-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CA7f2meHRda/SGUXh7GwS7b/cvxxZgUP5eST4afPAV6Hvfjb7mb914bsPItsXWU5 rHQWN8pQKmzIxDFARRRS6w== 0000352510-97-000022.txt : 19971126 0000352510-97-000022.hdr.sgml : 19971126 ACCESSION NUMBER: 0000352510-97-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH FORK BANCORPORATION INC CENTRAL INDEX KEY: 0000352510 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 111353410 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10458 FILM NUMBER: 97719972 BUSINESS ADDRESS: STREET 1: 275 BROAD HOLLOW RD STREET 2: PO BOX 8914 CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5162985000 MAIL ADDRESS: STREET 1: 275 BROAD HOLLOW RD STREET 2: PO BOX 8914 CITY: MELVILLE STATE: NY ZIP: 11747 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the period ended: September 30, 1997 NORTH FORK BANCORPORATION, INC. (Exact name of registrant as specified in its charter) DELAWARE 36-3154608 (State or other Jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 275 BROAD HOLLOW ROAD, MELVILLE, NEW YORK 11747 (Address of principal executive offices) (Zip Code) (516) 844-1004 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes (X) No ( ) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASSES OF COMMON STOCK NUMBER OF SHARES OUTSTANDING 11/13/97 $2.50 Par Value 66,003,567 1 INDEX PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS North Fork Bancorporation, Inc. and Subsidiaries (1.) Consolidated Balance Sheets (2.) Consolidated Statements of Income (3.) Consolidated Statements of Cash Flows (4.) Consolidated Statements of Changes in Stockholders' Equity (5.) Notes to Consolidated Financial Statements ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable ITEM 2. CHANGES IN SECURITIES Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable ITEM 5. OTHER INFORMATION Not Applicable 2 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K The following exhibits are submitted herewith: (a) Exhibit # Description (11) Statement Re: Computation of per share earnings (27) Financial Data Schedule (b) Current Report on Form 8-K dated October 7, 1997 (reporting that the Registrant entered into an agreement and plan of merger with New York Bancorp) Current Report on Form 8-K dated October 15, 1997 (reporting the Registrants earnings results for the period ended September 30, 1997) 3 Consolidated Balance Sheets (in thousands, except per share amounts) Sept. 30, December 31, Sept. 30, 1997 1996 1996 Assets (unaudited) (unaudited) Cash & Due from Banks $104,613 $150,365 $136,867 Interest Earning Deposits 2,147 2,298 2,211 Federal Funds Sold 35,000 115,000 - Securities: Available-for-Sale 1,633,737 857,391 1,396,685 Held-to-Maturity 1,166,329 1,300,115 1,028,647 Total Securities 2,800,066 2,157,506 2,425,332 Loans 3,525,314 3,194,086 2,994,867 Less: Unearned Income & Fees 15,592 22,561 24,459 Allowance for Loan Losses 54,611 53,894 54,698 Net Loans 3,455,111 3,117,631 2,915,710 Intangible Assets 76,692 82,073 84,537 Premises & Equipment 63,717 65,530 67,945 Accrued Income Receivable 45,649 37,392 38,186 Other Real Estate 5,499 1,898 3,751 Other Assets 27,126 20,834 35,338 Total Assets $6,615,620 $5,750,527 $5,709,877 Liabilities and Stockholders' Equity Demand Deposits $836,020 $734,907 $685,385 Savings, N.O.W. & Money Market Deposits 1,895,804 1,974,570 1,969,180 Other Time Deposits 1,330,624 1,416,220 1,464,548 Certificates of Deposit, $100,000 & Over 396,201 343,813 331,656 Total Deposits 4,458,649 4,469,510 4,450,769 Federal Funds Purchased & Securities Sold Under Agreements to Repurchase 1,331,024 621,789 734,167 Other Borrowings 85,000 35,000 35,000 Accrued Expenses & Other Liabilities 103,020 67,060 59,031 Total Liabilities $5,977,693 $5,193,359 $5,278,967 Company-Obligated Mandatorily Redeemable Capital Securities of Subsidiary Trust $99,646 $99,637 - Stockholders' Equity Preferred Stock, par value $1.00; authorized 10,000,000 shares, unissued - - - Common stock, par value $2.50; authorized 200,000,000 shares; issued & outstanding 66,044,201, 65,199,008 and 64,451,448 shares at the periods ending, respectively 165,111 81,499 80,564 Additional Paid in Capital 109,640 180,809 171,538 Retained Earnings 263,931 206,895 212,137 Unrealized Gains/(Losses) on Securities Available-for-Sale, net of taxes 13,476 (2,633) (9,074) Deferred Compensation (13,009) (5,193) (2,135) Treasury Stock at cost; 57,268, 306,578 and 1,809,244 shares at the periods ending, respectively (868) (3,846) (22,120) Total Stockholders' Equity 538,281 457,531 430,910 Total Liabilities and Stockholders' Equity $6,615,620 $5,750,527 $5,709,877
4 Consolidated Statements of Income (Unaudited) (in thousands, except per share amounts) Three Months Ended Nine Months Ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 1997 1996 1997 1996 Interest Income Loans $76,941 $64,683 $221,326 $178,446 Mortgage-Backed Securities 41,039 35,166 115,230 102,574 U.S. Treasury & Government Agency Securities 3,216 2,938 10,398 9,278 State & Municipal Obligations 1,304 1,373 4,048 3,375 Other Securities 3,515 1,413 7,774 3,812 Federal Funds Sold 281 191 576 2,435 Interest Earning Deposits 36 35 106 173 Total Interest Income 126,332 105,799 359,458 300,093 Interest Expense Savings, NOW & Money Market Deposits 10,576 11,390 31,836 34,062 Other Time Deposits 17,402 19,590 52,832 57,059 Certificates of Deposit, $100,000 & Over 5,071 3,977 14,538 10,959 Federal Funds Purchased & Securities Sold Under Agreements to Repurchase 20,818 10,090 50,048 26,189 Other Borrowings 1,273 796 2,723 2,408 Total Interest Expense 55,140 45,843 151,977 130,677 Net Interest Income 71,192 59,956 207,481 169,416 Provision for Loan Losses 1,500 1,700 4,500 5,100 Net Interest Income after Provision for Loan Losses 69,692 58,256 202,981 164,316 Non-Interest Income Fees & Service Charges on Deposit Accounts 4,827 4,281 13,917 11,972 Broker Commissions & Trust Fees 2,295 1,423 6,167 4,287 Mortgage Banking Operations 546 504 1,416 1,675 Other Operating Income 1,842 1,365 4,532 3,943 Net Securities Gains 38 1,462 2,273 2,968 Total Non-Interest Income 9,548 9,035 28,305 24,845 Non-Interest Expense Compensation & Employee Benefits 14,546 14,125 43,066 40,758 Occupancy 3,147 3,085 9,497 8,744 Equipment 1,886 1,816 5,667 5,132 Amortization of Intangible Assets 1,817 1,926 5,483 4,383 Other Real Estate 44 167 163 876 Other Operating Expense 9,151 8,347 27,461 22,948 SAIF Recapitalization Charge - 8,350 - 8,350 Total Non-Interest Expense 30,591 37,816 91,337 91,191 Income Before Income Taxes 48,649 29,475 139,949 97,970 Provision for Income Taxes 18,756 11,680 54,670 39,617 Net Income $29,893 $17,795 $85,279 $58,353 Per Share: (1) Net Income $0.45 $0.28 $1.29 $0.90 Cash Dividends $0.15 $0.10 $0.425 $0.30 (1) Per share data has been retroactively restated for the issuance of a 2 for 1 stock split on May 15, 1997.
5 Consolidated Statements of Cash Flows (Unaudited) (in thousands) For the Period Ended September 30, 1997 1996 Cash Flows from Operating Activities: Net Income $85,279 $58,353 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Provision for Loan Losses 4,500 5,100 Depreciation and Amortization 6,174 5,859 Amortization of Premiums 5,646 9,886 Amortization of Intangible Assets 5,483 4,383 Accretion of Discounts and Net Deferred Loan Fees (4,091) (4,318) Net Securities Gains (2,273) (2,968) Other, Net 3,859 10,482 Net Cash Provided by Operating Activities 104,577 86,777 Cash Flows from Investing Activities: Maturities, Redemptions, Calls and Principal Repayments on Securities Held-to-Maturity 137,526 127,396 Purchases of Securities Held-to-Maturity (5,222) (235,866) Proceeds from Sales of Securities Available-for-Sale 138,335 237,788 Maturities and Principal Repayments on Securities Available-for-Sale 146,709 295,227 Purchases of Securities Available-for-Sale (1,030,435) (653,119) Loans Originated and Principal Repayments on Loans and Other Real Estate Owned, Net (368,963) (255,176) Purchases of Loans - (164,509) Proceeds from the Sale of Loans and Other Real Estate Acquired in Settlements of Loans 26,301 36,096 Purchases of Premises and Equipment, Net (3,565) (5,974) Purchase Acquisitions, Net of Cash Paid - 595,650 Net Cash Used in Investing Activities (959,314) (22,487) Cash Flows from Financing Activities: Net Decrease in Customer Deposits Liabilities (10,861) (222,403) Net Increase in Borrowings 759,235 123,508 Treasury Stock Activity, Net - (22,023) Common Stock Sold for Cash 6,755 3,243 Dividends Paid to Shareholders (26,295) (17,093) Net Cash Provided by/(Used in) Financing Activities 728,834 (134,768) Net Decrease in Cash and Cash Equivalents (125,903) (70,478) North Side Activity for the Three Months Ended December 31, 1995 - 60,747 Cash and Cash Equivalents at Beginning of the Period 267,663 148,809 Cash and Cash Equivalents at End of the Period $141,760 $139,078
6 Consolidated Statements of Cash Flows, Continued (Unaudited) For the Period Ended September 30, 1997 1996 (in thousands) Supplemental Disclosures of Cash Flow Information: Cash Paid During the Period for: Interest Expense $144,260 $134,766 Income Taxes $32,442 $19,789 Supplemental Schedule of Noncash Investing and Financing Activities: Real Estate Acquired in Settlement of Loans $3,993 $3,616 During March 1996, the Company acquired the domestic commercial banking business of Extebank and assumed $572 million in deposit liabilities from First Nationwide Bank. In connection with these acquisitions, the following assets were acquired and liabilities assumed: Fair Value of Assets Acquired $920,047 Intangible Assets 61,072 Cash Paid for the Common Stock (47,000) Liabilities Assumed $934,119
7 Consolidated Statements of Changes in Stockholders' Equity (dollars in thousands, except per share amounts) Additional Unrealized Common Paid in Retained Deferred Treasury Securities Stock Capital Earnings Comp. Stock Gains/(Losses) Total Balance, December 31, 1995 $80,862 $175,617 $167,379 ($1,585) ($653) $4,509 $426,129 Net Income - - 58,353 - - - 58,353 Cash Dividends (The Registrant $.30 per share) - - (14,608) - - - (14,608) Cash Dividends-North Side Pre-Merger - - (4,821) - - - (4,821) Issuance of Common Stock (513,926 shares) 638 2,980 - - - - 3,618 Deferred Compensation Activity: Restricted Stock Activity, net (68,610 shares) - 440 - (682) 606 - 364 Amortization of Other Deferred Compensation Plans - - - 132 - - 132 Purchase of Treasury Stock (1,845,800 shares) - - - - (22,566) - (22,566) Sale of Treasury Stock (40,320 shares) - 50 - - 493 - 543 North Side Common Stock Retirement (749,992 shares) (936) (7,549) - - - - (8,485) North Side Net Income for the Three Months Ended December 31, 1995 - - 5,834 - - - 5,834 Adjustment to Unrealized Gains/(Losses) on Securities Available-for-Sale, Net of taxes - - - - - (13,583) (13,583) Balance, September 30, 1996 $80,564 $171,538 $212,137 ($2,135) ($22,120) ($9,074) $430,910 Balance, December 31, 1996 $81,499 $180,809 $206,895 ($5,193) ($3,846) ($2,633) $457,531 Net Income - - 85,279 - - - 85,279 Cash Dividends ($.425 per share) - - (28,083) - - - (28,083) Issuance of Common Stock for the Two-for-One Stock Split (32,976,384 shares) 82,441 (82,441) - - - - - Issuance of Common Stock (845,193 shares) 1,171 5,584 - - - - 6,755 Restricted Stock Activity, net (249,310 shares) - 5,688 - (7,816) 2,978 - 850 Amortization of Permanent Unrealized Loss upon Transfer of Securities from Available-for-Sale to Held-to-Maturity, Net of taxes - - (160) - - (385) (545) Adjustment to Unrealized Gains/(Losses) on Securities Available-for-Sale, Net of taxes - - - - - 16,494 16,494 Balance, September 30, 1997 $165,111 $109,640 $263,931 ($13,009) ($868) $13,476 $538,281
8 North Fork Bancorporation, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) September 30, 1997 and 1996 Basis of Presentation The accounting and reporting policies of North Fork Bancorporation, Inc. (the "Registrant"), and its Bank (the "Bank") and non-bank subsidiaries, are in conformity with generally accepted accounting principles and prevailing practices within the financial services industry. The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Such estimates are subject to change in the future as additional information becomes available or previously existing circumstances are modified. Actual results could differ from those estimates. These statements should be read in conjunction with the Registrant's summary of significant accounting policies which are incorporated herein by reference in its 1996 Annual Report on Form 10-K. Results of operations for the three and nine months ended September 30, 1997 are not necessarily indicative of the results of operations which may be expected for the full year 1997 or any other interim periods. Business Combinations Completed Acquisitions On December 31, 1996, North Side Savings Bank ("North Side") was merged with and into the Registrant in a transaction accounted as a pooling-of-interests. Accordingly, the financial results for all prior periods presented include the accounts of North Side. The Registrant's previously reported components of consolidated income and the amounts reflected in the accompanying consolidated statements of income for the three and nine months ended September 30, 1996, are as follows (in thousands): Three Months Nine Months Ended Ended Sept. 30, Sept. 30, Net Interest Income 1996 1996 As Previously Reported $46,618 $130,684 North Side 13,338 38,732 Combined $59,956 $169,416 Net Income As Previously Reported $13,275 $44,836 North Side 4,520 13,517 Combined $17,795 $58,353
North Side's reporting period had been as of and for the year ended September 30, whereas the Registrant utilizes a calendar year basis. North Side's results for 1996 have been conformed to the calendar year reporting period of the Registrant. See "Note 2(a) - Business Combinations" of the Registrant's 1996 Annual Report on Form 10-K for further discussion of this transaction. In March 1996, the Bank completed its purchase of the domestic commercial banking business of Extebank ("Extebank") and ten Long Island branch locations of First Nationwide Bank ("First Nationwide"). These transactions were accounted for under the purchase method of accounting and, accordingly, the Registrant's consolidated results of operations only reflect activity subsequent to the acquisition dates. See "Note 2(b) - Business Combinations" of the Registrant's 1996 Annual Report on Form 10-K for further discussion of these transactions. 9 Pending Transactions On October 7, 1997, the Registrant entered into an agreement and plan of merger with New York Bancorp whereby it would acquire New York Bancorp in a stock-for-stock exchange valued at approximately $800 million. Under the terms of the agreement, each share of New York Bancorp common stock will be converted into the Registrant's common stock at a fixed exchange ratio of 1.19. The agreement permits New York Bancorp to terminate the transaction if the average closing price of the Registrant's shares falls below $25.50 for the ten consecutive trading days ending on the date on which the last of all regulatory approvals required to consummate the transactions contemplated by the merger agreement is obtained, unless the Registrant elects to increase the exchange ratio so that the value of the Registrant's common stock to be received in respect to each New York Bancorp common share is not less than $30.35. The Registrant also received an option to acquire up to 19.9% of New York Bancorp outstanding shares at $30.50 per share should certain events occur as set forth in the stock option agreement between the Registrant and New York Bancorp. The transaction is expected to be treated as a tax-free reorganization and accounted for using the pooling-of-interests method. It is anticipated that the transaction will close by March 31, 1998, following receipt of required regulatory approvals, approvals by shareholders of both companies and, certain other customary closing conditions. New York Bancorp had total assets of $3.2 billion, deposits of $1.7 billion and stockholders equity of $169.1 million at September 30, 1997. It operates 31 full service branch offices throughout Kings, Queens, Westchester, Nassau, and Suffolk counties of New York. On July 24, 1997, the Registrant entered into an agreement and plan of merger with Branford Savings Bank ("Branford"), whereby it would acquire Branford in a stock-for-stock exchange valued at approximately $38 million. Under the terms of the agreement, each share of Branford common stock will be exchanged for $5.25 of the Registrant's common stock, with a minimum of .1957 shares and a maximum of .2648 shares issued. The agreement permits the Registrant to increase the exchange ratio if the average price of its common stock during the pricing period falls below $19.83. The agreement also provides that Branford may terminate the merger if the Registrant elects not to increase the exchange ratio. The Registrant also received an option to acquire up to 19.9% of Branford voting common stock at $4.75 per share should certain events occur. The transaction is expected to be treated as a tax-free reorganization and accounted for as a purchase for financial reporting purposes. It is anticipated that the transaction will close by December 31, 1997, following receipt of required regulatory approvals, approval by Branford's shareholders, and certain other customary closing conditions. Branford had total assets of $183 million, deposits of $162 million and stockholders' equity of $18 million at September 30, 1997. It operates five banking offices throughout the Connecticut county of New Haven. Common Stock Split On February 25, 1997, the Board of Directors approved a two-for-one common stock split. The additional shares were issued on May 15, 1997 to shareholders of record on April 25, 1997. The par value of the Registrant's common stock remained unchanged at $2.50. As a result, $82.4 million was transferred from Additional Paid in Capital to Common Stock to reflect this issuance. All per share, weighted average shares outstanding and option data presented in the consolidated financial statements have been retroactively adjusted to reflect the effects of the split. 10 RECENT ACCOUNTING DEVELOPMENTS Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities In June 1996, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 125"). SFAS 125 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities based on consistent application of a financial-components approach that focuses on control. Under this approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes the financial assets when control has been surrendered, and derecognizes liabilities when extinguished. This statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. SFAS 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996. In December 1996, the FASB issued statement of Financial Accounting Standards No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125" ("SFAS 127"). SFAS 127 delays for one year the implementation of SFAS 125, as it relates to (1) secured borrowings and collateral, and (2) transfers of financial assets that are part of repurchase agreements, dollar-rolls, securities lending and similar transactions. The Registrant has adopted portions of SFAS 125 (those not deferred by SFAS 127) effective January 1, 1997. Adoption of these portions did not have a material effect on the Registrant. Based on its review of SFAS 125, management does not believe the portions of SFAS 125 which have been deferred by SFAS 127 will have a material effect on the Registrant. Earnings Per Share In February 1997, the FASB issued Statement of Financial Accounting Standard No. 128 "Earnings Per Share" ("SFAS 128"). SFAS 128 simplifies the standards for computing and presenting earnings per share ("EPS") previously found in APB Opinion No. 15, Earnings Per Share, and makes them comparable to international EPS standards. It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB Opinion No.15. SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997. Management is currently assessing the financial implications of implementing SFAS 128 and believes the adoption will not have a material adverse effect on reported earnings per share. Reporting Comprehensive Income In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. SFAS 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS 130 also requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in-capital in the equity section of a statement of financial position. SFAS 130 is effective for fiscal years beginning after December 15, 1997. Reclassification of prior periods will be required. Management is currently assessing the financial implications of implementing SFAS 130 and believes that adoption will not have a material adverse effect on the Registrant. 11 Disclosure about Segments for an Enterprise and Related Information In June 1997, the FASB issued statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for the way an enterprise reports information about operating segments in annual financial statements and requires that enterprises report selected information about operating segments in interim financial reports issued to shareholders. Operating segments are components of an enterprise about which separate financial information is available, that are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS 131 requires a reconciliation of total segment revenues, total segment profit or loss, total segment assets and other amounts disclosed for segments to the amounts in the enterprise's financial statements. It also requires an enterprise to report descriptive information about the way the operating segments were determined, the products and services provided by the operating segments, and any differences between the measurements used for segment reporting and financial statement reporting. SFAS 131 is effective for fiscal years beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be restated. Management is currently assessing the financial implications of implementing SFAS 131 and believes that the adoption will not have a material adverse effect on the Registrant. Management's Discussion & Analysis Overview Three Months Ended Nine Months Ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, (in thousands, except ratios 1997 1996 1997 1996 & per share amounts) Earnings: Net Income $29,893 $17,795 $85,279 $58,353 Per Share: Net Income $0.45 $0.28 $1.29 $0.90 Cash Dividends $0.15 $0.10 $0.425 $0.30 Book Value $8.16 $6.88 $8.16 $6.88 Average Equivalent Shares 66,515 63,641 66,215 64,757 Selected Ratios: Return on Average Total Assets 1.79% 1.23% 1.80% 1.42% Return on Average Stockholders' Equity 22.89% 16.98% 23.32% 18.28% Core Efficiency Ratio 36.89% 42.60% 38.16% 42.25% Net Interest Margin 4.60% 4.49% 4.73% 4.44%
The Registrant recognized net income of $85.3 million, or $1.29 per share, for the first nine months of 1997, as compared with net income of $58.4 million, or $.90 per share earned in 1996. Return on average total assets and return on average stockholders' equity was 1.80% and 23.32%, respectively, for the nine months ended September 30, 1997 as compared to 1.42% and 18.28%, respectively, for the comparable prior year period. Net income for the third quarter ended September 30, 1997 was $29.9 million, or $.45 per share, as compared with net income of $17.8 million, or $.28 per share in 1996. Return on average total assets and return on average stockholders' equity was 1.79% and 22.89%, respectively, for the quarter ended September 30, 1997 as compared to 1.23% and 16.98%, respectively, for the comparable prior year period. The 1997 third quarter results, when compared with the comparable prior year period, reflect a $11.2 million increase in net interest income, a $1.9 million increase in non-interest income, exclusive of net securities gains,and a $.2 million decrease in the provision for loan losses. Additionally, the 1996 third quarter results contained an $8.4 million non-recurring charge relating to the Savings Association Insurance Fund ("SAIF") Recapitalization. This activity was partially offset by a $1.4 million decline in net securities gains, a $1.1 million increase in non-interest expense exclusive of the SAIF Recapitalization charge and a $7.1 million increase in the provision for income taxes. Net Interest Income Net interest income, which represents the difference between interest earned on interest earning assets and interest incurred on interest bearing liabilities, is the Registrant's primary source of earnings. Net interest income is affected by the level and composition of assets, liabilities and equity, as well as changes in market interest rates. 12 Net interest income increased $11.2 million or 18.7% to $71.2 million for the 1997 third quarter, as compared to $60.0 million for the comparable prior year period. This growth was achieved through a significant increase in the level of average interest earning assets and a modest improvement in the net interest margin. The net interest margin on a taxable equivalent basis grew to 4.60% during the most recent quarter when compared to 4.49% during the 1996 comparable period. Factors contributing to the widening in the net interest margin included: (a) a change in the composition of average interest earning assets; (b) higher levels of non-interest bearing customer deposit liabilities; (c) the issuance of $100 million in capital securities, and (d) increased levels of capital. The positive impact of these factors was offset by an increase in the level of higher costing wholesale liabilities. Interest income increased 19.4% to $126.3 million for the third quarter when compared to $105.8 million for the comparable prior year period. This increase is attributable to a $892.5 million or 16.5% increase in average interest earning assets to $6.3 billion for the 1997 third quarter, as compared to $5.4 billion during the comparable 1996 period, and a change in the composition of average interest earning assets as evidenced by the increase in yield on such assets to 8.07% as compared to 7.85%. During 1997, management entered into a capital management strategy, whereby it leveraged its excess capital to generate additional net interest income. As a result of the increase in the level of interest earning assets, which were funded principally with repurchase agreements of varied maturities, additional net interest income was generated. Average loans , net of unearned income increased $555.2 million or 19.0% to $3.5 billion for the 1997 third quarter, representing 55% of average interest earning assets, when compared to $2.9 billion, or 54% of average interest earning assets, for the comparable prior year period. This level of growth was achieved through continued strong demand in virtually all loan categories (See "Loan Portfolio" section of this report for a detailed breakdown of the loan portfolio). The corresponding yield on average loans declined modestly to 8.79% during the most recent quarter when compared to 8.82% for the 1996 comparable period. Average loans, net of unearned income, represented 78.2% of average deposits for the quarter ended September 30, 1997. Average securities increased $331.5 million or 13.4% to $2.8 billion for the 1997 third quarter when compared to $2.5 billion for the comparable prior year period (See "Securities Portfolio" section of this report for a detailed breakdown of the securities portfolio). The overall yield on the securities portfolio improved to 7.19% during the most recent quarter as compared to 6.73% during 1996. This 46 basis point improvement was achieved principally through the investment of the proceeds generated from the aforementioned leverage strategy into higher yielding securities, which reflected market interest rates at the time of investment. Interest expense increased to $55.1 million in the third quarter of 1997, reflecting a 4.30% cost of funds, as compared with $45.8 million, and a 4.00% cost of funds in 1996. This increase resulted from the $525.4 million increase in the level of average interest bearing liabilities, primarily, securities sold under agreements to repurchase, which was partially offset by a decline in the level of average interest bearing customer deposit liabilities. Average total savings and time deposits declined $190.4 million or 5.0% to $3.6 billion during 1997, when compared to $3.8 billion during 1996. The overall cost of funds on average savings and time deposits declined modestly to 3.61% during the most recent quarter from 3.64% during the comparable 1996 period. Both interest bearing customer deposit liability levels and the corresponding cost of funds declined principally as a result of management implementing its pricing strategy on customer deposit liabilities assumed in its 1996 acquisitions. Average demand deposits increased $120.5 million or 17.2% to $821.1 million during the third quarter of 1997 as compared to $700.6 million for 1996. The growth in the level of demand deposits has resulted from management's emphasis on converting its acquired savings bank locations into full service commercial banking locations, and an emphasis on developing deposit relationships with its borrowers. At September 30, 1997, demand deposits represented 18.4% of total deposits as compared to 15.5% at September 30, 1996. 13 The following table sets forth a summary analysis of the relative impact on net interest income of changes in the average volume of interest earning assets and interest bearing liabilities and changes in average rates on such assets and liabilities. Due to the numerous simultaneous volume and rate changes during the period analyzed, it is not possible to precisely allocate changes between volumes and rates. For presentation purposes, changes which are not solely due to volume changes or rate changes have been allocated to these categories based on the respective percentage changes in average volume and average rates as they compare to each other. In addition, average interest earning assets include non-accrual loans. Three Months Ended Nine Months Ended For the Periods Ended September 30, 1997 vs. 1996 1997 vs. 1996 Change in Change in Average Average Net Interest Average Average Net Interest (in thousands) Volume Rate Income Volume Rate Income Interest Income from Earning Assets: Interest Earning Deposits $3 ($2) $1 ($54) ($13) ($67) Securities 5,900 3,128 9,028 11,094 9,882 20,976 Loans, net of unearned income & fees 12,465 (201) 12,264 44,211 (1,176) 43,035 Federal Funds Sold 78 12 90 (1,951) 92 (1,859) Total Interest Income 18,446 2,937 21,383 53,300 8,785 62,085 Interest Expense on Liabilities: Savings, N.O.W & Money Market Deposits (549) (265) (814) (748) (1,478) (2,226) Time Deposits (1,089) (5) (1,094) 1,079 (1,727) (648) Federal Funds Purchased and Securities Sold Under Agreements to Repurchase 10,282 446 10,728 22,519 1,340 23,859 Other Borrowings 596 (119) 477 424 (109) 315 Total Interest Expense 9,240 57 9,297 23,274 (1,974) 21,300 Net Change in Net Interest Income $9,206 $2,880 $12,086 $30,026 $10,759 $40,785 The above table is presented on a tax equivalent basis.
14 The following tables present an analysis of net interest income by each major category of interest earning assets and interest bearing liabilities for the three and nine months ended September 30, 1997 and 1996, respectively: For the Three Months Ended September 30, 1997 1996 Average Average Average Average (dollars in thousands ) Balance Interest Rate Balance Interest Rate Interest Earning Assets: Interest Earning Deposits $2,849 $36 5.01% $2,657 $35 5.24% Securities 2,812,132 50,988 7.19% 2,480,639 41,960 6.73% Loans, net of unearned income & fees 3,480,391 77,120 8.79% 2,925,239 64,856 8.82% Federal Funds Sold 20,397 281 5.47% 14,744 191 5.15% Total Interest Earning Assets 6,315,769 128,425 8.07% 5,423,279 107,042 7.85% Allowance for Loan Losses (56,311) (56,766) Cash and Due from Banks 116,597 153,505 Other Non-Interest Earning Assets (1) 240,885 213,576 Total Assets $6,616,940 $5,733,594 Interest Bearing Liabilities: Savings, N.O.W & Money Market Deposits $1,903,651 $10,576 2.20% $2,005,414 $11,390 2.26% Time Deposits 1,726,833 22,473 5.16% 1,815,426 23,567 5.16% Total Savings and Time Deposits 3,630,484 33,049 3.61% 3,820,840 34,957 3.64% Federal Funds Purchased & Securities Sold Under Agreements to Repurchase 1,383,389 20,818 5.97% 700,746 10,090 5.73% Other Borrowings 72,500 1,273 6.97% 39,348 796 8.05% Total Interest Bearing Liabilities 5,086,373 55,140 4.30% 4,560,934 45,843 4.00% Rate Spread 3.77% 3.85% Non-Interest Bearing Deposits 821,068 700,565 Other Non-Interest Bearing Liabilities 91,815 55,128 Total Liabilities 5,999,256 5,316,627 Company-Obligated Mandatorily Redeemable Capital Securities of Subsidiary Trust 99,645 - Stockholders' Equity 518,039 416,967 Total Liabilities and Stockholders' Equity $6,616,940 $5,733,594 Net Interest Income and Net Interest Margin 73,285 4.60% 61,199 4.49% Less: Tax Equivalent Basis Adjustment (2,093) (1,243) Net Interest Income $71,192 $59,956 (1) Unrealized gains/(losses) on available-for-sale securitiesa are recorded in other non-interest earning assets.
15 For the Nine Months Ended September 30, 1997 1996 Average Average Average Average (dollars in thousands ) Balance Interest Rate Balance Interest Rate Interest Earning Assets: Interest Earning Deposits $2,701 $106 5.25% $4,057 $173 5.70% Securities 2,648,635 142,327 7.18% 2,430,065 121,351 6.67% Loans, net of unearned income & fees 3,353,105 221,871 8.85% 2,683,147 178,836 8.90% Federal Funds Sold 14,096 576 5.46% 61,883 2,435 5.26% Total Interest Earning Assets 6,018,537 364,880 8.11% 5,179,152 302,795 7.81% Allowance for Loan Losses (55,563) (57,900) Cash and Due from Banks 123,309 137,065 Other Non-Interest Earning Assets (1) 260,260 224,171 Total Assets $6,346,543 $5,482,488 Interest Bearing Liabilities: Savings, N.O.W & Money Market Deposits $1,935,714 $31,836 2.20% $1,979,216 $34,062 2.30% Time Deposits 1,751,446 67,370 5.14% 1,723,174 68,018 5.27% Total Savings and Time Deposits 3,687,160 99,206 3.60% 3,702,390 102,080 3.68% Federal Funds Purchased & Securities Sold Under Agreements to Repurchase 1,125,692 50,048 5.94% 617,346 26,189 5.67% Other Borrowings 47,637 2,723 7.64% 40,255 2,408 7.99% Total Interest Bearing Liabilities 4,860,489 151,977 4.18% 4,359,991 130,677 4.00% Rate Spread 3.93% 3.81% Non-Interest Bearing Deposits 789,233 627,718 Other Non-Interest Bearing Liabilities 108,172 68,493 Total Liabilities 5,757,894 5,056,202 Company-Obligated Mandatorily Redeemable Capital Securities of Subsidiary Trust 99,641 - Stockholders' Equity 489,008 426,286 Total Liabilities and Stockholders' Equity $6,346,543 $5,482,488 Net Interest Income and Net Interest Margin 212,903 4.73% 172,118 4.44% Less: Tax Equivalent Basis Adjustment (5,422) (2,702) Net Interest Income $207,481 $169,416 (1) Unrealized gains/(losses) on available-for-sale securities are recorded in other non-interest earning assets.
Non-Interest Income Non-interest income, exclusive of net securities gains, increased 25.6% to $ 9.5 million in the 1997 third quarter, when compared to $7.6 million in the comparable prior year period. The increase during the most recent quarter resulted from a $.5 million or 12.8% increase in fees and service charges on deposit accounts to $4.8 million, a $.9 million or 61.3% increase in broker commissions and trust fees to $2.3 million and, a $.5 million or 35% increase in other operating income to $1.8 million. The growth experienced in non-interest income is attributable to the Registrant's success in delivering expanded products and services through the additional retail outlets and expanded customer base through the Registrant's 1996 acquisitions. Non-Interest Expense Non-interest expense, exclusive of the $8.4 million non-recurring SAIF Recapitalization charge recognized during the third quarter of 1996, increased $1.1 million during the 1997 third quarter to $30.6 million compared to $29.5 million during the comparable prior year period. The increase in non-interest expense during the 1997 third quarter principally reflects the carrying costs of approximately $2.2 million associated with the December 1996 issuance of $100 million in 8.70% capital securities. The Registrant's core efficiency ratio, which represents the ratio of non-interest expense, net of other real estate costs and other non-recurring charges, to net interest income on a taxable equivalent basis and non-interest income net of securities gains, was 36.89% and 38.16% for the three and nine months ended September 30, 1997, respectively, as compared to 42.60% and 42.25%, respectively, for the comparable prior year periods. The reduction in the core efficiency ratio resulted from management's success in increasing net interest income and achieving the operating efficiencies and revenue enhancements anticipated with its 1996 acquisitions. Management continually monitors its operating costs to ensure a high degree of customer service in the most efficient manner possible. 16 Income Taxes The Registrant's effective tax rate was 38.6% for the 1997 third quarter, as compared to 39.6% for the comparable prior year period. The Registrant's effective tax rate was 39.1% for the nine months ended, September 30, 1997, as compared to 40.4% for the comparable prior year period. The modest decline in the Registrant's effective tax rate for the aforementioned periods was achieved through the implementation of certain tax planning strategies. Loan Portfolio The following table represents the components of the loan portfolio for the periods indicated (dollars in thousands): Sept. 30, % of December 31, % of Sept. 30, % of 1997 Total 1996 Total 1996 Total Mortgage Loans-Multi-family $1,134,593 32% $956,718 29% $836,584 27% Mortgage Loans-Residential 976,658 28% 985,983 31% 970,755 32% Mortgage Loans-Commercial 657,157 19% 635,042 20% 593,132 20% Commercial & Industrial 409,949 12% 347,437 11% 344,506 12% Consumer Loans and Leases 294,156 8% 219,127 7% 196,373 7% Construction and Land Loans 52,801 1% 49,779 2% 53,517 2% $3,525,314 100% $3,194,086 100% $2,994,867 100%
The loan portfolio is concentrated primarily in loans secured by real estate in the New York metropolitan area. The risk inherent in this portfolio is dependent not only upon regional and general economic stability which affects property values, but also the financial well-being and creditworthiness of the borrowers. Total loans increased $331.2 million from $3.2 billion at December 31, 1996 to $3.5 billion at September 30, 1997, representing an annualized increase of 13.8%, due to continued strong demand in virtually all loan categories. Asset Quality The components of non-performing assets and restructured, accruing loans are delineated below (in thousands): Sept. 30, December 31, Sept. 30, 1997 1996 1996 Loans Ninety Days Past Due and Still Accruing $2,043 $2,596 $3,324 Non-Accrual Loans 10,256 17,745 21,602 Non-Performing Loans 12,299 20,341 24,926 Other Real Estate 5,499 1,898 3,751 Non-Performing Assets $17,798 $22,239 $28,677 Restructured, Accruing Loans $12,204 $13,734 $14,292
At September 30, 1997, non-performing assets, which include loans past due ninety days and still accruing interest, non-accrual loans and other real estate, declined to $17.8 million when compared to $22.2 million at December 31, 1996. During the most recent quarter the Registrant sold for cash approximately $6.5 million in non-performing loans and potential problem loans against which it recognized a $1.8 million charge to the allowance for loan losses. Non-performing assets declined $10.9 million at September 30, 1997 when compared to $28.7 at September 30, 1996. Non-performing loans at September 30, 1997 consisted of $4.0 million in commercial loans, $2.6 million in commercial mortgages, $4.4 million in residential mortgages, $.1 million in construction and land loans, $1.1 million in consumer loans and leases. Loans are classified as restructured when management has granted, for economic or legal reasons related to the borrower's financial difficulties, concessions to the customer that it would not otherwise consider. Generally, this occurs when the cash flow of the borrower is insufficient to service the loan under its original terms. Loans restructured are reported as such in the year of restructuring. In subsequent reporting periods, if the loan was restructured to yield a market rate of interest, is performing in accordance with the restructure terms and management expects such performance to continue, the loan is then removed from its restructured status. Restructured, accruing loans declined modestly to $12.2 million at September 30, 1997, as compared with $13.7 million at December 31, 1996, and declined $2.1 million from $14.3 million at September 30, 1996. The decline in the level of restructured accruing loans was achieved through principal repayments, maturities and renewals at market terms, and the satisfaction of the performance requirements on certain of these loans during the past year. 17 At September 30, 1997, the portfolio of restructured, accruing loans is comprised primarily of loans which have demonstrated performance in accordance with the terms of their restructure agreements, however, did not yield a market rate of interest at the time of restructuring. The following table represents a summary of the changes in the allowance for loan losses (in thousands): For the Nine Months Ended Sept. 30, 1997 1996 Balance at Beginning of Year $53,894 $56,627 Provision for Loan Losses 4,500 5,100 Recoveries Credited to the Allowance 1,522 1,445 59,916 63,172 Losses Charged to the Allowance (5,305) (11,756) Additional Allowance Acquired in Purchase Acquisitions - 3,092 North Side Net Activity for the Three Months Ended December 31,1995 - 190 Balance at End of Period $54,611 $54,698 Net Charge-Offs to Average Loans, Net of Unearned Income & Fees 0.15% 0.51% Allowance of Loan Losses to Period End Loans, net of unearned income & fees 1.56% 1.84% Ratio of Allowance for Loan Losses to Non-performing Loans Inclusive of 90 day Delinquencies 444% 219%
Management determines what it deems to be the appropriate level of the allowance for loan losses on an ongoing basis by reviewing individual loans, as well as the composition of and trends in the loan portfolio. Management considers, among other items, concentrations within segments of the loan portfolio, delinquency trends, as well as recent charge-off experience and third party evidentiary matter (such as appraisals) when assessing the degree of credit risk in the portfolio. Various appraisals and estimates of current value influence the estimation of the required allowance at any point in time. There has been significant growth in the loan portfolio over the past two years from both originations and acquisitions. Loan growth through originations has principally been in multi-family lending, commercial mortgages, and consumer loans. Multi-family mortgage loans generally are for $1 - $3 million and are secured by properties located in metropolitan New York area, where demand for such housing is strong. Commercial mortgage loans generally are originated in amounts up to $5 million and are secured by a wide variety of collateral types ranging from owner occupied to investment properties with strong cash flows. To mitigate credit risk, management utilizes prudent underwriting standards, including loan-to-value ratios of generally 70% or less, and monitors operating results and collateral value carefully. The growth in consumer loans has resulted from management's decision to expand its indirect dealer network. Through this network the Registrant increased consumer loan originations, principally new car loans. The credit risk in auto lending is dependent upon the creditworthiness of the borrower and the value of the collateral. The average loan originated is generally between $15 - $20 thousand for periods ranging from 24 - - - 60 months. The Bank accepts substantially only "A" rated paper, which are borrowers without past credit history problems. The provision for loan losses declined to $1.5 million during the current quarter, as compared to $1.7 million in the 1996 comparable period. While management uses available information in estimating possible loan losses, future additions to the allowance may be necessary based on future changes in economic conditions. Based on current economic conditions, management considers the allowance for loan losses at September 30, 1997 adequate to cover the possible credit losses inherent in the loan portfolio. 18 Securities Portfolio The composition of and the amortized cost and estimated fair values of held-to-maturity and available-for-sale securities portfolios were as follows (in thousands): Sept. 30, 1997 December 31, 1996 Sept. 30, 1996 Held-to-Maturity Securities Amortized Fair Amortized Fair Amortized Fair Cost Value Cost Value Cost Value Mortgage-Backed Securities $1,038,712 $1,040,294 $1,162,814 $1,156,310 $883,604 $867,509 State & Municipal Obligations 114,569 115,814 121,945 121,664 122,631 120,961 U.S. Government Agencies' Obligations 2,429 2,372 2,601 2,601 2,662 2,662 Other Securities 10,619 10,663 12,755 12,897 19,750 19,909 $1,166,329 $1,169,143 $1,300,115 $1,293,472 $1,028,647 $1,011,041
Sept. 30, 1997 December 31, 1996 Sept. 30, 1996 Available-for-Sale Amortized Fair Amortized Fair Amortized Fair Cost Value Cost Value Cost Value Mortgage-Backed Securities $1,256,621 $1,268,565 $648,302 $646,825 $1,177,793 $1,165,379 U.S. Government Agencies' Obligations 136,497 138,593 94,262 93,251 $70,418 $70,030 U.S. Treasury Securities 29,881 29,976 78,760 76,990 $118,389 $115,020 Other Securities 186,418 196,603 39,728 40,325 $46,075 $46,256 $1,609,417 $1,633,737 $861,052 $857,391 $1,412,675 $1,396,685
Management's strategy for the securities portfolio is to maintain a short-weighted average life to minimize the exposure to future rises in interest rates and to provide cash flows that may be reinvested at current market interest rates. The combined weighted average lives of the held-to-maturity and available-for-sale securities portfolios at September 30, 1997 was 4.9 years. During the most recent quarter securities available-for-sale increased $776.3 million to $1.6 billion when compared to $.9 billion at December 31, 1996. This increase resulted from management's decision to leverage the Registrant's excess capital through the purchase of mortgage backed securities funded with repurchase agreements of varied maturities. The net unrealized gain on securities available-for-sale improved to $24.3 million at September 30, 1997, as compared with a net unrealized loss of $3.7 million at December 31, 1996. This improvement was attributable to lower market interest rates and appreciation on the equities portfolio at September 30, 1997. Mortgage-backed securities ("MBS") classified as held-to-maturity included $626.6 million in collateralized mortgage obligations ("CMO") at September 30, 1997. Mortgage-backed securities classified as available-for-sale included $564.2 million in CMO's at September 30, 1997. These CMO securities, collateralized by either U.S. Government Agency MBS's or whole loans, are principally conservative current pay sequentials or PAC structures with a current weighted average life of 3.3 years. The prepayment of MBS's, including CMO's, is actively monitored through the portfolio management function. Management typically invests in MBS's with stable cash flows and relatively short duration, thereby limiting the impact of interest rate fluctuations on the portfolio. Management regularly performs simulation testing to assess the impact that interest and market rate changes would have on its MBS portfolio. At September 30, 1997, other securities maintained in the available-for-sale portfolio were comprised principally of common stock, preferred stock, and capital securities of other financial institutions. At September 30, 1997, held-to-maturity securities carried at $477 million and available-for-sale securities carried at $1.2 billion were pledged for various purposes as required by law and to secure securities sold under agreements to repurchase and other borrowings. 19 Borrowings Federal Funds & Purchased Securities Sold Under Repurchase Agreement Federal funds purchased & securities sold under agreements to repurchase increased $709.2 million from $621.8 million at December 31, 1996 to $1.3 billion at September 30, 1997. These increased borrowing arrangements were entered into to principally fund the purchases of mortgage-backed securities as previously discussed. At September 30, 1997, federal funds purchased & securities sold under agreements to repurchase were comprised of $388.7 million in short-term arrangements (arrangements with an original maturity less than one year), at a 5.68% cost of funds and $942.4 million in intermediate term arrangements, (arrangements with original maturities ranging from one to five years) at 6.01% cost of funds, for an overall weighted average cost of funds of 5.92%. Qualifying repurchase agreements are treated as financings and the obligations to repurchase securities sold are reflected as liabilities in the balance sheet. The dollar amount of securities underlying the agreements remains in the asset accounts, although the securities underlying the agreements are delivered to the brokers who arranged the transactions. Other Borrowings During 1994, the Registrant issued a $25.0 million, 7.56% Senior Note (the "Note") due April 20, 1999. The Note imposes certain restrictions on the Registrant. These restrictions include, but are not limited to, the maintenance of certain capital levels, limitations on the payment dividends, limitations on the repurchase of common stock, and additionally, the Note contains certain prepayment penalties. At September 30, 1997, the Registrant was in compliance with the covenants of the Note. At September 30, 1997, the Registrant had $10 million in long-term Federal Home Loan Bank advances outstanding. These advances bear an interest rate of 10% and mature on April 28, 1999. Additionally, the Registrant had $50 million in short-term Federal Home Loan Bank advances outstanding, at an interest ratio of 5.69%. These Federal Home Loan Bank advances are collateralized with mortgage loans. Asset/Liability Management The Registrant's primary earnings source is the net interest margin, which is affected by changes in the level of interest rates, the relationship between rates, the impact of interest rate fluctuations on asset prepayments, the level and composition of deposits, and the credit quality of the portfolio. Management's asset/liability objectives are to maintain a strong, stable net interest margin, to utilize its capital effectively without taking undue risks and to maintain adequate liquidity. The Registrant's risk assessment program includes a coordinated approach to the management of liquidity, capital and interest rate risk. This risk assessment process is governed by policies and limits established by senior management which are reviewed and approved by the Asset/Liability Committee of the Board of Directors ("ALCO"). ALCO, comprised of members of senior management and the Board, meets periodically to evaluate the impact of changes in market interest rates on assets and liabilities, net interest margin, capital and liquidity, and to evaluate the Registrant's strategic plans. The balance sheet structure is primarily short-term with most assets and liabilities repricing or maturing in less than five years. Management monitors the sensitivity of net interest income by utilizing a dynamic simulation model complemented by traditional gap analysis. This model measures net interest income sensitivity and volatility to interest rate changes; it involves a degree of estimation based on certain assumptions that management believes to be reasonable. Factors considered include actual maturities, estimated cash flows, repricing characteristics, deposit growth/retention and, primarily, the relative sensitivity of assets and liabilities to changes in market interest rates. Utilizing this process, management can project the impact of changes in interest rates on net interest income. This relative sensitivity is important to consider since the Bank's core deposit base is not subject to the same degree of interest rate sensitivity as its assets. Core deposit costs are internally controlled and generally exhibit less sensitivity to changes in interest rates than the adjustable rate assets whose yields are based on external indices and change in concert with market interest rates. Liquidity The objective of liquidity management is to ensure the availability of sufficient resources to meet all financial commitments and to capitalize on opportunities for business expansion. Liquidity management addresses the ability to meet deposit withdrawals either on demand or contractual maturity, to repay other borrowings as they mature and to make new loans and investments as opportunities arise. The Registrant's sources of liquidity include dividends from its subsidiaries, borrowings, and funds available through 20 the capital markets. Dividends from the Bank are limited by New York State Banking Department regulations to the current year's earnings plus the prior two years' retained net profits. Pursuant to this regulation, the Bank had $126.6 million of retained earnings available for dividends to the Registrant as of September 30, 1997. The Bank has numerous sources of liquidity including loan and security principal repayments and maturities, lines of credit with other financial institutions, the ability to borrow under repurchase agreements utilizing its unpledged securities portfolio, the sale of securities from its available-for-sale portfolio, the securitization of loans within the portfolio, whole loan sales and growth in its core deposit base. At September 30, 1997 the bank had aggregate lines of credit of $150 million with corespondent banks to provide short-term credit for regulatory liquidity requirements. The Bank has the ability, as a member of the Federal Home Loan Bank ("FHLB") system, to borrow $615 million on a secured basis, utilizing mortgage related loans and securities as collateral, for terms ranging from one day to ten years at both fixed and variable rates. As of September 30, 1997, the Bank had $270.4 million in such borrowings outstanding. The Registrant's and the Bank's liquidity positions are monitored daily to ensure the maintenance of an optimum level and efficient use of available funds. Management believes that the Registrant and Bank have sufficient liquidity to meet their operating requirements. On September 23, 1997, the Board of Directors declared a quarterly cash dividend of $0.15 per share payable November 14, 1997 to shareholders of record at the close of business October 23, 1997. Capital The Registrant and the Bank are subject to the risk based capital guidelines administered by the banking regulatory agencies. The risk based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Under these guidelines, assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk weighted assets and off-balance sheet items. The guidelines currently require all banks and bank holding companies to maintain a minimum ratio of total risk based capital to total risk weighted assets of 8%, including a minimum ratio of Tier 1 capital to total risk weighted assets of 4% and a Tier 1 capital to average assets of 4%. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators, that, if undertaken, could have a direct material effect on the Registrant's financial statements. As of September 30, 1997, the most recent notification from the federal banking regulators categorized the Registrant and the Bank as "well capitalized" under the regulatory framework for prompt corrective action. Under the capital adequacy guidelines, a well capitalized institution must maintain a minimum total risk based capital to total risk weighted assets ratio of at least 10%, a minimum Tier 1 capital to total risk weighted assets ratio of at least 6%, a minimum leverage ratio of at least 5% and not be subject to any written order, agreement or directive. There are no conditions or events since such notification that management believes have changed this classification. The following table sets forth the Registrant's regulatory capital at September 30, 1997 and September 30, 1996, under the rules applicable at such dates. At such date, management believes that the Registrant meets all capital adequacy requirements to which it is subject. Sept. 30, 1997 Sept. 30, 1996 (dollars in thousands ) Amount Ratio Amount Ratio Tier 1 Capital $547,759 14.34% $355,447 11.75% Regulatory Requirement 152,779 4.00% 120,984 4.00% Excess $394,980 10.34% $234,463 7.75% Total Risk Adjusted Capital $595,587 15.59% $393,463 13.01% Regulatory Requirement 305,559 8.00% 241,968 8.00% Excess $290,028 7.59% $151,495 5.01% Risk Weighted Assets $3,819,483 $3,024,605
The Registrant's leverage capital ratio at September 30, 1997 was 8.38%. The Tier 1, total risk based and leverage capital ratios of the Bank were 11.67%, 12.92% and 6.66%, respectively, at September 30, 1997. The Registrant's capital ratios were favorably impacted by the issuance of $100 million of 8.70% Capital Securities on December 31, 1996, which under regulatory guidelines, qualify as Tier 1 capital. 21 Other Matters The Registrant has made and will continue to make significant investments in preparing for the "Year 2000", that is, the technological and computer program modifications that may be required to ensure a smooth transition of the Registrant's information systems from the twentieth to the twenty-first century. Currently, no substantial risk to the Registrant's operations or capital are anticipated. Management continues to monitor the adequacy of the Registrant's preparations in the area. 22 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 14, 1997 /s/ Daniel M. Healy Daniel M. Healy Executive Vice President & Chief Financial Officer 23 [EXHIBIT 11] North Fork Bancorporation, Inc. COMPUTATION OF NET INCOME PER COMMON EQUIVALENT SHARE September 30, 1997 (Unaudited) Sept. 30, 1996 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996 Net Income $29,892,812 $ 17,794,826 $85,278,561 $58,353,109 Common Equivalent Shares: Weighted Average Common Shares Outstanding 65,964,269 62,566,302 65,769,042 63,819,482 Weighted Average Common Equivalent Shares 550,336 1,074,818 446,294 937,284 Weighted Average Common and Common Equivalent Shares 66,514,605 63,641,120 66,215,336 64,756,766 Net Income per Common Equivalent Share $0.45 $0.28 $1.29 $0.90
EX-27 2
9 North Fork Bancorporation, Inc. September 30, 1997 Financial Data Schedule 1,000 3-MOS DEC-31-1996 SEP-30-1997 104613 2147 35000 0 1633737 1166329 1169143 3525314 54611 6615620 4458649 438674 202666 977350 0 0 165111 373170 6615620 76941 49074 317 126332 33049 55140 71192 1500 38 30591 48649 48649 0 0 29893 .45 .45 4.60 10256 2043 12204 0 53894 5305 1522 54611 54611 0 0
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