for its aversion to risk, which

NYCB had described as its “greatest characteristic.”

75. It is precisely because such “qualitative” information is important to

investors that the SEC requires corporations to discuss their businesses and interpret their

results. As Securities Act Release No. 6711 states:

The Commission has long recognized the need for a narrative explanation of the financial statements, because a numerical presentation and brief accompanying footnotes alone may be insufficient for an investor to judge the quality of earnings and the likelihood that past performance is indicative of future performance. MD&A [Management Discussion and Analysis] is intended to give the investor an opportunity to look at the company through the eyes of management by providing both a short and long-term analysis of the business of the company. . .

76. According to Securities Act Release No. 6349:

[i]t is the responsibility of management to identify and address those key variables and other qualitative and quantitative factors which are peculiar to and necessary for an understanding and evaluation of the individual company.

28


77. NYCB’s failure to identify to investors the true source of its earnings acted

as an implicit, and false, representation that such income was sustainable, and consonant

with NYCB’s “emphasis on the production of risk-averse assets.”

78. As the July 6, 2004 issue of American Banker reported:

Analysts said New York Community would be under a cloud for some time.

Anthony R. Davis of BankAtlantic Bancorp Inc.’s Ryan Beck & Co. Inc. wrote in a note Friday that the restructuring “does not restore investor confidence in a management group that has placed incredible balance-sheet bets over the last year.”

Albert Savastano of First Horizon National Corp.’s FTN Midwest Research Securities Corp. in Nashville wrote, “Management has a credibility issue.”

79. Similarly, the American Banker reported on May 10, 2005 that:

James M. Ackor of Royal Bank of Canada’s RBC Capital Markets said that “it is unclear what damage the balance-sheet problems have done” to management’s reputation in the eyes of bankers who might consider selling to New York Community, said.

80. How much lasting damage has been done to NYCB’s reputation is

impossible to measure. But reputational risk is taken seriously by investors and banking

regulators, who use it as one of the criteria to evaluate the “safety and soundness” of a

bank.

DEFENDANTS’ MATERIALLY FALSE AND MISLEADING STATEMENTS

The Roslyn Merger

81. In order to obscure the weakness in its core multi-family lending business,

at the beginning of the Class Period, NYCB once again created short-term growth

through a major acquisition. On June 27, 2003, the first day of the Class Period, NYCB

29


issued a press release on Business Wire announcing that it had signed a definitive merger

agreement with Roslyn, whereby Roslyn would merge into NYCB to form the third

largest thrift in the nation in terms of assets. Prior to the merger, Roslyn controlled

approximately $6.1 billion in deposits and had $10.8 billion in assets. Roslyn’s deposits

would increase NYCB’s deposits by over 100% and its assets by 90%, giving the

Company $12.1 billion in deposits and over $20 billion in assets. The transaction, valued

at $1.579 billion, provided that Roslyn shareholders would receive 0.75 share of NYCB

common stock in exchange for each share of Roslyn stock held on the date of the merger.

82. Consistent with NYCB’s need to demonstrate continued earnings growth,

NYCB’s press release announcing the Roslyn merger focused on the fact that the Roslyn

merger would be immediately accretive to earnings:

The transaction, which is valued at approximately $1.579 billion, is expected to close in the fourth quarter of 2003, pending shareholder and regulatory approval, and to be immediately accretive to diluted earnings per share.

Defendant Ficalora similarly focused on the immediate earnings benefit in his comments:

Like our acquisition of Haven, announced three years ago today, and our merger with Richmond County, announced nine months later, the Roslyn deal will be immediately accretive to earnings and provide us with a platform for significant capital growth, Mr. Ficalora said. Furthermore, it provides an opportunity to significantly enhance shareholder value, which is, consistently, the driving force behind every action we take.

83. The press release also focused on Roslyn’s ability to generate deposits:

The combined company will also have a network of 145 banking offices in New York City, Long Island, Westchester County (New York), and New Jersey with total deposits of approximately $11.3 billion, including core deposits of approximately $6.0 billion. In addition to 23 branches on Staten Island, where New York Community Bank already ranks second among all

30


financial institutions, with a 22% share of deposits, the combined company will now have 32 branches in Queens County, where it will rank fourth among all financial institutions, with a 9.4% deposit share. On Long Island and in Brooklyn, the combined company will now have 59 and 9 branches, respectively, contributing to its pro forma rank as the New York Metro region’s fourth largest financial institution, with a 7.6% deposit share. [Emphasis added.]

* * *

We are very excited about the prospects for this combined company to grow earnings and market share. The merger joins two friendly competitors to create a powerhouse multi-family lender and a premier accumulator of deposits within the attractive metro New York marketplace. It also joins two highly efficient companies whose managements have a successful record of post-merger integrations; between us, we’ve completed seven merger transactions, each one exceeding expectations with regard to earnings accretion and cost savings achieved.

Defendant Mancino similarly emphasized Roslyn’s deposit gathering ability:

“We are very pleased to align our company with New York Community Bancorp,” commented Joseph L. Mancino, Roslyn Bancorp’s Vice Chairman, President, and Chief Executive Officer. “We believe this is an excellent opportunity to combine two premier institutions for the benefit of our shareholders and customers, alike. The proposed merger clearly illustrates our Board’s commitment to enhancing shareholder value. New York Community Bancorp is highly regarded by the financial community, has a demonstrated capacity to generate earnings growth, and is focused on providing substantial shareholder returns. Roslyn brings to the table an exceptional deposit gathering franchise and a loyal customer base. Together we will create the NY Metro region’s largest community bank when measured by market capitalization and build a platform for continued momentum in shareholder returns.” [Emphasis added.]

84. Because Roslyn also had a large securities portfolio (as shown in Roslyn’s

Form 10-Q filed on August 14, 2003, as of June 30, 2003, Roslyn had a significant

percentage ($5.5 billion or 51%) of its assets classified as mortgage-backed securities

available-for-sale), and because the earnings accretion from the Roslyn merger would

allow NYCB to show earnings growth even as its own core business was weakening, at

31


the time of the Roslyn merger NYCB was able to announce a purported “strategic

balance sheet restructuring plan,” which would include a $3.5 billion reduction in the

banks securities portfolio:

Building on the success we achieved in connection with our two prior merger transactions, Mr. Ficalora continued, we will once again implement a strategic balance sheet restructuring plan. The first step will be a reduction in securities of about $3.5 billion, with the resultant cash flows used to reduce wholesale borrowings. Notwithstanding the downsizing, we expect our 2004 diluted GAAP earnings per share to reflect approximately 10.0% accretion, including anticipated pre-tax cost savings of $30.8 million within the first year. The result will be a more flexible company with higher quality assets and far less exposure to extension and interest rate risk. In addition, the restructuring will position us well to grow earnings through the production of high-quality loans funded by the cash flows from lower-yielding securities,” Mr. Ficalora said.

[Emphasis added].

85. While defendants knew that they had to make the investing public believe

that NYCB would stabilize the combined company after the Roslyn merger, making it

less vulnerable to interest rate increases, they also knew that the weakening of NYCB’s

core business, combined with the problems with the Roslyn merger that are discussed

below, meant that NYCB could not meet its 2004 earnings forecasts without a material

increase in earnings from risky securities investments (which could only occur if NYCB

materially increased the size of that portfolio, and thus, materially increased its interest

rate risk).

86. In reaction to the Roslyn merger announcement, the price of NYCB

common stock rose 7.3% to $29.08, and the price of Roslyn shares rose 90 cents, or 4.3

percent, to $21.75.

32


87. Based on the merger announcement and related statements by defendants,

analysts gave the Roslyn merger their seal of approval. As Smith Barney commented in

its June 30, 2003 analyst report on NYCB:

We regard New York Community Bancorp’s no premium merger with Roslyn Bancorp (RSLN, $21.75, NR) as positive both strategically and financially. Strategically, NYB will bolster its deposit franchise with an in-market but non-overlap transaction, increasing its market shares in Queens County (#4) and Nassau County (#5), and lowering its loan-to-deposit ratio to about 80% from 111%. Financially, NYB expects the deal to be at least 10% accretive to EPS in 2004, and to improve NYB’s interest rate sensitivity posture for rising interest rates. … In our view, integration risk is low, due to: NYB’s excellent integration track record; an in-market deal; two management teams that know each other very well; a common IT systems platform; and reasonable cost-savings targets. Based on merger accretion, we are raising our 2004 EPS estimate from $2.25 to $2.50; based on our higher 2004 EPS estimate, we are raising our target price from $30 to $33.

88. While defendants aggressively touted the Roslyn merger as beneficial to

both Roslyn shareholders and NYCB, the foregoing statements were materially false and

misleading, as they failed to disclose the following material adverse facts regarding the

proposed merger, as described in paragraphs 35-80, 85, 89-92, which they knew meant,

or they recklessly disregarded, that the Roslyn merger itself was insufficient for NYCB to

meet its aggressive 2004 earnings forecasts if it followed through with the announced

deleveraging of its securities portfolio:

(a) Roslyn’s securities portfolio had to be deleveraged because of its high exposure to short-term interest rates. As a result, there would be a decrease in cash flow generated from the securities portfolio;

(b) Roslyn's mortgage lending business would not generate sufficient yields to meet earnings expectations and was actually a significant drag on NYCB’s total loan yield;

33


(c) Because the Roslyn merger was not able to support NYCB’s 2004 earnings forecast, NYCB could only meet that forecast by materially increasing the amount of its leveraged securities portfolio in 2004;

(d) the Company was already experiencing large amounts of customer disruption as evidenced by the millions of dollars in withdrawals by customers from Roslyn branches;

(e) revenue enhancement would be materially adversely affected by the large deposit attrition from Roslyn branches in anticipation of the Roslyn merger;

(f) revenue enhancement would be materially adversely affected by the increases in fees on customer accounts and decreases in yields to be paid on customer deposit accounts; and

(g) NYCB knew that Roslyn would be unable to continue as a premier deposit accumulator in the future because NYCB was planning on lowering yields earned on customer deposit accounts and increasing service fees after the merger, which defendants knew from NYCB’s previous mergers would drive customers away.

89. A former Vice-President of Investments of NYCB stated that Roslyn

customers were not happy that NYCB was taking over Roslyn due to NYCB’s reputation

of not being customer friendly. The former Vice-President stated, “As soon as the

announcement was made, we had customers go into branches and start taking money out

in anticipation of the merger. After [the merger], it just proceeded to get worse.” He

further stated, “We had a lot of customers that wanted nothing to do with [NYCB] …

because they knew they didn’t treat their customers as well as [Roslyn] did. As soon as

word leaked out that we were being acquired by NYCB, customers started leaving

immediately, and that continued well after the acquisition.” The former Vice-President

also said that millions of dollars, perhaps “several hundred million dollars,” were taken

out of branches by the Roslyn customers and that NYCB executives were very concerned

about the situation.

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90. A former Assistant Supervisor and Alternative Investments Coordinator for

NYCB stated that a lot of Roslyn customers were lost as a result of the merger. The

former employee stated, “A lot of people took their money out. A lot of families took

their money out.” In addition, a former financial services representative at the Company

stated that “It was a good amount of money that [NYCB] lost.… [S]o many people were

closing their accounts.”

91. A former Roslyn customer service representative commented that long-

standing customers of Roslyn were aware that NYCB made changes that were not

customer friendly, including implementing higher and additional fees and a general

unwillingness to exercise discretion and waive fees. “The numbers were very big.” It

was further stated that customers were closing basic savings accounts, CD’s, checking

accounts; businesses were withdrawing their money and customers were even closing

IRA accounts even if they had to incur penalties to do so.

92. Roslyn’s impact on NYCB’s already declining mortgage loan yields was

dramatic. For the quarter ended September 30, 2003, the last quarter for which NYCB

reported results without Roslyn, NYCB’s average yield was 7.37%. For the quarter

ended December 31, 2003, which included two months of Roslyn, the average yield had

plummeted over 10% to 6.50%. For the quarter ended March 31, 2004, the first quarter

with 3 months of combined operations, the average yield shrank further to 5.98%.

93. On July 16, 2003, NYCB issued a press release on Business Wire

announcing its second quarter 2003 results. In the release, the Company stated, in

relevant part, as follows:

35


New York Community Bancorp, Inc. (NYSE: NYB) today reported second quarter 2003 net income of $71.8 million, up 23.4% from $58.1 million in the second quarter of 2002. The 2003 amount provided a 21.45% return on average stockholders’ equity (“ROE”) and a 2.36% return on average assets (“ROA”), and was equivalent to a 23.3% increase in diluted earnings per share to $0.53 from $0.43.

For the six months ended June 30, 2003, the Company reported net income of $139.1 million, representing a 33.2% increase from $104.5 million for the first six months of 2002. The 2003 amount generated an ROE of 20.83% and an ROA of 2.30%, and was equivalent to a 30.7% rise in diluted earnings per share to $1.01 from $0.77.

In the release, defendant Ficalora commented on the second quarter 2003 results as

follows:

“Our second quarter performance underscores four of the strengths of this institution: our capacity to originate multi-family mortgage loans; the consistent quality of our assets during a time of economic uncertainty; the significant efficiency of our operations at a time when we are enhancing our franchise; and the success of our leveraged growth strategy.”

Speaking further to each of these points, Mr. Ficalora noted, “Our second quarter mortgage originations exceeded $767 million, and with a current pipeline of $723.3 million, it is evident that our lending capacity continues to be very strong. The quality of our assets reflects the ongoing strength of our credit standards: This was our 35th consecutive quarter without any net charge-offs, and our second consecutive quarter featuring a reduction in non-performing assets and loans. At quarter’s end, non-performing assets were a mere $13.4 million, representing 0.11% of total assets, including non-performing loans of $13.3 million, representing 0.23% of loans, net.

Ficalora further commented on the anticipated accretion to earnings as a result of the

Roslyn merger, as follows:

“The third event--and the one that we believe represents the greatest potential return to our investors--was the signing of a definitive merger agreement, on June 27th, with Roslyn Bancorp, Inc. The $1.6 billion transaction is currently expected to be 10% accretive to 2004 earnings and to result in our becoming the New York metro region’s largest community bank, with a current pro forma market cap of $6.4 billion, based on yesterday’s close,” Mr. Ficalora said.

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94. On July 16, 2003, in a conference call with analysts to discuss its second

quarter 2003 results, NYCB forecasted earnings for 2003 of $2.04 to $2.10 per share and

earnings for 2004 of $2.53 per share.

95. In addition, during the conference call, defendants discussed NYCB’s

supposed imperviousness to interest rate movements. Scott Valentin, an analyst at

Friedman Billings Ramsey Investment Services, Inc., had the following exchange with

defendant Cangemi regarding the affect of interest rates on the Company’s planned

restructuring:

VALENTIN: And one other follow-up question. With the sharp move we had in the long end of the yield curve, the net accretion from the fair value adjustments on the merger announcement was about $63 million, I guess, projected. How [do] the movement rates affect that value given that’s a pretty big piece of the accretion?

CANGEMI Scott, it’s Tom, how are you?

VALENTIN: Good, Tom. How are you?

CANGEMI: Basically, when we looked at the overall valuation of the entire company, we took in a rolling, three-month average on historical yield curves, so we have some cushion there. And as you know, it’s all market to market, so the goodwill will be greatly reduced or greatly increased depending on interest rates. We believe that in light of the timing we have from today until closing, which we anticipate for fourth quarter, we’re well protected there. As Joe indicated on a previous discussion, the restructuring has already taken place. The moving of interest rate either way, we could benefit because of the exact opposite balance sheet that we have. So we’re in a very good position to capitalize on a significant restructuring regardless where interest rates go from now until closing.

96. On July 16, 2003, in an interview with Bloomberg, defendant Ficalora

emphasized the Company’s specialization in producing conservatively written multi-

37


family loans which he claimed would not be affected by interest rate fluctuations. In

relevant part, defendant Ficalora stated as follows:

[O]ur particular niche is rent-controlled, rent-stabilized buildings, and we continually refine whether rates are going up or going down, because the property owners are refinancing the expanding cash flow. So as a result of that, even in the worst of times, `88 through ‘92, when people were losing large amounts of money on loans, we lost zero. In fact, for decades, we’ve had no charges against our multi-family loan niche, because our loans are extraordinarily conservatively written on expanding cash flows.... [W]e should not be affected [by interest rate changes and refinancings] in the same way as one-to-four family lenders are affected. [Multi-family loan holders] are cash flow property owners who build the cash flow over time, so they’re long-term holders of the property, building the cash flow and refinancing the cash flow. So although they’re affected by rates, that is not the only factor.

97. On August 14, 2003, NYCB filed its second quarter 2003 report on a Form

10-Q with the SEC, which reiterated its previously announced second quarter financial

results.

98. The statements made by defendants on July 16, 2003, and the financial

results reported in NYCB’s July 16, 2003 press release, and repeated in the June 2003 10-

Q, were materially false and misleading because they failed to disclose the following

adverse facts, as described in paragraphs 35-80, 85 and 89-92:

(a) NYCB had become increasingly dependent on the carry trade to generate earnings;

(b) The Company’s investment strategy involving the carry trade was very risky because of the exposure to increases in short-term interest rates, and defendants knew, or recklessly disregarded, this as the Company’s interest rate sensitivity modeling showed that its heavily leveraged securities portfolio was highly adverse to interest rate risks, which was in stark contrast to NYCB’s statements that it was risk averse;

38


(c) NYCB’s core multi-family mortgage lending business was weakening;

(d) while the Roslyn merger would be immediately accretive to earnings in 2003, it was not sufficient to support NYCB’s 2004 earnings forecast, and thus, the Company could only meet those forecasts by significantly releveraging the balance sheet to materially increase the size of the securities portfolio shortly after the planned deleveraging;

(e) Roslyn's mortgage lending business would not generate sufficient yields to meet earnings expectations and was actually a significant drag on NYCB’s total loan yield;

(f) revenue enhancement would be materially adversely affected by the large deposit attrition from Roslyn branches in anticipation of the merger, and the increases in fees on customer accounts and decreases in yields to be paid on customer deposit accounts; and

(g) NYCB knew that Roslyn would be unable to continue as a premier deposit accumulator in the future because NYCB was planning on lowering yields earned on customer deposit accounts and increasing service fees after the merger, which defendants knew from previous mergers would drive customers away.

99. On August 29, 2003, in an interview with Brian Sullivan of Bloomberg,

defendant Ficalora assured investors that NYCB’s business and performance was

unrivaled, and that the Company would continue to thrive in an environment of rising

interest rates. During the interview, defendant Ficalora stated, in relevant part, as

follows:

We are very different from most other banks. We are continually refinancing multi-family loans, which are not impacted directly by the change in interest rates. They’re not part of the refinance boom.... And because we’re dealing with cash flow property owners, they refinance their cash flow as their cash flow grows, so they’re not necessarily tied directly to interest rates.... [A]ll of our metrics are better than the sector as a whole. We have the best metrics for the last seven years. We’re ranked No. 1 in the country of all the large banks. Our margin is over 4 percent. The second quarter was the worst likely margin for us. This change in interest rates moves assets but does not move our liabilities, so therefore our margins will be improved as a result of this.... This, will improve the earnings that

39


were projected in all of the models that we put forth. And, obviously, since there’s so much in the way of assets that have been priced up, better than $4 billion between our portfolio and theirs-on a relatively small portfolio that’s a fairly sizable amount-that greatly improves our margins and our earnings as a result.

100. Defendant Ficalora’s August 29, 2003 statements regarding NYCB’s

interest rate risk were materially false and misleading when made because he failed to

disclose the following adverse facts, as described in paragraphs 35-80, 85 and 89-92:


(b) The Company’s investment strategy involving the carry trade was very risky because of the exposure to increases in short-term interest rates, and defendants knew, or recklessly disregarded, this as the Company’s interest rate sensitivity modeling showed that its heavily leveraged securities portfolio was highly adverse to interest rate risks, which was in stark contrast to NYCB’s statements that it was risk averse; and

(c) NYCB’s core multi-family mortgage lending business was weakening.

101. On September 22, 2003, Citigroup Smith Barney issued a research report

on NYCB reporting defendants’ materially false and misleading statements from July 16,

2003, the financial results reported in NYCB’s July 16, 2003 press release and the June

2003 10-Q. Based on the foregoing, Citigroup Smith Barney reiterated its “Buy” rating

and raised its target price from $35 to $36 and its 2004 EPS estimate from $2.50 to $2.70:

Opinion

We recently accompanied New York Community Bancorp’s CEO Joseph Ficalora on visits with institutional investors and have come away convinced that NYB’s pending merger with Roslyn should produce better-than-expected 2004 results. Consequently, we are raising our 2004 EPS estimate from $2.50 to $2.70 and, based on our new 2004 EPS estimate and n higher valuation of comparable thrifts and banks, we are raising our target price from $35 to $36; we are reiterating our Buy rating.

40


When announcing its merger with Roslyn Bancorp on June 27, 2003, NYB projected that the merger would produce 10% accretion to sell-side analysts’ consensus 2004 EPS estimates (that is, 10% accretion to $2.30, or $2.53). Included in this 10% accretion projection for 2004 were assumptions that both longer-term and shorter-term interest rates would remain relatively unchanged between the announcement date of the merger (June 27, 2003) and the closing date of the merger (currently expected to be October 31, 2003). However, subsequent to the announcement date of the merger, longer-term interest rates spike higher, while shorter-term interest rates have remained relatively flat: in our view, this should help NYB’s EPS in at least two ways. First, NYB has been able to lock in significantly higher (as assumed in NYB’s 10% accretion projection for 20004 EPS. Second, the purchase accounting mark-to-market of Roslyn Bancorp’s balance sheet required by GAAP should now result in greater-than-projected purchase-accounting-related income in 2004. The negative mark on Roslyn Bancorp’s liabilities (which is driven by shorter-term interest rates) should remain roughly unchanged, while the positive mark on Roslyn Bancorp’s investment securities should be less (because a material part of Roslyn Bancorp’s investment securities have , or will have by the closing date of the merger, matured and been reinvested at higher rates). Consequently, a with a similar-to-projected negative mark and a smaller-than-projected positive mark, the net total mark should be larger-than projected negative, which means that the purchase-accounting related income resulting from the accretion of the negative mark into earnings should be larger-than-projected positive. Therefore, NYB’s 2004 EPS should include higher-than-projected net interest income (from higher-yielding investment securities) and larger-than-projected net interest income (from higher-yielding investment securities) and larger-than-projected purchase-accounting-related income (from a larger net negative mark-to-market of Roslyn Bancorp’s balance sheet). According to our calculations, the higher net interest income alone could drive the entire $0.20 increase in our 2004 EPS estimate; also, inasmuch as the purchase accounting mark-to-market takes place on the closing date of the merger (probably October 31, 2003), it is impossible to know at this time exactly what the mark will be.

102. On September 22, 2003, Bear Stearns also issued a research report on

NYCB reporting defendants’ materially false and misleading statements from July 16,

2003, the financial results reported in NYCB’s July 16, 2003 press release and the June

2003 10-Q. Based on the foregoing, Bear Stearns assigned an “Outperform” rating,

41


raised its EPS estimates to $2.75 from $2.55 and raised its price target to $39 from $35.

Among other things, the report stated:

We are raising our 2004 GAAP EPS estimates on New York Community Bancorp (NYB) to $2.75 from $2.55. This places us $0.22 above management’s guidance and approximately $0.18 above the current consensus estimate. Our new estimate translates into year-over-year EPS growth of just over 30, which we believe will be will above the industry average in 2004. Additionally, we are increasing our year-end 2004 target price to $39 up from $35. Our EPS increase stems from our belief that the company’s acquisition of Roslyn Bancorp (RSLN) will be more accretive than originally thought, and increased opportunities on the multi-family lending side. Moreover, we believe that the company’s valuation on a pro-forma basis is very attractive with the shares trading at 11.6 times our new 2004 estimate, 208% of projected book value (573% of projected tangible book value).

* * *

We continue to believe that NYB is one of the best managed financial institutions in the county (Insiders own about one-third of the shares), with industry leading profitability, above-average EPS growth, an attractive lending niche, and a growing deposit franchise.…

103. On September 23, 2003, NYCB filed with the SEC its Pre-Effective

Amendment No. 3 to its Registration Statement, incorporating the Roslyn merger Proxy

Statement, to register 64 million shares of NYCB common stock which would be offered

in exchange for Roslyn stock to effectuate the Roslyn merger.

104. The Roslyn merger Proxy Statement contained the following untrue

statements of material fact concerning the Company’s restructuring plan and the

downsizing of the securities portfolio:

Following the merger, New York Community currently expects to re-evaluate the balance sheet position of the combined company and implement a strategic balance sheet restructuring plan, which may include a $3.5 billion reduction of the pro forma securities portfolio that will re-align

42


the pro forma securities portfolio consistent with the combined company’s industry peers. The downsizing is expected to have a positive impact on earnings quality and the combined company’s exposure to interest rate, extension and market risk. In addition, it is expected that the downsizing of the securities portfolio will result in an improved interest rate margin. The downsizing is expected to generate cash proceeds that will facilitate a reduction in the level of wholesale funding utilized by the combined company in the form of Federal Home Loan Bank advances and reverse repurchase obligations. This is expected to result in an overall reduction in the combined company’s level of wholesale leverage. The downsizing of the securities portfolio is also expected to free up capital which could be redeployed into higher earning assets and/or the repurchase of common stock. The planned downsizing of the securities portfolio is not a condition or financing contingency of the merger. Although there is no specific time frame for the planned downsizing of the securities portfolio, it is currently anticipated to take place after the closing of the merger.

105. In addition, the Roslyn merger Proxy Statement contained the following

untrue statements of material fact concerning the purported benefits of the Roslyn

merger:

The New York Community board of directors believes that the merger presents an excellent opportunity to combine and expand two complementary banking operations. The New York Community board consulted with financial and other advisors and determined that the merger was consistent with the strategic plans of New York Community and was in the best interests of New York Community and its stockholders. In reaching its conclusion to approve the merger agreement, the New York Community board considered a number of factors, including the following:

Its understanding of New York Community’s business, operations, financial condition, earnings and prospects of Roslyn’s business, operations, financial condition, earnings and prospects, taking into account New York Community’s due diligence review of Roslyn;

The complementary aspects of the New York Community and Roslyn businesses, including New York Community’s strength in loan origination and Roslyn’s strength in deposit accumulation, the compatible loan mix of New York Community and Roslyn and the common operating philosophies, shared systems platforms and services provider and integration expertise of New York Community and Roslyn.

43


(emphasis added).

106. Further, the Company made the following untrue statements of material

fact in the Roslyn merger Proxy Statement concerning the projected effect of the Roslyn

merger on NYCB’s earnings for 2004 and further touted the benefits of the Roslyn

merger:

The fact that the merger is expected to be 18% accretive to 2004 diluted GAAP EPS or, assuming a $3.5 billion balance sheet restructuring, 10% accretive.

The fact that the complementary nature of the respective customer bases, business products and skills of New York Community and Roslyn should result in enhanced revenue opportunities as products are cross-marketed and distributed over broader customer bases. Management of New York Community and Roslyn anticipate future revenue enhancement initiatives, however, at this time, no amounts were considered in the projected benefits of the merger.

The challenges of combining the businesses, assets and workforces of the two companies, which could impact the post-merger success of the combined company, in light of New York Community’s and Roslyn’s past experience in integrating transactions. In this regard, the board evaluated several key factors, including:

that customer disruption in the transition phase would not be significant due to the limited overlap and complementary nature of the markets served by New York Community and Roslyn and the fact that very few branches, if any, are expected to be closed;

that the combined company would benefit from the strong management teams of each of New York Community and Roslyn and that, because a number of key senior management positions for the combined company had already been decided, management would be better able to focus on integration early in the process; and

the record of New York Community in integrating acquisitions smoothly while retaining profitability, having participated in the successful acquisition of Haven Bancorp, Inc. in 2000 and the successful merger with Richmond County Financial Corp. in 2001.

44


The ability of New York Community to retain continuity of management and of corporate structure, including retention of the current board of directors and current executive officers, as well as its governing documents, and to create a company with increased management depth.

(emphasis added).

107. Also, the Roslyn merger Proxy Statement contained the following untrue

statements of material fact concerning the Company’s ability to restructure the balance

sheet:

The future ability of New York Community to restructure the pro forma balance sheet of the combined company by downsizing its securities portfolio and utilizing the resulting proceeds to retire borrowings and buy back stock.

The reports of management and outside advisors concerning the operations, financial condition and prospects of Roslyn.

The historical and current market prices of New York Community common stock and Roslyn common stock.

The financial information and analyses presented by Citigroup Global Markets Inc. to the New York Community board of directors, and the opinion delivered to the New York Community board of directors by Citigroup Global Markets Inc., to the effect that, as of the date of its opinion, the exchange ratio is fair, from a financial point of view, to New York Community.

(emphasis added).

108. However, the Roslyn merger Proxy Statement omitted to state the

following material facts required to be stated therein or necessary to make the statements

therein not misleading, as described in paragraphs 35-80, 85 and 89-92:


(b) The Company’s investment strategy involving the carry trade was very risky because of the exposure to increases in short-term interest rates, and

45


defendants knew, or recklessly disregarded, this as the Company’s interest rate sensitivity modeling showed that its heavily leveraged securities portfolio was highly adverse to interest rate risks, which was in stark contrast to NYCB’s statements that it was risk averse;






109. On October 22, 2003, NYCB issued a press release on Business Wire

announcing its third quarter 2003 results. In the release, NYCB stated, in relevant part,

as follows:

New York Community Bancorp, Inc. (NYSE: NYB) today reported third quarter 2003 net income of $72.2 million, up 19.6% from $60.4 million in the third quarter of 2002. The 2003 amount provided a 22.05% return on average stockholders’ equity (“ROE”) and a 2.28% return on average assets (“ROA”), and was equivalent to a 20.5% rise in diluted earnings per share to $0.53 from $0.44.(2)

In the release, Ficalora emphasized that the Company would be reducing the size of its

securities portfolio after the Roslyn merger:

46


“Subject to shareholder approval at our respective shareholder meetings on the 29th of October, the Roslyn merger is expected to close on October 31st,” Mr. Ficalora noted. “Our current balance sheet reflects the steps we’ve been taking, in anticipation of the merger, to prepare for the restructuring of the combined balance sheet. Several of the quarter-end balances on our current statement of condition will look substantially different when we issue our full-year results in January 2004. For example, our balance of borrowings has grown considerably, as we’ve capitalized on the yield curve; post-merger, we can expect the ratio of borrowings to total assets to be reduced. Our securities portfolio has been similarly readied for combination, as we invested in securities with low extension risk characteristics.

(emphasis added).

Regarding the Company’s loan portfolio and the purported benefits of the Roslyn merger,

Ficalora stated:

“Our pipeline, which now stands at $1.5 billion--setting a new Company record--will be even larger once our two banks combine,” Mr. Ficalora commented. “The same can be said of our total assets, which will exceed $21 billion, and our market cap, which should far exceed the $6 billion mark.”

“Our agreement to sell our South Jersey Bank Division to New Jersey-based Sun National Bank was another third-quarter highlight. Currently scheduled to close in December, the transaction is expected to generate an after-tax contribution to capital of approximately $26 million,” Mr. Ficalora said.

“The merger with Roslyn will bring us to a higher level,” Mr. Ficalora continued, “much like our transactions with Richmond County and Haven Bancorp did before. With more assets, an expanded franchise, and greater earnings potential, we believe we are better positioned today to create shareholder value than at any prior time in our ten-year history.”

110. On October 22, 2003, defendant Ficalora was interviewed by Bloomberg’s

Melissa Lee, during which he stated that NYCB would experience “significantly better

earnings” if interest rates continued to rise. In the interview, Ficalora stated, in relevant

part, as follows:

47


FICALORA: [S]ince we are primarily a multi-family lender that refinances continually, interest rates do not dominate the activity that we have, so the move in interest rates have been, particularly good, with regard to the transaction, which is about to close in the acquisition of Roslyn Bancorp. So, in that case, the interest rates are going to cause us to have significantly better earnings than were contemplated when we announced the deal in June.

LEE: So, you’re actually going to be doing better in a rising interest environment?

FICALORA: That’s right. In actuality, all of the models we laid out were at a much lower rate. So with the rising interest rate environment, since they’re-the securities portfolio was structured to re-price, no matter whether rates were going up or not, it automatically will give us significantly more assets, at better yields that were contemplated in the deal.

* * *

FICALORA: [O] f all the banks out there, we, probably, have the best potential to increase our earnings over the future periods. A fully valued stock would be a stock that actually, in comparison to others in the group, is in fact trading at a price that is indicative of its future earnings. In our case, we are trading at a high multiple on trailing earnings because we are continually growing, much more rapidly that our peers, both our earnings and our size. We’ll be almost twice our size by the end of the year. As a result, we will have significant increase as in our earnings, and that will compare very favorably to all the rest of the group....

LEE: I did want to talk about the move in the interest rates because you had indicated that, as they move higher that’s good for your business, but as for the impact on your bond portfolio, because you’ve got on of the largest portfolios as a percent of interest earning assets compared to you peers. So how does that impact the value of that bond portfolio.

FICALORA: Right. The value of the portfolio would be adversely affected, if it was that so much of the portfolio wasn’t re-pricing. We have a very significant proportion of that portfolio that is re pricing since June 30th. So as a result, most of that portfolio will be at market by December 31.

* * *

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FICALORA: As we sit today, our assets are probably the most risk adverse assets that are out there in the marketplace.

(Emphasis added).

111. On October 22, 2003, NYCB also held a conference call with analysts to

discuss its third quarter results. Defendant Ficalora made the following opening remarks

to the analysts:

At quarter’s end, securities totals $5.7 billion, including 3/9 billion of mortgage-backed securities Balance sheet will look very differently following the merger. It’s current configuration reflects the investment of borrowed funds into two to three year assets with characteristics that support our aversion both interest rate and extension risk.

* * *

In a recent interview I was asked what I consider to be our greatest characteristic, and I believe that my response was perhaps our [aversion] to risk. This trait is not only reflected in the quality of our assets, it is reflected in virtually in every management decision we make.

(emphasis added).

112. The statements made by defendants on October 22, 2003 were materially

false and misleading when made because they failed to disclose the following adverse

facts, as described in paragraphs 35-80, 85 and 89-92:




49






113. On October 29, 2003, NYCB issued a press release on Business Wire

announcing that the Roslyn merger had been approved by the shareholders of both

companies.

114. On November 3, 2003, the Company issued a press release on Business

Wire announcing that it had completed the offering of 57 million NYCB shares in

exchange for Roslyn shares, thereby finalizing the Roslyn merger:

New York Community Bancorp, Inc. (NYSE: NYB) today announced that its strategic merger with Roslyn Bancorp, Inc. (“Roslyn”) was completed following the close of business on October 31, 2003. In accordance with the Agreement and Plan of Merger announced on June 27, 2003, Roslyn merged with and into New York Community Bancorp and Roslyn’s primary subsidiary, The Roslyn Savings Bank, merged with and into New York Community Bank (the “Bank”). Based upon a fixed exchange ratio of 0.75 of a share of New York Community Bancorp stock for each share of Roslyn stock outstanding, approximately 57 million shares of stock were issued in the transaction, bringing the number of New York Community Bancorp shares outstanding to approximately 195 million. Reflecting Friday’s closing price of $36.20, the combined company has a market

50


capitalization of approximately $7 billion, making it the third largest thrift in the nation and the second largest publicly traded company headquartered on Long Island, based on market cap.

115. On November 11, 2003, Janney Montgomery Scott LLC issued a research

report on NYCB, reporting defendants’ materially false and misleading statements from

the October 22, 2003 press release and conference call, and issued a “BUY” rating with

an increase in its 12-month price target to $44 from $38. The report stated as follows:

The acquisition of Roslyn Bancorp, which was completed on October 31, 2003, enhances balance sheet flexibility while providing funding to grow multi-family loans, which are New York Community’s crown jewels.

* * *

We like the plan to downsize the combined companies’ investment securities portfolio by $3.5 billion in order to reduce leverage and interest rate risk. This plan is very intriguing given the size of the combined companies; investment securities portfolio (we estimate approximately $12 billion) and the fact that New York Community is “liability sensitive” and Roslyn was “asset sensitive” regarding interest rates. We believe management is skilled and will be able to take advantage of this considerable flexibility with respect to structuring a combined investment securities portfolio that reduces interest rate risk without significantly impairing earnings.

116. On November 23, 2003, defendant Ficalora was interviewed by The Wall

Street Transcript. Ficalora, commenting on the Company’s purported risk averse culture,

again focused on NYCB’s restructuring of its balance sheet:

TWST: How would you characterize what your balance sheet is going to look like? Will there be any other significant changes that investors should expect?

Mr. Ficalora: On the asset side, the most important thing is that we are going to be continually transitioning from the asset structure that existed on the day we closed ‘ October 31 ‘ to one that reflects an ever-increasing percentage of loans on rent-controlled and rent-stabilized multifamily buildings, and a steadily declining level of securities. In the case of Haven

51


and Richmond County, that transitioning occurred over the course of the months and quarters and years that followed the consummation of each deal. During that time, we traded out of $5 or $6 billion worth of assets, all of which were replaced with better-structured assets from the standpoint of reducing our vulnerability to interest rate and credit risk. Yet despite the fact that we sometimes sacrificed yield in order to achieve a more risk-averse structure, we’ve reported extremely strong earnings over the past three years. As we look at the Roslyn balance sheet, we believe that we’ll be doing exactly the same thing with regard to restructuring, except that, to some degree, we will be reducing the size of the securities portfolio and the borrowings of the company.

117. In addition, defendant Ficalora remarked to the The Wall Street Transcript

that the Company was “truly risk averse”:

TWST: Are you happy with where your stock is trading?

Mr. Ficalora: Actually, I do believe that we’re still trading at a discount to our pro forma earnings. We’re trading at a high multiple to our trailing earnings, but because the company is positioned to grow so rapidly, it is truly trading at a discount to where we expect our earnings to be. I think that the markets will ultimately adjust for that. There are lots of reasons why stocks trade at a particular plateau from time to time, but over time ‘ and this has been consistent through the years ‘ when the true value of the company’s actual earnings and asset growth is appreciated by enough of the players in the market, we present a very attractive investment because we offer both value and growth, and we are truly risk averse. Although we’ve not had a significant downturn in the economy during our public life, we are a risk-averse institution, and therefore represent a lower-risk investment should there be a period of economic stress. Historically, our performance suggests that we would, in fact, outperform our peers during a period of stress than we have during the relatively good times we’ve enjoyed over the past ten years. During the best of times, we’ve proven to be the best performing large thrift in the country. During the worst of times, the differences between us and our peer group should be even further underscored.

(emphasis added).

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118. The statements of November 23, 2003 were materially false and misleading

when made because they failed to disclose the following adverse facts, as described in

paragraphs 35-80, 85 and 89-92:

(a) NYCB had become increasingly dependent on the carry trade to generate earnings; and

(b) The Company’s investment strategy involving the carry trade was very risky because of the exposure to increases in short-term interest rates, and defendants knew, or recklessly disregarded, this as the Company’s interest rate sensitivity modeling showed that its heavily leveraged securities portfolio was highly adverse to interest rate risks, which was in stark contrast to NYCB’s statements that it was risk averse.

119. On November 29, 2003, Smith Barney Citigroup issued a research report

on NYCB reporting defendants’ materially false and misleading statements, and further

increasing its target price for NYCB shares to $42 and raising its EPS estimates to $2.80

for 2004:

We are raising our target price on NYB of shares from $36 to $42, based on an even-more-positive view of the impact of NYB’s recently completed merger with Roslyn Bancorp (prompting our new, higher 2004 EPS estimate of $2.80) and based on higher valuation of peers.

Based on review of NYB’s 3Q03 From 10-Q and on recent NYB presentations at investor conferences, we believe that a combination of strong loan demand for NYB’s flagship multi-family mortgage produce and of attractive reinvestment opportunities for maturing investment securities should produce a higher net interest margin (NIM) than we were previously using in our 2004 EPS estimate. NYB’s pipeline (loans in process) of multi-family mortgage product going into 4Q03 was about $1.1 billion, more than 80% higher than its previous record pipeline. In addition, maturing investment securities are being reinvested at higher yields, apparently more than 100 bps higher. Also, Roslyn Bancorp’s asset-sensitive balance sheet should lessen the combined company’s exposure to rising interest rates. Taken together, these factors should help NYB’s NIM; we are raising our 2004 NIM projection by 15 bps (from 3.99% to 4.14%), and consequently raising our 2004 EPS estimate from $2.70 to $2.80.

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* * *

We rate New York Community Bancorp shares (NYB) Buy/Medium Risk (1M0 with a target price of $42. We regard the NYB story as a powerful one: a purposeful focus on a niche (mortgages on multi-family apartment buildings for middle-income tenants) that generates strong risk-adjusted returns, because of low credit risk (no multi-family net charge-offs since 1987), low prepayment risk (because of prepayment penalties) and low operating costs (efficiency ratio under 30%, versus a median 48% for all thrifts with more than $5 billion in assets), combined with proven merger skills (the company has successfully executed two large deals n the past three years that together have created over large EPS accretion). Indeed, our current enthusiasm for NYB shares relates to the very positive results that we expect from the merger with Roslyn Bancorp that closed on October 31, 2003.

120. On January 15, 2004, NYCB issued a press release on Business Wire

announcing that its Board of Directors had declared a four-for-three stock split in the

form of a 33-1/3% stock dividend, to be paid on February 17, 2004. In the release,

defendant Ficalora commented on the stock split as follows:

“Once again, the Company’s commitment to enhancing share value has been vividly conveyed by the actions of our Board. With our stock price having reached a 52-week high of $40.22, we declared what is now our ninth stock split in ten years as a stock-form institution, and the second split we’ve declared in the last nine months alone. The value of our shares has grown 54% since May 21st, when our last stock split was completed and 48% since we announced our merger with Roslyn Bancorp, Inc. on the 27th of June. In the past twelve months, our shareholders have received a 92% total return on their investment, assuming the reinvestment of their quarterly cash dividends. Going back to our IPO, the total return on investment amounts to a rather significant 4,016%.

“In the coming year, we look forward to building on our record of enhancing shareholder value and to recording a meaningful level of asset and earnings growth,” Mr. Ficalora said. “We look forward to updating our 2004 diluted EPS projections when we issue our full-year 2003 earnings release later on this month.”

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reporting earnings for the first time since completing the Roslyn merger. In the release,

NYCB reported its results as follows:

Reflecting two months of combined operations, the Company reported fourth quarter 2003 net income of $112.1 million, signifying a 74.0% increase from $64.4 million in the fourth quarter of 2002. The 2003 amount was equivalent to $0.64 on a diluted per share basis, reflecting a 39.1% increase from $0.46 in the year-earlier three months.(1)(4)

For the twelve months ended December 31, 2003, the Company reported net income of $323.4 million, signifying a 41.1% increase from $229.2 million in 2002. The 2003 amount was equivalent to $2.20 on a diluted per share basis, reflecting a 31.7% year-over-year increase from $1.67.(1)(4)

In addition to the benefits of the Roslyn merger, the Company’s three- and twelve-month 2003 earnings reflect a pre-tax net gain of $37.6 million stemming from the sale of the branches comprising its South Jersey Bank Division on December 19, 2003. Equivalent to $22.7 million, or $0.13 per diluted share, on an after-tax basis, the net gain offset an after-tax merger-related charge of $19.0 million, or $0.11 per diluted share.

The Company also reported 2003 cash earnings of $379.2 million, including $141.9 million in the fourth quarter of the year. The full-year amount was equivalent to $2.58 on a diluted per-share basis, up 36.5% from $1.89 in the year-earlier twelve months. The fourth quarter amount was equivalent to $0.81 on a diluted per-share basis, up 62.0% year-over-year from $0.50. The Company’s 2003 cash earnings thus contributed $55.8 million, or 17.3%, more to tangible capital than its comparable GAAP earnings; its fourth quarter 2003 cash earnings contributed $29.9 million, or 26.6%, more to tangible capital than its comparable GAAP earnings alone.(2)

122. In the release, defendant Ficalora commented, among other things, on the

purported benefits of the Roslyn merger, stating in relevant part:

Our fourth quarter and full-year performance accomplished two important objectives. First, they underscored the merits of our merger with Roslyn Bancorp; second, they underscored our capacity as a multi-family lender and the magnitude of our multi-family market niche. The first of these was

55


clearly conveyed by the year-over-year growth in our earnings, and the second by the record volume of multi-family mortgage loans produced.

“At $0.64, our diluted earnings per share not only exceeded the Street’s expectations, but also our original projections for the fourth quarter of the year. While $0.02 can be attributed to the sale of our South Jersey Bank Division in December less certain merger-related charges, the $0.62 remaining was five cents ahead of the First Call consensus and represents a year-over-year increase of 35%,” Mr. Ficalora said.

“During the quarter, we deployed most of the cash flows derived from securities sales and repayments into the production of multi-family mortgage loans,” Mr. Ficalora noted. “Originations totaled $1.6 billion in the quarter, boosting our year-to-date production past $3.3 billion. That’s $1.3 billion, or 64%, above our 2002 volume, and--perhaps even more telling--equal to the total volume of multi-family loans produced from 2000 through 2002. At year-end, multi-family loans totaled $7.4 billion; excluding $1.4 billion of such loans acquired in the merger, the year-over-year portfolio growth was well in excess of the 20% growth originally projected, amounting to approximately 33%. Total loans rose 91% year-over-year to $10.5 billion; excluding $3.6 billion of loans acquired in the merger, the year-over-year portfolio growth was approximately 26%. With a current pipeline in excess of $1.4 billion, it would appear that 2004 is off to a solid start, as well,” Mr. Ficalora said.

123. In addition, defendant Ficalora noted, among other things, that the

Company had deleveraged $2.3 billion of securities:

“While the production of multi-family mortgage loans has been our primary post-merger focus, the repositioning of our securities portfolio has also been an important focal point. Securities totaled $9.5 billion at the end of December, representing a $2.3 billion reduction since the Roslyn merger was announced.

“Another achievement that augurs well for our 2004 performance was the level of net interest income we recorded in the fourth quarter of 2003,” Mr. Ficalora stated. “At $173 million, our net interest income was up 50% on a linked-quarter basis and up 80% year-over-year. Reflecting the record volume of loans produced, as well as the Roslyn merger, our average balance of interest-earning assets nearly doubled to $18 billion, reflecting only two months of combined results. In 2004, we would expect to see continued growth in our net interest income, as we continue to deploy more of our cash flows into higher-yielding multi-family loans.

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124. In the release, NYCB increased its earnings projection for 2004:

Increase in Projected 2004 Diluted Earnings Per Share

“Reflecting the strength of our fourth quarter 2003 results, and our confidence in our ability to efficiently generate revenue growth over the next four quarters while maintaining the quality of our assets, we have increased our projections for 2004 diluted earnings per share,” Mr. Ficalora stated. “At the time the Roslyn merger was announced, we intended to achieve 10% earnings accretion, with 2004 diluted earnings per share of $2.53. At this time, we expect our 2004 diluted earnings per share to range from $2.85 to $2.90, suggesting potential earnings accretion of 26% from our original stand-alone projection, and a better than 34% increase above the core earnings of $2.17(5) we recorded in 2003.

“Once our 4-for-3 stock split takes place on February 17th, our 2003 diluted earnings per share will adjust to $1.65 and our 2004 diluted earnings per share estimates will adjust to a range of $2.14 to $2.18, including $0.47 to $0.49 for the first quarter of the year. As with any forward-looking statements, there are risk factors to be considered. Investors are asked to see the discussion on page 13 of this release,” Mr. Ficalora said.

125. The statements made by defendants in the January 26, 2004 earnings press

release were materially false and misleading because they failed to disclose the following

adverse facts, as described in paragraphs 35-80, 85 and 89-92:




(d) while the Roslyn merger would be immediately accretive to earnings in 2003, it was not sufficient to support NYCB’s 2004 earnings forecast, and thus, the

57


Company could only meet those forecasts by significantly releveraging the balance sheet to materially increase the size of the securities portfolio shortly after the planned deleveraging;





announcing that it had issued 10 million shares of its common stock in a follow-on

offering, reaping net proceeds of $400 million. According to defendants, the proceeds

would be used for “a variety of general corporate purposes.” (emphasis added).

127. At the same time, on January 26, 2004, NYCB filed the January 2004

offering Prospectus with the SEC for the sale of 10,125,000 shares of NYCB common

stock.

128. The January 2004 offering Prospectus contained the following untrue

statements of material fact concerning NYCB’s growth strategy:

CORPORATE GROWTH STRATEGY

Our primary strategy is to attract deposits from our customers in New York City, Long Island, Westchester County and New Jersey and to invest these deposits, together with funds generated from operations, loan sales and borrowings, primarily in multi-family mortgage loans secured by properties in our market area and, to a lesser extent, in commercial real estate and construction loans and investment grade securities. We also

58


seek to establish new banking branches and pursue acquisitions of other institutions or their branches in accordance with our disciplined acquisition strategy. Our recently completed merger with Roslyn Bancorp is consistent with this strategy. We do not have any specific plans for further mergers or acquisitions at this time.

(emphasis added).

129. In addition, the January 2004 offering Prospectus contained the following

untrue statements of material fact regarding NYCB’s use of the $400 million from the

offering:

We intend to use the net proceeds of this offering to make equity contributions to the Bank to increase its net tangible assets; for general corporate purposes, including possible stock repurchases from time to time; and to finance multi-family loan originations and potential acquisitions of banking branches, other financial institutions, and other financial services companies. We do no have specific plans for mergers or acquisitions at this time.

(emphasis added).

130. The Company further made the following untrue statements of material fact

in the January 2004 offering Prospectus regarding the reasons for the growth of its

interest income:

Net Interest Income. Earnings growth achieved in the current fourth quarter resulted from an increase in net interest income, to $172.8 million. Net interest income rose $57.3 million, or 49.6%, on a linked-quarter basis and $76.9 million, or 80.2%, year-over-year. The year-over-year increase was the net effect of a $100.1 million, or 65.9%, rise in interest income to $251.8 million and a $23.1 million, or 41.5%, rise in interest expense to $79.0 million.

Several factors contributed to the increase in net interest income, including an increase in volume of mortgage loans produced; the interest-earning assets acquired in the Roslyn Bancorp merger; and the leveraged growth of our securities portfolio in the first nine months of the year. In addition, the liquidity generated by the securities portfolio in the

59


current fourth quarter was primarily invested in higher yielding multi-family loans and mortgage-related securities. The result was an $8.9 billion, or 98.0%, rise in the average balance of interest-earning assets to $18.0 billion, which offset a 108-basis point decline in the average yield to 5.60%.

These factors were supported by a reduction in funding costs, as we increased our mix of low-cost borrowings and deposits during a period of historically low market interest rates. While the average balance of interest-bearing liabilities rose $9.1 billion to $17.5 billion, the increase was tempered by an 85-basis point decline in the average cost of funds to 1.80%.

Our spread and margin equaled 3.80% and 3.84% in the fourth quarter of 2003, as compared to 3.95% and 4.04% in the trailing quarter and to 4.03% and 4.22% in the year-earlier three months. The compression that was expected to follow the combination with Roslyn Bancorp was largely offset by the deployment of our cash flows into higher yielding assets during a time of rising market interest rates.

(emphasis added).

131. The January 2004 offering Prospectus also contained the following untrue

statements of material fact with regard to NYCB’s leveraged growth strategy:

General. Total assets rose 107.2% to $23.4 billion at December 31, 2003 from $11.3 billion at December 31, 2002. In addition to the assets acquired in the Roslyn Bancorp merger, asset growth may be attributed to increased mortgage loan production. While we had pursued a strategy of leveraged growth for several quarters, our primary focus shifted in connection with the Roslyn Bancorp merger announcement to a strategy of balance sheet repositioning. The level of funding that stemmed from the liquidity of our securities portfolio was largely deployed into multi-family loan originations, thus increasing our asset yields while, at the same time, maintaining our use of wholesale borrowings.

(emphasis added).

132. Additionally, the January 2004 Registration Statement and Prospectus

contained the following untrue statements of material fact regarding the Company’s

securities portfolio:

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Securities. At December 31, 2003, securities were down $2.3 billion from the balance recorded at the time of the Roslyn Bancorp merger announcement. The decline reflects principal reductions and sales from the securities portfolio of approximately $8.4 billion, which were primarily offset by reinvested cash flows. The liquidity generated by the securities portfolio has been largely deployed into mortgage loan originations and mortgage-related securities featuring higher yields.

Securities totaled $9.5 billion at year-end 2003, signifying a $5.0 billion increase from the year-end 2002 level but a $2.3 billion reduction, as stated, from the time the Roslyn Bancorp merger was announced. Mortgage-backed and -related securities accounted for $7.5 billion, or 79.4% of the year-end 2003 total, including $5.5 billion that were classified as available for sale and $2.0 billion that were classified as held to maturity. At the prior year-end, mortgage-backed and -related securities accounted for $3.6 billion, or 80.7%, of total securities; of these, only $36.9 million were classified as held to maturity. While we increased our investments in mortgage-backed and -related securities during the fourth quarter, the majority of the increase reflects the addition of the Roslyn Bancorp portfolio.

(emphasis added).

133. However, the January 2004 Registration Statement and Prospectus omitted

to state the following material facts required to be stated therein or necessary to make the

statements therein not misleading, as described in paragraphs 35-80, 85 and 89-92:




(d) while the Roslyn merger would be immediately accretive to earnings in 2003, it was not sufficient to support NYCB’s 2004 earnings forecast, and thus, the

61


Company could only meet those forecasts by significantly releveraging the balance sheet to materially increase the size of the securities portfolio shortly after the planned deleveraging;



(g) NYCB knew that Roslyn would be unable to continue as a premier deposit accumulator in the future because NYCB was planning on lowering yields earned on customer deposit accounts and increasing service fees after the merger, which defendants knew from previous mergers would drive customers away; and

(h) NYCB was planning to leverage the majority of the $400 million in proceeds from the January 2004 offering to invest in mortgage-backed securities in the hopes of generating earnings to make up for the weakness in its core multi-family lending business.

134. On January 27, 2004, NYCB held a conference call with securities analysts

to discuss its 2003 financial results, during which defendant Ficalora made the following

opening remarks regarding the January 2004 offering and NYCB’s increased 2004

earnings forecast:

The benefits of the [10 million shares and follow-on offering that is expected to generate about $400 million in proceeds for the company] are considerable. First, it is 40% accretive to tangible book value. It is accretive to our 2003 diluted earnings per share. It provides funding for our significant multi-family loan production. It boosts our capital strength and flexibility. It positions us well for future acquisitions, and it supports various other corporate purposes including share buybacks.

135. Based on its 2003 results, NYCB increased its earnings forecast to analysts

during the conference call and highlighted the Company’s purported ability to originate

loans and manage interest rate risk:

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Reflecting the accretion, we expect to achieve as a result of the transaction we upped our 2004 earnings estimates from the range we’d announced in our earnings release to a higher range of 2.90 to 2.94 per share. The high end of this range is 34% higher than our 2003 diluted earnings per share and 28% higher than our standalone projections at the time of the merger was announced. As adjusted to reflect the 33 1/3 % stock dividend to be paid in mid February, our 2004 estimates range from 2.17 to 2.20 as compared to split adjusted 2003 diluted earnings per share of $1.65. What does the rise in our estimates say about our institution? That we are confident in our ability to originate loans in a highly competitive market. That we are confident in our ability to manage our balance sheet regardless of changes in interest rates and changes in our market. And that we are confident in our ability to manage interest rate risk.

(emphasis added).

136. In addition, defendant Ficalora had the following exchange with Richard D.

Weiss, an analyst at Janney Montgomery Scott LLC, during the January 27, 2004

conference call regarding NYCB’s exposure to interest rates:

WEISS:… Last question on interest rate sensitivity. Could you kind of speak to where you are now?

FICALORA: I’d say that interest rate sensitivity, we’re neutral on that. We’re pretty well in the place that we had hoped to be and I think that puts us truly in the right place given the uncertainties of where rates are going to be in the periods ahead.

137. During the January 27, 2004 conference call, defendant Cangemi was

further questioned about the securities portfolio by Scott Valentin, an analyst at Friedman

Billings Ramsey Investment Services, Inc.:

VALENTIN: Question on the securities portfolio. It was uplink quarter and I know shrinkage wasn’t as great as, I guess 3.5 billion is the number bandied about when the Roslyn transaction was announced, the securities were down about 2.3 billion. And can you go through some of the though process there as far as securities portfolio gong forward, and I think Tom mentioned some leverage being added. And at what point do the securities become too much of the overall balance sheet?

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CANGEMI: Let me address as far as the comparable. We have calculated since the announcement of Roslyn and into the consolidation at 12/31, the portfolio dropped about 2.4 billion approximately on a reduction. Obviously, we did not shrink the company, we deployed the majority of that cash flow into multi-family loan. Our loan demand was extremely strong in the fourth quarter and gong to the first quarter of ‘04. So, I would say, principally, all of our cash flow generated from, either prepayment and/or calls from the portfolio went into multifamily loans. That was a significant trend that changed during the time we announced the transaction in the summer. As far as going forward in ‘04, obviously we’re putting some reasonable leverage on the capital raised. Keep in mind in light of our portfolio projections for the multifamily business, some of that spread on leverage will be levered on multifamily loans, not so much on securities.

VALENTIN: Okay.

CANGEMI: We will see a slight uptick in the portfolio, obviously to offset the cost associated with raising the capital.

VALENTIN: Okay. And right now securities to assets about 40%, is it going to move materially from there you think or?

CANGEMI: I think, based on our growth record, you could see a significant change in the balance sheet component towards multi-family loans.

138. Defendant Cangemi also provided the following guidance to securities

analyst Matthew Kelley of Moors & Cabot during the January 27, 2004 conference call

regarding the Company’s plans to reduce the size of the securities portfolio:

KELLEY: I just want to follow up on the last question. Now that you are down 2.3 billion on the securities portfolio since Roslyn, will you get to the 3.5 billion reduction?

CANGEMI: We feel very confident, absent this offering. Obviously we’re going to see some of the costs of the offering on a pure leverage play, which we believe will be put back into multi-family loan. But in our internal modeling, we feel very confident on a reduction.

139. During the conference call, defendant Ficalora told Scott Valentin, an

analyst at Friedman Billings Ramsey Investment Services, Inc., and Chris Buonafede, an

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analyst at Fox-Pitt Kelton, that the Company had not seen any attrition in its deposits and

that the deposits would grow substantially:

VALENTIN: Okay. And a follow-up question on the deposit side. Roslyn, as you know was a good deposit franchise. They were very competitive on rates that they paid the depositors. Have you seen any attrition? And can you tell me about the rate changes you’ve undertaken?

FICALORA: There has not. If you look at what the rates were before we announced the deal and what the rates are after we’ve announced the deal, they’re basically the same. …

* * *

BUONAFEDE: Is it safe to say that, fair to assume that total asset growth in ‘04 is going to be somewhat just modest. I guess as you remix - continue to remix the assets?

FICALORA: No. We are planning on double-digit assets.

BUONAFEDE: Okay

FICALORA: Yes, and the deposits will grow as well.

(emphasis added).

140. On January 28, 2004, FD Wire reported that defendant Ficalora had spoken

at Citigroup Smith Barney’s Seventh Annual Financial Services Conference and claimed

again that NYCB was a “risk averse company”:

We are a risk averse company. We have always been a risk averse company. We have sacrificed earnings. As a result of our three transactions, we have traded out of assets consistently in each of those deals which would have provided a greater yield to the company had we kept the asset rather than selling the asset, and we chose to sell it because we wanted a better asset to deal with the uncertainty that the future might hold.

(emphasis added).

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141. Defendants’ statements on January 26, 27 and 28, 2004 were materially








(f) revenue enhancement would be materially adversely affected by the large deposit attrition from Roslyn branches in anticipation of the merger, and the increases in fees on customer accounts and decreases in yields to be paid on customer deposit accounts;



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142. Additionally, the January 28, 2004 investor presentation at the Citigroup

Smith Barney conference, which was filed with the SEC as part of a Form 8-K on

January 28, 2004, falsely represented, among other things, that:

Our success has been the result of several key strategies.

STRATEGY

• Multi-family lending • Profitable third-party alliances

• Community banking • Capital management

• Deposit mix • Accretive merger transactions

• Risk management • Balance sheet repositioning

• Cost containment

143. The presentation omitted to discuss that NYCB’s prior earnings growth was

in large part, due to its highly leveraged balance sheet and that future earnings growth

would not be possible unless NYCB again materially increased its activity in the highly

speculative carry trade.

144. In addition, defendants falsely represented that NYCB’s “[e]arnings growth

has been supported by our low-cost mix of deposits.” In fact, the earnings growth was

supported; in large part by the carry trade. Moreover, defendants failed to disclose that

future earnings growth would not be achieved unless NYCB materially increased its

activity in the carry trade, which would result in a highly leveraged balance sheet that

was highly exposed to interest rate changes. Also, defendants omitted to state that the

depositors acquired through the Roslyn merger were withdrawing deposits because of,

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among other things, NYCB’s higher fees and lower interest rates as discussed in

paragraphs 89-92.

145. In the presentation, defendants again reiterated that NYCB's “risk-averse

nature . . . reflected in [their] strategic mix of assets and liabilities.” Defendants also

emphasized that their strategy provides the following “RESULTS”:

• Reduces interest rate risk

• Reduces credit risk

• Reduces extension risk

• Contains expenses

• Enhances Consistency of net interest margin

• Increases earnings.

146. Despite defendants continued dependence on the interest-rate sensitive

carry trade to meet earnings expectations, defendants falsely stated that NYCB’s “balance

sheet structure has shielded our margin from interest rate volatility.”

147. In addition, in the presentation, defendants misrepresented their intended

use of funds obtained from the follow-on offering. Defendants never stated that NYCB

would leverage the funds to increase its activity in the carry trade and subject the bank to

huge risks on interest rate movements. In this regard, NYCB disclosed the following:

• Generates proceeds of approximately $400 million

• 40% accretive to tangible book value per share

• Accretive to diluted EPS

• Funds multi-family loan production

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• Bolsters capital strength and flexibility

• Positions the Company well for future acquisitions

• Supports various corporate purposes, including share buybacks.

148. Finally, defendants falsely represented that they had “initiated the process

of repositioning the post-RSLN balance sheet” to achieve the following results:

• Reduces interest rate risk

• Reduces credit risk

• Reduces extension risk

• Enhances net interest margin

• Enhances the quality of earnings

• Increases earnings

149. Defendants’ statements in the January 28, 2004 investor presentation were






(d) while the Roslyn merger would be immediately accretive to earnings in 2003, it was not sufficient to support NYCB’s 2004 earnings forecast, and thus, the Company could only meet those forecasts by significantly releveraging the balance sheet

69


to materially increase the size of the securities portfolio shortly after the planned deleveraging;





150. On January 29, 2004 Citigroup Smith Barney issued a research report on

NYCB reporting defendants’ materially false and misleading statements from January 26,

27 and 28, further increasing its price target to $46 from $42 and further increasing its

2004 EPS estimate to $2.90:

New York Community Bancorp reported 4Q03 GAAP EPS of $0.04, versus consensus of $0.57; operating EPS was about $0.60, in our view (excluding a $0.13 gain on sale of branches, a $0.02 securities gain and an $0.11 merger-related charge) still well above consensus. This was the first earnings report following the October 31, 2003 closing of the Roslyn Bancorp merger, and NYB appears to us to be on its way (as in its two previous, very successful mergers) to repositioning the combined-company balance sheet to make it look like NYB pre-merger. The key to the success of this strategy, in our view, is growing NYB’s flagship multi-family mortgage portfolio to about 85% of total loans, In our view, the major highlight of 4Q03 was record loan volume ($1.6 billion) of multi-family mortgages (more than double the previous record). In addition, the 4Q03 period-end pipeline ($1.4 billion) was nearly as large as the 3Q03 period-end pipeline ($1.5 billion), pointing to another very strong (possibly record)

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quarter in multi-family mortgage originations in 1Q04. Based mainly on prospects for higher multi-family mortgage volumes in 2004, we are raising our range of $2.85-$2.90, and then after announcing completion of a $400 million/10 million share common stock offering, raised the 2004 EPS guidance range to $2.90-$2.94. We are also introducing a 2005 EPS estimate of $3.34.


announcing the completion of the January 2004 offering in which it sold 10.125 million

shares of its stock for net proceeds of approximately $400 million.

152. Beginning at least as early as the end of January 2004, when it received the

$400 million in proceeds from the January 2004 offering, NYCB started releveraging the

Company’s balance sheet, borrowing funds to purchase billions of dollars of mortgage-

backed securities. This was in sharp contrast to the Company’s statements to the

investing public regarding its supposedly successful deleveraging of its balance sheets to

lessen its interest rate risk.

153. On February 23, 2004, defendant Ficalora was interviewed by The Wall

Street Transcript. Even as NYCB was releveraging its balance sheets, Ficalora continued

to assure investors that NYCB’s business was “risk averse”:

TWST: Throughout 2003, the company made a point of capitalizing on the yield curve. Is that going to continue in 2004?

Mr. Ficalora: That really depends on the markets. We obviously had a very favorable turn in interest rates with regard to the way our balance sheet was structured and with regard to the way the Roslyn transaction was priced. All of the modeling that went into the original 2004 pro forma numbers considered that rates would stay as low as, or would be lower than, they actually were in June. As everyone knows, interest rates moved up rather aggressively during July and August, and today are still at significantly higher levels than they were back then. So we would expect to earn significantly more on the assets we hold, and on the new assets we are

71


adding, all of which is highly favorable. In fact, the securities portfolio has been generating a significant amount of cash flows, despite the fact that rates have been moving up. It’s worth noting that, in June, the earnings estimates on Roslyn as a stand-alone had been lowered, mainly because Roslyn had so many assets that were going to reprice. The repricing of assets that occurred turned out to be quite beneficial. Even with rates moving up ‘which is exactly what Roslyn’s management had anticipated would happen’ these assets are still generating significant cash flows for the combined Company. This gives us the ability to reinvest or redeploy funds into significantly higher yielding assets, at a time when the cost of our liabilities is remaining fairly flat.

* * *

TWST: How would you characterize the repositioning of your balance sheet? What should investors expect to see?

Mr. Ficalora: In 2004, they can expect to see us transition the mix of assets from the post-merger configuration to a configuration more closely resembling our pre-merger asset mix. We will continue to grow our portfolio of multi-family loans and other risk-averse assets while, at the same time, reducing the one-to-four family and consumer loan portfolios. They can expect to see our cash flows reinvested in loans and securities that enhance our spreads and margins while reducing our exposure to interest rate and credit risk. On the liability side of the balance sheet, they will likely see a continued emphasis on core deposits and a reduction in higher-cost ‘hot money’ CDs. They will also see, as they did at year-end, a shift in alternative funding sources, as more of our borrowings consist of repurchase agreements with Wall Street brokerage firms. The balance sheet restructuring that has followed each of our merger transactions has been designed to enhance our earnings and reduce our exposure to risk. Depending on the transaction, this has involved the sale of loans and/or securities that yielded higher rates of interest than the safer assets with which they were replaced. We’ve always been willing to sacrifice yield to achieve a more risk-averse mix of assets. Yet we’ve managed to produce a record of earnings growth which is unassailable in its strength.

* * *

TWST: If you were speaking directly to shareholders, what would be your key investment message to them?

Mr. Ficalora: I’d tell them to look at the value we’ve historically created for our investors and to realize that we are even better positioned to provide

72


value today than we have been in the past. I’d tell them to look at our record of earnings growth and our current 2004 projections, and remind them that we’ve been the top performing thrift in the nation for the past five years, at least. I’d suggest they consider the consistency and success of our business model, and recognize the benefits of investing in a company that is consistently risk-averse. I’d also mention the magnitude of our commitment to enhancing shareholder value through stock splits, share repurchases and quarterly dividend payments, and the fact that 20% of our outstanding shares are currently owned by insiders of the company. This last fact speaks volumes about our confidence in the company’s prospects and our commitment to making sure that its future is as bright as its past.

(emphasis added).

154. The foregoing statements were materially false and misleading because

they failed to disclose the following adverse facts, as described in paragraphs 35-80, 85

and 89-92:






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THE TRUTH BEGINS TO EMERGE

155. On April 21, 2004, the truth about the Company’ financial condition began

to emerge. On that day, NYCB issued a press release on Business Wire announcing its

first quarter 2004 results. In addition to reporting an increase in earnings, NYCB

reported for the first time that, in contrast to its supposed deleveraging after the Roslyn

merger, it had “leveraged the proceeds of a follow-on common stock offering into

mortgage-backed and -related securities. . . [such that its] total securities rose $2.6

billion from the level recorded at year-end 2003 to $12.1 billion at March 31, 2004.”

(emphasis added).

156. In the release, NYCB reported its financial results as follows:

New York Community Bancorp, Inc. (NYSE: NYB) today reported first quarter 2004 earnings of $130.0 million, up 93.0% from $67.4 million in the first quarter of 2003. While the 2004 GAAP amount was in excess of the Company’s expectations, its cash earnings exceeded its expectations even more significantly. The Company reported an $88.3 million, or 122.1%, rise in first quarter 2004 cash earnings to $160.6 million; its cash earnings thus contributed $30.5 million, or 23.5%, more to tangible capital than its comparable GAAP earnings alone. On a basic per-share basis, the

74


Company’s GAAP and cash earnings rose 35.1% and 55.0%, respectively, to $0.50 and $0.62.

* * *

First Quarter 2004 Earnings Summary

Net Interest Income

The Company recorded net interest income of $213.5 million in the current first quarter, up $105.2 million, or 97.2%, from the first quarter 2003 amount. The increase was the result of a $129.3 million, or 77.6%, rise in interest income to $295.8 million, which more than offset a $24.1 million, or 41.3%, rise in interest expense to $82.3 million.

In addition to the infusion of Roslyn’s interest-earning assets, the year-over-year increase in interest income was attributable to the high volume of loans produced organically over the course of the last four quarters, and the leveraged growth of the securities portfolio during the same time. The result was a $10.8 billion, or 102.8%, rise in average interest-earning assets to $21.4 billion, tempered by a 79-basis point decline in the average yield to 5.54%. The lower yield was a function of the interest rate environment; on a linked-quarter basis, the yield declined a more modest six basis points.

* * *

Other Operating Income

The contribution to earnings growth that stemmed from the year-over-year rise in net interest income was complemented by a 41.8% increase in other operating income from $26.4 million to $37.5 million. The increase stemmed from a $2.1 million, or 18.1%, rise in fee income to $13.7 million; a $3.5 million, or 53.3%, rise in net securities gains to $9.9 million; and a $5.5 million, or 65.9%, increase in other income to $13.8 million.

While the increase in fee income was tempered by a year-over-year reduction in prepayment penalties associated with multi-family lending, the other line-item increases were more significant. The growth in net securities gains reflects the continued restructuring of the balance sheet and the opportunistic sale of securities over the course of the quarter. The rise in other income reflects an increase in revenues from four primary sources, including joint venture income of $1.5 million; a $706,000, or 45.2%, increase in revenues from the Company’s investment advisory firm subsidiary to $2.3 million; a $778,000, or 35.4%, increase in revenues from the sale of third-party investment products to $3.0 million; and a $2.0

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million, or 64.0%, increase in income from the Company’s investment in Bank-owned Life Insurance to $5.2 million.

* * *

Balance Sheet Summary

In the first quarter of 2004, the Company continued to demonstrate its capacity for asset generation by producing a record level of first quarter loan originations. At March 31, 2004, the balance sheet reflected the first full quarter of operation as a combined institution pursuant to the Roslyn merger, and the initial stages of the strategic post-merger restructuring. Assets totaled $26.5 billion at the close of the current first quarter, signifying a $3.1 billion, or 13.0%, increase from the balance recorded at December 31, 2003.

Loans

The Company originated loans totaling $1.1 billion in the current first quarter, exceeding the year-earlier total by $299.6 million, or 38.9%. At the close of the quarter, the Company recorded total loans of $10.9 billion, up $418.7 million from the balance recorded at year-end 2003. The expected weighted average life of the portfolio at March 31, 2004 was 3.3 years.

Multi-family loans represented $706.1 million, or 65.9%, of first quarter 2004 loan originations and $7.8 billion, or 71.4% of total loans, at March 31, 2004. The quarter-end balance was $428.1 million higher than the year-end 2003 balance, signifying an annualized growth rate in excess of 23%. At March 31, 2004, the average multi-family loan in the portfolio had a loan-to-value ratio of 57.4% and a principal balance of $2.5 million. The portfolio had an expected weighted average life of 3.3 years at that date.

* * *

At April 20, 2004, the Company had a pipeline of $1.7 billion; of this amount, 80% were multi-family loans. Despite the one-time sale of home equity loans, the Company is on track to grow its total loans outstanding by 20% over the course of the year.

(emphasis added).

157. NYCB stated in the release that it was heavily engaged in the carry trade

with 36% of its assets invested in mortgage-backed securities:

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Securities

In the first quarter of 2004, the Company leveraged the proceeds of a follow-on common stock offering into mortgage-backed and -related securities at favorable spreads, another step in the process of restructuring the balance sheet. As a result, total securities rose $2.6 billion from the level recorded at year-end 2003 to $12.1 billion at March 31, 2004. The securities purchased are expected to provide cash flows for loan portfolio growth in a changing rate environment, as the restructuring of the balance sheet progresses in the quarters ahead.

Mortgage-backed and -related securities accounted for $9.5 billion, or 78.0%, of total securities at the close of the current first quarter, including $7.5 billion that were classified as available for sale. Held-to-maturity mortgage-backed and -related securities totaled $1.9 billion, representing a decrease of $115.5 million since December 31, 2003. At March 31, 2004, the expected weighted average life of the mortgage-backed and -related securities portfolio was 3.3 years.

Investment securities accounted for the remaining $2.7 billion of total securities at March 31, 2004, up from $2.0 billion at December 31, 2003. Included in the quarter-end amount were available-for-sale securities totaling $763.4 million, representing a $12.2 million reduction, and held-to-maturity securities totaling $1.9 billion, representing a $719.4 million increase. The majority of the Company’s available-for-sale investment securities consisted of trust preferred securities totaling $419.8 million and corporate bonds totaling $144.8 million. The majority of the held-to-maturity portfolio consisted of U.S. Government agency obligations totaling $1.4 billion.

(Emphases added).

158. Also, the Company disclosed that pursuant to its interest rate sensitivity

analysis, its one-year gap had jumped to negative 11.58% from a negative 0.63%

recorded at December 31, 2003, implying that NYCB was more negatively exposed to

rising interest rates.

159. In addition, defendant Ficalora remarked on the Company’s first quarter

2004 results as follows, in relevant part:

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We are very pleased with our first quarter 2004 performance, which speaks well for our prospects in 2004. Having increased our tangible equity nearly 60%, our net income exceeded our expectations, and was up 16% linked-quarter and 93% year-over-year. In addition, our multi-family loan portfolio grew at an annualized rate that exceeded our original projection of 20%. The increase reflects the record volume of loans produced in our first full quarter as a combined institution with Roslyn Bancorp; loan originations totaled $1.1 billion, exceeding last year’s record first quarter volume by $300 million, representing an increase of 39%. I’m also pleased to report that there are $1.7 billion of loans in our current pipeline, with multi-family loans accounting for 80% of that amount.

160. Despite the Company’s increased exposure to increases in short-term

interest rates, defendant Ficalora stated that the Company’s position ranked “among the

best in the nation” when it came to rising interest rates:

Linked-quarter Expansion of Spread and Margin

“Another highlight of our first quarter performance was the substantial linked-quarter increase in our spread and margin to 3.93% and 4.00%. Clearly, these measures rank among the best in the nation, and will provide a significant cushion in the event that market interest rates do, in fact, rise in the months ahead. The linked-quarter expansion reflects the full-quarter benefit of our post-merger balance sheet restructuring, which is in its initial stages, and the production of $3.0 billion of loans over the last six months,” Mr. Ficalora said.

Efficiency Ratio Improves to 18.70%

“Yet another contributing factor to our first quarter performance was the improvement in our efficiency ratio to 18.70%,” Mr. Ficalora commented. “On a stand-alone basis, New York Community and Roslyn were among the most efficient thrifts in the nation; it stands to reason that the combination would create an even more cost-effective entity. The successful integration of our computer systems was another gratifying achievement, along with the post-merger rebranding of our branches in Brooklyn, Queens, and Long Island, which reaffirmed the strength of our focus on community identity.”

2004 Diluted EPS Estimates Range from $2.17 to $2.20

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“Based on the strength of our first quarter 2004 results and our current pipeline, we are maintaining our full-year earnings guidance in the range of $2.17 to $2.20 per diluted share,” Mr. Ficalora said. “At the low end of the range, we’re suggesting a 33% year-over-year increase; at the high end, we’re projecting an increase of 35%. Furthermore, the current range suggests that the Roslyn merger will be 25% to 27% accretive to earnings, a significant increase from our original projection of 10%.”

(emphasis added).

161. In addition, during a conference call with securities analysts on April 21,

2004, defendant Ficalora had the following exchange with Scott Valentin, an analyst at

Friedman Billings Ramsey Investment Services, Inc., regarding the size of the securities

portfolio:

VALENTIN: Question regarding, I think, a lot of the volatility surrounding the stock a lot of the questions I get surrounding the company has to do with the size of the securities portfolio and then once again it grew this quarter mainly due to the offering earlier in the quarter in trying to seek to offset dilution. But at what point do you see the portfolio, the growth rate slowing or actually changing direction and shrinking and loans becoming the predominant asset.

FICALORA: Well, the direction will be consistent as we go from here forward. The direction will be consistently growing the loan portfolio and reducing the securities portfolio. The exact timing will depend on a lot of factors. Many of the things that will address fees with regard to the securities portfolio changing aren’t controlled by the company. So the reality is that we are going to be consistently moving from securities to loans over the course of the periods ahead. Exactly how much that happens in a week, a month, a quarter, in two quarters, I really can’t say other than the fact that it will be consistent over time here.

162. Defendant Ficalora also told Valentin that the Company was able to

manage interest rate risk:

VALENTIN: Okay. How about the liability side I think Mark had mentioned, you guys did some work on liability duration. Any estimate on what that is?

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FICALORA: As we sit today, we are still in the process of preparing those numbers. We are transitioning consistently over the course of this quarter. We had begun moving some of our liabilities. The reality is that we are prepared to deal with change in interest rates as in fact they verify or as in fact we believe there’s ample evidence that the direction is going to be consistent.

163. In addition, Ficalora was questioned by Theodore Kovaleff, an analyst with

Sky Capital Holdings Ltd. regarding the affect of increasing interest rates on the

Company’s earnings:

KOVALEFF: [W]ith regard to interest rate assumptions, the present assumptions that you have if I remember are 50 to 75 basis point by the end of the year. Is that correct?

FICALORA: Yeah, that is right, Ted.

KOVALEFF: Okay, now, let me ask this. Were interest rate to increase at a higher rate than that how would that affect earnings?

FICALORA: I think the bottom line is we are not going to be sitting with our balance sheet waiting to happen. So the changes that will occur in the restructuring of our balance sheet will in one way or another mitigate that. It think it sis probably safe to assume that over the course of the remaining three quarters, which include this quarter, the actual impact to financials, even if rates would change dramatically be December 31st, the actual impact to financials would be relatively minor. If anything we are well-structured to deal with change.

164. During the analyst conference call, in response to a direct question on the

topic from Ariel Warszawski, an analyst at Elm Ridge Capital Management, defendants

refused to disclose the breakdown of the EPS contributions of NYCB’s core lending

business and its securities investment portfolio:

WARSZAWSKI: …[Y]ou guys have been using leverage strategy for sometime. Is there a way to help me understand if you just separate out the leverage strategy from the core company, how much in EPS contribution, and how would you get at that, that you get this quarter up to $0.48 from the leverage strategy.

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FICALORA: That’s not an easy thing to do but I will let Tom talk about it.

CANGEMI: You are not going to, you know, probably talk about isolated numbers regarding our wholesale book and our retail book on deposit side but clearly if you look at where our liabilities stand on the leverage versus liabilities as a bank base and blend it all together, you know, one would argue that we don’t have a mismatch. Clearly, a lot of our leverage is no being put into lending. Our goal during the year is to move the securities book lower into loan. In a rising rate environment our cash flow will still remain strong on the security side, therefore, we can grow our loan book in excess of our target and you will see a shrinkage over the time we will adjust the securities book and we have dramatically done that in the past three years in substantial changes in interest rates. We are not going to identify the contribution towards the securities book versus the loan book. Because obviously we are still restructuring three significant mergers: Haven, Richmond and Roslyn. all of the companies had substantially asset sales and restructuring that which also, we had some securitizations which are not classed as securities which really are loans. All around based on the restructuring we believe that you will see a dramatic change in the loan book from securities into loans that will clearly be a long-term better strategy for the time.

165. In reaction to NYCB’s partial disclosure, the price of NYCB common stock

declined to $26.28 from the previous day’s closing price of $28.97 - a 9% decrease.

166. Defendants’ statements in the April 21, 2004 press release and on the April

21, 2004 conference call with securities analysts regarding the Company’s sensitivity to

interest rates, were incomplete and, as a result, materially false and misleading when

made because they failed to disclose the following adverse facts, as described in

paragraphs 35-80, 85 and 89-92:


(b) The Company’s investment strategy involving the carry trade was very risky because of the exposure to increases in short-term interest rates, and defendants knew, or recklessly disregarded, this as the Company’s interest rate sensitivity modeling showed that its heavily leveraged securities portfolio was highly adverse to

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interest rate risks, which was in stark contrast to NYCB’s statements that it was risk averse;

167. On April 22, 2004, analysts at Moors & Cabot Capital Markets expressed

concerns regarding NYCB’s lack of disclosure regarding its leveraging strategy and the

risks related to that strategy:

[An] area of concern for us is the lack of disclosure on selected items. Management would not provide us with information detailing the impact of purchase accounting adjustments (from the Roslyn deal) on first quarter earnings and was reluctant to provide detail on overall borrowing costs, durations and maturities, etc. Additionally, they would not disclose what the weighted average maturity and cost was on the $3.8 billion in borrowings that were added during the first quarter. Investors are concerned with the overall liability structure (potential short funding), potential extension risks on the asset side and overall balance sheet and capital risks. We do no feel that management was proactive in addressing these concerns on the conference call.

168. On Sunday, May 9, 2004, NYCB announced in a press release issued on

Business Wire that its Board of Directors had engaged three investment banking firms to

evaluate “strategic alternatives” for the Company, including whether the Company

should remain independent. This news shocked investors who had been repeatedly

assured by defendants that NYCB’s business was flourishing following the Roslyn

merger, and would continue to flourish even if interest rates rose. The release stated as

follows:

New York Community Bancorp, Inc. (NYSE: NYB) today announced that its Board of Directors has authorized the Company’s management team to engage Bear Stearns & Co. , Inc., Citigroup Global Markets, Inc., and Sandler O’Neill & Partners, L.P. to assist the Company in undertaking a review of its strategic alternatives, including remaining independent.

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Commenting on the announcement, President and Chief Executive Officer Joseph R. Ficalora stated, “We have always been a company that has focused on shareholder value, and this review is consistent with that focus.”

In reaction to this announcement, the price of NYCB common stock declined

significantly, falling $1.32, or 5.5 %, from its closing price of $23.82 on May 7, 2004 to

close at $22.50 on May 10, 2004, on unusually high volume.

169. On May 10, 2004, NYCB filed its Form 10-Q for the quarterly period

ended March 31, 2004 with the SEC. The Company reaffirmed that it monitors and

manages its interest rate risk in accordance with the modeling techniques, as described

above. However, the Company also disclosed the following new information regarding

its interest rate sensitivity as follows:

Investment in Debt and Equity Securities

The Company’s portfolio of available-for-sale securities is 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 market values of the Company’s securities, particularly fixed-rate mortgage-backed and –related securities, are affected by changes in interest rates. In general, as interest rates rise, the market value of fixed rate securities will decrease; 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. Estimated fair values for securities are based on published or securities dealers’ market values. If the Company deems any decline in value to be other than temporary, the security is written down to a new cost basis and the resulting loss is charged against earnings. There were no securities write-downs during the three months ended March 31, 2004.

* * *

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In addition to its Gap and NPV analyses, management utilizes an internal earnings model to manage the Company’s sensitivity to interest rate risk. The earnings model incorporates market-based assumptions regarding the impact of changing interest rates on future levels of financial assets and liabilities. The assumptions used in the earnings model are inherently uncertain. Actual results may differ significantly from those presented in the table below, due to the frequency, timing, and magnitude of changes in interest rates; changes in spreads between maturity and repricing categories; and prepayments, among other factors, coupled with any actions taken to counter the effects of any such changes.

The following table reflects the projected net interest income estimated for the next twelve months, assuming a gradual increase or decrease in interest rates during such time.

Changes in Interest Rates (in basis points)(1)

Estimated Percentage Change in Future Net Interest Income Twelve Months

+ 200 over one year (7.83)% –100 over one year 4.67

(1) In general, short and long-term rates are assumed to increase or decrease in parallel fashion across all four quarters and then remain unchanged. However, the rates paid on core deposits are assumed to reprice at only half the increment.

It is management’s belief that the earnings model, when coupled with traditional gap analysis, is an effective tool, one that enables the Company to maintain a stable net interest margin, utilize capital in an effective and risk-averse manner, and to maintain adequate liquidity.

Management notes that no assurances can be given that future changes in the Company’s mix of assets and liabilities will not result in greater changes to the gap, NPV, or earnings model.

(emphasis added).

170. As stated in an analyst report issued by Smith Barney Citigroup on May 11,

2004, in reaction to NYCB’s first quarter 2004 results, this was the first time that NYCB

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had disclosed even a portion of its internal modeling, which modeling was well known to

defendants throughout the Class Period:

[NYCB] released its 1Q04 10-Q filing, with new interest rate disclosures that were worse than we expected. For the first time, NYB disclosed the results of its internal simulation model for interest rate risk; the results (a decrease in net interest income of 8% over twelve months following a 200bp rise in interest rates) showed NYB to be more liability-sensitive than we had believed.… [I]mportantly, this reduces our confidence in NYB’s ability to manage interest rate risk, and therefore reduces our enthusiasm for NYB shares; we are reflecting this by removing the premium P/E multiple that we had heretofore attached to NYB’s earnings. In our view, NYB’s “core” business still deserves a premium P/E multiple, but this is negated by NYB’s excessive leverage and disappointing interest rate management.

(emphasis added).

171. Defendants’ statements in the March 31, 2004 10-Q were materially false

and misleading when made because they failed to disclose the following adverse facts as

described in paragraphs 35-80, 85 and 89-92:





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(e) Roslyn's mortgage lending business would not generate sufficient yields to meet earnings expectations and were actually a significant drag on NYCB’s total loan yield; and

(f) revenue enhancement would be materially adversely affected by the large deposit attrition from Roslyn branches in anticipation of the merger, and the increases in fees on customer accounts and decreases in yields to be paid on customer deposit accounts.

172. On July 1, 2004, the last day of the Class Period, the Company issued a

press release revealing that, contrary to its statements throughout the Class Period that it

was well-positioned for significant earnings growth despite fluctuating interest rates, the

Company was now forced to restructure by “extend[ing] its liabilities to improve interest

rate risk profile.” To that end, in an attempt to significantly reduce its exposure to rising

interest rates, the Company sold $5.0 billion of securities in its portfolio, resulting in an

immediate $95 million charge, or $0.35 per diluted share, in the second quarter 2004.

Moreover, NYCB slashed its guidance for 2004 earnings by approximately one-third to

$1.42 to $1.47 per diluted shares from its previous forecast of $2.17 to $2.20.

173. In the release, NYCB stated, in relevant part, as follows:

Pursuant to the review of strategic alternatives it announced on May 9th, New York Community Bancorp, Inc. (NYSE: NYB) today announced that it has deleveraged its balance sheet and extended its liabilities to improve its interest rate risk profile.

In connection with this strategy, the Company sold $5.0 billion of available-for-sale securities with an average yield of 4.62% and an expected weighted average life of six years in the current rate environment. The sale resulted in a one-time after-tax charge of approximately $95 million, or $0.35 per diluted share, which will result in the Company recording second quarter 2004 diluted GAAP earnings per share in the range of $0.15 to $0.16.

The proceeds from the sale of securities were utilized to reduce the Company’s short-term borrowings by $5.0 billion. As a result of the

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deleveraging, collateralized wholesale borrowings were reduced to $9.9 billion at June 30, 2004, representing approximately 41% of total assets at that date. In addition, the Company extended $2.4 billion of short-term borrowings to a three-year average maturity, with an average cost of 3.32%.

The Company’s total investment securities portfolio was reduced to approximately $8.5 billion at June 30, 2004, representing approximately 35% of total assets. Included in the quarter-end total were approximately $1 billion of investment securities that were transferred from “available for sale” to “held to maturity” and that had a net unrealized depreciation, net of tax, of approximately $29 million at the time the transfer took place. Securities available for sale totaled $3.9 billion at June 30, 2004, including $3.6 billion of mortgage-backed and -related securities with an expected weighted average life of approximately four years. The net unrealized depreciation, net of tax, on the total available-for-sale portfolio was approximately $84 million at quarter-end. It is management’s expectation that this portfolio will be further reduced through principal repayments over time.

(emphasis added).

174. Commenting on the Company’s restructuring, defendant Ficalora lowered

the Company’s earnings projections for the remainder of 2004. He stated in relevant part,

as follows:

“The deleveraging of the balance sheet and the extension of liabilities improved the Company’s interest rate risk profile, neutralizing our one-year interest rate sensitivity gap to approximately 0% at the second quarter’s end.

“The Company is currently projecting 2004 diluted GAAP earnings per share in the range of $1.42 to $1.47,” Mr. Ficalora noted. “Excluding the impact of the one-time charge in the second quarter, 2004 diluted core earnings per share would be expected to range from $1.77 to $1.82, including second quarter diluted earnings per share in the range of $0.50 to $0.51.

175. Defendant Ficalora further stated that the Company would now go back to

focusing on its core business of mortgage lending:

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“By taking these actions, we are better positioned to deal with the rise in rates that, no doubt, lies before us, and to compete in a changing market on the basis of our fundamental strengths,” Mr. Ficalora said. “In light of this decision, we can now focus on our merits--the strengths on which our earnings and value were initially built and will continue to grow. For example, loan originations reached approximately $2.1 billion in the second quarter, with most of the production occurring in our multi-family market niche.

176. Defendant Ficalora also stated that the Company had only recently started

focusing on growing deposits:

“It is also worthy of mention that we have initiated the process of growing our deposit base over the last few weeks. We are encouraged by the response of depositors to our recent efforts, and expect to see still greater results in the quarters ahead,” Mr. Ficalora said.

177. In reaction to the July 1, 2004 press release, the price of NYCB stock fell as

much as $1.36, or 7.1%, from its closing price of $18.98 on July 1, 2004, to as low as

$17.62 on July 2, 2004.

178. On July 2, 2004, the day after its restructuring announcement, Bear Stearns

issued a research report on NYCB, downgrading the stock to “Peer Perform” from its

previous rating of “Outperform” and reducing its 2004 and 2005 EPS estimates to $1.79

and $1.70, respectively. The report stated in part:

In our opinion the motivation behind the company’s decision to both downsize the securities portfolio and extend liabilities represents an attempt by management to wipe the slate clean. This action removes the uncertainty which has been overhanging the stock since early May and significantly reduces its interest rate risk profile.…

* * *

Management Creditability. NYB’s management didn’t wake up one morning and become stupid overnight. Yes they made a mistake, a fixable mistake that comes at a cost (lower EPS), but management’s track record for creating shareholder value over its 10 plus years as a public company

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speaks for itself. However, the company needs to regain its creditability with the investment community after this announcement.…

179. On July 6, 2004, Why2Invest issued a research report on NYCB, issuing a

“Fundamental” recommendation of “Hold” and a “Technical” ranking of “Sell.” It

further stated, in part:

THE LEVERAGE ASSET BET

NYB’s management surely made one of the poorer strategic decisions in the banking/thrift industry when it decided in 2H/03 to purchase mortgage-backed securities (MBS’s) with borrowed funds--a carry trade strategy. While the yield curve was (and still is) exceptionally steep, most investors were considering the prospect of rising interest rates in 2004. This made the decision more difficult to understand, especially give[n] the prospect of increasing duration risk in MBS’s if prepayment assumptions changed. The size of the leveraged asset position was also surprising (about $7 to $8 billion net, adjusting for the acquisition of Roslyn) for a thrift institution noted as a leader in the multi-family lending, a solid and relatively conservative market. Furthermore, the size of the position was very large in relation to the tangible capital base of approximately $650 million oat 6/30/03. The stated and tangible capital base was increased in Jan 2004 by $400 million in a follow-on offering.

* * *

Over the past 3 months, NYB has sold some $5.0 billion of available-for-sale securities. These securities had an average yield of 4.6% and expected duration of some 6 years. As is not untypical in such circumstances, it looks like NYB sold these securities at a poor time. Treasury bond interest rates have actually dropped up to 20 basis points over the past week or so. However, we note that NYB had approximately $5 billion in maturing short-term borrowings, so we associate the securities sales with the run-off off these maturities. NYB has stated that it has extended $2.4 billion of short-term borrowings to a 3-year average maturity with a rate of 3.3%. AT 6/30/04, wholesale borrowings have been reduced to approximately $9.9 billion.

* * *

The sharp recent decline in the stock price on concerns over the carry trade risk has resulted in a significant decline in the former premium for NYB[.]

89


180. NYCB has continued to dispose of securities to limit its exposure to interest

rate risk. On July 20, 2005, NYCB disclosed that it had decreased its securities holdings

by an additional $2.5 billion:

Securities

Securities totaled $6.0 billion at June 30, 2005, down $1.1 billion, or 15.5%, from the year-end 2004 balance and down $2.5 billion, or 29.3%, from the balance recorded at June 30, 2004. During the quarter, management took advantage of favorable market conditions to reduce the ratio of securities to total assets. At June 30, 2005, securities represented 23.7% of total assets, ahead of management’s 25% year-end 2005 target, and significantly below the respective 29.5% and 35.1% ratios at the earlier dates.

The reduction in securities was consistent with management’s focus on repositioning the balance sheet to enhance its market and interest rate risk profile. In addition to redemptions approximating $613 million, the year-to-date reduction in securities reflects sales of $514.7 million, including $359.2 million in the second quarter of the year.

(emphasis added).

Moreover, defendant Ficalora continued to acknowledge the effect of interest rates of

NYCB, which was in sharp contrast to his Class Period statements:

“Like the rest of our sector, we have been challenged by the flattening slope of the yield curve. While margin pressure has yet to recede, we believe our accumulated earnings are more than sufficient to support the continued payment of our quarterly cash dividend at the current rate. Once again affirming the strength of our commitment, I am pleased to report that our Board of Directors last night declared a $0.25 per share dividend, payable on August 16, 2005 to shareholders of record at the close of business on August 1, 2005,” Mr. Ficalora announced.

“We also are especially pleased by the progress we’ve made over the last four quarters to enhance the quality of our balance sheet,” Mr. Ficalora continued. “Each of the goals we presented this time last year has been accomplished, either on or ahead of schedule. For example, our securities portfolio now stands at $6.0 billion, representing 23.7% of total assets, well below 46.5%, the pre-repositioning percentage, as well as the 25%

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target we had set for the end of this year. Deposits are up more than 15%, reflecting our ongoing efforts to expand and diversify our sources of funds.

“Wholesale borrowings are down year-over-year, given the rise in deposits, which were used, in part, to pay down most of our short-term borrowings in the past six months. During this time, with the steady rise in short-term rates, which has been expected to continue, we also extended $2.0 billion of wholesale borrowings to an average maturity of two years, with an average cost of 3.37%. The long-term benefit of this action is expected to outweigh the negative impact on our year-to-date earnings, enhancing our future earnings and our position with regard to interest rate risk.”

(emphasis added).

181. Defendant Ficalora further admitted that by transitioning NYCB’s business

away from securities and back to its core lending business, NYCB was compelled to

materially limit its growth projections:

The growth in our loan portfolio has been consistent with our stated intention of transitioning from securities to loans at enhanced yields and with reduced extension risk. In this regard, the success we achieved in the first half of this year makes our more modest year-end goal for growth more easily attainable in the more difficult period that lies ahead.

ADDITIONAL SCIENTER ALLEGATIONS

182. As alleged herein, defendants acted with scienter in that defendants knew

that the public documents and statements issued or disseminated in the name of the

Company were materially false and misleading; knew that such statements or documents

would be issued or disseminated to the investing public; and knowingly and substantially

participated or acquiesced in the issuance or dissemination of such statements or

documents as primary violations of the federal securities laws. As set forth elsewhere

herein in detail, defendants, by virtue of their receipt of information reflecting the true

facts regarding NYCB, their control over, and/or receipt and/or modification of NYCB’s

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allegedly materially misleading misstatements and/or their associations with the

Company which made them privy to confidential proprietary information concerning

NYCB, participated in the fraudulent scheme alleged herein.

NYCB’s Merger With Roslyn

183. Defendants’ scienter is further established by virtue of their efforts during

the Class Period to acquire all outstanding Roslyn common stock in exchange for NYCB

common stock to effectuate the Roslyn merger, which was approved by shareholders of

both companies on October 29, 2004. This occurred while the price of the Company’s

stock was artificially inflated.

NYCB’s Follow-On Offering During The Class Period

184. Defendants’ scienter is also established by virtue of their efforts during the

Class Period to sell NYCB stock in the January 2004 offering. This public offering

occurred while the price of the Company’s stock was artificially inflated.

185. Numerous studies confirm that many companies artificially inflate

operating results in the months proceeding a public stock offering (such as the January

2004 offering and Roslyn merger in this case). For example, one commentator noted that

“one incentive for earnings management is to increase the stock price before an equity

offering.” Christine Weidman, The Powers of Auditors, camagazine.com (Dec. 2002),

available at www.camagazine.com (emphasis added). In addition, Messrs. DuCharme,

Malatesta and Sefcik of the University of Washington School of Business found that:

[our] results support the view that some firms opportunistically manipulate earnings upward before stock issues rendering themselves vulnerable to litigation.

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Larry L. DuCharme, Paul H. Malatesta, Stephan E. Sefcik, Earnings Management, Stock

Issues, and Shareholder Lawsuits, 71 J. Fin. Econ. 27-49 (forthcoming, final draft Dec.

2002) (emphasis added).

NYCB’s Interest Rate Sensitivity Analyses

186. According to the Company’s 10-Qs filed during the Class Period, which

were incorporated by reference in the January 2004 offering Prospectus, the Defendants

had an analytical process in place for interest rate sensitivity demonstrating that they had

actual knowledge (or at least were severely reckless in disregarding) that their statements

during the Class Period were materially false and misleading. According to the Form 10-

Qs filed with the SEC during the Class Period, the Company stated that it monitored its

interest rate sensitivity processes. It further stated in its 10-Qs:

The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring a bank’s interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that period of time. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time frame and the amount of interest-bearing liabilities maturing or repricing within that same period of time. In a rising interest rate environment, an institution with a negative gap would generally be expected, absent the effects of other factors, to experience a greater increase in 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.

187. In addition, the June 2003 10-Q also acknowledged that the Company was

constantly modeling the impact on the Company of potential changes in interest rates:

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The Company also monitors changes in the net present value of the expected future cash flows of its assets and liabilities, which is referred to as the net portfolio value, or NPV. To monitor its sensitivity to changes in interest rates, the Company models the effect of instantaneous increases and decreases in interest rates of 200 basis points on its assets and liabilities.

188. The Company further described its internal interest rate sensitivity

modeling process in its 10-Q for the period ending March 31, 2004 as follows:

In addition to its Gap and NPV analyses, management utilizes an internal earnings model to manage the Company’s sensitivity to interest rate risk. The earnings model incorporates market-based assumptions regarding the impact of changing interest rates on future levels of financial assets and liabilities. The assumptions used in the earnings model are inherently uncertain. Actual results may differ significantly from those presented in the table below, due to the frequency, timing, and magnitude of changes in interest rates; changes in spreads between maturity and repricing categories; and prepayments, among other factors, coupled with any actions taken to counter the effects of any such changes.

Defendants’ Attempts to Sell the Company

189. Defendants were further motivated to engage in this course of conduct in

order to make itself more attractive to potential merger partners, like Citigroup and

Independence Bank -- large financial institutions that could absorb NYCB’s debt and

troubled securities portfolio. Defendants had releveraged the Company’s balance sheet in

January 2004, after it had already started deleveraging the Company in accordance with

its previously announced plans to limit the Company’s interest rate exposure. However,

defendants chose to re-leverage its cash into the carry trade to create the appearance of

earnings growth and to meet NYCB’s earnings targets. The additional cash flow and

earnings from the releveraging would make the Company more attractive to potential

merger partners.

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190. Aware of its dismal financial condition and the potential merger partners’

hesitation to move forward with a acquisition, NYCB undertook additional efforts to

make itself more attractive to a potential suitor. NYCB used several approaches in its

attempt to raise the necessary capital to improve its financial condition, including,

significant employee layoffs and the sale of its bank branches in New Jersey.

191. A former Assistant Branch Manager for NYCB stated that when Roslyn

was acquired by NYCB, NYCB was not actually in good financial condition because of

having incurred large debts as a result of its previous mergers with Richmond and Haven.

The former Assistant Branch Manager stated that Citigroup was considering purchasing

NYCB for a long time prior to the Company’s announcement that it was seeking

“strategic alternatives.” “We were told for a long time that Citigroup was out there,

wanting to buy us. We were on the block to be sold many times.” The Assistant Branch

Manager further stated that “we were told that [NYCB] could not be sold because [it]

needed to restructure a few things, clean some accounts up, get things where they’re

supposed to be; really get their T’s crossed and their I’s dotted before anybody would buy

us because we were in bad shape.” In particular, this former NYCB employee stated that

Citigroup would not take over NYCB because NYCB was not able to “clean up its

portfolio and their books” within Citigroup’s timeframe. It was further stated that the

executives at NYCB knew that the Company was in “bad shape” since the summer of

2003, the time of the Roslyn acquisition. It was also pointed out that NYCB needed

Roslyn more than Roslyn needed NYCB as Roslyn was doing very well. The Roslyn

merger was really an effort by NYCB to “balance the books” using Roslyn’s money. The

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former Assistant Branch Manager also stated that Ficalora believed that NYCB’s

“deposit ratio would go through the roof if they had all these ten-year CDs and special

rates, that he would not lose anything because it would constantly go up, the rate was

going to change.” However, when interest rates were low and continuing to decline,

customers were not opening up CDs at the level that was expected.

THE INDIVIDUAL DEFENDANTS’ GUIDANCE TO SECURITIES ANALYSTS

192. The Individual Defendants provided guidance to securities analysts and

used analysts as a conduit to provide materially false and misleading information to the

securities markets. NYCB was followed by securities analysts employed by brokerage

firms that, throughout the Class Period, reported information provided to them by the

Individual Defendants and made recommendations concerning the Company’s securities

based on the information provided by the Individual Defendants. Among the securities

firms that followed the Company during the Class Period were Moors & Cabot, Inc.,

RBC Capital Markets, Citigroup Global Markets Inc., Bear Stearns, Ryan Beck & Co.,

Advest, Janney and Lehman Brothers. In writing their reports, analysts reflected

information provided by the Individual Defendants and the Individual Defendants’

confirmation that information in the analysts’ reports did not materially vary from the

Individual Defendants’ internal knowledge of the Company’s current operations and

future prospects.

193. Prior to and during the Class Period, it was the Company’s frequent

practice to have its top officers and key members of its management team, including the

Individual Defendants, communicate regularly with securities analysts at the firms

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identified above (among others) on a regular basis to discuss, among other things, the

Company’s financial results, and to provide detailed guidance to these analysts with

respect to the Company’s business. These communications included, but were not

limited to, conference calls, meetings, analyst briefings and investor conferences where

the defendants discussed relevant aspects of the Company’s operations and financial

prospects. The Individual Defendants knew that by participating in these regular and

direct communications with analysts, the Company disseminated information to the

investing community, and that investors relied and acted on such information by

purchasing and selling the Company’s securities.

194. Many of the analyst reports issued during the Class Period were remarkably

similar or reported substantially the same facts after meetings with the Company. This

confirms that the information contained in analyst reports came from NYCB and the

Individual Defendants.

195. The Individual Defendants engaged in the above-referenced

communications with analysts to cause or encourage them to issue favorable reports

concerning NYCB, and used these communications to present the operations and

prospects of NYCB to the marketplace in a falsely favorable light to artificially inflate the

market price of NYCB’s securities. NYCB also endorsed the reports of analysts, adopted

them as its own, and placed its imprimatur on them as well as on the projections,

forecasts and statements contained therein, as set forth in more detail above. Despite

their duty to do so, the Individual Defendants failed to correct these statements during the

Class Period.

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196. The investment community, and in turn investors, relied and acted on the

information communicated in these written reports that recommended that investors

purchase NYCB securities. The Individual Defendants manipulated and inflated the

market price of NYCB securities by falsely presenting to analysts, through regular

meetings, and during both telephonic and written communications, the prospects of the

Company, as well as by failing to disclose the true adverse information about the

Company that was known only to them.

UNDISCLOSED ADVERSE INFORMATION

197. The market for NYCB’s securities was open, well-developed and efficient

at all relevant times. As a result of these materially false and misleading statements and

failures to disclose, NYCB’s securities traded at artificially inflated prices during the

Class Period. The artificial inflation continued until at least July 1, 2004. Plaintiffs and

other members of the Class purchased or otherwise acquired NYCB securities relying

upon the integrity of the market price of NYCB’s securities and market information

relating to NYCB, and have been damaged thereby.

198. During the Class Period, defendants materially misled the investing public,

thereby inflating the price of NYCB’s securities, by publicly issuing false and misleading

statements and omitting to disclose material facts necessary to make defendant’s

statements, as set forth herein, not false and misleading. Said statements and omissions

were materially false and misleading in that they failed to disclose material adverse

information and misrepresented the truth about the Company, its business and operations.

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199. At all relevant times, the material misrepresentations and omissions

particularized in this Complaint directly or proximately caused or were a substantial

contributing cause of the damages sustained by plaintiffs and other members of the Class.

As described herein, during the Class Period, defendants made or caused to be made a

series of materially false or misleading statements about NYCB’ business, prospects and

operations. These material misstatements and omissions had the cause and effect of

creating in the market an unrealistically positive assessment of NYCB and its business,

prospects and operations, thus causing the Company’s securities to be overvalued and

artificially inflated at all relevant times. Defendants’ materially false and misleading

statements during the Class Period resulted in the members of the Class purchasing the

Company’s securities at artificially inflated prices, thus causing the damages complained

of herein.

LOSS CAUSATION

200. During the Class Period, as detailed herein, defendants engaged in a

scheme to deceive the market and a course of conduct that artificially inflated NYCB’s

common stock and operated as a fraud or deceit on Class Period purchasers of NYCB

common stock and Roslyn shareholders that tendered their stock in exchange for NYCB

common stock by issuing false and misleading statements. Moreover, when defendants’

omission of material information in connection with its investment strategy and loan

portfolio became apparent to the market, NYCB common stock fell precipitously as the

prior artificial inflation came out of NYCB’s stock price. As a result of their purchases

of NYCB common stock and tendering of Roslyn common stock during the Class Period,

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Plaintiff and the Class have suffered economic loss, i.e., damages under the securities

laws.

201. By failing to make adequate disclosures regarding the risks to its

investment portfolio when short term interest rates would increase, failing to adequately

disclose that the Company could not manage its interest rate risk, failing to adequately

disclose the risks to its lending business when short term interest rates would rise,

recklessly engaging in the carry trade, defendants presented a misleading picture of

NYCB’s business and prospects. Thus, instead of truthfully disclosing during the Class

Period the true risks that NYCB was exposed to, defendants caused the Company to

conceal the existence of these risks.

202. Defendants’ false and misleading statements and reckless behavior had the

intended effect and caused NYCB stock to trade at artificially inflated levels throughout

the Class Period, reaching as high as $35.12 per share on February 27, 2004.

203. As a direct result of the disclosure of the releveraging of NYCB’s balance

sheet and the size of its securities portfolio, on April 21, 2004, the price of NYCB’s

common stock plummeted 9% to $26.28. Further, as a direct result of the public

revelations regarding the defendants’ decision to seek strategic alternatives and its

troubled securities portfolio as a result of its releveraging strategy, NYCB’s common

stock declined approximately 5.5% falling to $22.50 per share on May 10, 2004. These

declines removed some of the inflation from NYCB’s common stock price, causing real

economic loss to investors who had purchased the Company’s common stock during the

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Class Period and to Roslyn shareholders that tendered their shares in connection with the

Roslyn merger.

204. The approximate 7.1% decline in NYCB’s common stock price on the last

day of the Class Period was a direct result of the nature and extent of defendants’ fraud

finally being revealed to investors and the market. The timing and magnitude of NYCB’s

common stock price declines negate any inference that the loss suffered by plaintiffs and

the Class was caused by changed market conditions, macroeconomic or industry facts or

Company-specific facts unrelated to defendants’ fraudulent conduct. The economic loss,

i.e., damages, suffered by plaintiffs and the Class was a direct result of defendants’

fraudulent actions to artificially inflate NYCB’s common stock price and subsequent

significant decline in the value of NYCB’s commons stock when defendants’ prior

misrepresentations and other fraudulent conduct was revealed.

APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE

205. At all relevant times, the market for NYCB securities was an efficient

market for the following reasons, among others:

(a) NYCB securities met the requirements for listing, and was listed and actively traded on the New York Stock Exchange, a highly efficient market;

(b) As a regulated issuer, NYCB filed periodic public reports with the SEC and the New York Stock Exchange;

(c) NYCB regularly communicated with public investors via established market communication mechanisms, including through regular disseminations of press releases on the national circuits of major newswire services and through other wide-ranging public disclosures, such as communications with the financial press and other similar reporting services; and

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(d) NYCB was followed by several securities analysts employed by major brokerage firms who wrote reports which were distributed to the sales force and certain customers of their respective brokerage firms. Each of these reports was publicly available and entered the public marketplace.

206. As a result of the foregoing, the market for NYCB securities promptly

digested current information regarding NYCB from all publicly available sources and

reflected such information in NYCB securities price. Under these circumstances, all

purchasers of NYCB securities during the Class Period suffered similar injury through

their purchase of NYCB securities at artificially inflated prices and a presumption of

reliance applies.

NO SAFE HARBOR

207. The statutory safe harbor provided for forward-looking statements under

certain circumstances does not apply to any of the allegedly false statements pleaded in

this complaint. Many of the specific statements pleaded herein were not identified as

“forward-looking statements” when made. To the extent there were any forward-looking

statements, there were no meaningful cautionary statements identifying important factors

that could cause actual results to differ materially from those in the purportedly forward-

looking statements. Alternatively, to the extent that the statutory safe harbor does apply

to any forward-looking statements pleaded herein, defendants are liable for those false

forward-looking statements because at the time each of those forward-looking statements

was made, the particular speaker knew that the particular forward-looking statement was

false, and/or the forward-looking statement was authorized and/or approved by an

executive officer of NYCB who knew that those statements were false when made.

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COUNT I

VIOLATION OF SECTION 10(B) OF THE EXCHANGE ACT AGAINST AND RULE 10B-5

PROMULGATED THEREUNDER AGAINST NYCB AND THE INDIVIDUAL DEFENDANTS

208. Plaintiffs repeat and reallege each and every allegation contained above as

if fully set forth herein.

209. During the Class Period, NYCB and the Individual Defendants, and each of

them, carried out a plan, scheme and course of conduct which was intended to and,

throughout the Class Period, did: (i) deceive the investing public, including plaintiffs and

other Class members, as alleged herein; (ii) artificially inflate and maintain the market

price of NYCB securities; (iii) allow NYCB to acquire Roslyn by exchanging its shares

for Roslyn shares and allow NYCB to sell $400 million of its common stock inn the

January 2004 offering at times when defendants had access to material undisclosed

adverse information about the Company; and (iv) cause plaintiffs and other members of

the Class to acquire NYCB common stock at artificially inflated prices. In furtherance of

this unlawful scheme, plan and course of conduct, defendants, and each of them, took the

actions set forth herein.

210. Defendants (i) employed devices, schemes, and artifices to defraud; (ii)

made untrue statements of material fact and/or omitted to state material facts necessary to

make the statements not misleading; and (iii) engaged in acts, practices, and a course of

business which operated as a fraud and deceit upon the purchasers of the Company’s

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securities in an effort to maintain artificially high market prices for NYCB securities in

violation of Section 10(b) of the Exchange Act and Rule 10b-5.

211. In addition to the duties of full disclosure imposed on defendants as a result

of their making of affirmative statements and reports, or participation in the making of

affirmative statements and reports to the investing public, defendants had a duty to

promptly disseminate truthful information that would be material to investors in

compliance with the integrated disclosure provisions of the SEC as embodied in SEC

Regulation S-X (17 C.F.R. §§ 210.01 et seq.) and Regulation S-K (17 C.F.R. §§ 229.10 et

seq.) and other SEC regulations, including accurate and truthful information with respect

to the Company’s operations, financial condition and earnings so that the market price of

the Company’s securities would be based on truthful, complete and accurate information.

212. NYCB and the Individual Defendants, individually and in concert, directly

and indirectly, by the use, means or instrumentalities of interstate commerce and/or of the

mails, engaged and participated in a continuous course of conduct to conceal adverse

material information about the business, operations and future prospects of NYCB as

specified herein.

213. These defendants employed devices, schemes and artifices to defraud,

while in possession of material adverse non-public information and engaged in acts,

practices, and a course of conduct as alleged herein in an effort to assure investors of

NYCB’s value and performance and continued substantial growth, which included the

making of, or the participation in the making of, untrue statements of material facts and

omitting to state material facts necessary in order to make the statements made about

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NYCB and its business operations and future prospects in the light of the circumstances

under which they were made, not misleading, as set forth more particularly herein, and

engaged in transactions, practices and a course of business which operated as a fraud and

deceit upon the purchasers of NYCB securities during the Class Period.

214. Each of the Individual Defendants’ primary liability, and controlling person

liability, arises from the following facts: (i) the Individual Defendants were high-level

executives and/or directors at the Company during the Class Period and members of the

Company’s management team or had control thereof; (ii) each of these defendants, by

virtue of his responsibilities and activities as a senior officer and/or director of the

Company, was privy to and participated in the creation, development and reporting of the

Company’s internal budgets, plans, projections and/or reports; (iii) each of these

defendants enjoyed significant personal contact and familiarity with the other defendants

and was advised of and had access to other members of the Company’s management

team, internal reports and other data and information about the Company’s finances,

operations, and sales at all relevant times; and (iv) each of these defendants was aware of

the Company’s dissemination of information to the investing public which they knew or

recklessly disregarded was materially false and misleading.

215. The defendants had actual knowledge of the misrepresentations and

omissions of material facts set forth herein, or acted with reckless disregard for the truth

in that they failed to ascertain and to disclose such facts, even though such facts were

available to them. Such defendants’ material misrepresentations and/or omissions were

done knowingly or recklessly and for the purpose and effect of concealing NYCB’s

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operating condition and future business prospects from the investing public and

supporting the artificially inflated price of its securities. As demonstrated by defendants’

overstatements and misstatements of the Company’s business, operations and earnings

throughout the Class Period, defendants, if they did not have actual knowledge of the

misrepresentations and omissions alleged, were reckless in failing to obtain such

knowledge by deliberately refraining from taking those steps necessary to discover

whether those statements were false or misleading.

216. As a result of the dissemination of the materially false and misleading

information and failure to disclose material facts, as set forth above, the market price of

NYCB securities was artificially inflated during the Class Period. In ignorance of the

fact that market prices of NYCB’s publicly-traded securities were artificially inflated, and

relying directly or indirectly on the false and misleading statements made by defendants,

or upon the integrity of the market in which the securities trade, and/or on the absence of

material adverse information that was known to or recklessly disregarded by defendants

but not disclosed in public statements by defendants during the Class Period, plaintiffs

and the other members of the Class acquired NYCB securities during the Class Period at

artificially high prices and were damaged thereby.

217. At the time of said misrepresentations and omissions, plaintiffs and other

members of the Class were ignorant of their falsity, and believed them to be true. Had

plaintiffs and the other members of the Class and the marketplace known of the true

financial condition and business prospects of NYCB, which were not disclosed by

defendants, plaintiffs and other members of the Class would not have purchased their

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NYCB securities, or, if they had acquired such securities during the Class Period, they

would not have done so at the artificially inflated prices which they paid.

218. By virtue of the foregoing, defendants have violated Section 10(b) of the

Exchange Act, and Rule 10b-5 promulgated thereunder.

219. As a direct and proximate result of defendants’ wrongful conduct, plaintiffs

and the other members of the Class suffered damages in connection with their respective

purchases and sales of the Company’s securities during the Class Period.

COUNT II

VIOLATION OF SECTION 20(A) OF THE EXCHANGE ACT AGAINST THE INDIVIDUAL DEFENDANTS

220. Plaintiffs repeat and reallege each and every allegation contained above as

if fully set forth herein.

221. The Individual Defendants acted as controlling persons of NYCB within

the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their

high-level positions, and their ownership and contractual rights, participation in and/or

awareness of the Company’s operations and/or intimate knowledge of the false financial

statements filed by the Company with the SEC and disseminated to the investing public,

the Individual Defendants had the power to influence and control and did influence and

control, directly or indirectly, the decision-making of the Company, including the content

and dissemination of the various statements which plaintiffs contend are false and

misleading. The Individual Defendants were provided with or had unlimited access to

copies of the Company’s reports, press releases, public filings and other statements

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alleged by plaintiffs to be misleading prior to and/or shortly after these statements were

issued and had the ability to prevent the issuance of the statements or cause the

statements to be corrected.

222. In particular, each of these defendants had direct and supervisory

involvement in the day-to-day operations of the Company and, therefore, is presumed to

have had the power to control or influence the particular transactions giving rise to the

securities violations as alleged herein, and exercised the same.

223. As set forth above, NYCB and the Individual Defendants each violated

Section 10(b) and Rule 10b-5 by their acts and omissions as alleged in this Complaint.

By virtue of their positions as controlling persons, the Individual Defendants are liable

pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of

defendants’ wrongful conduct, plaintiffs and other members of the Class suffered

damages in connection with their purchases of the Company’s securities during the Class

Period.

COUNT III

FOR VIOLATIONS OF SECTION 14(A) OF THE EXCHANGE ACT AND RULE 14A-9(A) OF THE SEC AGAINST NYCB AND

THE INDIVIDUAL DEFENDANTS

224. Plaintiffs incorporate by reference and reallege the preceding paragraphs as

though fully set forth herein. This Count is asserted against NYCB and the Individual

Defendants.

225. This claim is brought on behalf of all Class members who held Roslyn

common stock that was exchanged for NYCB stock.

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226. Section 14(a) of the Exchange Act provides that “it shall be unlawful for

any person ... in contravention of such rules and regulations as the [SEC] may prescribe

... to solicit ... any proxy or consent or authorization in respect of any security ...

registered pursuant to ... this title.” Exchange Act § 14(a), 15 U.S.C. § 78n(a).

227. Rule 14a-9(a) promulgated thereunder provides that “no solicitation subject

to this regulation shall be made by means of any proxy statement ... containing any

statement which, at the time and in the light of the circumstances under which it is made,

is false or misleading with respect to any material fact, or which omits to state any

material fact necessary in order to make the statements therein not false or misleading

....” 17 C.F.R. § 240.14a-9(a).

228. On September 23, 2003, NYCB and Roslyn filed the Roslyn merger Proxy

Statement related to NYCB’s planned acquisition of Roslyn. The Roslyn merger Proxy

Statement outlined that Roslyn would merge into NYCB, and that Roslyn shareholders

would receive 0.75 shares of NYCB common stock for each share of Roslyn common

stock they owned on the merger date.

229. This Roslyn merger Proxy Statement was false and misleading in that it

omitted to disclose material facts necessary to make the disclosures that were made not

misleading.

230. The Roslyn merger Proxy Statement was false and misleading because

defendants failed to disclose that the Roslyn merger would not provide all of the benefits

to Roslyn and NYCB shareholders that were described in the Roslyn merger Proxy

Statement, that the combined Company would be extraordinarily vulnerable to interest

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rate fluctuations, and that the Roslyn merger would not create a stronger, more

competitive and more profitable company.

231. The omissions and false and misleading statements in the Roslyn merger

Proxy Statement were material in that there is a substantial likelihood that a reasonable

shareholder would have considered them important in deciding how to vote on the

merger and in that there is a substantial likelihood that a reasonable investor would have

viewed full and accurate disclosure as having significantly altered the “total mix” of

information made available in the Roslyn merger Proxy Statement and in other

information reasonably available to shareholders.

232. But for the material omissions and false and inaccurate statements made in

the Roslyn merger Proxy Statement, the Roslyn shareholders would not have approved

the exchange ratio of 0.75 shares of NYCB common stock for each share of Roslyn

common stock.

233. By reason of the foregoing, defendants have violated Section 14(a) of the

Exchange Act and Rule 14(a)-9(a) of the SEC and are liable to plaintiffs and all other

members of the Class who held stock in Roslyn that was exchanged for NYCB shares

pursuant to the Roslyn merger, each of whom has been damaged as a direct and

proximate result of such violations, in a total amount to be determined at trial.

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COUNT IV

FOR VIOLATIONS OF SECTION 14(e) OF THE EXCHANGE ACT AGAINST NYCB AND

THE INDIVIDUAL DEFENDANTS

234. Plaintiffs incorporate by reference and reallege the preceding paragraphs as

though fully set forth herein. This Count is asserted against NYCB and the Individual

Defendants and is brought on behalf of all Class members who held Roslyn stock that

was exchanged for NYCB stock.

235. Section 14(e) of the Exchange Act provides that:

It shall be unlawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer or request or invitation for tenders, or any solicitation of security holders in opposition to or in favor of any such offer, request, or invitation.

Exchange Act § 14(e), 15 U.S.C. § 78n(e).

236. The defendants named herein owed to plaintiffs and the members of the

Class the duty to make a reasonable and diligent investigation of the statements contained

in the Roslyn merger Proxy Statement, and to assure that such statements were true and

that there was no omission of material facts required to be stated in order to make the

statements contained therein not misleading.

237. By virtue of the misrepresentations and omission of material facts

contained in the Registration Statement and detailed herein, defendants violated Section

14(e) and are liable to plaintiffs and the members of the Class.

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238. Information showing that the defendants acted knowingly or with reckless

disregard for the truth is peculiarly within defendants’ knowledge and control. As

NYCB’s most senior corporate officers, the Individual Defendants had knowledge of the

details of NYCB’s financial affairs and results. Plaintiffs, who acquired NYCB common

stock during the merger, did not have knowledge of the details of NYCB’s internal

corporate affairs. Establishing a strong inference that NYCB and the Individual

Defendants acted with scienter, however, is that NYCB and the Individual Defendants

were motivated to keep NYCB’s share price as high as possible until Roslyn shareholders

voted to approve the merger because they were agreeing to tender their Roslyn stock in

exchange for NYCB stock. Had NYCB’s stock price reflected its true value, it is more

likely that Roslyn shareholders would have rejected the merger at the negotiated

exchange rate. To ensure Roslyn shareholder approval of the merger, had NYCB not

maintained its stock value at artificially high levels, NYCB would have been required to

pay more shares of its stock to purchase Roslyn.

COUNT V

FOR VIOLATIONS OF SECTION 11 OF THE SECURITIES ACT AGAINST DEFENDANTS NYCB, FICALORA, MANZULLI, WANN,

BLAKE, BURKE, CIAMPA, FARRELL, FREDERICK, KUPFERBERG, MILLER, O’DONOVAN AND PILESKI IN CONNECTION WITH

THE ROSLYN MERGER

239. This Count is brought by plaintiffs on behalf of all Roslyn shareholders

who exchanged their shares for NYCB common stock in connection with, and traceable

to, the Offering, pursuant to Section 11 of the Securities Act, 15 U.S.C. § 77k, against

defendants NYCB, Ficalora, Manzulli and Wann. This Count does not sound in fraud.

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240. Plaintiffs and other members of the Class exchanged Roslyn common stock

for NYCB common stock pursuant to, or traceable to, and in reliance on the Roslyn

merger Proxy Statement.

241. NYCB is the registrant for the shares exchanged with plaintiffs and other

members of the Class.

242. Defendants NYCB, Ficalora, Manzulli, Wann, Blake, Burke, Ciampa,

Farrell, Frederick, Kupferberg, Miller, O’Donovan and Pileski signed the Roslyn merger

Proxy Statement Prospectus, which was filed with the SEC pursuant to the 1933 Act, and

were thus soliciting the public to purchase NYCB stock.

243. The defendants named herein were responsible for the contents and

dissemination of the Roslyn merger Proxy Statement Prospectus.

244. The Roslyn merger Proxy Statement was inaccurate and misleading,

contained untrue statements of material facts, omitted to state other facts necessary to

make the statements made not misleading, and concealed and failed adequately to

disclose material facts as described above.


statements of material fact:

Following the merger, New York Community currently expects to re-evaluate the balance sheet position of the combined company and implement a strategic balance sheet restructuring plan, which may include a $3.5 billion reduction of the pro forma securities portfolio that will re-align the pro forma securities portfolio consistent with the combined company’s industry peers. The downsizing is expected to have a positive impact on earnings quality and the combined company’s exposure to interest rate, extension and market risk. In addition, it is expected that the downsizing of the securities portfolio will result in an improved interest rate margin. The

113


downsizing is expected to generate cash proceeds that will facilitate a reduction in the level of wholesale funding utilized by the combined company in the form of Federal Home Loan Bank advances and reverse repurchase obligations. This is expected to result in an overall reduction in the combined company’s level of wholesale leverage. The downsizing of the securities portfolio is also expected to free up capital which could be redeployed into higher earning assets and/or the repurchase of common stock. The planned downsizing of the securities portfolio is not a condition or financing contingency of the merger. Although there is no specific time frame for the planned downsizing of the securities portfolio, it is currently anticipated to take place after the closing of the merger.

* * *


Its understanding of New York Community’s business, operations, financial condition, earnings and prospects of Roslyn’s business, operations, financial condition, earnings and prospects, taking into account New York Community’s due diligence review of Roslyn;

The complementary aspects of the New York Community and Roslyn businesses, including New York Community’s strength in loan origination and Roslyn’s strength in deposit accumulation, the compatible loan mix of New York Community and Roslyn and the common operating philosophies, shared systems platforms and services provider and integration expertise of New York Community and Roslyn;


The fact that the complementary nature of the respective customer bases, business products and skills of New York Community and Roslyn should result in enhanced revenue opportunities as products are cross-marketed and distributed over broader customer bases. Management of New York Community and Roslyn anticipate future revenue enhancement initiatives,

114


however, at this time, no amounts were considered in the projected benefits of the merger.









(emphasis added).

115


246. However, the Registration Statement and Prospectus omitted to state the


therein not misleading:








247. At the times they exchanged their Roslyn common stock for NYCB shares,

plaintiffs and the other members of the Class were without knowledge of the facts

116


concerning the wrongful conduct alleged above and could not have reasonably

discovered those facts prior to the Roslyn merger.

248. As issuer of NYCB common stock in connection with the merger, NYCB is

strictly liable to plaintiffs and the Class for the misstatements and omissions.

249. None of the defendants named herein made a reasonable investigation or

possessed reasonable grounds for the belief that the statements contained in the Roslyn

Proxy Statement were true and without omissions of any material facts and were not

misleading.

250. Defendants NYCB, Ficalora, Manzulli, Wann, Blake, Burke, Ciampa,

Farrell, Frederick, Kupferberg, Miller, O’Donovan and Pileski issued, caused to be issued

and participated in the issuance of materially false and misleading written statements to

the investing public which were contained in the Roslyn merger Proxy Statement, which

misrepresented or failed to disclose, inter alia, the facts set forth above. By reasons of the

conduct herein alleged, each defendant violated, and/or controlled a person who violated,

Section 11 of the Securities Act.

251. As a result of the foregoing, plaintiffs and the other members of the Class

who purchased NYCB common stock pursuant or traceable to the Roslyn merger Proxy

Statement have sustained damages. The value of NYCB shares has declined substantially

subsequent to and due to the foregoing defendants’ violations of the federal securities

laws.

117


COUNT VI

FOR VIOLATIONS OF SECTION 12(a)(2) OF THE SECURITIES ACT AGAINST NYCB, FICALORA, MANZULLI, WANN, BLAKE, BURKE,

CIAMPA, FARRELL, FREDERICK, KUPFERBERG, MILLER, O’DONOVAN AND PILESKI IN CONNECTION WITH THE ROSLYN MERGER

252. This Count is brought pursuant to Section 12(a)(2) of the Securities Act on

behalf of the Class consisting of all Roslyn shareholders who exchanged their shares for

NYCB common stock pursuant to the Roslyn merger Proxy Statement Offering, and does

not sound in fraud.

253. Plaintiffs and other members of the Class acquired NYCB common stock

pursuant the Roslyn merger Proxy Statement.

254. NYCB is the registrant for the shares pursuant to the Roslyn merger Proxy

Statement acquired by plaintiffs and other members of the Class.

255. Defendants NYCB, Ficalora, Wann, Manzulli, Blake, Burke, Ciampa,

Farrell, Frederick, Kupferberg, Miller, Pileski and Cangemi signed the Roslyn merger

Proxy Statement, which was filed with the SEC pursuant to the 1933 Act, and were thus

selling, soliciting or offering shares NYCB stock to the Roslyn shareholders who

acquired NYCB common stock offered pursuant to the Roslyn merger Proxy Statement.

The acts of solicitation by the defendants included participating in, signing, and

disseminating the Roslyn merger Proxy Statement.

256. The Roslyn merger Proxy Statement for the merger was inaccurate and

misleading, contained untrue statements of material facts, omitted to state other facts

118


necessary to make the statements made not misleading, and concealed and failed

adequately to disclose material facts as described above.



Following the merger, New York Community currently expects to re-evaluate the balance sheet position of the combined company and implement a strategic balance sheet restructuring plan, which may include a $3.5 billion reduction of the pro forma securities portfolio that will re-align the pro forma securities portfolio consistent with the combined company’s industry peers. The downsizing is expected to have a positive impact on earnings quality and the combined company’s exposure to interest rate, extension and market risk. In addition, it is expected that the downsizing of the securities portfolio will result in an improved interest rate margin. The downsizing is expected to generate cash proceeds that will facilitate a reduction in the level of wholesale funding utilized by the combined company in the form of Federal Home Loan Bank advances and reverse repurchase obligations. This is expected to result in an overall reduction in the combined company’s level of wholesale leverage. The downsizing of the securities portfolio is also expected to free up capital which could be redeployed into higher earning assets and/or the repurchase of common stock. The planned downsizing of the securities portfolio is not a condition or financing contingency of the merger. Although there is no specific time frame for the planned downsizing of the securities portfolio, it is currently anticipated to take place after the closing of the merger.

* * *


Its understanding of New York Community’s business, operations, financial condition, earnings and prospects of Roslyn’s business,

119


operations, financial condition, earnings and prospects, taking into account New York Community’s due diligence review of Roslyn;

The complementary aspects of the New York Community and Roslyn businesses, including New York Community’s strength in loan origination and Roslyn’s strength in deposit accumulation, the compatible loan mix of New York Community and Roslyn and the common operating philosophies, shared systems platforms and services provider and integration expertise of New York Community and Roslyn;


The fact that the complementary nature of the respective customer bases, business products and skills of New York Community and Roslyn should result in enhanced revenue opportunities as products are cross-marketed and distributed over broader customer bases. Management of New York Community and Roslyn anticipate future revenue enhancement initiatives, however, at this time, no amounts were considered in the projected benefits of the merger.

The challenges of combining the businesses, assets and workforces of the two companies, which could impact the post-merger success of the combined company, in light of New York Community’s and Roslyn’s past experience in integrating transactions. In this regard, the board evaluated several key factors, including:




120







(emphasis added).

258. However, the Roslyn merger Proxy Statement omitted to state the






121






259. Defendants owed to the acquirers of NYCB common stock, including

plaintiffs and other Class member acquirers of NYCB common stock, the duty to make a

reasonable and diligent investigation of the statements contained in the offering materials,

including the Roslyn merger Proxy Statement contained therein, to ensure that such

statements were true and that there was no omission to state a material fact required to be

stated in order to make the statements contained therein not misleading. Defendants

knew of, or in the exercise of reasonable care should have known of, the misstatements

and omissions contained in the offering materials as set forth above.

260. Plaintiffs and other members of the Class purchased or otherwise acquired

NYCB common stock pursuant to and traceable to the defective Roslyn merger Proxy

Statement. Plaintiffs did not know, or in the exercise of reasonable diligence could not

122


have known, of the untruths and omissions contained in the Roslyn merger Proxy

Statement.

261. Plaintiffs, individually and representatively, hereby offers to tender to

defendants those securities which plaintiffs and other Class members continue to own, on

behalf of all members of the Class who continue to own such securities, in return for the

consideration paid for those securities together with interest thereon. Class members who

have sold their NYCB common stock are entitled to recissory damages.

262. By reason of the conduct alleged herein, these defendants violated, and/or

controlled a person who violated, Section 12(a)(2) of the Securities Act. Accordingly,

plaintiffs and members of the Class who hold NYCB common stock acquired pursuant to

the Roslyn merger Proxy Statement have the right to rescind and recover the

consideration paid for their NYCB common stock and, hereby elect to rescind and tender

their NYCB common stock to the defendants sued herein. Plaintiffs and Class members

who have sold their NYCB common stock are entitled to recissory damages.

COUNT VII

FOR VIOLATIONS OF SECTION 15 OF THE SECURITIES ACT AGAINST THE INDIVIDUAL DEFENDANTS IN CONNECTION WITH

THE ROSLYN MERGER

263. This Count is brought by plaintiffs on behalf of the Class members who

held Roslyn common stock that was exchanged for NYCB stock in connection with the

Roslyn merger, pursuant to Section 15 of the Securities Act against the Individual

Defendants, and does not sound in fraud.

123


264. Each of the Individual Defendants was a control person of NYCB by virtue

of his/her position as director and/or senior officer of NYCB. The Individual Defendants

each had a series of direct and/or indirect business and/or personal relationships with

other directors and/or major shareholders of NYCB.

265. Each of the Individual Defendants was a culpable participant in the

violations of Sections 11 and 12(a)(2) of the Securities Act alleged in Counts V and VI

above, based on their having signed the Roslyn merger Proxy Statement and having

otherwise participated in the process which allowed the offering of NYCB common stock

in connection with the Roslyn merger to be successfully completed.

COUNT VIII

FOR VIOLATIONS OF SECTION 11 OF THE SECURITIES ACT AGAINST DEFENDANTS NYCB, FICALORA, WANN, MANZULLI, BURKE, CANGEMI, BLAKE, CIAMPA, FARRELL, FREDERICK, KUPFERBERG, MILLER AND

PILESKI IN CONNECTION WITH THE JANUARY 2004 OFFERING

266. This Count is brought by Plaintiff Mulligan on behalf of all shareholders

who acquired their shares of NYCB common stock pursuant, or traceable, to the January

2004 offering Prospectus, pursuant to Section 11 of the Securities Act, 15 U.S.C. § 77k,

against defendants NYCB, Ficalora, Wann, Manzulli, Burke, Cangemi, Blake, Ciampa,

Farrell, Frederick, Kupferberg, Miller, and Pileski. This Count does not sound in fraud.

267. Plaintiff Mulligan and the other members of the Class acquired NYCB

common stock pursuant to or traceable, to the January 2004 offering Prospectus.

124


268. NYCB is the registrant for the shares acquired by plaintiff Mulligan and

other members of the Class that acquired NYCB common stock pursuant to or traceable

to, the January 2004 offering Prospectus.


Farrell, Frederick, Kupferberg, Miller, Pileski and Cangemi signed the January 2004

offering Prospectus, which was filed with the SEC pursuant to the Securities Act, and

were thus soliciting the public to purchase NYCB stock.

270. The defendants named herein were responsible for the contents and

dissemination of the January 2004 offering Prospectus.

271. The January 2004 offering Prospectus for the sale of NYCB shares was

inaccurate and misleading, contained untrue statements of material facts, omitted to state

other facts necessary to make the statements made not misleading, and concealed and

failed adequately to disclose material facts as described above.




Our primary strategy is to attract deposits from our customers in New York City, Long Island, Westchester County and New Jersey and to invest these deposits, together with funds generated from operations, loan sales and borrowings, primarily in multi-family mortgage loans secured by properties in our market area and, to a lesser extent, in commercial real estate and construction loans and investment grade securities. We also seek to establish new banking branches and pursue acquisitions of other institutions or their branches in accordance with our disciplined acquisition strategy. Our recently completed merger with Roslyn Bancorp is consistent with this strategy. We do not have any specific plans for further mergers or acquisitions at this time.

125


* * *

Use of Proceeds


* * *


Several factors contributed to the increase in net interest income, including an increase in volume of mortgage loans produced; the interest-earning assets acquired in the Roslyn Bancorp merger; and the leveraged growth of our securities portfolio in the first nine months of the year. In addition, the liquidity generated by the securities portfolio in the current fourth quarter was primarily invested in higher yielding multi-family loans and mortgage-related securities. The result was an $8.9 billion, or 98.0%, rise in the average balance of interest-earning assets to $18.0 billion, which offset a 108-basis point decline in the average yield to 5.60%.


Our spread and margin equaled 3.80% and 3.84% in the fourth quarter of 2003, as compared to 3.95% and 4.04% in the trailing quarter and to 4.03% and 4.22% in the year-earlier three months. The compression that was expected to follow the combination with Roslyn Bancorp was largely offset

126


by the deployment of our cash flows into higher yielding assets during a time of rising market interest rates.



* * *

Securities. At December 31, 2003, securities were down $2.3 billion from the balance recorded at the time of the Roslyn Bancorp merger announcement. The decline reflects principal reductions and sales from the securities portfolio of approximately $8.4 billion, which were primarily offset by reinvested cash flows. The liquidity generated by the securities portfolio has been largely deployed into mortgage loan originations and mortgage-related securities featuring higher yields.

Securities totaled $9.5 billion at year-end 2003, signifying a $5.0 billion increase from the year-end 2002 level but a $2.3 billion reduction, as stated, from the time the Roslyn Bancorp merger was announced. Mortgage-backed and related securities accounted for $7.5 billion, or 79.4% of the year-end 2003 total, including $5.5 billion that were classified as available for sale and $2.0 billion that were classified as held to maturity. At the prior year-end, mortgage-backed and -related securities accounted for $3.6 billion, or 80.7%, of total securities; of these, only $36.9 million were classified as held to maturity. While we increased our investments in mortgage-backed and related securities during the fourth quarter, the majority of the increase reflects the addition of the Roslyn Bancorp portfolio.

(emphasis added).

127


273. However, the January 2004 offering Prospectus omitted to state the











128


274. At the times they purchased their NYCB shares, plaintiff Mulligan and the

other members of the Class were without knowledge of the facts concerning the wrongful

conduct described above and could not have reasonably discovered those facts prior to

the January 2004 offering.

275. As issuer of the NYCB common stock in connection with the January 2004

offering, NYCB is strictly liable to plaintiff Mulligan and the Class for the misstatements

and omissions.

276. None of the defendants named herein made a reasonable investigation or

possessed reasonable grounds for the belief that the statements contained in the January

2004 offering Prospectus were true and without omissions of any material facts and were

not misleading.


Farrell, Frederick, Kupferberg, Miller, Pileski and Cangemi issued, caused to be issued

and participated in the issuance of materially false and misleading written statements to

the investing public that were contained in the January 2004 offering Prospectus, which

misrepresented or failed to disclose, inter alia, the facts set forth above. By reasons of the

conduct herein alleged, each defendant violated Section 11 of the Securities Act.

278. As a result of the foregoing, plaintiff Mulligan and the other members of

the Class who purchased NYCB common stock pursuant or traceable to the January 2004

offering Prospectus have sustained damages. The value of NYCB shares has declined

substantially subsequent to and due to the foregoing defendants’ violations of the federal

securities laws.

129


COUNT IX

FOR VIOLATIONS OF SECTION 12(A)(2) OF THE SECURITIES ACT AGAINST NYCB, FICALORA, WANN, MANZULLI, BURKE, CANGEMI,

BLAKE, CIAMPA, FARRELL, FREDERICK, KUPFERBERG, MILLER AND PILESKI IN CONNECTION WITH THE JANUARY 2004 OFFERING

279. This Count is brought pursuant to Section 12(a)(2) of the Securities Act on

behalf of the Class consisting of all NYCB shareholders who acquired NYCB common

stock in connection with, and traceable to, the January 2004 offering Prospectus, and

does not sound in fraud.

280. Plaintiff Mulligan and the other members of the Class acquired NYCB

common stock pursuant or traceable to the January 2004 offering Prospectus.

281. NYCB is the registrant for the shares acquired pursuant or traceable to the

January 2004 offering Prospectus by plaintiff Mulligan and other members of the Class.


Farrell, Frederick, Kupferberg, Miller, Pileski and Cangemi signed the January 2004

offering Prospectus, which was filed with the SEC pursuant to the 1933 Act, and were

thus selling, soliciting or offering shares of NYCB stock to plaintiff Mulligan and the

members of the Class pursuant to the January 2004 offering Prospectus. The acts of

solicitation by the defendants included participating in, signing, and disseminating the

January 2004 offering Prospectus.

283. The January 2004 offering Prospectus was inaccurate and misleading,

contained untrue statements of material facts, omitted to state other facts necessary to

130


make the statements made not misleading, and concealed and failed adequately to

disclose material facts as described above.




Our primary strategy is to attract deposits from our customers in New York City, Long Island, Westchester County and New Jersey and to invest these deposits, together with funds generated from operations, loan sales and borrowings, primarily in multi-family mortgage loans secured by properties in our market area and, to a lesser extent, in commercial real estate and construction loans and investment grade securities. We also seek to establish new banking branches and pursue acquisitions of other institutions or their branches in accordance with our disciplined acquisition strategy. Our recently completed merger with Roslyn Bancorp is consistent with this strategy. We do not have any specific plans for further mergers or acquisitions at this time.

* * *

Use of Proceeds


* * *


131


Several factors contributed to the increase in net interest income, including an increase in volume of mortgage loans produced; the interest-earning assets acquired in the Roslyn Bancorp merger; and the leveraged growth of our securities portfolio in the first nine months of the year. In addition, the liquidity generated by the securities portfolio in the current fourth quarter was primarily invested in higher yielding multi-family loans and mortgage-related securities. The result was an $8.9 billion, or 98.0%, rise in the average balance of interest-earning assets to $18.0 billion, which offset a 108-basis point decline in the average yield to 5.60%.


Our spread and margin equaled 3.80% and 3.84% in the fourth quarter of 2003, as compared to 3.95% and 4.04% in the trailing quarter and to 4.03% and 4.22% in the year-earlier three months. The compression that was expected to follow the combination with Roslyn Bancorp was largely offset by the deployment of our cash flows into higher yielding assets during a time of rising market interest rates.



* * *

Securities. At December 31, 2003, securities were down $2.3 billion from the balance recorded at the time of the Roslyn Bancorp merger announcement. The decline reflects principal reductions and sales from the securities portfolio of approximately $8.4 billion, which were primarily offset by reinvested cash flows. The liquidity generated by the securities

132


portfolio has been largely deployed into mortgage loan originations and mortgage-related securities featuring higher yields.

Securities totaled $9.5 billion at year-end 2003, signifying a $5.0 billion increase from the year-end 2002 level but a $2.3 billion reduction, as stated, from the time the Roslyn Bancorp merger was announced. Mortgage-backed and related securities accounted for $7.5 billion, or 79.4% of the year-end 2003 total, including $5.5 billion that were classified as available for sale and $2.0 billion that were classified as held to maturity. At the prior year-end, mortgage-backed and -related securities accounted for $3.6 billion, or 80.7%, of total securities; of these, only $36.9 million were classified as held to maturity. While we increased our investments in mortgage-backed and related securities during the fourth quarter, the majority of the increase reflects the addition of the Roslyn Bancorp portfolio.

(emphasis added).

285. However, the January 2004 offering Prospectus omitted to state the







133






286. Defendants owed to the acquirers of NYCB common stock, including

Plaintiff Mulligan and other Class member who acquired NYCB common stock pursuant

to the January 2004 offering Prospectus, the duty to make a reasonable and diligent

investigation of the statements contained in the offering materials, including the January

2004 offering Prospectus contained therein, to ensure that such statements were true and

that there was no omission to state a material fact required to be stated in order to make

the statements contained therein not misleading. Defendants knew of, or in the exercise

of reasonable care should have known of, the misstatements and omissions contained in

the offering materials as set forth above.

287. Plaintiff Mulligan and other members of the Class purchased or otherwise

acquired NYCB common stock pursuant to and traceable to the defective January 2004

offering Prospectus. Plaintiff Mulligan did not know, or in the exercise of reasonable

134


diligence could not have known, of the untruths and omissions contained in the January

2004 offering Prospectus.

288. Plaintiff Mulligan, individually and representatively, hereby offers to tender

to defendants those securities which plaintiff Mulligan and other Class members continue

to own, on behalf of all members of the Class who continue to own such securities, in

return for the consideration paid for those securities together with interest thereon. Class

members who have sold their NYCB common stock are entitled to recissory damages.

289. By reason of the conduct alleged herein, these defendants violated, and/or

controlled a person who violated, Section 12(a)(2) of the Securities Act. Accordingly,

plaintiff Mulligan and members of the Class who hold NYCB common stock acquired in

the January 2004 offering have the right to rescind and recover the consideration paid for

their NYCB common stock and, hereby elect to rescind and tender their NYCB common

stock to the defendants sued herein. Plaintiff Mulligan and Class members who have

sold their NYCB common stock are entitled to recissory damages.

COUNT X

FOR VIOLATIONS OF SECTION 15 OF THE SECURITIES ACT AGAINST THE INDIVIDUAL DEFENDANTS IN CONNECTION WITH

THE JANUARY 2004 OFFERING

290. This Count is brought by plaintiff Mulligan on behalf of the Class members

who acquired NYCB stock pursuant, or traceable, to the January 2004 offering

Prospectus, pursuant to Section 15 of the Securities Act against the Individual

Defendants, and does not sound in fraud.

135


291. Each of the Individual Defendants was a control person of NYCB by virtue

of his/her position as director and/or senior officer of NYCB. The Individual Defendants

each had a series of direct and/or indirect business and/or personal relationships with

other directors and/or major shareholders of NYCB.

292. Each of the Individual Defendants was a culpable participant in the

violations of Sections 11 and 12(a)(2) of the Securities Act alleged in Counts VIII and IX

above, based on their having signed the January 2004 Registration Statement and

Prospectus and having otherwise participated in the process which allowed the January

2004 offering to be successfully completed.

PRAYER FOR RELIEF

WHEREFORE, plaintiffs, on behalf of themselves and the Class, pray for relief

and judgment, as follows:

A. Determining that this action is a proper class action maintainable under Rule 23 of

the Federal Rules of Civil Procedure;

B. Awarding compensatory damages in favor of plaintiffs and the other Class

members against all defendants, jointly and severally, for all damages sustained as a result of

defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;

C. Awarding plaintiffs and the Class their reasonable costs and expenses incurred in

this action, including counsel fees and expert fees; and

D. Such other and further relief as the Court may deem just and proper.

JURY DEMAND

Lead Plaintiffs hereby demand a trial by jury.

136


Dated: October 6, 2005

MILBERG WEISS BERSHAD & SCHULMAN LLP By:______/s/_______________ Lee A. Weiss (LW-1130) Arvind Khurana (AK-3643) One Pennsylvania Plaza New York, NY 10119-0165 Telephone: (212) 594-5300 Facsimile: (212) 868-1229 Plaintiffs’ Lead Counsel MURRAY FRANK & SAILER LLP Marvin L. Frank Eric J. Belfi 275 Madison Avenue New York, NY 10116 Telephone: (212) 682-1818 Facsimile: (212) 682-1892 Plaintiff’s Counsel

137


In Re: New York Community Bancorp, Inc. Securities ...securities.stanford.edu/.../2005106_r01c_04CV4165.pdf · for the eastern district of new york in re: new york community bancorp,

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