PAGES 10 THROUGH 76 OF THE 2003 ANNUAL REPORT

EX-13 3 y96064exv13.htm PAGES 10 THROUGH 76 OF THE 2003 ANNUAL REPORT PAGES 10 THROUGH 76 OF THE 2003 ANNUAL REPORT

Financial Statements

NORTH FORK BANCORPORATION, INC.


10		Selected Financial Data

12		Management’s Discussion and Analysis

38		Consolidated Statements of Income

39		Consolidated Balance Sheets

40		Consolidated Statements of Changes in Stockholders’ Equity

41		Consolidated Statements of Cash Flows

43		Consolidated Statements of Comprehensive Income

44		Notes to Consolidated Financial Statements

74		Independent Auditors’ Report

75		Report of Management

76		Corporate and Shareholder Information

Selected Financial Data

In this annual report, “the Company”, “North Fork”, “we”, “us”, and “our” refer to North Fork Bancorporation, Inc. and its subsidiaries. Selected financial data for each of the years in the five-year period ended December 31, 2003 are set forth below. Our consolidated financial statements and notes thereto as of December 31, 2003 and 2002 and for each of the years in the three-year period ended December 31, 2003 are included elsewhere in this annual report.


(in thousands, except ratios and per share amounts)	*2003*		2002		2001		2000		1999


Earnings Summary:
Interest Income (tax equivalent basis) ⁽¹⁾	$	*1,134,999*	$	1,211,582	$	1,129,318	$	1,087,137	$	938,336
Interest Expense		*294,746*		347,560		443,921		500,662		422,267

Net Interest Income (tax equivalent basis) ⁽¹⁾		*840,253*		864,022		685,397		586,475		516,069
Less: Tax Equivalent Adjustment		*24,739*		22,244		19,438		14,537		8,753

Net Interest Income		*815,514*		841,778		665,959		571,938		507,316
Provision for Loan Losses		*26,250*		25,000		17,750		17,000		6,013

Net Interest Income after Provision for Loan Losses		*789,264*		816,778		648,209		554,938		501,303

Non-Interest Income		*129,069*		116,368		100,166		99,375		62,400
Securities Gains, net		*15,762*		4,517		8,729		3,138		13,578
Gain on Sale of Facilities, net		*10,980*		3,254		—		—		—
Non-Interest Expense		*333,915*		305,186		231,207		263,543		181,350
Debt Restructuring Costs		*11,955*		—		—		—		—
Amortization of Goodwill		—		—		19,815		17,937		5,930

Income Before Income Taxes		*599,205*		635,731		506,082		375,971		390,001
Provision for Income Taxes		*202,840*		218,838		174,598		141,206		140,480

Net Income	$	*396,365*	$	416,893	$	331,484	$	234,765	$	249,521


Per Share:
Net Income — Basic	$	*2.63*	$	2.61	$	2.08	$	1.40	$	1.53
Net Income — Diluted		*2.60*		2.58		2.05		1.39		1.52
Cash Dividends		*1.11*		1.01		.87		.72		.63
Book Value at December 31,		*9.69*		9.54		8.82		7.55		6.38
Market Price at December 31,		*40.42*		33.74		31.99		24.56		17.59

Balance Sheet Data at December 31,:
Total Assets	$	*20,961,641*	$	21,413,101	$	17,232,103	$	14,840,962	$	13,676,156
Securities:
Available-for-Sale		*7,128,542*		8,555,892		5,043,557		3,467,663		3,682,210
Held-to-Maturity		*190,285*		307,878		709,965		1,090,677		1,351,504
Loans, net		*12,345,273*		11,369,139		10,399,691		9,394,713		7,897,688
Demand Deposits		*4,080,134*		3,417,534		2,702,753		2,025,249		1,558,044
Interest Bearing Deposits		*11,035,981*		9,774,996		8,600,553		7,143,946		6,083,519
Federal Funds Purchased & Collateralized Borrowings		*3,221,154*		5,401,000		3,692,182		4,004,147		4,559,200
Subordinated Debt		*476,499*		499,140		—		—		—
Capital Securities		*259,244*		268,926		244,364		244,339		199,314
Stockholders’ Equity		*1,478,489*		1,514,053		1,437,008		1,213,918		999,098


10		North Fork Bancorporation


(in thousands, except ratios and per share amounts)	*2003*			2002			2001			2000			1999


Average Balance Sheet Data:
Total Assets	$	*21,328,338*		$	18,856,792		$	15,628,132		$	14,577,966		$	13,088,336
Securities		*7,948,104*			6,520,889			4,736,557			4,778,616			5,024,986
Loans, net		*11,794,243*			10,946,247			9,829,856			8,958,180			7,319,285
Total Deposits		*14,166,580*			12,165,896			10,009,868			8,784,258			7,688,185
Federal Funds Purchased & Collateralized Borrowings		*4,524,192*			4,214,834			3,736,820			4,064,995			3,809,188
Subordinated Debt		*493,258*			201,016			—			—			—
Capital Securities		*269,078*			252,117			244,352			238,327			199,302
Stockholders’ Equity		*1,515,773*			1,652,897			1,417,381			1,303,455			1,162,387

Selected Financial Ratios:
Return on Average Total Assets		*1.86*	%		2.21	%		2.12	%		1.61	%		1.91	%
Return on Average Stockholders’ Equity		*26.15*			25.22			23.39			18.01			21.47
Efficiency Ratio ⁽²⁾		*34.30*			31.10			29.70			29.75			31.57
Net Interest Margin ⁽¹⁾		*4.24*			4.93			4.69			4.25			4.13
Dividend Payout Ratio		43			39			43			54			38
Average Stockholders’ Equity to Average Assets		*7.11*			8.77			9.07			8.94			8.88
Tier 1 Capital		*10.49*			11.43			11.82			12.38			13.70
Risk Adjusted Capital		*15.53*			16.77			12.81			13.40			14.95
Leverage Capital		*6.47*			6.46			7.68			7.62			8.57
Allowance for Loan Losses to Non-Performing Loans		*920*			941			709			601			493
Non-Performing Loans to Total Loans, net		*.11*			.11			.14			.16			.19
Non-Performing Assets to Total Assets		*.07*			.06			.09			.10			.12

Weighted Average Shares Outstanding:
Basic		*150,869*			159,773			159,563			167,214			162,992
Diluted		*152,516*			161,649			161,382			168,531			164,440


⁽¹⁾	Interest income on a tax equivalent basis includes the additional amount of interest income that would have been earned if our investment in certain tax-exempt interest earning assets had been made in tax-exempt assets subject to federal, state and local income taxes yielding the same after-tax income.
⁽²⁾	The efficiency ratio is used by the financial services industry to measure an organization’s operating efficiency. The efficiency ratio represents non-interest expense excluding debt restructuring costs, amortization of identifiable intangible assets and goodwill, and other non-recurring costs, to net interest income on a tax equivalent basis and non-interest income, excluding securities and facilities gains and other non-recurring items.


Annual Report 2003		11

Management’s Discussion and Analysis

RESULTS OF OPERATIONS

Overview

We are a $21 billion bank holding company incorporated in Delaware in 1980 and registered as a “bank holding company” under the Bank Holding Company Act. We are headquartered in Melville, New York, and our principal subsidiary, North Fork Bank, is a New York state chartered bank. North Fork Bank operates 175 retail banking branches in the New York Metropolitan area, including one branch in New Jersey. North Fork Bank’s assets and revenues represent approximately 95% of our consolidated assets and revenues. North Fork Bank provides banking and financial services to middle market and small businesses, local government units and retail customers in our service area. Our non-bank subsidiaries offer financial services such as asset management, trust, securities brokerage, and sales of annuity and mutual fund products. Our other bank subsidiary, Superior Savings of New England, N.A., is a nationally chartered bank, headquartered in Connecticut, that operates from two locations and focuses on gathering deposits throughout the northeast.

We operate our business in a densely populated area comprising the New York City boroughs of Manhattan, Queens, Brooklyn and the Bronx, the four neighboring New York counties of Nassau, Suffolk, Westchester and Rockland, as well as Hudson County, New Jersey. This geographic area has a population exceeding 12 million people, representing over 4 million households and commercial banking deposits of approximately $400 billion. This competitively attractive environment provides multiple opportunities for a company such as ours to gain market share through internal growth, branch expansion and strategic acquisitions.

We have consistently exceeded our banking industry peer group in almost every key operating measurement, including returns on average equity and average assets, net interest margin and efficiency, according to SNL Securities. The year ended December 31, 2003 was no exception.

The recently announced proposed acquisitions of The Trust Company of New Jersey and GreenPoint Financial Corp. have positioned us to become a preeminent regional bank. Both transactions should be immediately accretive to earnings and should add to our tangible book value per share. Additional accomplishments achieved in 2003 are as follows:

Business Accomplishments:

	•		Repositioned the balance sheet to be consistent with the current economic environment.
			(See “Management’s Discussion of Analysis — Net Interest Income” for further details.)
	•		Strengthened our management team by adding 100 experienced retail bankers from competing institutions.
	•		Continued the successful execution of our de novo branch expansion program. (Opened 9 new branches, including 4 in Manhattan.)
	•		Solidified our reputation in the New York real estate market.
	•		Achieved prominence as a small business and middle market lender.
	•		Refined products and services by blending personal service with technology.
	•		Entered New Jersey with the opening of a branch in Hoboken.
	•		Positioned to take advantage of the mega-mergers in our market.

Financial Highlights:

	•		Commercial loan growth of 25%, while loans overall increased 9%.
	•		Demand deposit growth of 19%, while core deposits increased 21%.
	•		Maintained superior asset quality, with $13.3 million in non-performing loans (11 basis points of total loans).
	•		Repurchased 7.8 million shares of our common stock at an average cost of $33.80.
	•		Increased our quarterly cash dividend 11% to $.30 per share.

On December 16, 2003, we entered into a definitive agreement to acquire The Trust Company of New Jersey (“TCNJ”) in an all stock transaction valued at $726 million. Under the terms of the agreement, in a tax-free exchange of shares, TCNJ shareholders will receive a fixed exchange ratio of one share of our common stock for each common share of TCNJ held.


12		North Fork Bancorporation

TCNJ is a New Jersey state chartered commercial bank and is the fourth largest commercial bank headquartered in New Jersey. TCNJ currently operates 94 retail bank branches, including 42 “in-store” supermarket branches, located principally in the affluent and densely populated northern New Jersey market. TCNJ recently closed 8 unprofitable “in-store” branches and announced its intention to close 20 additional “in-store” branches prior to the consummation of the merger. TCNJ will be merged with and into North Fork Bank. As of December 31, 2003, TCNJ reported $4.3 billion in total assets, $2.2 billion in loans and $3.3 billion in customer deposits. The transaction is expected to close during the second quarter of 2004, following receipt of all required regulatory approvals, TCNJ shareholder approval, and certain other customary closing conditions. This acquisition accelerates our efforts to expand in the New Jersey market, where we recently opened our first branch. On a pro forma combined basis, we would rank eighth in the state based on deposit market share.

On February 15, 2004, we entered into a definitive agreement to acquire GreenPoint Financial Corp. (“GreenPoint”) in an all stock transaction valued at $6.3 billion. Under the terms of the agreement, in a tax-free exchange of shares, GreenPoint shareholders will receive a fixed exchange ratio of 1.0514 shares of North Fork common stock for each common share of GreenPoint. GreenPoint operates two primary businesses, a retail savings bank (GreenPoint Bank) and a national mortgage company (GreenPoint Mortgage Corp.). GreenPoint Bank is a New York state chartered savings bank and the second largest thrift in the Metropolitan New York area, where it operates 90 retail bank branches. GreenPoint Mortgage Corp., a wholly-owned subsidiary of GreenPoint Bank, is a national mortgage company headquartered in Novato, California. GreenPoint Mortgage Corp. originates a wide variety of “A” quality residential mortgage loans. Their product menu includes agency qualifying loans, Jumbo A mortgages and Specialty Alternative A mortgages. GreenPoint Mortgage Corp. reported loan originations of $39 billion in 2003 through 29 retail facilities located throughout the United States. Pursuant to the agreement, GreenPoint will merge with and into North Fork Bancorporation, Inc. and we intend to operate GreenPoint Bank as a wholly-owned subsidiary of our holding company. GreenPoint Mortgage Corp. will continue to operate as a subsidiary of GreenPoint Bank subsequent to the merger. As of December 31, 2003, GreenPoint reported $23 billion in total assets, $15 billion in loans and $12.5 billion in customer deposits. The transaction is expected to close in the third quarter of 2004, following receipt of all regulatory approvals and certain other customary closing conditions. The merger agreement is also subject to approval by the GreenPoint and North Fork shareholders.

North Fork’s reported net income for 2003 was $396.4 million or diluted earnings per share of $2.60 as compared to $416.9 million or diluted earnings per share of $2.58 for 2002. The returns on average total assets and average stockholders’ equity for 2003 were 1.9% and 26%, respectively as compared to 2.2% and 25%, respectively for 2002.

Critical Accounting Estimates

Our financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of asset, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities. Note 1 to the consolidated financial statements contains a summary of our significant accounting policies. Our policy with respect to the methodology used in the determination of our periodic provisioning and the adequacy of the allowance for loan losses involves a higher degree of complexity and requires us to make difficult and subjective estimates about highly uncertain matters or the susceptibility of such matters to change. The impact of the estimates and assumptions used in assessing the adequacy of the allowance for loan losses could have a material impact on our financial condition or results of operations.

The allowance for loan losses is available to cover probable losses inherent in the current loan portfolio. Loans, or portions thereof, deemed uncollectible are charged to the allowance for loan losses, while recoveries, if any, of amounts previously charged off are added to the allowance. Amounts are charged off after giving consideration to such factors as the customer’s financial condition, underlying collateral values and guarantees, and general economic conditions.

The evaluation process for determining the adequacy of the allowance for loan losses and the periodic provisioning for estimated losses is undertaken on a quarterly basis, but may increase in frequency should conditions arise that would require our prompt attention. Conditions giving rise to such action are business combinations or other acquisitions or dispositions of large quantities of loans, dispositions of non-performing and marginally performing loans by bulk sale or any development which may indicate an adverse trend. Recognition is also given to the changed risk profile resulting from previous business combinations, customer knowledge, results of ongoing credit-quality monitoring processes and the cyclical nature of economic and business conditions.

The loan portfolio is categorized according to collateral type, loan purpose or borrower type (i.e. commercial, consumer). The categories used include Multi-Family Mortgages, Residential Mortgages, Commercial Mortgages, Commercial, Consumer, and Construction and Land, which are more fully described in the section entitled “Management’s Discussion and Analysis – Loan Portfolio.” An important consideration is our concentration of real estate related loans located in the New York Metropolitan area.

The methodology employed for assessing the appropriateness of the allowance consists of the following criteria:

• Establishment of reserve amounts for specifically identified criticized loans, including those arising from business combinations and those designated as requiring special attention by our internal loan review program, bank regulatory examinations or our external auditors (specific-allowance method).

• An allocation to the remaining loans giving effect to historical losses experienced in each loan category, cyclical trends and current economic conditions which may impact future losses (loss experience factor method).

The initial allocation or specific-allowance methodology commences with loan officers and underwriters grading the quality of their loans on a risk classification scale ranging from 1 — 8. Loans identified as below investment grade are referred to our independent Loan Review Department (“LRD”) for further analysis and identification of those factors that may ultimately affect the full recovery or collectibility of principal and/or interest. These loans are subject to continuous review and monitoring while they remain in a criticized category. Additionally, LRD is responsible for performing periodic reviews of the loan portfolio independent from the identification process employed by loan officers and underwriters. Loans that fall into criticized categories are further evaluated for impairment in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 114, “Accounting by Creditors for Impairment of a Loan.” The portion of the allowance allocated to impaired loans is based on the most appropriate of the following measures: discounted cash flows from the loan using the loan’s effective interest rate, the fair value of the collateral for collateral dependent loans, or the observable market price of the impaired loan.

The remaining allocation applies a category specific loss experience factor to loans which have not been specifically reviewed for impairment, including smaller balance homogeneous loans that we have identified as residential and consumer, which are not specifically reserved for impairment. These category specific factors give recognition to our historical loss experience, as well as that of acquired businesses, cyclical trends, current economic conditions and our exposure to real estate values. These factors are reviewed on a quarterly basis with senior lenders to ensure that the factors applied to each loan category are reflective of trends or changes in the current business environment which may affect these categories.

Upon completion of both allocation processes, the specific and loss experience factor method allocations are combined, producing the allocation of the allowance for loan losses by loan category. Other factors used to evaluate the adequacy of the allowance for loan losses include the amount and trend of criticized loans, results of regulatory examinations, peer group comparisons and economic data associated with the relevant markets, specifically the local real estate market. Because many loans depend upon the sufficiency of collateral, any adverse trend in the relevant real estate markets, particularly real estate in the New York Metropolitan area, could have a significant adverse effect on the quality of our loan portfolio. This information may lead management to consider that the overall allowance level should be greater than the amount determined by the allocation process described above.

Net Interest Income

Net interest income is the difference between interest income earned on assets, such as loans and securities and interest expense paid on liabilities, such as deposits and borrowings. It constituted 84% of total revenue (defined as net interest income plus non-interest income) during 2003. Net interest income is affected by the level and composition of assets, liabilities and equity, as well as the general level of interest rates and changes in interest rates.

Net interest margin is determined by dividing tax equivalent net interest income by average interest-earning assets. The interest rate spread is the difference between the average equivalent yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. The net interest margin is generally greater than the interest rate spread due to the additional income earned on those assets funded by non-interest-bearing liabilities, primarily demand deposits, and stockholders’ equity.


Annual Report 2003		13

Management’s Discussion and Analysis continued

The following table presents an analysis of net interest income by each major category of interest earning assets and interest-bearing liabilities for the years ended December 31,


	*2003*								2002								2001
	*Average*					*Average*			Average					Average			Average					Average
(dollars in thousands)	*Balance*		*Interest*			*Rate*			Balance		Interest			Rate			Balance		Interest			Rate

Interest Earning Assets:
Securities ⁽¹⁾	$	*7,948,104*	$	*343,498*			*4.32*	%	$	6,520,889	$	408,383			6.26	%	$	4,736,557	$	344,520			7.27	%
Loans, net ⁽²⁾		*11,794,243*		*790,688*			*6.70*			10,946,247		802,232			7.33			9,829,856		782,248			7.96
Money Market Investments		*64,505*		*813*			*1.26*			47,112		967			2.05			60,180		2,550			4.24

Total Interest Earning Assets		*19,806,852*		*1,134,999*			*5.73*	%		17,514,248		1,211,582			6.92	%		14,626,593		1,129,318			7.72	%


Non-Interest Earning Assets:
Cash and Due from Banks		*441,839*								360,937								287,933
Other Assets ⁽¹⁾		*1,079,647*								981,607								713,606

Total Assets	$	*21,328,338*							$	18,856,792							$	15,628,132


Interest Bearing Liabilities:
Savings, NOW & Money Market Deposits	$	*7,527,161*	$	*58,008*			*.77*	%	$	6,025,278	$	63,133			1.05	%	$	4,616,796	$	80,102			1.74	%
Time Deposits		*2,961,129*		*54,127*			*1.83*			3,220,899		83,183			2.58			3,252,655		153,111			4.71

Total Savings and Time Deposits		*10,488,290*		*112,135*			*1.07*			9,246,177		146,316			1.58			7,869,451		233,213			2.96
Federal Funds Purchased & Securities Sold Under Agreements to Repurchase		*3,206,932*		*89,623*			*2.79*			2,664,834		96,889			3.64			2,111,724		104,098			4.93
Federal Home Loan Bank Advances		*1,317,260*		*61,101*			*4.64*			1,550,000		77,767			5.02			1,625,096		86,050			5.30
Subordinated Debt		*493,258*		*23,611*			*4.79*			201,016		11,558			5.75			—		—			—
Capital Securities		*269,078*		*8,276*			*3.08*			252,117		15,030			5.96			244,352		20,560			8.41

Total Borrowings		*5,286,528*		*182,611*			*3.45*			4,667,967		201,244			4.31			3,981,172		210,708			5.29

Total Interest Bearing Liabilities		*15,774,818*		*294,746*			*1.87*			13,914,144		347,560			2.50			11,850,623		443,921			3.75

Interest Rate Spread							*3.86*	%							4.42	%							3.97	%

Non-Interest Bearing Liabilities:
Demand Deposits		*3,678,290*								2,919,719								2,140,417
Other Liabilities		*359,457*								370,032								219,711

Total Liabilities		*19,812,565*								17,203,895								14,210,751
Stockholders’ Equity		*1,515,773*								1,652,897								1,417,381

Total Liabilities and Stockholders’ Equity	$	*21,328,338*							$	18,856,792							$	15,628,132

Net Interest Income and Net Interest Margin ⁽³⁾				*840,253*			*4.24*	%				864,022			4.93	%				685,397			4.69	%
Less: Tax Equivalent Adjustment				*(24,739*	)							(22,244	)							(19,438	)

Net Interest Income			$	*815,514*							$	841,778							$	665,959


⁽¹⁾	Unrealized gains/(losses) on available-for-sale securities are included in other assets.
⁽²⁾	For purposes of these computations, non-accrual loans are included in loans, net.
⁽³⁾	Interest income on a tax equivalent basis includes the additional amount of income that would have been earned if investment in tax exempt money market investments and securities, state and municipal obligations, non-taxable loans, equity and debt securities, and U.S. Treasuries had been made in securities and loans subject to Federal, State, and Local income taxes yielding the same after tax income. The tax equivalent amount for $1.00 of those aforementioned categories was $1.77, $1.66, $1.55, $1.23 and $1.08 during 2003; $1.77, $1.67, $1.55, $1.23 and $1.10 during 2002; and $1.77, $1.62, $1.55, $1.24 and $1.03 during 2001.


14		North Fork Bancorporation

The following table highlights the relative impact on tax equivalent net interest income brought about by changes in average interest earning assets and interest bearing liabilities as well as changes in average rates on such assets and liabilities. Due to the numerous simultaneous volume and rate changes during the periods analyzed, it is not possible to precisely allocate changes due to volume or rate. 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.


Years Ended December 31,	*2003 vs. 2002*									2002 vs. 2001
(in thousands)	*Change In*									Change In
	*Average*			*Average*			*Net Interest*			Average			Average			Net Interest
	*Volume*			*Rate*			*Income*			Volume			Rate			Income


Interest Income from Earning Assets:
Securities	$	*78,260*		$	*(143,145*	)	$	*(64,885*	)	$	115,343		$	(51,480	)	$	63,863
Loans, net		*59,626*			*(71,170*	)		*(11,544*	)		84,700			(64,716	)		19,984
Money Market Investments		*290*			*(444*	)		*(154*	)		(469	)		(1,114	)		(1,583	)

Total Interest Income		*138,176*			*(214,759*	)		*(76,583*	)		199,574			(117,310	)		82,264


Interest Expense on Liabilities:
Savings, NOW & Money Market Deposits	$	*13,716*		$	*(18,841*	)	$	*(5,125*	)	$	20,226		$	(37,195	)	$	(16,969	)
Time Deposits		*(6,360*	)		*(22,696*	)		*(29,056*	)		(2,249	)		(67,679	)		(69,928	)
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase		*17,324*			*(24,590*	)		*(7,266*	)		23,851			(31,060	)		(7,209	)
Federal Home Loan Bank Advances		*(14,296*	)		*(2,370*	)		*(16,666*	)		(5,767	)		(2,516	)		(8,283	)
Subordinated Debt		*14,280*			*(2,227*	)		*12,053*			11,558			—			11,558
Capital Securities		*952*			*(7,706*	)		*(6,754*	)		635			(6,165	)		(5,530	)

Total Interest Expense		*25,616*			*(78,430*	)		*(52,814*	)		48,254			(144,615	)		(96,361	)

Net Change in Net Interest Income	$	*112,560*		$	*(136,329*	)	$	*(23,769*	)	$	151,320		$	27,305		$	178,625

The following table summarizes the quarterly net interest margin for 2003 and 2002.


	*2003*												2002
	*4th*			*3rd*			*2nd*			*1st*			4th			3rd			2nd			1st
	*Qtr*			*Qtr*			*Qtr*			*Qtr*			Qtr			Qtr			Qtr			Qtr


Interest Earning Assets:
Securities		*4.29*	%		*3.84*	%		*4.14*	%		*4.96*	%		5.45	%		6.10	%		6.72	%		7.20	%
Loans, net		*6.47*			*6.62*			*6.73*			*7.02*			7.12			7.26			7.42			7.54
Money Market Investments		*.93*			*1.34*			*1.54*			*1.77*			1.96			2.51			2.13			1.79

Total Interest Earning Assets		*5.64*	%		*5.56*	%		*5.60*	%		*6.12*	%		6.42	%		6.81	%		7.16	%		7.40	%


Interest Bearing Liabilities:
Total Savings and Time Deposits		*.95*	%		*1.01*	%		*1.12*	%		*1.22*	%		1.30	%		1.51	%		1.63	%		1.92	%
Total Borrowings		*3.71*			*3.29*			*3.30*			*3.58*			3.89			4.18			4.69			4.76

Total Interest Bearing Liabilities		*1.65*	%		*1.67*	%		*1.97*	%		*2.15*	%		2.29	%		2.44	%		2.55	%		2.78	%

Interest Rate Spread		*3.99*	%		*3.89*	%		*3.63*	%		*3.97*	%		4.13	%		4.37	%		4.61	%		4.62	%
Net Interest Margin		*4.39*			*4.23*			*4.00*			*4.36*			4.58			4.87			5.18			5.19


Annual Report 2003		15

Management’s Discussion and Analysis continued

During 2003, net interest income declined $26.3 million from 2002 and the net interest margin declined 69 basis points from 4.93% to 4.24%. The impact of declining market rates in the first half of 2002 had a positive effect on our net interest margin, as our liabilities repriced at an accelerated pace. From the latter half of 2002 through May 2003, we implemented a strategy to leverage our excess capital by adding approximately $3 billion in mortgage-backed securities funded principally with short-term borrowings and $500 million in subordinated debt proceeds. This decision capitalized on the prevailing interest rate environment and attractive spreads between these assets and liabilities, increasing our net interest income. However, the sustained nature of the lowest interest rate environment experienced in over 40 years led to an accelerated contraction of our net interest margin during the second quarter of 2003. This was due primarily to accelerated prepayment rates experienced in all earning asset categories and the impact of replacing these earning assets with new origination volumes at lower interest rates. In June 2003, the prospect of a near term economic recovery coupled with the historically low returns on reinvestment opportunities led us to reevaluate our capital management strategy. To improve our net interest margin, strengthen our interest rate risk profile, we revised our capital management strategy and repositioned our balance sheet by reducing our securities portfolio by approximately $3 billion from an interim period high through $1.1 billion in sales, at a net gain of $0.4 million, and portfolio cash flows. The securities proceeds received during the third quarter 2003 were used to reduce short-term borrowings. During June and July 2003, we also restructured $1 billion in longer-term borrowings as follows: (a) $300 million of variable rate term-borrowings were prepaid and their underlying pay fixed swaps maturing in 2004 were canceled, resulting in a $6.6 million charge; (b) $200 million of fixed rate term-borrowings maturing in 2004 were prepaid, resulting in a $5.3 million charge; and (c) $500 million of Subordinated Debt and $45 million of 8.17% Capital Securities were converted from fixed rates to floating rates using interest rate swaps (See “Notes to Consolidated Financial Statements — Note 17 — Derivative Financial Instruments” for additional information). Our balance sheet repositioning strategy was completed during the third quarter 2003 and, as depicted in the quarterly net interest margin table above, it directly led to an improved net interest margin for the second half of 2003. In addition, as part of this plan, the Board of Directors approved an increase in our share repurchase program, authorizing the repurchase of up to 8 million shares, or 5% of the shares outstanding (See “Management’s Discussion & Analysis — Capital” for further details).

Interest income during 2003 declined $79.1 million to $1.1 billion compared to the prior year. During this same period, the yield on average interest earning assets declined 119 basis points from 6.92% to 5.73%.

Loans averaged $11.8 billion for 2003 representing an increase of $848 million or 8% from 2002, while yields declined 63 basis points to 6.70%. This compression in yields offset the positive effects of higher loan balances during these periods. Factors contributing to the overall decline in yields included new originations and refinancing activity at lower market interest rates, increased prepayment levels, and adjustable rate loans resetting downward. Loan growth has been concentrated in higher yielding commercial loans and commercial mortgages, generating core commercial deposit growth and reducing our exposure to rising interest rates. We have experienced loan growth in all categories, with the exception of residential mortgages. Due to historically low market interest rates, fixed rate residential mortgage origination and refinancing activity was strong during 2003. To lessen our exposure to rising interest rates, we have sold substantially all fixed rate originations into the secondary market. Origination and refinance activity has moderated during the early part of 2004. As of December 31, 2003, the loans-to-deposits ratio was 82%, demonstrating that sufficient liquidity exists to fund further loan growth with deposits. Loan growth, exclusive of pending acquisitions, for 2004 should approximate the prior year’s growth rate.

Securities averaged $7.9 billion for 2003, representing a $1.4 billion increase from the prior year, as yields declined 194 basis points to 4.32%. Portfolio yields and interest income were negatively impacted as cash flows and purchases were invested at lower market rates. To mitigate extension risk, we purchased short duration securities that by their nature have lower yields. Additionally, yields and income were negatively impacted by a significant increase in prepayment activity, which shortened the anticipated lives and accelerated premium amortization. Net premium amortization reduced security yields by 98 basis points in 2003 compared to 15 basis points in 2002. As market interest rates continue to stabilize or rise in the future, prepayment activity should decline, extending the anticipated lives of mortgage backed securities and reducing related premium amortization. These factors should have a positive effect on portfolio yields, the net interest margin and net income in the near term.


16		North Fork Bancorporation

Average interest bearing liabilities rose $1.9 billion to $15.8 billion, while overall funding costs declined 63 basis points to 1.87% during 2003. The negative effects of lower asset yields were partially offset by a decrease in our cost of funds, resulting from the repricing of short-term borrowed funds, lower year over year deposit rates and continued improvement in the overall mix of interest bearing liabilities, with substantial growth in low or no cost customer deposits.

Average demand deposits grew $759 million or 26% to $3.7 billion in 2003. Total demand deposits contributed 52 basis points to our net interest margin this year compared to 60 basis points in 2002. At year end, demand deposits represented 27% of total deposits. Average Savings, NOW and Money Market deposits increased $1.5 billion or 25% to $7.5 billion, while the corresponding cost of funds declined 28 basis points to 0.77%. Core deposits have traditionally provided us with a low cost funding source, from which our net interest margin and income have benefitted. The benefits of growing core deposits have been mitigated by the sustained low interest rate environment. However, these deposits have enhanced the value of our franchise and should further enhance net interest income and the margin in the eventuality of rising interest rates. Average time deposits and their related cost declined $260 million and 75 basis points from the prior year. We believe that certain time deposit customers are only attracted by rate and not customer service. We do not actively compete in our market for these time deposits since their average cost is significantly higher than our average core deposit cost.

Average total borrowings rose $618.6 million to $5.3 billion in 2003, while the related cost declined 86 basis points to 3.45%, principally due to current market rates. At December 31, 2003, collateralized borrowings (repurchase agreements and FHLB advances) maturing or repricing in less than one year totaled $1.3 billion and had a weighted average cost of 1.43%. Collateralized borrowings with a weighted average maturity of 3.4 years totaled $1.7 billion and had a weighted average cost of 5.5%. Certain collateralized borrowings have their costs fixed through the use of interest rate swaps, increasing interest expense by approximately $23.9 million and $32.8 million in 2003 and 2002, respectively. In June 2003, $850 million of these interest rate swaps and related borrowings matured, while an additional $300 million in swaps, with 2004 maturity dates, were canceled and the underlying borrowings repaid (See “Notes to Consolidated Financial Statements — Note 17 — Derivative Financial Instruments” for additional information).

Also contributing to the increase in average total borrowings was the issuance of $500 million in Subordinated Debt in August 2002 with an original weighted average cost of 5.79%. During 2003, we used interest rate swaps to convert this debt from fixed rates to floating rates indexed to three-month LIBOR, lowering interest expense by approximately $5.3 million. In June 2002, interest rate swaps were used to convert $200 million in Capital Securities from fixed rates to floating rates indexed to three-month LIBOR. In July 2003, we used interest rate swaps to convert the remaining $45 million of Capital Securities from fixed rates to floating rates, indexed to three-month LIBOR. During 2003 and 2002, the Capital Securities swaps decreased interest expense by approximately $12.3 million and $5.5 million, respectively. (See “Notes to Consolidated Financial Statements — Note 17 — Derivative Financial Instruments” for additional information).

We believe that future net interest income, margin trends and earnings per share trends will continue to be dependent on loan demand, deposit growth, the timing and extent of future share repurchases, the movement in market interest rates, future trends in the overall economy and the financial impact of the TCNJ and GreenPoint acquisitions (See “Notes to Consolidated Financial Statements — Note 2 — Business Combinations” for additional information).

Provision and Allowance for Loan Losses


Annual Report 2003		17

Management’s Discussion and Analysis continued

The loan portfolio is categorized according to collateral type, loan purpose or borrower type (i.e. commercial, consumer). The categories used include Multi-Family Mortgages, Residential Mortgages, Commercial Mortgages, Commercial, Consumer, and Construction and Land, which are more fully described in the section entitled “Management’s Discussion and Analysis — Loan Portfolio.” An important consideration is our concentration of real estate related loans located in the New York Metropolitan area.

The methodology employed for assessing the appropriateness of the allowance consists of the following criteria:

The initial allocation or specific-allowance methodology commences with loan officers and underwriters grading the quality of their loans on a risk classification scale ranging from 1 - 8. Loans identified as below investment grade are referred to our independent Loan Review Department (“LRD”) for further analysis and identification of those factors that may ultimately affect the full recovery or collectibility of principal and/or interest. These loans are subject to continuous review and monitoring while they remain in a criticized category. Additionally, LRD is responsible for performing periodic reviews of the loan portfolio independent from the identification process employed by loan officers and underwriters. Loans that fall into criticized categories are further evaluated for impairment in accordance with the provisions of Statement of Financial Accounting Standards No. 114, “Accounting by Creditors for Impairment of a Loan.” The portion of the allowance allocated to impaired loans is based on the most appropriate of the following measures: discounted cash flows from the loan using the loan’s effective interest rate, the fair value of the collateral for collateral dependent loans, or the observable market price of the impaired loan.

Upon completion of both allocation processes, the specific and loss experience factor method allocations are combined, producing the allocation of the allowance for loan losses by loan category reflected in the table below. Other factors used to evaluate the adequacy of the allowance for loan losses include the amount and trend of criticized loans, results of regulatory examinations, peer group comparisons and economic data associated with the relevant markets, specifically the local real estate market. Because many loans depend upon the sufficiency of collateral, any adverse trend in the relevant real estate markets, particularly real estate in the New York Metropolitan area, could have a significant adverse effect on the quality of our loan portfolio. This information may lead management to consider that the overall allowance level should be greater than the amount determined by the allocation process described above.


18		North Fork Bancorporation

The following table presents the allocation of the allowance for loan losses and the related percentage of loans in each category to total loans.


				%							%							%							%							%
				*of Loans*							of Loans							of Loans							of Loans							of Loans
	*2003*				*to Total*			2002				to Total			2001				to Total			2000				to Total			1999			to Total
(dollars in thousands)		*Amount*			*Loans*				Amount			Loans				Amount			Loans				Amount			Loans				Amount		Loans

Multi-Family Mortgages		$	*9,162*			29	%		$	9,093			32	%		$	8,577			33	%		$	8,292			35	%		$	7,172		36	%
Residential Mortgages			*15,039*			20				16,592			22				17,741			26				17,721			28				15,552		28
Commercial Mortgages			*28,583*			23				22,625			19				23,588			17				20,704			16				21,083		17
Commercial			*33,719*			17				29,489			16				22,710			14				15,951			11				8,990		9
Consumer			*22,134*			9				20,537			9				17,525			8				15,564			8				14,293		9
Construction and Land			*6,234*			2				6,273			2				5,535			2				4,226			2				2,182		1
Unallocated			*7,862*			—				10,386			—				8,125			—				7,195			—				5,253		—

Total		$	*122,733*			*100*	%		$	114,995			100	%		$	103,801			100	%		$	89,653			100	%		$	74,525		100	%

Based upon the process employed and giving recognition to all attendant factors associated with the loan portfolio, the allowance for loan losses at December 31, 2003 is considered to be adequate.

The provision for loan losses totaled $26.3 million for 2003, an increase of $1.3 million when compared to $25.0 million for 2002. The allowance for loan losses increased by $7.7 million to $122.7 million when compared to 2002. The increases in both the provision and the allowance for loan losses are consistent with the overall growth in the loan portfolio and the aforementioned provisioning policy. The allowance for loan losses as a percentage of total loans was 99 basis points at December 31, 2003, and 101 basis points at December 31, 2002.


Annual Report 2003		19

Management’s Discussion and Analysis continued

Transactions in the Allowance for Loan Losses are summarized as follows for the years ended December 31,


(dollars in thousands)	*2003*			2002			2001			2000			1999


Loans, net:
Average Balance	$	*11,794,243*		$	10,946,247		$	9,829,856		$	8,958,180		$	7,319,285
End of Year		*12,345,273*			11,369,139			10,399,691			9,394,713			7,897,688


Analysis of Allowance for Loan Losses:
Balance at Beginning of Year	$	*114,995*		$	103,801		$	89,653		$	74,525		$	77,683

Loans Charged-Off:
Consumer		*14,701*			14,794			13,626			13,209			9,758
Commercial		*11,783*			4,893			3,581			3,349			2,382
Commercial Mortgages		35			1,023			535			350			1,104
Residential Mortgages		*102*			567			509			665			1,012
Multi-Family Mortgages		13			16			2			29			109
Construction and Land		—			—			—			—			—

Total Charge-Offs		*26,634*			21,293			18,253			17,602			14,365

Recoveries of Loans Charged-Off:
Consumer		*6,181*			6,295			6,263			5,454			3,218
Commercial		*1,431*			1,120			1,139			918			1,151
Commercial Mortgages		*293*			37			137			124			690
Residential Mortgages		*208*			33			126			77			105
Multi-Family Mortgages		9			2			—			88			30
Construction and Land		—			—			88			—			—

Total Recoveries		*8,122*			7,487			7,753			6,661			5,194

Net Loans Charged-Off		*18,512*			13,806			10,500			10,941			9,171
Provision for Loan Losses		*26,250*			25,000			17,750			17,000			6,013
Net Merger Activity		—			—			6,898			9,069			—

Balance at End of Year	$	*122,733*		$	114,995		$	103,801		$	89,653		$	74,525

Net Charge-Offs to Average Loans		.16	%		.13	%		.11	%		.12	%		.13	%

Allowance for Loan Losses to Non-performing Loans		*920*	%		941	%		709	%		601	%		493	%

Non-Interest Income

Non-Interest Income, exclusive of securities and facilities gains, increased $12.7 million or 11% to $129.1 million compared to $116.4 million in 2002. Contributing to this growth was a $5.2 million improvement in customer related fees and service charges to $82.4 million resulting from continued growth in core deposits, expansion of both our retail and commercial customer base and a broadened use of fee based services. Mortgage banking income increased $3.2 million or 47%, as we benefited from record origination, refinancing activity and increased sales volume into the secondary market. Check cashing fees rose $1.8 million resulting from the addition of seven new stores during the first quarter of 2003. Other operating income increased $5.5 million compared to last year due, in part, to trading gains of $2.4 million from the sale of treasury securities that were held in our trading portfolio. Growth in other income was partially offset by a $3.0 million decline in investment management, commissions and trust fees reflecting decreased customer demand for mutual funds and annuity products. We also recognized facility gains of $11 million (one vacated facility totaled $9.1 million).

Securities gains recognized during 2003 were $15.8 million as compared to $4.5 million in 2002. Gains recognized were derived principally from the sale of mortgage backed securities and certain debt and equity securities.


20		North Fork Bancorporation

Non-Interest Expense

Non-interest expense, exclusive of debt restructuring costs, increased $28.7 million or 9.4% to $333.9 million. Contributing to the increase was an additional $17.2 million in employee compensation and benefits and $11.0 million in occupancy and equipment costs. Employee compensation and benefits rose 9.9% due to the hiring of additional employees to support new business initiatives, including de novo branches, increased health insurance and pension costs and growth in incentive based compensation linked to deposit and fee income generation. Total incentive based compensation represented approximately 30% of total employee compensation and benefits in 2003. Increases in occupancy and equipment costs are due to the opening of new branches, investments in existing facilities, technology upgrades, the implementation of new business initiatives and support systems. We have made, and will continue to make, significant investments in technology and delivery channels to provide our customers with a wide array of easy to use and competitively priced products and services. During 2003, we invested approximately $15 million in facilities and $21 million in technology and equipment. Debt restructuring costs of $12.0 million were incurred in 2003 as a result of our decision to prepay certain term borrowings and cancel related interest rate swaps. (See “Notes to Financial Statements — Note 17 — Derivative Financial Instrument” for further details).

The efficiency ratio is used by the financial services industry to measure an organization’s operating efficiency. The efficiency ratio represents non-interest expense, excluding debt restructuring costs and other non-recurring items, to net interest income on a tax equivalent basis and non-interest income, excluding facilities and securities gains and other non-recurring items. The efficiency ratio was 34.30% in 2003, as compared to 31.10% in 2002.

Income Taxes

Our effective tax rate for 2003 was 33.9% as compared to 34.4% for 2002. Management anticipates that the effective tax rate in 2004 will approximate 2003 levels (See “Notes to Consolidated Financial Statements — Note 12 — Income Taxes” for additional information).

FINANCIAL CONDITION

Loan Portfolio

The following table represents the components of the loan portfolio at December 31,


(dollars in thousands)	*2003*				2002				2001				2000				1999

Multi-Family Mortgages	$	*3,634,533*	29	%	$	3,640,039	32	%	$	3,414,209	33	%	$	3,316,894	35	%	$	2,827,272	36	%
Commercial Mortgages		*2,814,103*	23			2,194,092	19			1,766,991	17			1,503,795	16			1,327,001	17
Residential Mortgages		*2,403,306*	20			2,507,388	22			2,647,190	26			2,634,030	28			2,221,779	28
Commercial		*2,145,798*	17			1,776,419	16			1,487,819	14			1,035,071	11			697,763	9
Consumer		*1,095,529*	9			1,040,490	9			876,241	8			778,218	8			752,256	9
Construction and Land		*283,243*	2			232,227	2			221,381	2			141,754	2			87,257	1

Total	$	*12,376,512*	*100*	%	$	11,390,655	100	%	$	10,413,831	100	%	$	9,409,762	100	%	$	7,913,328	100	%
Less:
Unearned Income & Deferred Costs		*31,239*				21,516				14,140				15,049				15,640

Loans, net	$	*12,345,273*			$	11,369,139			$	10,399,691			$	9,394,713			$	7,897,688


Annual Report 2003		21

Management’s Discussion and Analysis continued

Loans increased $976 million or 9% to $12.3 billion during 2003 compared to $11.4 billion during 2002. We experienced strong loan demand in 2003 despite a slow paced growth in the local economy. The commercial and commercial mortgage portfolios, which increased $989 million or 25% during 2003, have benefited from our expanded presence in the New York City market, our small business lending initiatives, and robust equipment and lease financing activity. We focus on these higher yielding and interest rate sensitive loans that also generate core deposit relationships. Multi-Family loan growth has been negatively impacted by our decision not to compete with the more liberal underwriting terms and rate structures offered by certain competitors, as we maintain rigorous underwriting standards. Residential mortgages declined, despite record origination volumes, as the majority of fixed rate originations have been sold into the secondary market, generating additional mortgage banking income. Consumer loans have benefited from the expansion of the geographic footprint of our automobile financing activities. We believe that organic loan growth for 2004 will be consistent with 2003 levels.

We extend loans almost exclusively within the New York Metropolitan area, and do not participate in nationally syndicated loan arrangements. Mortgage loans are secured by real estate in the New York Metropolitan area. The segments of the real estate portfolio are diversified in terms of risk and repayment sources. The underlying collateral includes multi-family apartment buildings, residential 1 - 4 family homes and owner occupied/non-owner occupied commercial properties. The risks inherent in these portfolios are dependent on both regional and general economic stability, which affect property values, and our borrowers’ financial well being and creditworthiness.

The risk inherent in the mortgage portfolio is minimized by prudent underwriting standards and diversification in loan collateral type and location. Multi-family mortgages, collateralized by various types of apartment complexes located in the New York Metropolitan area, are dependent largely on sufficient rental income to cover operating expenses. They may be affected by rent control or rent stabilization regulations, which could impact future cash flows of the property. Most multi-family mortgages do not fully amortize; therefore, the principal outstanding is not significantly reduced prior to contractual maturity. Residential mortgages represent first liens on owner occupied 1 - 4 family residences located primarily in our market area. Commercial mortgages are secured by professional office buildings, retail stores, shopping centers and industrial developments.

Real estate underwriting standards include various limits on loan-to-value ratios based on property types, real estate location, property condition, quality of the organization managing the property, and the borrower’s creditworthiness. They also include the viability of the project including occupancy rates, tenants and lease terms. Additionally, underwriting standards require appraisals, periodic property inspections and ongoing monitoring of operating results.

Commercial loans are made to small and medium sized businesses and loans collateralized by security interests in lease finance receivables. The commercial mortgage and commercial loan portfolios contain no foreign loans to developing countries (“LDC”). Consumer loans consist primarily of new and used automobile loans originated through a network of automobile dealers. The credit risk in auto lending is dependent on the borrower’s creditworthiness and collateral values. The average consumer loan is generally between $15 - $25 thousand and has a contractual life of approximately 60 months. The consumer loan portfolio does not contain higher risk credit card or sub prime loans. Land loans are used to finance the acquisition of vacant land for future residential and commercial development. Construction loans finance the building and rehabilitation of residential and multi-family projects, and to a lesser extent, commercial developments. The construction and land development portfolios do not contain any high-risk equity participation loans (“AD&C” loans).

We are selective in originating loans, emphasizing conservative lending practices and fostering customer deposit relationships. Our success in attracting new customers while leveraging our existing customer base, coupled with over-consolidation within our market area and the current interest rate environment have contributed to sustained loan demand.

We periodically monitor our underwriting standards to ensure that the quality of the loan portfolio and commitment pipeline is not jeopardized by unrealistic loan to value ratios or debt service levels. To date, there has been no deterioration in the performance or risk characteristics of our real estate loan portfolio.


22		North Fork Bancorporation


(dollars in thousands)	*2003*			2002			2001			2000			1999

Loans Ninety Days Past Due and Still Accruing	$	*2,268*		$	4,438		$	4,146		$	5,777		$	6,130
Non-Accrual Loans		*11,072*			7,778			10,490			9,144			8,998

Non-Performing Loans		*13,340*			12,216			14,636			14,921			15,128
Other Real Estate		*313*			295			315			499			787

Non-Performing Assets	$	*13,653*		$	12,511		$	14,951		$	15,420		$	15,915

Restructured Accruing Loans	$	—		$	—		$	—		$	—		$	—

Allowance for Loan Losses to Non-Performing Loans		*920*	%		941	%		709	%		601	%		493	%
Allowance for Loan Losses to Total Loans, net		.99			1.01			1.00			.95			.94
Non-Performing Loans to Total Loans, net		.11			.11			.14			.16			.19
Non-Performing Assets to Total Assets		.07			.06			.09			.10			.12

Interest forgone on non-accrual loans, or the amount of income that would have been recorded had these loans been current in accordance with their original terms, aggregated approximately $1 million in 2003, 2002 and 2001. The amount of interest income included in net income on these non-accrual loans was not significant for the periods presented.

Future levels of non-performing assets will be influenced by prevailing economic conditions and the impact of those conditions on our customers, prevailing interest rates, unemployment rates, property values and other internal and external factors.

The following are approximate contractual maturities and sensitivities to changes in interest rates of certain loans, exclusive of non-commercial real estate mortgages, consumer and non-accrual loans as of December 31, 2003:


			Due After
			One But
	Due Within		Within Five		Due After
(in thousands)	One Year		Years		Five Years		Total

Types of Loans:
Multi-Family Mortgages	$	487,120	$	1,050,360	$	2,097,053	$	3,634,533
Commercial Mortgages		1,229,970		764,641		818,935		2,813,546
Commercial		1,263,832		853,536		23,855		2,141,223
Construction & Land		230,399		52,845		—		283,244

Total	$	3,211,321	$	2,721,382	$	2,939,843	$	8,872,546


Rate Provisions:
Amounts with Fixed Interest Rates	$	219,481	$	2,408,638	$	2,893,443	$	5,521,562
Amounts with Adjustable Interest Rates		2,991,840		312,744		46,400		3,350,984

Total	$	3,211,321	$	2,721,382	$	2,939,843	$	8,872,546


Annual Report 2003		23

Management’s Discussion and Analysis continued

Securities

The tables that follow depict the amortized cost, contractual maturities and approximate weighted average yields (on a tax equivalent basis) of the available-for-sale and held-to-maturity securities portfolios at December 31, 2003:

Available-for-Sale ⁽¹⁾


											U.S.
	U.S.					State &					Government
(dollars in thousands)	Treasury					Municipal					Agencies'					Other
Maturity	Securities		Yield			Obligations		Yield			Obligations		Yield			Securities		Yield			Total		Yield

Within 1 Year	$	2,998		.96	%	$	452,325		2.03	%	$	—		—	%	$	20,000		6.59	%	$	475,323		2.22	%
After 1 But Within 5 Years		49,725		1.55			90,508		7.05			—		—			47,464		5.36			187,697		5.17
After 5 But Within 10 Years		1,678		7.54			107,372		6.66			2,310		8.52			64,004		8.22			175,364		7.26
After 10 Years		1,349		9.04			50,102		7.19			—		—			402,646		5.43			454,097		5.63

Subtotal		55,750		1.88	%		700,307		3.76	%		2,310		8.52	%		534,114		5.80	%		1,292,481		4.53	%
Agency Pass-Through Certificates																						1,240,897		4.58	%
Collateralized Mortgage Obligations																						4,407,210		4.39
Equity Securities																						178,024		2.96

Total Securities	$	55,750		1.88	%	$	700,307		3.76	%	$	2,310		8.52	%	$	534,114		5.80	%	$	7,118,612		4.41	%


⁽¹⁾		Unrealized gains/(losses) have been excluded for presentation purposes.

Held-to-Maturity


	State &
(dollars in thousands)	Municipal					Other
Maturity	Obligations		Yield			Securities		Yield			Total		Yield

Within 1 Year	$	8,788		7.07	%	$	3,000		7.50	%	$	11,788		7.18	%
After 1 But Within 5 Years		18,468		6.82			5,974		5.90			24,442		6.60
After 5 But Within 10 Years		13,304		7.46			6,431		4.59			19,735		6.52
After 10 Years		14,172		7.22			—		—			14,172		7.22

Subtotal		54,732		7.12	%		15,405		5.66	%		70,137		6.80	%
Agency Pass-Through Certificates												81,759		4.17
Collateralized Mortgage Obligations												38,389		5.06

Total Securities	$	54,732		7.12	%	$	15,405		5.66	%	$	190,285		5.32	%

The following table shows the total securities portfolio composition based on the financial statement carrying amount at December 31,


(in thousands)	*2003*			2002

Collateralized Mortgage Obligations	$	*4,424,868*	$	6,955,950
Agency Pass-Through Certificates		*1,328,753*		635,410
State & Municipal Obligations		*761,747*		435,486
Equity Securities		*186,612*		259,092
U.S. Treasury & Government Agencies		*58,090*		67,544
Other Securities		*558,757*		510,288

Total Securities	$	*7,318,827*	$	8,863,770


24		North Fork Bancorporation

During 2003, we repositioned our balance sheet to change its interest rate risk profile by reducing the securities portfolio and related borrowings (See “Management’s Discussion and Analysis — Net Interest Income” section). This decision reduced exposure to extension risk and the potential for significant unrealized losses in a rising interest rate environment. The portfolio was reduced from its interim period high by approximately $3.0 billion, of which $1.1 billion was accomplished through sales and the remainder through portfolio cash flows.

At December 31, 2003, Mortgage Backed Securities (“MBS”) represented 79% of total securities, providing continuous sources of cash flow that are affected by changes in interest rates. MBS’s represent pass-through certificates guaranteed by GNMA, FHLMC or FNMA and collateralized mortgage-backed obligations (“CMO’s”) backed by government agency pass-through certificates or whole loans. CMO’s, by virtue of the underlying collateral or structure, are AAA rated and conservative current pay sequentials or PAC structures.

Our strategy for managing the current MBS portfolio is to maintain a short weighted average life and duration. This short average life provides us with cash flows to proactively manage as market conditions change. Cash flows may be reinvested in securities at current market rates, utilized to pay off short term borrowings, and/or fund loan growth. The weighted average life and duration of the MBS portfolio was 3.3 and 3.2 years, respectively at December 31, 2003.

The yield and fair value of securities, specifically the MBS portfolio, are impacted by changes in market interest rates and related prepayment activity. Given our current portfolio composition, related prepayment activity should decrease in a rising interest rate environment, extending the portfolio’s weighted average life. Accordingly, net premiums on the portfolio would be amortized into income over a longer period of time, generating increased MBS portfolio yields and net interest income. Conversely, the opposite would occur in a declining interest rate environment. At December 31, 2003, net premiums represented approximately 1% of the outstanding balance of MBS’s.

Municipal securities represent a combination of short term debentures issued by local municipalities (purchased as part of a strategy to expand relationships with these governmental entities) and highly rated obligations of New York State and related authorities. Equity securities held in the available-for-sale portfolio include Federal Home Loan Bank common stock, and common and preferred stock of certain publicly traded companies. Other securities held in the available-for-sale portfolio include capital securities (trust preferred securities) of certain financial institutions and corporate bonds.

When purchasing securities, we consider the overall interest-rate risk profile as well as the adequacy of expected returns relative to risks assumed, including prepayments. In managing the securities portfolio, we may sell securities as a result of changes in interest rates and spreads, actual or anticipated prepayments, credit risk associated with a particular security, and/or following the completion of a business combination.

Deposits

Total deposits increased $2.0 billion or 15% to $15.1 billion at December 31, 2003, compared to the end of 2002, despite a $241.2 million decline in time deposits. We have focused our efforts on growing core deposits (demand, savings, NOW and money market accounts). We do not actively compete for higher costing time deposits as we believe that customers seeking these products are only attracted by rate and not customer service. Excluding time deposits, core deposits at year end increased $2.2 billion or 21% when compared to December 31, 2002. The primary factors contributing to core deposit growth included the continued expansion of our retail branch network, the ongoing branch upgrade program providing for greater marketplace identity, accessibility and convenience, commercial loan growth and incentive based compensation linked to deposit growth.


Annual Report 2003		25

Management’s Discussion and Analysis continued

Over the past several years, our goal has been to expand in Manhattan where growth has outpaced all other regions. These deposits comprised 22% of total deposits and accounted for 45% of deposit growth during 2003. We believe that this over consolidated, yet fragmented market provides opportunities to grow our commercial banking business. The following table presents the composition of total deposits and highlights Manhattan activity at the dates indicated:


(dollars in thousands)	*2003*		2002		2001

Manhattan
Demand	$	*1,027,017*	$	703,290	$	478,875
Interest Bearing		*2,267,543*		1,725,925		1,156,694

Total	$	*3,294,560*	$	2,429,215	$	1,635,569


All Other Locations
Demand	$	*3,053,117*	$	2,714,244	$	2,223,878
Interest Bearing		*8,768,438*		8,049,071		7,443,859

Total	$	*11,821,555*	$	10,763,315	$	9,667,737


Total
Demand	$	*4,080,134*	$	3,417,534	$	2,702,753
Interest Bearing		*11,035,981*		9,774,996		8,600,553

Total	$	*15,116,115*	$	13,192,530	$	11,303,306

Commercial demand deposit balances aggregated $2.8 billion or 68% of total demand deposits as compared to $2.2 billion or 63% of total demand deposits at December 31, 2002. Once again, these advances were fueled by our expanded branch network, especially the Manhattan locations, and our strong commercial loan growth.

At December 31, 2003, we had 177 branch locations, (27 located in Manhattan) and plan to open an additional 16 new branches over the next year. During the past twelve months, we opened 9 new branches including one in New Jersey. This expansion strategy coupled with the continued maturation of existing branches and our commercial loan growth, should result in continued deposit growth during 2004.

Customer deposits represent our primary funding source. The following table shows the classification of the average deposits and average rates paid for each of the last three years ended December 31,


	*2003*					2002					2001
	*Average*		*Average*			Average		Average			Average		Average
(dollars in thousands)	*Balance*		*Rate*			Balance		Rate			Balance		Rate

Demand	$	*3,678,290*		—	%	$	2,919,719		—	%	$	2,140,417		—	%
Savings		*3,653,744*		*0.63*			3,388,120		0.85			2,960,099		1.58
NOW & Money Market		*3,873,417*		*0.90*			2,637,158		1.30			1,656,697		2.02
Time		*2,961,129*		*1.83*			3,220,899		2.58			3,252,655		4.71

Total	$	*14,166,580*		*0.79*	%	$	12,165,896		1.20	%	$	10,009,868		2.33	%


26		North Fork Bancorporation

Asset/Liability Management

The net interest margin is directly affected by changes in the level of interest rates, the shape of the yield curve, the relationship between rates, the impact of interest rate fluctuations on asset prepayments, the level and composition of assets and liabilities, and the credit quality of the loan portfolio. Our asset/liability objectives are to maintain a strong, stable net interest margin, to utilize our capital effectively without taking undue risks, and to maintain adequate liquidity.

The risk assessment program includes a coordinated approach to the management of liquidity, capital, and interest rate risk. This process is governed by policies and limits established by senior management, which are reviewed at least annually by the Board of Directors. The Asset/Liability Committee of the Board of Directors (“ALCO”) provides guidance for asset/ liability activities. ALCO periodically evaluates the impact of changes in market interest rates on interest earning assets and interest bearing liabilities, net interest margin, capital and liquidity, and evaluates management’s strategic plan. The balance sheet structure is primarily short-term with most assets and liabilities repricing or maturing in less than five years. We monitor the sensitivity of net interest income by utilizing a dynamic simulation model complemented by a traditional gap analysis.

The simulation model measures the volatility of net interest income to changes in market interest rates. Simulation modeling involves a degree of estimation based on certain assumptions that we believe to be reasonable. Factors considered include contractual maturities, prepayments, repricing characteristics, deposit retention and the relative sensitivity of assets and liabilities to changes in market interest rates and cash flows from derivative instruments.

The Board has established certain policy limits for the potential volatility of net interest income as projected by the simulation model. Volatility is measured from a base case where rates are assumed to be flat and is expressed as the percentage change, from the base case, in net interest income over a twelve-month period. As of December 31, 2003, we were operating within policy limits.

The simulation model is kept static with respect to the composition of the balance sheet and, therefore does not reflect our ability to proactively manage in changing market conditions as demonstrated by our June 2003 balance sheet restructuring (See “Management’s Discussion and Analysis — Net Interest Income” for further details). We may choose to extend or shorten the maturities of our funding sources. We may also choose to redirect cash flows into assets with shorter or longer durations or repay borrowings. Derivative instruments, including interest rate swaps, interest rate caps/floors, and interest rate collars may be used to reduce pricing mismatches between assets and liabilities.

The assumptions used are inherently uncertain and, as a result, we cannot precisely predict the impact of changes in interest rates on net interest income. Actual results may differ significantly from those presented due to the timing, magnitude and frequency of interest rate changes, changes in market conditions and interest rate differentials (spreads) between maturity/ repricing categories, prepayments, and any actions we may take to counter such changes. The specific assumptions utilized in the simulation model include:

• Parallel yield curve shifts for market rates (i.e. treasuries, LIBOR, swaps, etc.) with an assumed floor of 50 basis points.

• Maintaining our current asset and liability spreads to market interest rates.

• Savings and money market deposit rates experience a 40% impact of market interest rate movements after 3 months and have a floor of 15 and 25 basis points, respectively.

• NOW deposit rates experience a 15% impact of market interest rate movements immediately and have a floor of 10 basis points.

The following table reflects the estimated change in projected net interest income for the next twelve months assuming a gradual increase or decrease in interest rates over a twelve-month period.


(dollars in millions)	Changes in Net Interest Income
Change in Interest Rates	$ Change			% Change

+ 200 Basis Points	$	(6.9	)		(0.82	)%
+ 100 Basis Points		(0.8	)		(0.10	)
- 100 Basis Points		(3.6	)		(0.43	)

Board Policy Limit		N/A			(10.00	)

The traditional gap analysis complements income simulation modeling, primarily focusing on the longer-term structure of the balance sheet. The gap analysis does not assess the relative sensitivity of assets and liabilities to changes in the interest rates and also fails to account for the imbedded options, caps and floors, if any. We have not established GAP policy limits since it does not appropriately depict interest rate risk as changes in interest rates do not necessarily affect all categories of interest earnings assets and interest bearing liabilities equally.


Annual Report 2003		27

Management’s Discussion and Analysis continued

The gap analysis is prepared based on the maturity and repricing characteristics of interest earning assets and interest bearing liabilities for selected time periods. The mismatch between repricings or maturities within a time period is commonly referred to as the “gap” for that period. A positive gap (asset sensitive), where interest-rate sensitive assets exceed interest-rate sensitive liabilities, generally will result in the net interest margin increasing in a rising rate environment and decreasing in a falling rate environment. A negative gap (liability sensitive) will generally have the opposite results on the net interest margin.

The following table reflects the repricing of the balance sheet, or “gap” position at December 31, 2003,:


	0-90			91-180			181-365			1-5			Over 5
(dollars in thousands)	Days			Days			Days			Years			Years			Total


Interest Earning Assets:
Money Market Investments	$	21,037		$	—		$	—		$	—		$	—		$	21,037
Securities ⁽¹⁾		1,230,055			843,011			907,762			2,906,185			1,421,884			7,308,897
Loans, net ^{(2) (3)}		2,331,453			468,303			841,418			5,653,667			3,039,360			12,334,201

Total Interest Earning Assets	$	3,582,545		$	1,311,314		$	1,749,180		$	8,559,852		$	4,461,244		$	19,664,135


Interest Bearing Liabilities:
Savings, NOW and Money Market Deposits ⁽⁴⁾	$	793,442		$	2,956,703		$	—		$	—		$	4,540,014		$	8,290,159
Time Deposits		1,151,089			647,259			511,795			434,644			1,035			2,745,822
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase		1,146,154			—			250,000			575,000			200,000			2,171,154
Federal Home Loan Bank Advances		300,000			—			—			650,000			100,000			1,050,000
Subordinated Debt		—			—			—			150,000			326,499			476,499
Capital Securities		—			—			—			—			259,244			259,244

Total Interest Bearing Liabilities	$	3,390,685		$	3,603,962		$	761,795		$	1,809,644		$	5,426,792		$	14,992,878

Gap before Derivatives		191,860			(2,292,648	)		987,385			6,750,208			(965,548	)
Derivative Instruments Notional Amounts		(470,000	)		(100,000	)		—			20,000			550,000

Cumulative Difference Between Interest Earning Assets and Interest Bearing Liabilities after Derivatives	$	(278,140	)	$	(2,670,788	)	$	(1,683,403	)	$	5,086,805		$	4,671,257

Cumulative Difference as a Percentage of Total Assets		(1.33	%)		(12.74	%)		(8.03	%)		24.27	%		22.28	%


⁽¹⁾		Based upon (a) contractual maturity, (b) repricing date, if applicable, and (c) projected repayments of principal based upon experience. Amounts represent amortized cost.

⁽²⁾		Based upon (a) contractual maturity, (b) repricing date, if applicable, and (c) estimated principal prepayments.

⁽³⁾		Excludes non-accrual loans totaling $11.1 million.

⁽⁴⁾		Interest-bearing deposits without stated maturities are assigned to categories based on observed historical rate sensitivity. In order to represent the observed rate sensitivity of these deposits in the gap table, 40% of the savings and money market balances were placed in the “91 - 180 Days” category and 50% of the NOW balances were placed in the “0 - 90 Days” category. The remainder of the balance was assigned to the “Over 5 Years” category to represent the relative insensitivity of these products to changes in short-term rates.

Our philosophy toward interest rate risk management is to limit the variability of net interest income in future periods under various interest rate scenarios. Another measure we monitor is based on market risk. Market risk is the risk of loss from adverse changes in market prices primarily driven by changes in interest rates. We calculate the value of assets and liabilities using net present value analysis with upward and downward shocks of 200 basis points to market interest rates. The net changes in the calculated values of the assets and liabilities are tax affected and reflected as an impact to the market value of equity. The following table reflects the estimated change in the market value of equity assuming an immediate increase or decrease in interest rates.


	Market Value of Equity
Change in Interest Rates	$ Change		% Change
+ 200 Basis Points	$	4.7		(5.6	)%
Flat		5.0		—
- 200 Basis Points		4.8		(4.3	)
Board Policy Limit		N/A		(40.0	)

The market value of equity changes exhibit a lack of symmetry due to the current low interest rate environment as our short term liability rates do not benefit from the full impact of rate decreases. Therefore, these liabilities do not experience the same price decrease as our assets.

As part of our overall interest rate risk management strategy, we periodically use derivative instruments to minimize significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. The interest rate risk management strategy at times involves modifying the repricing characteristics of certain assets and liabilities utilizing interest rate swaps, caps and floors.


28		North Fork Bancorporation

Interest rate swap agreements were used to change the repricing characteristics of the $245 million in Capital Securities from their stated fixed rates to variable rates indexed to three-month LIBOR. The swaps, designated as fair value hedges, contain payment dates, maturity dates and embedded call options held by the counterparty (exercisable in approximately four years), which are identical to the terms and call provisions contained in the Capital Securities. In June 2003, $350 million in pay floating swaps, designated as fair value hedges, were used to convert the stated fixed rate on the 5.875% subordinated notes to variable rates indexed to three-month LIBOR. The swap term and payment dates match the related terms of the subordinated notes. In July 2003, $150 million in pay floating swaps, designated as fair value hedges, were used to convert the stated fixed rate on the 5% subordinated notes to variable rates indexed to three-month LIBOR. The swap term is for five years, matching the period of time the subordinated notes pay a fixed rate. Beginning in the sixth year, we have the right to redeem the fixed rate/floating rate notes at par plus accrued interest or the interest rate converts to a spread over three-month LIBOR.

The credit risk associated with these derivative instruments is the risk of non-performance by the counterparty to the agreements. However, management does not anticipate non-performance by any of the counterparties and monitors/controls the risk through its asset/liability management procedures. (See “Notes to Consolidated Financial Statements — Note 17 — Derivative Financial Instruments” for additional information on all derivative transactions).

Liquidity Risk Management

The objective of liquidity risk management is to meet our financial obligations and capitalize on new business opportunities. These obligations include the payment of deposits on demand or at their contractual maturity, the repayment of borrowings as they mature and the ability to fund new and existing loans and investments as opportunities arise.

The Company’s primary funding source is dividends from North Fork Bank. There are various federal and state banking laws and guidelines limiting the extent to which a bank subsidiary can finance or otherwise supply funds to its holding company. At December 31, 2003, dividends for North Fork Bank were limited under such guidelines to $752 million. From a regulatory standpoint, North Fork Bank, with its current balance sheet structure, had the ability to dividend approximately $425 million while still meeting the criteria for designation as a well-capitalized institution under existing regulatory capital guidelines. Additional sources of liquidity for the Company include borrowings, the sale of available-for-sale securities, and funds available through the capital markets.

Customer deposits are the primary source of liquidity for our banking subsidiaries. Other sources of liquidity at the bank level include loan and security principal repayments and maturities, lines-of-credit with certain financial institutions, the ability to borrow under repurchase agreements, Federal Home Loan Bank (“FHLB”) advances utilizing unpledged mortgage backed securities and certain mortgage loans, the sale of available-for-sale securities and the securitization or sale of loans.

Our banking subsidiaries currently have the ability to borrow an additional $6.3 billion on a secured basis, utilizing mortgage related loans and securities as collateral. At December 31, 2003, our banking subsidiaries had $1.3 billion in advances and repurchase agreements outstanding with the FHLB.

We also maintain arrangements with correspondent banks to provide short-term credit for regulatory liquidity requirements. These available lines of credit aggregated $2.1 billion at December 31, 2003.

We continually monitor our liquidity position as well as the liquidity positions of our bank subsidiaries and believe that sufficient liquidity exists to meet all of our operating requirements.


Annual Report 2003		29

Management’s Discussion and Analysis continued

Contractual Obligations and Commitments

The Company has certain obligations and commitments to make future payments under contracts. At December 31, 2003, the aggregate contractual obligations and commitments are:


Contractual Obligations
	Payments Due by Period
			Less than		1-3		3-5		After
(in thousands)	Total		One Year		Years		Years		5 Years

Time Deposits and Certificates of Deposits $100,000 and Over	$	2,745,822	$	2,310,143	$	312,667	$	121,977	$	1,035
Borrowings		3,956,897		996,154		1,450,000		475,000		1,035,743
Annual Rental Commitments Under Non-Cancelable Leases		229,602		26,914		49,380		44,268		109,040

Total	$	6,932,321	$	3,333,211	$	1,812,047	$	641,245	$	1,145,818


Other Commitments
	Amount of Commitment - Expiration by Period
			Less than		1-3		3-5		After
(in thousands)	Total		One Year		Years		Years		5 Years

Commitments to Extend Credit	$	1,604,640	$	1,315,447	$	289,193	$	—	$	—
Standby Letters of Credit		187,322		187,322		—		—		—
Commercial Letters of Credit		16,112		16,112		—		—		—

Total	$	1,808,074	$	1,518,881	$	289,193	$	—	$	—

Capital

We are subject to the risk based capital guidelines administered by bank regulatory agencies. The 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 certain 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 certain off-balance sheet items. The guidelines require all banks and bank holding companies to maintain a minimum ratio of total risk based capital to total risk weighted assets (“Total Risk Adjusted Capital”) of 8%, including Tier 1 capital to total risk weighted assets (“Tier 1 Capital”) of 4% and a Tier 1 capital to average total assets (“Leverage Ratio”) of at least 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 us.

The regulatory agencies have amended the risk-based capital guidelines to provide for interest rate risk consideration when determining a banking institution’s capital adequacy. The amendments require institutions to effectively measure and monitor their interest rate risk and to maintain capital adequate for that risk.

As of December 31, 2003, the most recent notification from the various regulators categorized the Company and our subsidiary banks as well capitalized under the regulatory framework for prompt corrective action. Under the capital adequacy guidelines, a well capitalized institution must maintain a Total Risk Adjusted Capital Ratio of at least 10%, a Tier 1 Capital Ratio of at least 6%, a Leverage Ratio of at least 5%, and not be subject to any written order, agreement or directive. Since such notification, there are no conditions or events that management believes would change this classification. Due to the recent issuance of FIN 46R, there can be no assurance that the Federal Reserve will continue to allow institutions to include Trust Preferred Securities (or Capital Securities) as a component of Tier 1 Capital. As of December 31, 2003, we would still exceed the regulatory threshold for capital adequacy if we were to exclude our Trust Preferred Securities from Tier 1 Capital.


30		North Fork Bancorporation

The following table sets forth our risk-based capital amounts and rates as of December 31,:


	*2003*					2002

(dollars in thousands)	*Amount*		*Ratio*			Amount		Ratio

Tier 1 Capital	$	*1,301,687*		*10.49*	%	$	1,316,986		11.43	%
Regulatory Requirement		*496,414*		*4.00*			460,797		4.00

Excess	$	*805,273*		*6.49*	%	$	856,189		7.43	%

Total Risk Adjusted Capital	$	*1,927,410*		*15.53*	%	$	1,931,659		16.77	%
Regulatory Requirement		*992,828*		*8.00*			921,593		8.00

Excess	$	*934,582*		*7.53*	%	$	1,010,066		8.77	%

Risk Weighted Assets	$	*12,410,354*				$	11,519,913

Our Leverage Ratios at December 31, 2003 and 2002 were 6.47% and 6.46%, respectively. North Fork Bank’s Tier 1, Total Risk Adjusted Capital and Leverage Ratios were 12.53%, 13.54%, and 7.72%, respectively, at December 31, 2003. Superior Savings of New England’s Tier 1, Total Risk Adjusted Capital and Leverage Ratios were 14.66%, 15.21%, and 6.51%, respectively, at December 31, 2003.

On December 16, 2003, the Board of Directors increased the quarterly cash dividend to $.30 from $.27 per common share. The dividend was paid on February 17, 2004 to shareholders of record at the close of business on January 30, 2004.

In June 2003, the Board of Directors approved an increase in our share repurchase program from the previously authorized level of 4 million shares to 8 million shares, representing 5% of the shares outstanding at such time. As of December 31, 2003, we had purchased 5.2 million shares at an average cost of $34.58 per share under this program. Total shares repurchased during 2003 under existing repurchase programs aggregated 7.8 million shares at an average cost per share of $33.80. Repurchases are made in the open market or through privately negotiated transactions.

There are various federal and state banking laws and guidelines limiting the extent to which a bank subsidiary can finance or otherwise supply funds to its holding company.

Federal Reserve Board policy provides that, as a matter of prudent banking, a bank holding company generally should not maintain a rate of cash dividends unless its net income available to common stockholders is sufficient to fund the dividends, and the prospective rate of earnings retention appears to be consistent with the holding company’s capital needs, asset quality and overall financial condition. In addition, among other things, dividends from a New York-chartered bank, such as North Fork Bank, are limited to the bank’s net profits for the current year plus its prior two years’ retained net profits.

Under federal law, a depository institution is prohibited from paying a dividend if the depository institution would thereafter be “undercapitalized” as determined by the federal bank regulatory agencies. The relevant federal regulatory agencies and the state regulatory agency, the Banking Department, also have the authority to prohibit a bank or bank holding company from engaging in what, in the opinion of such regulatory body, constitutes an unsafe or unsound practice in conducting its business.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act passed in 2002 imposes significant new responsibilities on publicly held companies, particularly in the area of corporate governance. We have responded to the various requirements of the Act and the implementing regulations issued by the Securities and Exchange Commission and The New York Stock Exchange. We have taken those steps to reinforce our corporate governance structure and financial reporting procedures that are mandated under the Act and will continue to observe full compliance in upcoming periods. We have always emphasized best practices in corporate governance as the most effective way of assuring stockholders that their investment is properly managed and their interests remain paramount.


Annual Report 2003		31

Management’s Discussion and Analysis continued

COMPARISON BETWEEN 2002 AND 2001

Net income for 2002 was $416.9 million or diluted earnings per share of $2.58 compared to $331.5 million or diluted earnings per share of $2.05 for 2001. The return on average total assets and average stockholders’ equity for 2002 was 2.21% and 25.72%, respectively as compared to 2.12% and 23.95%, respectively for 2001.

Net Interest Income

Net interest income during 2002 benefited from a 20% increase in average interest earning assets. These assets were funded primarily with lower cost core deposits and, to a lesser extent, borrowings. Net interest income also benefited from the repositioning of our asset/liability mix which allowed us to take advantage of the low interest rate environment that existed. While our net interest margin improved 24 basis points to 4.93% for 2002 when compared to 4.69% for 2001, it declined steadily in 2002 after peaking in the first quarter.

During 2002, interest income rose $79.5 million or 7% to $1.2 billion compared to 2001 levels. The improvement was due to the $2.9 billion growth in average interest earning assets, partially offset by an 80 basis point decline in the yield on average earning assets to 6.92% for 2002 as compared to 7.72% for 2001.

Loans averaged $10.9 billion for 2002 representing an increase of $1.1 billion, or 11% compared with $9.8 billion for 2001. During this same period, loan yields declined 63 basis points to 7.33%, partially offsetting the impact of higher loan balances on interest income. Growth had been experienced in all loan categories, except residential mortgages. Loan growth has provided opportunities for deposit growth as many products require mandatory levels of compensating deposit balances. Our loan-to-deposit ratio was 86% at December 31, 2002.

Securities averaged $6.5 billion in 2002 representing an increase of $1.8 billion, or 38% compared with $4.7 billion in 2001. During this same period, yields declined 101 basis points to 6.26%. The growth in average securities, primarily mortgage backed securities, resulted from the decision to leverage a portion of our excess capital commencing in the second quarter of 2002 and to similarly invest the subordinated debt proceeds during the third quarter. We were able to fund the growth in earning assets primarily with lower cost core deposits and, to a lesser extent, short-term borrowings, which positively impacted net interest income. However, security yields were negatively impacted since these purchases, coupled with the reinvestment of portfolio cash flows, were at yields significantly below the existing portfolio’s average yield. Prepayment activity during the latter part of 2002 shortened the anticipated life of the mortgage backed securities portfolio. This required us to accelerate the premium amortization also lowering portfolio yields and net interest income.

During 2002, interest expense declined by $96.3 million, or 22% to $347.6 million compared to $443.9 million in 2001, while overall funding costs were reduced by 125 basis points to 2.50% during this same period. The interest rate environment that existed during the period reduced our funding costs since our interest bearing liabilities were primarily short-term in nature. The growth in lower cost core deposits during this period, especially interest free demand deposits, positively impacted our funding costs. Partially offsetting the decline in interest expense during 2002 was a $2.1 billion, or 17% increase in average interest bearing liabilities.

Growth in average demand deposits of $779.3 million or 36% to $2.9 billion during 2002 positively impacted our net interest margin. At December 31, 2002, demand deposits represented 26% of total deposits. Average savings, NOW and money market deposits increased $1.4 billion, or 31% to $6.0 billion during 2002. During this same period, the corresponding cost of funds declined by 69 basis points to 1.05%. Average time deposits remained unchanged at $3.2 billion during 2002, while the related cost of funds declined by 213 basis points to 2.58%.


32		North Fork Bancorporation

Average total borrowings increased by $686.8 million, or 17%, to $4.7 billion during 2002, while related borrowing costs declined by 98 basis points to 4.31%. Borrowing levels were impacted by the decision to fund a portion of the growth in securities with short-term borrowings and the subordinated debt proceeds. We also benefited from the use of interest rate swaps to convert $200 million in capital securities from their stated fixed rates to variable rates during 2002. These swaps reduced interest expense by $5.5 million in 2002 as the related cost of funds declined 245 basis points to 5.96% as compared to 8.41% for 2001. See “Notes to Consolidated Financial Statements – Note 17 – Derivative Financial Instruments” for further details.

Provision for Loan Losses

The provision for loan losses totaled $25 million for 2002, an increase of $7.2 million compared to $17.8 million for 2001. The allowance for loan losses increased by $11.2 million to $115 million when compared to 2001. The increase in both the provision and the allowance for loan losses was consistent with the overall growth in loans and our provisioning policy. The allowance for loan losses as a percentage of total loans was 1.01% at December 31, 2002, and 1.0% at December 31, 2001.

Non-Interest Income

Non-interest income, exclusive of securities, facilities, and derivative gains, rose by $24.2 million or 26% to $116.4 million for 2002 compared to $92.2 million for 2001. This improvement was achieved through a $17.9 million, or 30% increase in customer related fees and service charges to $77.2 million, resulting from growth in core deposits, expansion of our customer base using fee based services, revisions to fee schedules, and the Commercial Bank of New York (“CBNY”) purchase acquisition in November 2001. Mortgage banking income rose $2.2 million, or 48% due to record origination volumes. Contributing to the $3.7 million or 42% growth in other operating income was revenue generated through our re-factoring company Omni Financial, a former CBNY subsidiary. We also recognized a net gain of $3.3 million in the fourth quarter on the sale of one of our facilities.

Securities gains recognized in 2002 were $4.5 million compared to $8.7 million in 2001. During 2002, these gains resulted from the sale of mortgage backed securities, corporate bonds and certain equity securities. Security gains recognized during 2001 resulted from the sale of certain equity and capital securities.

Derivative gains of $7.9 million recorded in 2001 were due to the early termination of $1.0 billion in interest rate floor contracts that did not qualify for hedge accounting upon the adoption of SFAS 133.

Non-Interest Expense

Non-interest expense, exclusive of goodwill amortization, increased $74.0 million or 32% to $305.2 million for 2002. Contributing to this increase was an additional $45.3 million in employee compensation and benefits, $12.6 million in occupancy and equipment costs and $14.6 million in other operating expenses. Employee compensation and benefits rose 35% as a result of increases in incentive based compensation, rising employee benefit costs, the branch expansion program and the acquisition of CBNY. Total incentive compensation expense increased 46% representing 29% of total compensation and benefits. Increases in occupancy and equipment and other operating expenses were due in large measure to the branch expansion program, the acquisition of CBNY and costs associated with implementing new business initiatives. Also contributing to the increase in other operating expenses were costs associated with our advertising and branding campaign, which included the introduction of a new corporate logo.

Effective January 1, 2002, we adopted SFAS No 142 (“SFAS 142”) “Goodwill and Other Intangible Assets” in accordance with the provisions of SFAS 142 the amortization of goodwill ceased. Goodwill amortization recognized in 2001 was $19.8 million.

Income Taxes

The effective tax rate for 2002 as compared with 2001 was substantially unchanged at approximately 34.5%.


Annual Report 2003		33

Management’s Discussion and Analysis continued

RECENT ACCOUNTING PRONOUNCEMENTS

Accounting for Costs Associated with Exit or Disposal Activities

On January 1, 2003, we adopted the accounting provisions of SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). SFAS 146 requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred and be measured at fair value. Previous guidance required the recognition of such costs be at the date of management’s commitment to an exit plan. SFAS 146 was effective for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS 146 had no impact on our financial statements.

Consolidation of Variable Interest Entities

The FASB recently released Interpretation No. 46, “Consolidation of Variable Interest Entities (revised December 2003)” (“FIN 46R”). FIN 46R promulgates new rules for the consolidation of special-purpose vehicles and other variable interest entities (“VIE”). FIN 46R requires that a VIE be consolidated by the entity that absorbs a majority of the expected losses or a majority of the expected residual returns.

In the first quarter 2004, FIN 46R will require companies, such as North Fork, that have previously issued trust preferred securities (Capital Securities) through statutory business trusts, to deconsolidate their investment in those trusts. Deconsolidation will result in a re-characterization of the underlying consolidated debt obligation from the previous trust preferred securities obligation to the junior subordinated debenture obligations that exist between North Fork and our three wholly-owned trust entities that have issued the securities.

In July 2003, the Board of Governors of the Federal Reserve System issued a supervisory letter instructing bank holding companies to continue to include trust preferred securities (Capital Securities) in Tier 1 capital for regulatory capital purposes until further notice. The Federal Reserve intends to review the regulatory implications of any accounting treatment changes and, if necessary, provide further appropriate guidance. There can be no assurance that the Federal Reserve will continue to allow institutions to include Capital Securities in Tier 1 capital for regulatory capital purposes. As of December 31, 2003, assuming we no longer included the Capital Securities issued by North Fork Capital Trust I, North Fork Capital Trust II, and Reliance Capital Trust I in Tier 1 Capital, we would still exceed the regulatory threshold for capital adequacy (See “Notes to Consolidated Financial Statements – Footnote 10 – Capital Securities” for additional information).

Accounting for Derivative Instruments and Hedging Activities

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS 149”). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” In particular, SFAS 149 clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative and clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 was effective for contracts entered into or modified after June 30, 2003. Adoption of SFAS 149 did not have a material effect on our financial statements.

Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS 150”). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003; otherwise, it is effective at the beginning of the first interim period beginning after June 15, 2003. However, the effective date of the statement’s


34		North Fork Bancorporation

provisions related to the classification and measurement of certain mandatorily redeemable non-controlling interests has been deferred indefinitely by the FASB, pending further Board action. Adoption of SFAS 150 is not expected to have a material effect on our financial statements.

Employers’ Disclosures about Pensions and Other Post-Retirement Benefits

In December 2003, the FASB revised SFAS No. 132, “Employers’ Disclosures about Pensions and Other Post-Retirement Benefits (“SFAS 132”). It requires additional disclosures to those in the original SFAS 132 regarding the plan assets, obligations, cash flows, and interim period benefit cost. SFAS 132 applies to defined benefit pension plans and other defined benefit post-retirement plans. The additional disclosures were added so that users of financial statements could better evaluate retirement benefit plans, including the risks that may affect future earnings and cash flows. The provisions of SFAS 132 were effective for fiscal years ending after December 15, 2003 and have been addressed in “Notes to the Consolidated Financial Statements – Footnote 13 – Retirement and Other Employee Benefit Plans”.

Management’s Discussion and Analysis continued

QUARTERLY FINANCIAL INFORMATION
(unaudited)


	*2003*								2002
	*1st*		*2nd*		*3rd*		*4th*		1st		2nd		3th		4th
(in thousands, except per share amounts)	*Qtr*		*Qtr*		*Qtr*		*Qtr*		Qtr		Qtr		Qtr		Qtr

Interest Income	$	*296,556*	$	*282,337*	$	*263,807*	$	*267,560*	$	285,799	$	293,159	$	304,902	$	305,478
Interest Expense		*87,106*		*82,465*		*64,307*		*60,868*		86,942		82,738		88,505		89,375

Net Interest Income		*209,450*		*199,872*		*199,500*		*206,692*		198,857		210,421		216,397		216,103
Provision for Loan Losses		*6,250*		*6,500*		*6,500*		*7,000*		6,250		6,250		6,250		6,250

Net Interest Income after Provision for Loan Losses		*203,200*		*193,372*		*193,000*		*199,692*		192,607		204,171		210,147		209,853
Non-Interest Income		*34,247*		*47,459*		*34,030*		*40,075*		28,701		29,708		31,860		33,870
Non-Interest Expense		*80,570*		*95,205*		*84,753*		*85,342*		71,232		74,411		78,882		80,661

Income Before Income Taxes		*156,877*		*145,626*		*142,277*		*154,425*		150,076		159,468		163,125		163,062
Provision for Income Taxes		*53,338*		*49,513*		*47,947*		*52,042*		51,776		55,017		56,278		55,767

Net Income	$	*103,539*	$	*96,113*	$	*94,330*	$	*102,383*	$	98,300	$	104,451	$	106,847	$	107,295


Earnings Per Share:
Basic	$	*.67*	$	*.63*	$	*.63*	$	*.69*	$	.61	$	.65	$	.67	$	.68
Diluted		*.67*		*.62*		*.63*		*.68*		.61		.64		.66		.67

Common Stock Price Range:
High	$	*35.64*	$	*34.35*	$	*35.70*	$	*40.81*	$	35.73	$	40.55	$	42.31	$	39.73
Low		*29.45*		*28.70*		*33.17*		*35.77*		31.73		34.79		34.97		33.33


36		North Fork Bancorporation

Forward-Looking Statements

This document, including information incorporated by reference, contains “forward-looking statements” (as that term is defined in the Private Securities Litigation Reform Act of 1995). In addition, senior management may make forward-looking statements orally to analysts, investors, the media, and others. These forward looking statements may be identified by the use of such words as: “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, or words of similar meaning, or future or conditional terms such as “will”, “would”, “should”, “could”, “may”, “likely”, “probably”, or “possibly”.

Examples of forward-looking statements include, but are not limited to, estimates or projections with respect to our future financial condition, expected or anticipated revenues, results of operations and our business, with respect to:

• projections of revenues, income, earnings per share, capital expenditures, assets, liabilities, dividends, capital structure, or other financial items;

• statements regarding the adequacy of the allowance for loan losses or other reserves;

• descriptions of plans or objectives of management for future operations, products, or services, including pending acquisition transactions;

• costs or difficulties related to the integration of the business of TCNJ and GreenPoint may be greater than expected;

• expected cost savings and revenue enhancements from the pending acquisitions may not be fully realized or realized within the expected time frame;

• forecasts of future economic performance; and

• descriptions of assumptions underlying or relating to any of the foregoing.

By their nature, forward-looking statements are subject to risks and uncertainties. There are a number of factors, many of which are beyond our control, that could cause actual conditions, events, or results to differ significantly from those described in the forward-looking statements.

Factors which could cause or contribute to such differences include, but are not limited to:

• general business and economic conditions on both a regional and national level;

• worldwide political and social unrest, including acts of war and terrorism;

• competitive pressures among financial services companies may increase significantly;

• changes in the interest rate environment may reduce interest margins;

• changes may occur in the securities and bond markets;

• legislative or regulatory changes may adversely affect the businesses in which we are engaged;

• technological changes, including the impact of the Internet;

• monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board;

• accounting principles, policies, practices or guidelines.

Any forward-looking statements made in this report or incorporated by reference in this report are made as of the date of this report, and, except as required by applicable law, we assume no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements. You should consider these risks and uncertainties in evaluating forward-looking statements and you should not place undue reliance on these statements.


Annual Report 2003		37

Consolidated Statements of Income


For the Years Ended December 31,
(in thousands, except per share amounts)	*2003*		2002		2001

Interest Income:
Loans	$	789,136	$	800,934	$	781,408
Mortgage-Backed Securities		*258,338*		337,279		268,598
Other Securities		*45,715*		38,117		48,851
State & Municipal Obligations		*16,031*		12,257		8,744
Money Market Investments		*640*		751		2,279
Trading Account		*400*		—		—

Total Interest Income		*1,110,260*		1,189,338		1,109,880


Interest Expense:
Savings, NOW & Money Market Deposits		*58,008*		63,133		80,102
Time Deposits		*35,820*		57,218		111,520
Certificates of Deposit, $100,000 & Over		*18,307*		25,965		41,591
Federal Funds Purchased & Securities Sold Under Agreements to Repurchase		*89,623*		96,889		104,098
Federal Home Loan Bank Advances		*61,101*		77,767		86,050
Subordinated Debt		*23,611*		11,558		—
Capital Securities		*8,276*		15,030		20,560

Total Interest Expense		*294,746*		347,560		443,921

Net Interest Income		*815,514*		841,778		665,959
Provision for Loan Losses		*26,250*		25,000		17,750

Net Interest Income after Provision for Loan Losses		*789,264*		816,778		648,209


Non-Interest Income:
Customer Related Fees & Service Charges		*82,406*		77,197		59,308
Investment Management, Commissions & Trust Fees		*13,712*		16,708		16,239
Mortgage Banking Income		*10,065*		6,864		4,633
Check Cashing Fees		*4,669*		2,893		3,075
Other Operating Income		*18,217*		12,706		8,968
Securities Gains, net		*15,762*		4,517		8,729
Gain on Sale of Facilities, net		*10,980*		3,254		—
Derivative Gains		—		—		7,943

Total Non-Interest Income		*155,811*		124,139		108,895


Non-Interest Expense:
Employee Compensation & Benefits		*191,758*		174,558		129,279
Occupancy & Equipment, net		*66,929*		55,883		43,274
Other Operating Expenses		*75,228*		74,745		58,654
Debt Restructuring Costs		*11,955*		—		—
Amortization of Goodwill		—		—		19,815

Total Non-Interest Expense		*345,870*		305,186		251,022

Income Before Income Taxes		*599,205*		635,731		506,082
Provision for Income Taxes		*202,840*		218,838		174,598

Net Income	$	396,365	$	416,893	$	331,484


Earnings Per Share — Basic	$	*2.63*	$	2.61	$	2.08
Earnings Per Share — Diluted	$	*2.60*	$	2.58	$	2.05

See accompanying notes to consolidated financial statements.


38		North Fork Bancorporation

Consolidated Balance Sheets


At December 31,	*2003*			2002
(in thousands, except per share amounts)

Assets:
Cash & Due from Banks	$	*510,354*		$	396,725
Money Market Investments		*21,037*			27,613

Securities:
Available-for-Sale ($1,911,586 pledged in 2003; $3,639,853 in 2002)		*7,128,542*			8,555,892
Held-to-Maturity ($52,808 pledged in 2003; $167,829 in 2002) (Fair Value $195,312 in 2003; $317,289 in 2002)		*190,285*			307,878

Total Securities		*7,318,827*			8,863,770

Loans, Net of Unearned Income & Deferred Costs		*12,345,273*			11,369,139
Less: Allowance for Loan Losses		*122,733*			114,995

Net Loans		*12,222,540*			11,254,144

Goodwill		*410,494*			407,132
Identifiable Intangibles		*12,765*			16,332
Premises & Equipment		*150,875*			132,529
Accrued Income Receivable		*88,722*			104,719
Other Assets		*226,027*			210,137

Total Assets	$	*20,961,641*		$	21,413,101


Liabilities and Stockholders’ Equity:
Deposits:
Demand	$	*4,080,134*		$	3,417,534
Savings		*3,770,683*			3,440,573
NOW & Money Market		*4,519,476*			3,347,385
Time		*1,784,408*			1,949,559
Certificates of Deposit, $100,000 & Over		*961,414*			1,037,479

Total Deposits		*15,116,115*			13,192,530

Federal Funds Purchased & Securities Sold Under Agreements to Repurchase		*2,171,154*			3,851,000
Federal Home Loan Bank Advances		*1,050,000*			1,550,000
Subordinated Debt		*476,499*			499,140
Capital Securities		*259,244*			268,926
Due To Brokers		*31,095*			105,227
Accrued Expenses & Other Liabilities		*379,045*			432,225

Total Liabilities	$	*19,483,152*		$	19,899,048


Stockholders’ Equity:
Preferred Stock, par value $1.00; authorized 10,000,000 shares, unissued	$	—		$	—
Common stock, par value $.01; authorized 500,000,000 shares; issued 174,580,778 shares in 2003 and 2002		*1,746*			1,746
Additional Paid in Capital		*378,793*			377,311
Retained Earnings		*1,816,458*			1,590,594
Accumulated Other Comprehensive (Loss)/Income		*(2,044*	)		17,991
Deferred Compensation		*(91,789*	)		(70,562	)
Treasury Stock at cost; 22,059,067 shares in 2003; 15,823,746 shares in 2002		*(624,675*	)		(403,027	)

Total Stockholders’ Equity		*1,478,489*			1,514,053

Total Liabilities and Stockholders’ Equity	$	*20,961,641*		$	21,413,101

See accompanying notes to consolidated financial statements.


Annual Report 2003		39

Consolidated Statements of Changes in Stockholders’ Equity


Three Years Ended December 31, 2003			Additional						Accumulated Other									Total
	Common		Paid in			Retained			Comprehensive			Deferred			Treasury			Stockholders'
(dollars in thousands, except per share amounts)	Stock		Capital			Earnings			Income/(Loss)			Compensation			Stock			Equity

Balance, January 1, 2001	$	1,746	$	359,679		$	1,147,375		$	9,694		$	(32,474	)	$	(272,102	)	$	1,213,918
Net Income		—		—			331,484			—			—			—			331,484
Cash Dividends ($.87 per share)		—		—			(141,295	)		—			—			—			(141,295	)
Issuance of Stock (157,508 shares)		—		1,315			—			—			—			3,141			4,456
Purchases of Treasury Stock (313,900 shares)		—		—			—			—			—			(8,051	)		(8,051	)
Restricted Stock Activity, net		—		5,821			—			—			(10,061	)		8,939			4,699
Stock Based Compensation Activity, net		—		(2,470	)		—			—			—			33,620			31,150
Other Comprehensive Income		—		—			—			647			—			—			647

Balance, December 31, 2001	$	1,746	$	364,345		$	1,337,564		$	10,341		$	(42,535	)	$	(234,453	)	$	1,437,008
Net Income		—		—			416,893			—			—			—			416,893
Cash Dividends ($1.01 per share)		—		—			(163,863	)		—			—			—			(163,863	)
Issuance of Stock (138,613 shares)		—		2,262			—			—			—			2,918			5,180
Purchases of Treasury Stock (6,006,500 shares)		—		—			—			—			—			(207,604	)		(207,604	)
Restricted Stock Activity, net		—		13,484			—			—			(28,027	)		21,885			7,342
Stock Based Compensation Activity, net		—		(2,780	)		—			—			—			14,227			11,447
Other Comprehensive Income		—		—			—			7,650			—			—			7,650

Balance, December 31, 2002	$	1,746	$	377,311		$	1,590,594		$	17,991		$	(70,562	)	$	(403,027	)	$	1,514,053
Net Income		—		—			396,365			—			—			—			396,365
Cash Dividends ($1.11 per share)		—		—			(170,501	)		—			—			—			(170,501	)
Issuance of Stock (154,651 shares)		—		1,116			—			—			—			4,636			5,752
Purchases of Treasury Stock (7,776,400 shares)		—		—			—			—			—			(264,193	)		(264,193	)
Restricted Stock Activity, net		—		8,435			—			—			(21,227	)		21,908			9,116
Stock Based Compensation Activity, net		—		(8,069	)		—			—			—			16,001			7,932
Other Comprehensive Loss		—		—			—			(20,035	)		—			—			(20,035	)

*Balance, December 31, 2003*	$	*1,746*	$	*378,793*		$	*1,816,458*		$	*(2,044*	)	$	*(91,789*	)	$	*(624,675*	)	$	*1,478,489*

See accompanying notes to consolidated financial statements.


Annual Report 2003		40

Consolidated Statements of Cash Flows


For the Years Ended December 31,	*2003*			2002			2001
(in thousands)
Cash Flows from Operating Activities:
Net Income	$	*396,365*		$	416,893		$	331,484

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Loan Losses		*26,250*			25,000			17,750
Depreciation		*15,391*			13,544			11,589
Amortization of Deferred Compensation		*9,858*			8,714			5,340
Amortization of Goodwill		—			—			19,815
Amortization of Identifiable Intangibles		*3,567*			3,808			2,299
Amortization of Premiums		*86,482*			42,397			11,524
Accretion of Discounts and Net Deferred Loan Fees		*(28,798*	)		(50,628	)		(37,204	)
Securities Gains, net		*(15,762*	)		(4,517	)		(8,729	)
Derivative Gains		—			—			(7,943	)
Gain on Sale of Facilities		*(10,980*	)		(3,254	)		—
Debt Restructuring Costs		*11,955*			—			—
Purchases of Trading Assets		*(148,314*	)		(16,685	)		—
Sales of Trading Assets		*150,731*			18,091			—
Other, net		*(108,342*	)		66,538			78,083

Net Cash Provided by Operating Activities		*388,403*			519,901			424,008


Cash Flows from Investing Activities:
Purchases of Securities Held-to-Maturity		*(51,248*	)		(551	)		(5,490	)
Maturities, Redemptions, Calls and Principal Repayments on Securities Held-to-Maturity		*167,351*			401,584			283,962
Purchases of Securities Available-for-Sale		*(6,260,244*	)		(7,521,643	)		(2,168,207	)
Proceeds from Sales of Securities Available-for-Sale		*1,532,384*			169,830			233,890
Maturities, Redemptions, Calls and Principal Repayments on Securities Available-for-Sale		*6,035,159*			3,767,435			1,444,392
Loans Originated, Net of Principal Repayments and Charge-offs		*(1,320,690*	)		(1,241,114	)		(794,823	)
Proceeds from the Sale of Loans		*345,983*			275,973			101,696
Transfers to Other Real Estate, Net of Sales		*(193*	)		20			184
Purchases of Premises and Equipment, net		*(35,585*	)		(38,547	)		(21,732	)
Purchase Acquisitions, net of cash acquired		—			—			38,592

Net Cash Provided by/(Used in) Investing Activities		*412,917*			(4,187,013	)		(887,536	)


Cash Flows from Financing Activities:
Net Increase in Customer Deposit Liabilities		*1,923,585*			1,889,224			1,146,817
(Decrease)/Increase in Borrowings		*(2,191,801*	)		1,708,818			(533,334	)
Purchases of Treasury Stock		*(264,193*	)		(207,604	)		(8,051	)
Exercise of Options and Common Stock Sold for Cash		*5,752*			14,240			30,147
Proceeds from the Issuance of Subordinated Debt		—			495,929			—
Cash Dividends Paid		*(167,610*	)		(160,091	)		(131,151	)

Net Cash (Used in)/Provided by Financing Activities		*(694,267*	)		3,740,516			504,428

Net Increase in Cash and Cash Equivalents		*107,053*			73,404			40,900
Cash and Cash Equivalents at Beginning of the Year		*424,338*			350,934			310,034

Cash and Cash Equivalents at Year End	$	*531,391*		$	424,338		$	350,934


41		North Fork Bancorporation

Consolidated Statements of Cash Flows continued


For the Years Ended December 31,	*2003*		2002		2001
(in thousands)

Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for:
Interest Expense	$	*309,397*	$	348,547	$	455,955

Income Taxes	$	*214,027*	$	136,280	$	128,372

Securities Transferred from Held-to-Maturity to Available-for-Sale due to the adoption of SFAS 133	$	—	$	—	$	119,578

During the Year the Company Purchased Various Securities which Settled in the Subsequent Period	$	31,095	$	105,227	$	200,602

Non-cash activity related to the acquisition not reflected above for the Year ended December 31, 2001 follows⁽¹⁾:
Fair Value of Assets Acquired	$	—	$	—	$	1,156,328
Goodwill & Identifiable Intangible Assets		—		—		104,034

Liabilities Assumed	$	—	$	—	$	1,260,362

⁽¹⁾

In 2001, North Fork Bank acquired the outstanding common stock of Commercial Bank of New York for approximately $175 million in cash.

See accompanying notes to consolidated financial statements.


Annual Report 2003		42

Consolidated Statements of Comprehensive Income


For the Years Ended December 31,	*2003*			2002			2001
(in thousands)
Net Income	$	*396,365*		$	416,893		$	331,484

Other Comprehensive Income:

Unrealized (Losses)/Gains On Securities:
Changes in Unrealized Gains Arising During the Year		*(44,434*	)		32,166			34,197
Less: Reclassification Adjustment for Gains Included in Net Income		*(15,762*	)		(4,517	)		(8,729	)

Changes in Unrealized Gains Arising During the Year		*(60,196*	)		27,649			25,468
Related Tax Effect on Unrealized Gains Arising During the Year		*25,884*			(11,889	)		(10,951	)

Net Change in Unrealized Gains Arising During the Year		*(34,312*	)		15,760			14,517


Unrealized Gains/(Losses) On Derivative Instruments:
Changes in Unrealized (Losses)/Gains Arising During the Year		*(5,465*	)		(46,992	)		(33,833	)
Add: Reclassification Adjustment for Expenses/Losses Included in Net Income		*30,512*			32,763			9,500

Changes in Unrealized (Losses)/Gains Arising During the Year		*25,047*			(14,229	)		(24,333	)
Related Tax Effect on Changes in Unrealized Gains Arising During the Year		*(10,770*	)		6,119			10,463

Net Change in Unrealized Gains Arising During the Year		*14,277*			(8,110	)		(13,870	)

Net Other Comprehensive (Loss)/Income	$	*(20,035*	)	$	7,650		$	647

Comprehensive Income	$	*376,330*		$	424,543		$	332,131

See accompanying notes to consolidated financial statements.


Annual Report 2003		43

Notes to Consolidated Financial Statements

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

North Fork Bancorporation, Inc. (“the Company”) is a bank holding company incorporated in Delaware in 1980 and registered as a “bank holding company” under the Bank Holding Company Act. The Company is headquartered in Melville, New York. The Company’s primary subsidiary, North Fork Bank, is a New York state chartered bank. North Fork Bank operates 175 retail banking branches in the New York Metropolitan area including one branch in New Jersey. North Fork Bank’s assets and revenues represent approximately 95% of our consolidated assets and revenues. North Fork Bank provides banking and financial services to middle market and small businesses, local government units and retail customers in our service area. The Company’s non-bank subsidiaries offer financial services such as asset management, trust, and securities brokerage and related annuity and mutual fund products. The Company’s other banking subsidiary, Superior Savings of New England, N.A., is a nationally chartered bank headquartered in Connecticut that operates from two locations and focuses on gathering deposits throughout the northeast.

Basis of Presentation

The Company’s accounting and reporting policies are in conformity with accounting principles generally accepted in the United States of America. The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. In management’s opinion, all adjustments have been made for a fair presentation of the results of operations in these financial statements. The Company has no unconsolidated subsidiaries or unconsolidated special purpose entities.

Securities

Securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity and carried at amortized cost. Securities that may be sold in response to, or in anticipation of, changes in interest rates and resulting prepayment risk, or other factors, and marketable equity securities, are classified as available-for-sale and carried at fair value. The unrealized gains and losses on these securities are reported, net of applicable taxes, as a separate component of accumulated other comprehensive (loss)/income, a component of stockholders’ equity. Equity securities that do not have a readily determinable fair value are reported at cost. Debt and equity securities that are purchased and held principally for the purpose of selling them in the near term are classified as trading account securities and reported at fair value. The unrealized gains and losses on trading securities are reported as a component of other non-interest income. Management determines the appropriate classification of securities at the time of purchase, and at each reporting date, management reassesses the appropriateness of the classification.

Interest income on securities, including amortization of premiums and accretion of discounts, is recognized using the level yield method over the lives of the individual securities. Realized gains and losses on sales of securities are computed using the specific identification method. The cost basis of individual held-to-maturity and available-for-sale securities is reduced through write-downs to reflect other-than-temporary impairments in value.

Derivative Financial Instruments

Derivative financial instruments are recorded at fair value as either assets or liabilities on the balance sheet. The accounting for changes in the fair value of a derivative instrument is determined by whether it has been designated and qualifies as part of a hedging relationship and on the type of hedging relationship. Transactions hedging changes in the fair value of a recognized asset, liability, or firm commitment are classified as fair value hedges. Derivative instruments hedging exposure to variable cash flows of recognized assets, liabilities or forecasted transactions are classified as cash flow hedges.


44		North Fork Bancorporation

Fair value hedges result in the immediate recognition in earnings of gains or losses on the derivative instrument, as well as corresponding losses or gains on the hedged item, to the extent they are attributable to the hedged risk. The effective portion of the gain or loss on a derivative instrument designated as a cash flow hedge is reported in other comprehensive income, and reclassified to earnings in the same period that the hedged transaction affects earnings. The ineffective portion of the gain or loss, if any, is recognized in current earnings for both fair value and cash flow hedges. Derivative instruments not qualifying for hedge accounting treatment are recorded at fair value and classified as trading assets or liabilities with the resultant changes in fair value recognized in current earnings during the period of change.

In the event of early termination of a derivative contract, which had been designated as part of a cash flow hedging relationship, any resulting gain or loss is deferred as an adjustment to the carrying value of the assets or liabilities, against which the hedge had been designated with a corresponding offset to other comprehensive income, and reclassified to current earnings over the shorter of the remaining life of the designated assets or liabilities, or the derivative contract. However, if the hedged item is no longer on balance sheet (i.e. – sold or canceled), the derivative gain or loss is immediately reclassified to current earnings.

Loans

Loans are stated at the principal amount outstanding, net of unearned income and net deferred loan fees and costs. Residential mortgage loans held-for-sale are carried at the lower of aggregate cost or market value. The Company generally has commitments to sell residential mortgage loans held for sale in the secondary market. Gains or losses on sales are recognized in the statement of income under the caption “Mortgage Banking Income”. Interest income is recognized using the interest method or a method that approximates a level rate of return over the loan term. Unearned income and net deferred loan fees and costs are recognized in interest income over the loan term as a yield adjustment.

Non-Accrual and Restructured Loans

Loans are generally placed on non-accrual status when payments become 90 days past due, unless they are well secured and in the process of collection. Loans may also be placed on non-accrual status if management has doubt as to the collectibility of interest and principal prior to a loan becoming 90 days past due. Interest and fees previously accrued, but not collected, are generally reversed and charged against interest income at the time a loan is placed on non-accrual status. Interest payments received on non-accrual loans are recorded as reductions of principal if, in management’s judgment, principal repayment is doubtful. Loans may be reinstated to an accrual or performing status if future payments of principal and interest are reasonably assured and the loan has a demonstrated period of performance.

Loans are classified as restructured when management grants, for economic or legal reasons related to the borrower’s financial condition, concessions to the borrower that we would not otherwise consider. Generally, this occurs when the cash flows of the borrower are insufficient to service the loan under its original terms. Restructured loans are reported as such in the year of restructuring. In subsequent reporting periods, the loan is removed from restructured status if the loan yields a market rate of interest, is performing in accordance with the restructure terms, and such performance is expected to continue.

Provision and Allowance for Loan Losses

Recognition is also given to the changed risk profile resulting from previous business combinations, customer knowledge, results of ongoing credit-quality monitoring processes and the cyclical nature of economic and business conditions. An important consideration in applying these methodologies is our concentration of real estate related loans located in the New York Metropolitan area.


Annual Report 2003		45

Notes to Consolidated Financial Statements continued

The initial allocation or specific-allowance methodology commences with loan officers and underwriters grading the quality of their loans on a risk classification scale ranging from 1 - 8. Loans identified as below investment grade are referred to our independent Loan Review Department (“LRD”) for further analysis and identification of those factors that may ultimately affect the full recovery or collectibility of principal and/or interest. These loans are subject to continuous review and monitoring while they remain in a criticized category. Additionally, LRD is responsible for performing periodic reviews of the loan portfolio independent from the identification process employed by loan officers and underwriters. Loans that fall into criticized categories are further evaluated for impairment in accordance with the provisions of SFAS No. 114, “Accounting by Creditors for Impairment of a Loan”. The portion of the allowance allocated to an impaired loan is based on the most appropriate of the following methods: discounted cash flows from the loan using the loan’s effective interest rate, the fair value of the collateral for collateral dependent loans, or the observable market price of the impaired loan.

The second allocation or loss experience factor approach, which applies to smaller balance homogenous loans (residential mortgages and consumer loans) is made by applying an average loss experience factor to the outstanding balance in each loan category.

The final allocation applies a loss experience factor to all loans which have not been specifically reviewed for impairment or which were not analyzed as part of a homogenous portfolio. It gives recognition to our historical loss experience with such loans, as well as that of acquired businesses, business cycle changes and the real estate component of loans. These factors are reviewed on a quarterly basis with the Company’s senior lenders to ensure that the factors are reflective of trends or changes in the business environment and our markets.

Other evidentiary matter used to evaluate the adequacy of the allowance for loan losses is the amount and trend of criticized loans, results of regulatory examinations, peer group comparisons and economic data associated with the relevant markets, specifically the local real estate market. This information may lead management to consider that the overall allowance level should be greater than the amount determined by the allocation process described above.

Premises and Equipment

Premises and equipment, including leasehold improvements, are stated at cost, net of accumulated depreciation and amortization. Equipment, which includes furniture and fixtures, are depreciated over the assets’ estimated useful lives using the straight-line method (3 to 10 years). Bank premises and leasehold improvements are amortized, using the straight line method, over the estimated useful life of the related asset or the lease term, whichever is shorter. Maintenance, repairs and minor improvements are charged to non-interest expense in the period incurred.

Impairment

Management periodically evaluates long-lived assets, certain identifiable intangibles, deferred costs and goodwill for indication of impairment in value. Long-lived assets and deferred costs are typically measured whenever events or circumstances indicate that the carrying amount may not be recoverable. No such events have occurred during the periods reported. Certain identifiable intangibles and goodwill are measured for impairment at least annually utilizing the “market approach” as prescribed by SFAS No. 142, “Goodwill and Other Intangible Assets.” Asset impairment is recorded when required.

Other Real Estate

Other real estate consists of property acquired through foreclosure or deed in lieu of foreclosure. Prior to foreclosure, the recorded amount of the loan is written down, if necessary, to the fair value of the real estate to be acquired by a charge to the allowance for loan losses.

Income taxes

Income taxes are provided under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period the change occurs. Deferred tax assets are reduced, through a valuation allowance, if necessary, by the amount of such benefits that are not expected to be realized based on current available evidence.


46		North Fork Bancorporation

Earnings Per Share (“EPS”)

Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares adjusted for restricted shares outstanding during the period. Diluted EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding, adjusted for restricted shares, and common stock equivalents (i.e. stock options) outstanding during the period accounted for under the treasury stock method. The weighted average number of common shares outstanding used in the computation of Basic EPS was 150,869,489, 159,772,588 and 159,563,045 for 2003, 2002 and 2001, respectively. The weighted average number of common shares outstanding used in the computation of diluted EPS was 152,516,142, 161,648,734 and 161,381,761 for 2003, 2002 and 2001, respectively.

Accounting for Stock-Based Compensation

The Company accounts for its stock-based compensation plans in accordance with the requirements specified in SFAS No. 123 “Accounting for Stock-Based Compensation” (“SFAS 123”), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (“SFAS 148”). As permitted under these statements, the Company has elected to apply the intrinsic value method in accounting for option-based stock compensation plans. Accordingly, compensation expense has not been recognized in the accompanying consolidated financial statements for stock-based compensation plans, other than for restricted stock awards. Restricted stock awards are recorded as deferred compensation, a component of stockholders’ equity, at the fair value of these awards at the date of grant and are amortized to compensation expense over the awards’ specified vesting periods. Since the intrinsic value method is used, the Company is required to disclose the pro-forma impact on net income and earnings per share that the fair value-based method would have had, if it was applied rather than the intrinsic value method.

Accordingly, the following table illustrates the effect on net income and earnings per share as if the fair value-based method had been applied to all outstanding awards in each period.


(dollars in thousands, except per share amounts)	*2003*			2002			2001

Net Income as Reported	$	*396,365*		$	416,893		$	331,484

Add: Restricted Stock Expense Included In Net Income, net of taxes		*6,808*			5,535			3,463
Less: Total Stock-Based Employee Compensation Expense Determined Under the Fair Value Method for All Awards, net of taxes		*(9,282*	)		(11,738	)		(5,780	)

Pro-Forma Net Income	$	*393,891*		$	410,690		$	329,167


Earnings Per Share:
Basic — as Reported	$	*2.63*		$	2.61		$	2.08
Basic — Pro-Forma		*2.61*			2.57			2.06
Diluted — as Reported		*2.60*			2.58			2.05
Diluted — Pro-Forma		*2.58*			2.54			2.04

See Footnote 14 — “Common Stock Plans” for additional disclosure as required under the provisions of these statements.

Goodwill and Identifiable Intangible Assets

Goodwill and identifiable intangible assets (primarily core deposit intangibles) reflected on the consolidated balance sheets arose from previous purchase acquisitions. At the date of acquisition, the Company records the assets acquired and liabilities assumed at fair value. The excess of cost over the fair value of the net assets acquired is recorded on the balance sheet as goodwill. The Company’s cost includes the consideration paid and all direct costs associated with the acquisition. Indirect costs relating to the acquisition are expensed when incurred based on the nature of the item.


Annual Report 2003		47

Notes to Consolidated Financial Statements continued

In accordance with the provisions of SFAS No. 142 “Goodwill and Other Intangible Assets”, goodwill and identifiable intangible assets having an indefinite useful life are no longer amortized but are periodically assessed for impairment. Identifiable intangible assets having an estimated useful life are separately recognized and amortized over their estimated useful lives. The Company completed the required assessment of goodwill impairment as of December 31, 2003 and determined that no impairment exists.

Segment Reporting

SFAS No. 131 “Disclosure about Segments of an Enterprise and Related Information” (“SFAS 131”) requires public companies to report certain financial information about operating segments for which such information is available and utilized by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Specific information to be reported for individual operating segments includes a measure of segment profit and loss, certain specific revenue and expense items, and segment assets. As a retail bank, substantially all of the Company’s operations involve the issuance of loans and the acceptance of customer deposits. Management continually evaluates the disclosure requirements and determined that segment disclosure is not required, as its operating segments do not meet the quantitative thresholds prescribed in SFAS 131 for all periods reported.

Statement of Cash Flows

For purposes of the accompanying consolidated statements of cash flows, cash and cash equivalents are defined as the amounts included in the consolidated balance sheets under the captions “Cash & Due from Banks” and “Money Market Investments”, with contractual maturities of less than 90 days.

Cash flows associated with derivative financial instruments are classified in the accompanying consolidated statements of cash flows in the same category as the cash flows from the assets or liabilities being hedged.

NOTE 2 — PENDING BUSINESS COMBINATIONS

The Trust Company of New Jersey

On December 16, 2003, the Company entered into a definitive agreement to acquire The Trust Company of New Jersey (“TCNJ”) in an all stock transaction valued at $726 million. Under the terms of the agreement, in a tax-free exchange of shares, TCNJ shareholders will receive a fixed exchange ratio of one share of the Company’s common stock for each common share of TCNJ held. TCNJ is a New Jersey state chartered commercial bank and is the fourth largest commercial bank headquartered in New Jersey. TCNJ currently operates 94 retail bank branches, including 42 “in-store” supermarket branches, located principally in the affluent and densely populated Northern New Jersey market. TCNJ recently closed 8 unprofitable “in-store” branches and announced its intention to close 20 additional “in-store” branches prior to the consummation of the merger. TCNJ will be merged with and into North Fork Bank. As of December 31, 2003, TCNJ, reported $4.3 billion in total assets, $2.2 billion in loans and $3.3 billion in customer deposits. The transaction is expected to close during the second quarter of 2004, following receipt of all required regulatory approvals and certain other customary closing conditions. The merger agreement is also subject to approval by the TCNJ shareholders.

GreenPoint Financial Corp.

On February 15, 2004, the Company entered into a definitive agreement to acquire GreenPoint Financial Corp. (“GreenPoint”) in an all stock transaction valued at $6.3 billion. Under the terms of the agreement, in a tax-free exchange of shares, GreenPoint shareholders will receive a fixed exchange ratio of 1.0514 shares of North Fork common stock for each share held. GreenPoint operates two primary businesses, a retail savings bank (GreenPoint Bank) and a national mortgage company (GreenPoint Mortgage Corp.). GreenPoint Bank is a New York state chartered savings bank and the second largest thrift in the Metropolitan New York area, where it operates through 90 retail bank branches. GreenPoint Mortgage Corp. is a national mortgage company headquartered in Novato, California. GreenPoint Mortgage Corp. originates a wide variety of “A” quality


48		North Fork Bancorporation

residential mortgage loans. Their product menu includes agency qualifying loans, Jumbo A mortgages and Specialty Alternative A mortgages. GreenPoint Mortgage Corp. reported loan originations of $39 billion in 2003 through 29 retail facilities located throughout the United States. Pursuant to the agreement, GreenPoint will merge with and into North Fork Bancorporation, Inc. and we intend to operate GreenPoint Bank as a wholly-owned subsidiary of the Company. As of December 31, 2003, GreenPoint reported $23 billion in total assets, $15 billion in loans and $12.5 billion in customer deposits. The transaction is expected to close in the third quarter of 2004, following receipt of all regulatory approvals and certain other customary closing conditions. The merger agreement is also subject to approval by the GreenPoint and North Fork shareholders.

NOTE 3 — SECURITIES

Available-for-Sale Securities

The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of available-for-sale securities were as follows at December 31,


	*2003*									2002
			*Gross*		*Gross*							Gross		Gross
	*Amortized*		*Unrealized*		*Unrealized*			*Fair*		Amortized		Unrealized		Unrealized			Fair
(in thousands)	*Cost*		*Gains*		*(Losses)*			*Value*		Cost		Gains		(Losses)			Value

CMO Agency Issuances	$	*3,129,005*	$	*14,162*	$	*(32,737*	)	$	*3,110,430*	$	4,028,157	$	27,128	$	(1,575	)	$	4,053,710
CMO Private Issuances		*1,278,205*		*4,862*		*(7,018*	)		*1,276,049*		2,762,794		27,796		(1,851	)		2,788,739
Agency Pass-Through Certificates		*1,240,897*		*11,593*		*(5,496*	)		*1,246,994*		485,240		18,439		(474	)		503,205
State & Municipal Obligations		*700,307*		*7,432*		*(724*	)		*707,015*		376,420		7,720		(850	)		383,290
Equity Securities⁽¹⁾		*178,024*		*8,588*		—			*186,612*		257,898		1,194		—			259,092
U.S Treasury Securities		*55,750*		15		—			*55,765*		34,927		78		—			35,005
U.S. Gov’t. Agencies’ Obligations		*2,310*		15		—			*2,325*		32,122		417		—			32,539
Other Debt Securities		*534,114*		*14,544*		*(5,306*	)		*543,352*		508,209		8,490		(16,387	)		500,312

	$	*7,118,612*	$	*61,211*	$	*(51,281*	)	$	*7,128,542*	$	8,485,767	$	91,262	$	(21,137	)	$	8,555,892


⁽¹⁾		Amortized cost and fair value includes $68.2 million and $174.3 million in Federal Home Loan Bank stock at December 31, 2003 and 2002, respectively.

Held-to-Maturity Securities

The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of held-to-maturity securities were as follows at December 31,


	*2003*									2002
			*Gross*		*Gross*							Gross		Gross
	*Amortized*		*Unrealized*		*Unrealized*			*Fair*		Amortized		Unrealized		Unrealized			Fair
(in thousands)	*Cost*		*Gains*		*(Losses)*			*Value*		Cost		Gains		(Losses)			Value

Agency Pass-Through Certificates	$	*81,759*	$	*2,693*	$	*(463*	)	$	*83,989*	$	132,205	$	5,821	$	—		$	138,026
CMO Private Issuances		*38,389*		*225*		*(485*	)		*38,129*		113,501		1,319		(464	)		114,356
State & Municipal Obligations		*54,732*		*3,116*		—			*57,848*		52,196		2,753		(18	)		54,931
Other Debt Securities		*15,405*		—		*(59*	)		*15,346*		9,976		—		—			9,976

	$	*190,285*	$	*6,034*	$	*(1,007*	)	$	*195,312*	$	307,878	$	9,893	$	(482	)	$	317,289


Annual Report 2003		49

Notes to Consolidated Financial Statements continued

The Company maintains a Bank Owned Life Insurance trust (commonly referred to as BOLI). The BOLI trust was formed to offset future employee benefit costs and to provide additional benefits due to its tax-exempt nature. Only officer level employees who have consented have been insured under the program. Approximately, $205.5 million and $191.2 million in assets supported the program at December 31, 2003 and 2002, respectively and were principally included in the available-for-sale portfolio. The BOLI’s impact on net income during 2003, 2002 and 2001 has not been significant.

At December 31, 2003, securities carried at $3.3 billion were pledged to secure securities sold under agreements to repurchase, other borrowings, and for other purposes as required by law. Securities pledged under agreements pursuant to which the collateral may be sold or repledged by the secured parties approximated $2.0 billion, while securities pledged under agreements pursuant to which the secured parties may not sell or repledge approximated $1.3 billion at December 31, 2003.

The amortized cost and estimated fair value of securities by contractual maturity, at December 31, 2003, are presented in the table below. Expected maturities will differ from contractual maturities since issuers may have the right to call or prepay obligations without call or prepayment penalties.


	Available-for-Sale				Held-to-Maturity
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value

Due in One Year or Less	$	475,323	$	475,993	$	11,788	$	11,943
Due After One Year Through Five Years		187,697		192,737		24,442		25,370
Due After Five Years Through Ten Years		175,364		183,732		19,735		21,003
Due After Ten Years		454,097		455,995		14,172		14,878

Subtotal	$	1,292,481	$	1,308,457	$	70,137	$	73,194
CMO’s		4,407,210		4,386,479		38,389		38,129
Agency Pass-Through Certificates		1,240,897		1,246,994		81,759		83,989
Equity Securities		178,024		186,612		—		—

	$	7,118,612	$	7,128,542	$	190,285	$	195,312

The proceeds, gross realized gains and losses on the sale of securities, were as follows at December 31,


(in thousands)	*2003*			2002			2001

Proceeds from Sale	$	*1,532,384*		$	169,830		$	233,890

Gross Realized Gains	$	*24,901*		$	4,899		$	8,835
Gross Realized Losses		*(9,139*	)		(382	)		(106	)

Net Realized Gains	$	*15,762*		$	4,517		$	8,729

The following table provides the gross unrealized losses and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, at December 31, 2003:


	Less than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair			Unrealized
(in thousands)	Value		Losses			Value		Losses			Value		Losses

CMO Agency Issuances	$	1,629,581	$	(32,721	)	$	3,598	$	(17	)	$	1,633,179		$	(32,737	)
CMO Private Issuances		616,625		(6,847	)		26,822		(656	)		643,447			(7,503	)
Agency Pass-Through Certificates		472,300		(5,826	)		28,384		(133	)		500,684			(5,959	)
State & Municipal Obligations		308,420		(484	)		21,986		(240	)		330,406			(724	)
Other Debt Securities		86,699		(1,674	)		70,301		(3,691	)		157,000			(5,365	)

Total Temporarily Impaired Securities	$	3,113,625	$	(47,552	)	$	151,091	$	(4,737	)	$	3,264,716		$	(52,288	)


50		North Fork Bancorporation

At December 31, 2003, approximately 88% of the unrealized losses in the securities portfolio were comprised of pass-through certificates guaranteed by FHLMC, GNMA or FNMA and collateralized mortgage-backed obligations (“CMO’s”) backed by government agency pass-through certificates or whole loans. CMO’s by virtue of the underlying collateral or structure, are AAA rated and conservative current pay sequentials or PAC structures. The Company believes price movements in CMO’s and agency pass-through securities are dependent upon the movement in market interest rates since the inherent credit risk for these securities is negligible. The remaining 12% of the unrealized losses are concentrated in corporate bonds (“Other Debt Securities”) and state and municipal obligations. The Company reviews these securities at least annually and there are no instances of credit or rating agency downgrades. The Company believes these price movements can be attributed to the increase in current market credit spreads on similar issuances.

Gross gains and losses recognized during 2003, 2002 and 2001 resulted from sales of mortgage backed securities, corporate bonds and certain equity and capital securities.

When purchasing investment securities, management considers the Company’s overall interest-rate risk profile as well as the adequacy of expected returns relative to risks assumed, including prepayments. In managing the investment securities portfolio on a continuous basis, management occasionally sells investment securities as a result of changes in interest rates and spreads, actual or anticipated prepayments, credit risk associated with a particular security, and/or following the completion of a business combination.

NOTE 4 — LOANS

The composition of the loan portfolio is summarized as follows at December 31,:


			%					%
(dollars in thousands)	*2003*		*of Total*			2002		of Total

Multi-Family Mortgages	$	*3,634,533*		29	%	$	3,640,039		32	%
Commercial Mortgages		*2,814,103*		23			2,194,092		19
Residential Mortgages		*2,403,306*		20			2,507,388		22
Commercial		*2,145,798*		17			1,776,419		16
Consumer		*1,095,529*		9			1,040,490		9
Construction and Land		*283,243*		2			232,227		2

Total		*12,376,512*		*100*	%		11,390,655		100	%
Less: Unearned Income & Deferred Costs		*31,239*					21,516

Loans, net	$	*12,345,273*				$	11,369,139

The loan portfolio is concentrated primarily in loans secured by real estate located in the New York Metropolitan area. The segments of the real estate portfolio are diversified in terms of risk and repayment sources. The underlying collateral includes multi-family apartment buildings, residential 1 - 4 family homes and owner occupied/non-owner occupied commercial properties. The risks inherent in this portfolio are dependent on both regional and general economic stability, which affect property values and the financial well being and creditworthiness of the borrowers.

At December 31, 2003, loans of $1.3 billion were pledged as collateral under borrowing arrangements with the Federal Home Loan Bank of New York.

Mortgage loans serviced for others approximated $900 million as of December 31, 2003 and 2002, respectively. Residential mortgage loans held-for-sale aggregated $4 million and $31 million at December 31, 2003 and 2002, respectively. Loans held for sale represent loans previously committed for sale in the secondary market and are awaiting funding.


Annual Report 2003		51

Notes to Consolidated Financial Statements continued

Related Party Loans

Loans to related parties include loans to directors and their related companies and executive officers of the Company and its subsidiaries. Such loans are made in the ordinary course of business on substantially the same terms as loans to other individuals and businesses of comparable risks. The Company does not extend loans to its directors and executive officers for the purpose of financing the purchase of its common stock. Related party loans, principally consisting of residential mortgage loans, aggregated $3.3 million and $3.5 million at December 31, 2003 and 2002, respectively.

Non-Performing Assets

Non-performing assets include loans ninety days past due and still accruing, non-accrual loans and other real estate. Other real estate consists of property acquired through foreclosure or deed in lieu of foreclosure. Other real estate is carried at the lower of the recorded amount of the loan or the fair value of the property based on the current appraised value adjusted for estimated disposition costs.

Non-performing assets at December 31, consisted of the following:


(in thousands)	*2003*		2002

Loans Ninety Days Past Due and Still Accruing	$	*2,268*	$	4,438
Non-Accrual Loans		*11,072*		7,778

Non-Performing Loans		*13,340*		12,216
Other Real Estate		*313*		295

Non-Performing Assets	$	*13,653*	$	12,511

The following table represents the components of non-performing loans at December 31,:


(in thousands)	*2003*		2002

Commercial	$	*5,632*	$	2,958
Residential Mortgages		*4,808*		3,794
Consumer		*2,343*		4,723
Commercial Mortgages		*557*		637
Multi-Family Mortgages		—		104
Construction and Land		—		—

Total Non-Performing Loans	$	*13,340*	$	12,216

The impact of non-accrual loans on net income during 2003, 2002, and 2001 was not significant. As part of the analysis for loan losses, certain loans are assessed for impairment in accordance with the provisions of SFAS 114. The level of loans identified as impaired and the related valuation was not significant as of December 31, 2003 and 2002.

At December 31, 2003, there were no commitments to lend additional funds to borrowers whose loans are non-performing. Additionally, there were no restructured, accruing loans outstanding at December 31, 2003 and 2002.


52		North Fork Bancorporation

NOTE 5 — ALLOWANCE FOR LOAN LOSSES

A summary of changes in the allowance for loan losses is shown below for the years ended December 31,:


(in thousands)	*2003*			2002			2001

Balance at Beginning of Year	$	*114,995*		$	103,801		$	89,653
Provision for Loan Losses		*26,250*			25,000			17,750
Recoveries Credited to the Allowance		*8,122*			7,487			7,753

		*149,367*			136,288			115,156
Losses Charged to the Allowance		*(26,634*	)		(21,293	)		(18,253	)
Allowance From Purchase Acquisition		—			—			6,898

Balance at End of Year	$	*122,733*		$	114,995		$	103,801

NOTE 6 — PREMISES AND EQUIPMENT

The following is a summary of premises and equipment at December 31,:


(in thousands)	*2003*			2002

Land	$	*27,781*		$	28,546
Bank Premises		*76,023*			72,528
Leasehold Improvements		*64,946*			53,664
Equipment		*98,486*			81,564

		*267,236*			236,302
Less: Accumulated Depreciation and Amortization		*(116,361*	)		(103,773	)

	$	*150,875*		$	132,529

Depreciation and amortization of premises and equipment, reflected as a component of non-interest expense in the consolidated statements of income, was $15.4 million, $13.5 million and $11.6 million for 2003, 2002 and 2001, respectively.


Annual Report 2003		53

Notes to Consolidated Financial Statements continued

NOTE 7 — FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

The following is a summary of federal funds purchased and securities sold under agreements to repurchase (“repo’s”) at and for the years ended December 31,


(dollars in thousands)	*2003*			2002			2001

Federal Funds Purchased:
Period End Balance	$	*263,000*		$	201,000		$	166,000
Maximum Amount Outstanding at Any Month End		*336,000*			201,000			372,000
Average Outstanding Balance		*105,748*			75,609			73,877
Weighted Average Interest Rate Paid		*1.18*	%		1.69	%		3.85	%
Weighted Average Interest Rate at Year End		*0.99*			1.15			1.46

Securities Sold Under Agreements to Repurchase:
Period End Balance	$	*1,908,154*		$	3,650,000		$	1,976,182
Accrued Interest Payable at Period End		*7,607*			9,688			8,854
Maximum Amount Outstanding at Any Month End		*4,550,000*			3,750,000			2,338,682
Average Outstanding Balance		*3,101,184*			2,589,225			2,037,848
Weighted Average Interest Rate Paid		*2.41*	%		3.14	%		4.85	%
Weighted Average Interest Rate at Year End		*2.92*			2.47			3.64

Management used interest swaps to convert certain repo’s from variable rates to fixed rates. These swaps qualify as cash flow hedges and are explained in more detail in “Notes to Consolidated Financial Statements — Note 17 — Derivative Financial Instruments.” The impact of these swaps was to change the weighted average interest rate paid in the above table to 2.85%, 3.69% and 4.97%, while the weighted average interest rate at year end in the above table changed to 3.28%, 2.97% and 4.06% at December 31, 2003, 2002 and 2001, respectively.

Qualifying repo’s are treated as financings and the obligations to repurchase securities sold are reflected as liabilities on the consolidated balance sheets. 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. In certain instances, the brokers may have sold, loaned, or disposed of the securities to other parties in the normal course of their operations, and have agreed to resell substantially similar securities at the maturity of the agreements to the Company.

The following is a summary of the amortized cost and fair value of securities collateralizing repo’s, in addition to the amounts of and the contractual interest rates on the related borrowings.


	MBS & CMO Securities ⁽¹⁾
			Average			Amortized		Fair
(dollars in thousands)	Repo's ⁽²⁾		Rate			Cost		Value

Maturity
Maturity Up to 30 Days	$	108,154		1.14	%	$	117,530	$	116,610
30 to 90 Days		75,000		1.15			82,142		78,958
90 Days to 1 Year		250,000		1.49			267,028		262,942
In Excess of 1 Year		1,475,000		3.38			1,514,200		1,508,312

Total	$	1,908,154		2.92	%	$	1,980,900	$	1,966,822


⁽¹⁾		Excludes accrued interest receivable of $7.6 million on MBS & CMO securities.
⁽²⁾		Excludes accrued interest payable of $7.5 million.

The Bank subsidiaries have arrangements with certain correspondent banks providing short-term credit for regulatory liquidity requirements. These available lines of credit aggregated $2.1 billion at December 31, 2003.


54		North Fork Bancorporation

NOTE 8 — FEDERAL HOME LOAN BANK ADVANCES (“FHLB”)

The following is a summary of the contractual maturities and average rates, as of December 31, 2003:


(dollars in thousands)
	FHLB		Average
Maturities	Advances		Rates

2004	$	*300,000*		*1.15*	%
2005		*400,000*		*5.83*
2006		*200,000*		*4.67*
2007		—		—
2008		*50,000*		*5.62*
Thereafter		*100,000*		*5.90*

Total	$	*1,050,000*		*4.27*	%

Management used interest swaps to convert certain FHLB advances from variable rates to fixed rates. These swaps qualify as cash flow hedges and are explained in more detail in “Notes to Consolidated Financial Statements — Note 17 — Derivative Financial Instruments.” The impact of these swaps was to increase the weighted average interest rate paid in the above table to 4.66%.

Under the terms of the blanket collateral agreement with the FHLB, advances are secured by certain qualifying residential and multi-family mortgage loans. At December 31, 2003, the carrying value of assets pledged as collateral was $1.3 billion.

NOTE 9 — SUBORDINATED DEBT

The following table is a summary of subordinated notes outstanding as of December 31,


(in thousands)	*2003*			2002

5.875% Subordinated Notes due August 15, 2012	$	*349,229*		$	349,140
5.0% Subordinated Notes due August 15, 2012		*150,000*			150,000

Total Subordinated Debt		*499,229*			499,140
Fair Value Hedge Adjustment		*(22,730*	)		—

Carrying Amount	$	*476,499*		$	499,140

The Company issued $350 million aggregate principal amount of 5.875% subordinated notes and $150 million aggregate principal amount of 5% fixed rate/floating rate subordinated notes in 2002. Both series of notes mature in 2012 and qualify as Tier 2 capital for regulatory purposes. The 5.875% subordinated notes bear interest at a fixed rate through maturity, pay interest semiannually and are not redeemable prior to maturity. The fixed rate/floating rate notes bear interest at a fixed rate of 5% per annum for the first five years, and convert to a floating rate thereafter until maturity based on three-month LIBOR plus 1.87%. Beginning in the sixth year, the Company has the right to redeem the fixed rate/floating rate notes at par plus accrued interest.

In 2003, $500 million in pay floating swaps, designated as fair value hedges, were used to convert the stated fixed rate on the subordinated notes to variable rates indexed to three month LIBOR. See “Notes to Consolidated Financial Statements — Note 17 — Derivative Financial Instruments” for further details.


Annual Report 2003		55

Notes to Consolidated Financial Statements continued

NOTE 10 — CAPITAL SECURITIES

Company Obligated Mandatorily Redeemable Capital Securities of Subsidiary Trusts (commonly referred to as Capital Securities or Trust Preferred Securities) are summarized as follows, at December 31,


(in thousands)	*2003*		2002

8.70% Capital Securities due December 15, 2026	$	*99,722*	$	99,710
8.00% Capital Securities due December 15, 2027		*99,692*		99,679
8.17% Capital Securities due May 1, 2028		*45,000*		45,000

Total Capital Securities		*244,414*		244,389
Fair Value Hedge Adjustment		*14,830*		24,537

Carrying Value	$	*259,244*	$	268,926

The Capital Securities (or Trust Preferred Securities) are obligations of wholly-owned statutory business trust subsidiaries (collectively, the “Trusts”). The Trusts were formed with initial capitalizations in common stock and for the exclusive purpose of issuing the Capital Securities and using the proceeds to acquire Junior Subordinated Debt Securities (“Debt Securities”) issued by the Company. The Debt Securities are due concurrently with the Capital Securities, and are non-callable at any time in whole or in part for ten years from the date of issuance, except in certain circumstances. They may be redeemed annually thereafter, in whole or in part, at declining premiums to maturity. The costs associated with these issuances have been capitalized and are being amortized to maturity using the straight-line method.

The Capital Securities qualify as Tier I capital for regulatory purposes and are subordinate in repayment to all obligations. Due to the issuance of FIN 46R, there can be no assurance that the Federal Reserve will continue to allow institutions to include Capital Securities as a component of Tier I Capital. As of December 31, 2003, the Company would still exceed the threshold for capital adequacy assuming the exclusion of Capital Securities.

Interest rate swap agreements, designated as fair value hedges, were used to change the repricing characteristics of the $245 million in Capital Securities from their stated fixed rates to variable rates indexed to three-month LIBOR. See “Notes to Consolidated Financial Statements — Note 17 — Derivative Financial Instruments” for further details.

NOTE 11 — DEPOSITS

The following is a summary of the remaining maturity of time deposits and certificates of deposits, $100,000 and over as of December 31, 2003:


(in thousands)
2004	$	*2,310,143*
2005		*204,592*
2006		*108,075*
2007		*69,801*
2008		*52,176*
Thereafter		*1,035*

Total Time and Certificates of Deposits	$	*2,745,822*

At December 31, 2003, the remaining maturities of certificate of deposits, $100,000 and over were as follows:


( in thousands )
3 months and less	$	519,633
3 to 6 months		176,705
6 to 12 months		124,457
Greater than one year		140,619

Total	$	961,414

The aggregate amount of overdrawn deposit balances reclassified as loans was $14.5 million and $17.3 million as of December 31, 2003 and 2002, respectively.


56		North Fork Bancorporation

NOTE 12 — INCOME TAXES

The components of the consolidated provision for income taxes are shown below for the years ended December 31,:


(in thousands)	*2003*			2002		2001

Current Tax Expense	$	*215,930*		$	94,994	$	162,456
Deferred Tax (Benefit)/Expense		*(13,090*	)		123,844		12,142

Provision for Income Taxes	$	*202,840*		$	218,838	$	174,598

The following table reconciles the statutory Federal tax rate to the effective tax rate on income before income taxes for the years ended December 31,:


	*2003*			2002			2001

Federal Statutory Tax Rates		*35.00*	%		35.00	%		35.00	%
Increases/Reductions Resulting from:
State and Local Income Taxes, Net of Federal Income Tax Benefit		*.84*			.84			.13
Amortization of Intangible Assets		—			—			1.31
Tax Exempt Interest, net		*(1.56*	)		(1.45	)		(1.59	)
Dividends Received Deduction		*(.32*	)		(.14	)		(.25	)
Other, net		*(.11*	)		.17			(.10	)

Effective Tax Rate		*33.85*	%		34.42	%		34.50	%

The components of the net deferred tax liability included in “Accrued Expenses and Other Liabilities” on the accompanying consolidated balance sheets at December 31, are as follows:


(in thousands)	*2003*			2002

Deferred Tax Assets:
Allowance for Loan Losses	$	*51,463*		$	49,185
Deferred Compensation and Other Employee Benefit Plans		*5,079*			7,167
Deductible Merger Related Restructure Charges		*967*			1,284
Valuation Differences Resulting From Acquired Assets		*236*			5,173
Unrealized Loss on Components of Other Comprehensive Income		*1,542*			—
Other		*3,904*			2,752

Gross Deferred Tax Asset	$	*63,191*		$	65,561

Valuation Allowance		*(4,567*	)		(4,567	)

Deferred Tax Asset	$	*58,624*		$	60,994

Deferred Tax Liabilities:
Income Not Yet Recognized For Tax Purposes	$	*111,989*		$	134,775
Tax Bad Debt Recapture		*16,558*			18,193
Unrealized Gain on Components of Other Comprehensive Income		—			13,572
Excess Book Basis Over Tax Basis — Premises and Equipment		*8,187*			1,692
Other		*5,351*			3,015

Gross Deferred Tax Liability	$	*142,085*		$	171,247

Net Deferred Tax Liability	$	*(83,461*	)	$	(110,253	)


Annual Report 2003		57

Notes to Consolidated Financial Statements continued

During 2003, the Company’s valuation allowance remained at $4.6 million. Management continues to reserve a portion of the New York State and New York City deferred tax asset due to uncertainties of realization. Additionally, as a result of the Company’s merging with and acquiring thrifts, retained earnings at December 31, 2003 and 2002 includes $155 million for which no Federal income tax liability has been recognized. This amount represents the balance of acquired thrift bad debt reserves created for tax purposes as of December 31, 1987. These amounts are subject to recapture in the unlikely event that North Fork Bank makes distributions in excess of earnings and profits, redeems its stock, or liquidates.

NOTE 13 — RETIREMENT AND OTHER EMPLOYEE BENEFIT PLANS

The Company maintains a defined benefit pension plan (the “Plan”) covering substantially all full-time employees. Pension expense is recognized over the employee’s service life utilizing the projected unit cost actuarial method. Participants accrue a benefit each year equal to five percent of their annual compensation, as defined, plus a rate of interest based on the one-year Treasury Bill rate, credited quarterly. Plan assets are invested in a diversified portfolio of mutual funds, fixed income securities, and equity securities. Contributions are periodically made to the Plan so as to comply with the Employee Retirement Income Security Act (“ERISA”) funding standards and the Internal Revenue Code of 1986, as amended.

The Company also provides health care and life insurance benefits to eligible retired employees. Health care benefits received, range up to 100% of coverage premiums based on an employee’s age, years of service and retirement date.

The following table sets forth changes in the projected benefit obligations, plan assets and a reconciliation of the funded status and the assumptions used in determining the net periodic cost included in the accompanying consolidated financial statements at December 31, for the Company’s retirement and post-retirement plans. The Plan’s were valued using a December 31 measurement date.


(in thousands)
	Pension Benefits						Post-Retirement Benefits
	*2003*			2002			*2003*			2002

Change in Benefit Obligation:
Benefit Obligation at Beginning of Year	$	*88,249*		$	81,783		$	*19,805*		$	16,626
Service Cost		*3,500*			2,985			*576*			425
Interest Cost		*5,545*			5,704			*1,247*			1,212
Amendments		—			455			—			—
Benefits Paid		*(7,621*	)		(7,870	)		*(1,137*	)		(1,057	)
Actuarial Loss		*5,778*			5,192			*2,255*			2,599

Benefit Obligation at End of Year	$	*95,451*		$	88,249		$	*22,746*		$	19,805

Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year	$	*92,408*		$	109,641		$	—		$	—
Actual Return on Plan Assets		*8,072*			(9,363	)		18			—
Employer Contributions		*9,000*			—			*2,813*			1,057
Benefits Paid		*(7,621*	)		(7,870	)		*(1,137*	)		(1,057	)

Fair Value of Plan Assets at End of Year	$	*101,859*		$	92,408		$	*1,694*		$	—

Accumulated Benefit Obligation at End of Year:	$	*93,005*		$	86,491			*N/A*			N/A

Reconciliation of Funded Status:
Funded Status	$	*6,408*		$	4,159		$	*(21,052*	)	$	(19,805	)
Unrecognized Actuarial Loss		*24,802*			21,139			*2,161*			2,454
Unrecognized Prior Service Cost		*(1,166*	)		(1,429	)		*(597*	)		(678	)
Unrecognized Transition Asset		*(559*	)		(986	)		*8,033*			6,032

Prepaid/(Accrued) Benefit Cost	$	*29,485*		$	22,883		$	*(11,455*	)	$	(11,997	)


58		North Fork Bancorporation


	Pension Benefits									Post-Retirement Benefits
	*2003*			2002			2001			*2003*			2002			2001

Weighted Average Assumptions Used to Determine Benefit Obligations at December 31:
Discount Rate		*6.00*	%		6.50	%		7.25	%		*6.00*	%		6.50	%		7.25	%
Rate of Compensation Increase		*4.50*			4.50			4.50			*N/A*			N/A			N/A
Weighted Average Assumptions Used to Determine Net Periodic Benefit Cost (Income) for the Year Ended:
Discount Rate		*6.50*	%		7.25	%		7.75	%		*6.50*	%		7.25	%		7.75	%
Expected Rate of Return on Plan Assets		*7.50*			8.00			8.50			*7.50*			N/A			N/A
Rate of Compensation Increase		*4.50*			4.50			4.50			*N/A*			N/A			N/A

To develop the expected long-term rate of return on assets assumption, we considered the current level of expected returns on risk free investments (primarily government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on assets assumption for the portfolio. This resulted in the selection of the 7.50% assumption for the year ended December 31, 2003.

The components of net periodic benefit cost follow for the years ended December 31,


(in thousands)
	Pension Benefits									Post-Retirement Benefits
Components of Net Periodic Benefit Cost/(Income):	*2003*			2002			2001			*2003*			2002			2001

Service Cost	$	*3,500*		$	2,985		$	2,649		$	*576*		$	425		$	275
Interest Cost		*5,545*			5,704			5,998			*1,247*			1,212			1,165
Expected Return on Plan Assets		*(6,805*	)		(8,412	)		(10,056	)		—			—			—
Amortization of Prior Service Cost		*(263*	)		(280	)		(296	)		*(81*	)		(81	)		(81	)
Amortization of Transition Asset		*(427*	)		(428	)		(428	)		*293*			293			293
Recognized Actuarial Loss/(Gain)		*848*			—			(291	)		*236*			147			93

Net Periodic Benefit Cost/(Income)	$	*2,398*		$	(431	)	$	(2,424	)	$	*2,271*		$	1,996		$	1,745

The following table sets forth the assumed health care costs trend rates at December 31,


	*2003*						2002
Assumptions in Health Care Costs Trend Rates:	*HMO*			*Indemnity*			HMO			Indemnity

Health Care Cost Trend Rate Assumed for Next Year		*9.0*	%		*11.0*	%		9.0	%		11.0	%
Rate to Which the Cost Trend is Assumed to Decline (the ultimate trend rate)		*5.0*			*5.0*			5.0			5.0
Year That the Rate Reached the Ultimate Trend Rate		*2008*			*2010*			2007			2009


Annual Report 2003		59

Notes to Consolidated Financial Statements continued

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in assumed health care cost trend would have the following effects:


(in thousands)
	*2003*					2002
	*1% Increase*		*1% Decrease*			1% Increase		1% Decrease

Effect on Total of Service and Interest Cost	$	*362*	$	*(260*	)	$	300	$	(217	)
Effect on Postretirement Benefit Obligation	$	*2,773*	$	*(2,116*	)	$	2,400	$	(1,800	)

Plan Asset Allocation

The plan’s weighted-average asset allocations at December 31, 2003 and 2002, by asset category are as follows:


Asset Category:	*2003*			2002

Equity Securities		60	%		60	%
Debt Securities		38			38
Other		2			2

Total		*100*	%		100	%

The investment guidelines adopted by the Retirement Committee for the Plan provide the following asset allocation requirements and limitations:

• Equity Securities: Not more than 60% of assets

• Debt Securities: Not more than 40% of assets

The guidelines specify equity allocations as follows: 1) Large Capitalization Value of 30% to 40%, 2) Large Capitalization Growth of 20% to 30%, 3) Middle Capitalization of 15% to 25%, 4) Smaller Capitalization of 0% to 15% and 5) Diversified International of 0% to 15%.

Debt securities are limited by the investment guidelines to United States Government obligations or corporate issues rated Baa or higher by Standard & Poor’s or Moody’s. Cash equivalent securities may be viewed as alternative investment vehicles and are limited by the guidelines to mutual funds consisting of instruments issued by the United States Government, United States Treasury, Federal Reserve System or Federal Home Loan Bank, or mutual funds consisting of commercial paper issued by a domestic corporation rated “prime” by the National Credit Office, or of individual fixed income instruments rated A or P1 or higher, maturing in 180 days or less.

The guidelines require that the Plan’s performance be reviewed periodically by comparing total rates of return to specified market indices.

The Company does not expect to make a contribution to the pension plan during 2004, but it expects to make a $1.2 million contribution to the post-retirement plan during 2004.

The Company maintains a Supplemental Executive Retirement Plan (“SERP”), that restores to specified senior executives the full level of retirement benefits they would have been entitled to receive absent the ERISA provision limiting maximum payouts under tax qualified plans. The projected benefit obligation, which is unfunded, was $627 thousand at December 31, 2003 and $624 thousand at December 31, 2002. Net periodic pension expense incurred in 2003, 2002 and 2001 for the SERP was $103 thousand, $127 thousand and $137 thousand, respectively. The weighted average discount rate utilized to determine the projected benefit obligation was 6.00%, 6.50% and 7.25% at December 31, 2003, 2002 and 2001, respectively. The assumed rate of future compensation increases was 4.50% at December 31, 2003, 2002 and 2001.


60		North Fork Bancorporation

A savings plan is maintained under section 401(k) of the Internal Revenue Code and covers substantially all current full-time and certain part-time employees. Newly hired employees can elect to participate in the savings plan after completing three months of service. Under the provisions of the savings plan, employee contributions are partially matched by the Company with cash contributions. Participants can invest their account balances into several investment alternatives, including shares of the Company’s common stock. The 401(k) plan expense was $3.4 million, $3.2 million and $2.5 million for the years ended December 31, 2003, 2002, and 2001, respectively.

NOTE 14 — COMMON STOCK PLANS

The Company maintains stock incentive plans for all eligible employees providing for grants of stock options and restricted stock awards. Options to purchase common stock are granted by the Compensation Committee at the average market price on the date of grant, generally vest in six months and have a ten-year expiration period. The Company has not, nor does it anticipate, repricing any stock options.

Restricted stock awards granted by the Compensation Committee are forfeitable and subject to certain restrictions on the part of the recipient until ownership of the shares vest. The Committee can, at its discretion, accelerate the removal of any and all restrictions. If the Company is party to a merger, consolidation, sale of substantially all assets, or similar transaction, all restrictions will lapse.

New Employee Stock Compensation Plan

The plan provides for non-qualified stock options and restricted stock awards, to be granted either separately or in combination to all eligible persons not previously employed by the Company in connection with their entering into such an employment relationship. The number of shares issuable thereunder, either as restricted stock or non-qualified stock options is 1,000,000 shares. At December 31, 2003, 965,500 shares remain authorized and unissued.

2003 Stock Compensation Plan

The plan provides for non-qualified stock options and restricted stock awards, to be granted either separately or in combination to all eligible persons including executive officers and other full-time employees. The number of shares issuable thereunder is 5,000,000, with no more than 3,300,000 authorized for restricted stock awards. At December 31, 2003, 5,000,000 shares remained authorized and unissued.

1999 Stock Compensation Plan

1998 Stock Compensation Plan

The plan provides for non-qualified stock options and restricted stock awards, to be granted either separately or in combination to all eligible persons including executive officers and other full-time employees. The number of shares issuable thereunder is 1,500,000 with no more than 1,000,000 authorized for restricted stock awards. At December 31, 2003, 34,370 shares remain authorized and unissued.


Annual Report 2003		61

Notes to Consolidated Financial Statements continued

Acquired Stock Plans

Certain previously acquired companies maintained incentive and non-qualified stock option plans for their officers, directors, and other key employees, all of which vested at the time of the merger date. At December 31, 2003, 517,121 stock options remained outstanding under these plans.

The following is a summary of the activity in the aforementioned stock option plans for the three-year period ended December 31,


	*2003*					2002					2001

				*Weighted*					Weighted					Weighted
				*Average*					Average					Average
				*Exercise*					Exercise					Exercise
	*Options*			*Price*		Options			Price		Options			Price

Outstanding at Beginning of Year		*3,362,788*		$	*23.32*		3,711,393		$	18.07		5,281,899		$	15.00
Granted		*432,200*			*38.38*		1,222,264			34.97		446,550			31.16
Exercised		*(607,754*	)		*14.06*		(1,497,269	)		19.15		(2,002,856	)		12.89
Cancelled		*(12,500*	)		*22.78*		(73,600	)		36.94		(14,200	)		18.20

Outstanding at Year End		*3,174,734*		$	*27.14*		3,362,788		$	23.32		3,711,393		$	18.07

Options Exercisable at Year End		*2,763,134*		$	*25.54*		2,875,568		$	21.66		3,269,512		$	16.54

The following is a summary of the information concerning currently outstanding and exercisable options as of December 31, 2003:


			Weighted		Weighted				Weighted
Range of			Average		Average				Average
Exercise	Options		Remaining		Exercise		Options		Exercise
Prices	Outstanding		Life		Price		Exercisable		Price

$ 4.36 - $17.45		746,757		3.4	$	11.47		741,957	$	11.45
$17.45 - $34.90		1,335,913		7.3		28.25		1,325,313		28.26
$34.90 - $43.63		1,092,064		8.9		36.49		695,864		35.37

$ 4.36 - $43.63		3,174,734		6.9	$	27.14		2,763,134	$	25.54

The following is a summary of activity in restricted stock for the years ended December 31,


	*2003*					2002					2001

				*Weighted*					Weighted					Weighted
				*Average*					Average					Average
				*Grant*					Grant					Grant
	*Shares*			*Price*		Shares			Price		Shares			Price

Outstanding at Beginning of Year		*3,835,920*		$	*23.85*		2,850,820		$	19.85		2,464,745		$	17.17
Granted		*824,950*			*38.47*		1,137,350			33.97		517,250			31.30
Vested		*(99,985*	)		*20.31*		(83,350	)		16.50		(82,700	)		12.63
Cancelled		*(9,500*	)		*25.18*		(68,900	)		33.91		(48,475	)		18.28

Outstanding at Year End		*4,551,385*		$	*26.58*		3,835,920		$	23.85		2,850,820		$	19.85

Restricted stock awards are recorded as deferred compensation, a component of stockholders’ equity, at fair value at the date of grant and amortized to compensation expense over the specified vesting periods.

Compensation expense related to restricted stock awards included in employee compensation and benefits was $10.3 million, $8.5 million, and $5.3 million in 2003, 2002 and 2001, respectively.


62		North Fork Bancorporation

As permitted under SFAS 123, as amended by SFAS 148, management has elected to apply the intrinsic value method in accounting for its stock-based compensation plans. Accordingly, compensation expense has not been recognized in the accompanying statements of income for its stock-based compensation plans, other than for restricted stock awards. Had compensation expense been recognized for the fair value of options awarded consistent with the methodology prescribed, pro-forma net income and earnings per share would have been as follows for the years ended December 31,


(dollars in thousands, except per share amounts)	*2003*			2002			2001

Net Income as Reported	$	*396,365*		$	416,893		$	331,484

Add: Restricted stock expense included in net income, net of taxes		*6,808*			5,535			3,463
Less: Total stock-based employee compensation expense determined under the fair value method for all awards, net of taxes		*(9,282*	)		(11,738	)		(5,780	)

Pro-Forma Net Income	$	*393,891*		$	410,690		$	329,167

Earnings Per Share:
Basic — as Reported	$	*2.63*		$	2.61		$	2.08
Basic — Pro-Forma		*2.61*			2.57			2.06
Diluted — as Reported	$	*2.60*		$	2.58		$	2.05
Diluted — Pro-Forma		*2.58*			2.54			2.04

For purposes of the pro-forma amounts, the fair value of stock options granted was estimated using the Black-Scholes option-pricing model at the date of grant. The weighted average assumptions used in the computations are as follows:


	*2003*			2002			2001

Fair Value for Options Granted	$	*8.63*		$	8.15		$	7.92
Dividend Yield		*2.82*	%		3.11	%		2.88	%
Volatility		*26.30*			27.71			27.69
Risk-Free Interest Rate		*3.43*			3.87			4.50
Assumed Forfeitures	*None*			None			None
Expected Life	*6 Years*			6 Years			6 Years

Dividend Reinvestment and Stock Purchase Plan

The Dividend Reinvestment and Stock Purchase Plan provides stockholders with a method of purchasing additional common stock through the reinvestment of cash dividends and/or making optional cash payments, within certain specified limits, without brokerage commission. At December 31, 2003, 1,875,998 shares remain authorized and unissued.

Change-in-Control Arrangements

Certain key executive officers have arrangements that provide for the payment of a multiple of base salary, should a change-in-control, as defined, occur. These payments are limited under guidelines for deductibility pursuant to the Internal Revenue Code. Also, in connection with a potential change-in-control, certain performance plans were adopted in which substantially all employees could participate in a cash distribution. The amount of the performance plan cash fund would be established when a change-in-control transaction occurs that exceeds industry averages and achieves an above average return for shareholders. A limitation is placed on the amount of the fund and no performance pool is created if the transaction does not exceed industry averages.


Annual Report 2003		63

Notes to Consolidated Financial Statements continued

NOTE 15 – PARENT COMPANY ONLY

Condensed Balance Sheets at December 31,


(in thousands)	*2003*		2002

Assets:
Deposits with North Fork Bank	$	*55,896*	$	58,091
Money Market Investments		*1,056*		1,010
Securities Purchased Under Agreements to Resell with North Fork Bank		*90,000*		280,000
Securities Available-for-Sale		*112,444*		101,038
Investment in Subsidiaries ⁽¹⁾		*1,951,168*		1,811,161
Goodwill		*23,789*		23,789
Other Assets		*74,240*		76,009

Total	$	*2,308,593*	$	2,351,098

Liabilities and Stockholders’ Equity:
Junior Subordinated Debt (See Note 10)	$	*266,977*	$	276,659
Subordinated Debt (See Note 9)		*476,499*		499,140
Dividends Payable		*45,757*		42,864
Accrued Expenses & Other Liabilities		*40,871*		18,382
Stockholders’ Equity		*1,478,489*		1,514,053

Total	$	*2,308,593*	$	2,351,098

⁽¹⁾ Principally represents investment in bank subsidiaries.

Condensed Statements of Income For the Years Ended December 31,


(in thousands)	*2003*			2002			2001

Income:
Dividends from Subsidiaries	$	*250,000*		$	192,000		$	128,100
Interest Income		*11,486*			10,110			9,879
Securities Gains, net		*8,608*			621			400
Other Income		*4,299*			2,986			1,804

Total Income		*274,393*			205,717			140,183

Expense:
Interest Expense		—			21			1,004
Interest on Junior Subordinated Debt		*8,919*			15,673			21,044
Interest on Subordinated Debt		*23,611*			11,558			—
Employee Compensation & Benefits		*10,686*			8,928			5,672
Amortization of Goodwill		—			—			2,335
Other Expenses		*2,062*			2,381			2,004

Total Expenses		*45,278*			38,561			32,059

Income Before Income Taxes and Equity in Earnings of Subsidiaries		*229,115*			167,156			108,124
Income Tax Benefit		*(9,559*	)		(11,371	)		(9,143	)
Equity in Undistributed/(Overdistributed) Earnings of Subsidiaries:
Bank Subsidiaries		*157,227*			239,391			213,975
Other Subsidiaries		*464*			(1,025	)		242

Net Income	$	*396,365*		$	416,893		$	331,484

Condensed Statements of Cash Flows For the Years Ended December 31,


(in thousands)	2003			2002			2001

Cash Flows from Operating Activities:
Net Income	$	*396,365*		$	416,893		$	331,484
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization		*9,850*			8,682			5,306
Amortization of Goodwill		—			—			2,335
Equity in Undistributed Earnings of Subsidiaries		*(157,691*	)		(238,366	)		(214,217	)
Securities Gains, net		*(8,608*	)		(621	)		(400	)
Other, net		*(6,199*	)		(3,080	)		2,323

Net Cash Provided by Operating Activities		*233,717*			183,508			126,831

Cash Flows from Investing Activities:
Proceeds from Sales of Securities Available-for-Sale		*56,256*			29,872			16,596
Purchases of Securities Available-for-Sale		*(102,473*	)		(15,873	)		(10,326	)
Investment in Subsidiaries		*(9,440*	)		(8,819	)		(1,700	)
Proceeds from Maturities of Securities Held-to-Maturity		*55,842*			—			—

Net Cash Provided by Investing Activities		*185*			5,180			4,570

Cash Flows from Financing Activities:
Purchases of Treasury Stock		*(264,193*	)		(207,604	)		(8,051	)
Cash Dividends Paid to Shareholders		*(167,610*	)		(160,091	)		(131,151	)
Exercise of Options and Common Stock Sold for Cash		*5,752*			14,240			30,147
Proceeds from the Issuance of Subordinated Debt		—			495,929			—
Repayment of Loan from North Fork Bank		—			—			(17,000	)
Repayment of Commercial Paper		—			—			(2,709	)

Net Cash (Used in)/Provided by Financing Activities		*(426,051*	)		142,474			(128,764	)

Net (Decrease)/Increase in Cash and Cash Equivalents		*(192,149*	)		331,162			2,637
Cash and Cash Equivalents at Beginning of Year		*339,101*			7,939			5,301

Cash and Cash Equivalents at End of Year	$	*146,952*		$	339,101		$	7,938


Annual Report 2003		65

Notes to Consolidated Financial Statements continued

NOTE 16 – CAPITAL

The Company and its bank subsidiaries are subject to the risk based capital guidelines administered by bank regulatory agencies. The 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 certain 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 certain risk weighted off-balance sheet items. The guidelines require all banks and bank holding companies to maintain a minimum ratio of total risk based capital to total risk weighted assets (“Total Risk Adjusted Capital”) of 8%, including Tier 1 capital to total risk weighted assets (“Tier 1 Capital”) of 4% and a Tier 1 capital to average total assets (“Leverage Ratio”) of at least 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 Company.

As of December 31, 2003, the most recent notification from the various regulators categorized the Company and its subsidiary banks as well capitalized under the regulatory framework for prompt corrective action. Under the capital adequacy guidelines, a well capitalized institution must maintain a Total Risk Adjusted Capital Ratio of at least 10%, a Tier 1 Capital Ratio of at least 6%, a Leverage Ratio of at least 5%, and not be subject to any written order, agreement or directive. Since such notification, there are no conditions or events that management believes would change this classification. Due to the recent issuance of FIN 46R, there can be no assurance that the Federal Reserve will continue to allow institutions to include Trust Preferred Securities (or Capital Securities) as a component of Tier 1 Capital. As of December 31, 2003, the Company would still exceed the regulatory threshold for capital adequacy if it were to exclude Trust Preferred Securities from Tier 1 Capital.

The following table sets forth the Company’s risk-based capital amounts and ratios as of December 31,:


	*2003*					2002

(dollars in thousands)	*Amount*		Ratio			Amount		Ratio

Tier 1 Capital	$	*1,301,687*		10.49	%	$	1,316,986		11.43	%
Regulatory Requirement		*496,414*		4.00			460,797		4.00

Excess	$	*805,273*		6.49	%	$	856,189		7.43	%

Total Risk Adjusted Capital	$	*1,927,410*		15.53	%	$	1,931,659		16.77	%
Regulatory Requirement		*992,828*		8.00			921,593		8.00

Excess	$	*934,582*		7.53	%	$	1,010,066		8.77	%

Risk Weighted Assets	$	*12,410,354*				$	11,519,913

The Company’s Leverage Ratios at December 31, 2003 and 2002 was 6.47% and 6.46%, respectively. North Fork Bank’s Tier 1, Total Risk Based and Leverage Ratios were 12.53%, 13.54%, and 7.72%, respectively, at December, 31, 2003. Superior Savings of New England’s Tier 1, Total Risk Based and Leverage Ratios were 14.66%, 15.21% and 6.51%, respectively, at December 31, 2003.

In June 2003, the Board of Directors approved an increase in its share repurchase program from the previously authorized level of 4 million shares to 8 million shares, representing 5% of the shares outstanding at such time. As of December 31, 2003, the Company had purchased 5.2 million shares at an average cost of $34.58 per share under this program. Total shares repurchased during 2003 under existing repurchase programs aggregated 7.8 million shares at an average cost per share of $33.80. Repurchases are made in the open market or through privately negotiated transactions.


66		North Fork Bancorporation

The Company’s primary funding source is dividends from North Fork Bank. There are various federal and state banking laws and guidelines limiting the extent to which a bank subsidiary can finance or otherwise supply funds to its holding company. At December 31, 2003, dividends for North Fork Bank were limited under such guidelines to $752 million. From a regulatory standpoint, North Fork Bank with its current balance sheet structure had the ability to dividend approximately $425 million while still meeting the criteria for designation as a well-capitalized institution under existing regulatory capital guidelines. Additional sources of liquidity for the Company include borrowings, the sale of available-for-sale securities, and funds available through the capital markets.

North Fork Bank and Superior Savings of New England are required to maintain non-interest-bearing cash balances on reserve with the Federal Reserve Bank. In 2003 and 2002, they were required to maintain average reserve balances of $94.3 million and $68.0 million, respectively.

NOTE 17 – DERIVATIVE FINANCIAL INSTRUMENTS

The use of derivative financial instruments creates exposure to credit risk. This credit exposure relates to losses that would be recognized if the counterparties fail to perform their obligations under the contracts. To mitigate this exposure to non-performance, the Company deals only with counterparties of good credit standing and establish counterparty credit limits. In connection with our interest rate risk management process, the Company periodically enters into interest rate derivative contracts. These derivative interest rate contracts may include interest rate swaps, caps, and floors and are used to modify the repricing characteristics of specific assets and liabilities.

The following table details the interest rate swaps and their associated hedged liability outstanding as of December 31, 2003:


				Swap			Swap
(dollars in thousands)	Hedged	Notional		Fixed			Variable
Maturity	Liability	Amounts		Interest Rates			Interest Rates

Pay Fixed Swaps
2004	FHLB Advances	$	100,000		5.23	%		1.17	%
2005	Repurchase Agreements		100,000		4.24-4.26			1.16-1.17
2008	Repurchase Agreements		75,000		6.14			1.17

		$	275,000


				Swap			Swap
		Notional		Fixed			Variable
Maturity		Amounts		Interest Rates			Interest Rates

Pay Floating Swaps
2007	5.00% Subordinated Debt	$	150,000		5.00	%		3.48 - 3.49	%
2012	5.875% Subordinated Debt		350,000		5.875			3.48
2026	8.70% Capital Securities		100,000		8.70			2.87
2027	8.00% Capital Securities		100,000		8.00			2.24
2028	8.17% Capital Securities		45,000		8.17			3.94

		$	745,000


Annual Report 2003		67

Notes to Consolidated Financial Statements continued

At December 31, 2003, $275 million in pay fixed swaps, designated as cash flow hedges, were outstanding. These agreements change the repricing characteristics of certain term borrowings, requiring the Company to make periodic fixed rate payments and receive periodic variable rate payments indexed to three month LIBOR, based on a common notional amount and identical payment and maturity dates. These swaps had original maturities of up to 10 years and, as of year end, had an unrealized loss of $13.5 million, which is recorded as a component of other liabilities (the net of tax balance of $7.7 million, is reflected in stockholders’ equity as a component of accumulated other comprehensive income). The use of pay fixed swaps outstanding increased interest expense by $23.9 million, $32.8 million and $7.3 million in 2003, 2002 and 2001, respectively. Based upon the current interest rate environment, the amount of after tax loss expected to be reclassified from accumulated other comprehensive income during the next twelve months should approximate $4.8 million. During 2003, $850 million of pay fixed swaps, designated as cash flow hedges, and their related variable rate term borrowings matured. An additional $300 million in pay fixed swaps (cash flow hedges) maturing in 2004 were cancelled and the underlying borrowings repaid as a part of the balance sheet restructuring plan (See “Management’s Discussions and Analysis – Net Interest Income” for further details). The cancellation of these swaps resulted in a $6.6 million charge to earnings and is reported within debt restructuring costs on the consolidated statement of income for 2003. The remaining $5.3 million in debt restructuring costs during 2003 were related to the prepayment of $200 million of fixed rate term borrowings maturing in 2004.

Interest rate swap agreements were used to change the repricing characteristics of the $245 million in Capital Securities from their stated fixed rates to variable rates indexed to three month LIBOR. The swaps, designated as fair value hedges, contain payment dates, maturity dates and embedded call options held by the counterparty (exercisable in approximately four years), which are identical to the terms and call provisions contained in the Capital Securities. At December 31, 2003, the positive fair value adjustment on the swap agreements hedging $200 million of Capital Securities was an unrealized gain totaling $17.1 million and is reflected as a component of other assets. The carrying amount of the $200 million in Capital Securities was increased by an identical amount. The negative fair value adjustment on the swap agreements hedging $45 million of Capital Securities was an unrealized loss totaling $2.3 million and is reflected as a component of other liabilities. The carrying amount of the $45 million in Capital Securities was decreased by an identical amount. These swaps decreased the weighted average interest rate paid on the Capital Securities to 2.81% at December 31, 2003. These swaps decreased interest expense by $12.3 million and $5.5 million in 2003 and 2002, respectively. There was no hedge ineffectiveness recorded in the Consolidated Statement of Income from these transactions for all periods reported.

In June 2003, $350 million in pay floating swaps designated as fair value hedges were used to convert the stated fixed rate on the 5.875% subordinated notes to variable rates indexed to three month LIBOR. The swap term and payment dates match the related terms of the subordinated notes. In July 2003, $150 million in pay floating swaps designated as fair value hedges were used to convert the stated fixed rate on the 5% subordinated notes to variable rates indexed to three month LIBOR. The swap term is for five years, matching the period of time the subordinated notes pay a fixed rate. Beginning in the sixth year, The Company has the right to redeem the fixed rate/floating rate notes at par plus accrued interest or the interest rate converts to a spread over three month LIBOR. At December 31, 2003, the fair value adjustment on these swap agreements was an unrealized loss of $22.7 million and is reflected as a component of other liabilities and decreased the carrying amount of the $500 million in subordinated notes by an identical amount. The swaps reduced interest expense by approximately $5.3 million in 2003. There was no hedge ineffectiveness recorded in the Consolidated Statement of Income on these transactions for all periods reported.


68		North Fork Bancorporation

NOTE 18 – OTHER COMMITMENTS AND CONTINGENT LIABILITIES

Credit Related Commitments

The Company extends traditional off-balance sheet financial products to meet the financing needs of its customers. They include commitments to extend credit and letters of credit. Funded commitments are reflected in the consolidated balance sheet.

Commitments to extend credit are agreements to lend to customers in accordance with contractual provisions. These commitments usually have fixed expiration dates or other termination clauses and may require the payment of a fee. Total commitments outstanding do not necessarily represent future cash flow requirements of the Company as many commitments expire without being funded.

Management evaluates each customer’s creditworthiness prior to issuing these commitments and may also require certain collateral upon extension of credit based on management’s credit evaluation. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing properties. Fixed rate commitments are subject to interest rate risk based on changes in prevailing rates during the commitment period. The Company is subject to credit risk in the event that the commitments are drawn upon and the customer is unable to repay the obligation.

Letters of credit are irrevocable commitments issued at the request of customers. They authorize the beneficiary to draw drafts for payment in accordance with the stated terms and conditions. Letters of credit substitute a bank’s creditworthiness for that of the customer and are issued for a fee commensurate with the risk.

The Company typically issues two types of letters of credit: Commercial (documentary) Letters of Credit and Standby Letters of Credit. Commercial Letters of Credit are commonly issued to finance the purchase of goods and are typically short term in nature. Standby letters of credit are issued to back financial or performance obligations of a bank customer, and are typically issued for periods up to one year. Due to their long-term nature, standby letters of credit require adequate collateral in the form of cash or other liquid assets. In most instances, standby letters of credit expire without being drawn upon. The credit risk involved in issuing letters of credit is essentially the same as extending credit facilities to comparable customers.

The following table presents total commitments and letters of credit outstanding at December 31,:


(in thousands)	*2003*		2002

Commitments to Extend Credit	$	*1,604,640*	$	1,464,128
Standby Letters of Credit ⁽¹⁾		*187,322*		105,781
Commercial Letters of Credit		*16,112*		18,147

⁽¹⁾ Standby letters of credit are considered guarantees in accordance with the criteria specified by FIN 45, which was adopted on January 1, 2003. After that date, the Company issued or modified standby letters of credit with an aggregate contract value of $222.6 million that are included in other liabilities in the accompanying consolidated balance sheet at their estimated fair value of $1.2 million as of December 31, 2003. The fair value of these instruments is recognized as income over the initial term of the guarantee.

⁽²⁾ At December 31, 2003, commitments to extend credit with maturities of less than one year totaled $1.3 billion, while $.3 billion matures between one to three years. Standby and commercial letters of credit are issued with original maturity terms of twelve months or less.

Notes to Consolidated Financial Statements continued

Lease Commitments

At December 31, 2003, the Company was obligated under a number of non-cancelable leases for certain premises and equipment. The minimum annual rental commitments, exclusive of taxes and other charges, under non-cancelable lease agreements for premises at December 31, 2003, are summarized as follows:


Year Ended December 31:
(in thousands)	Minimum
	Rentals
2004	$	26,914
2005		25,289
2006		24,091
2007		22,979
2008		21,289
Thereafter		109,040

Total Lease Commitments	$	229,602

The majority of these leases contain periodic escalation clauses and it is anticipated that expiring leases should be renewed or replaced by leases on other properties.

Rent expense for the years ended December 31, 2003, 2002 and 2001 amounted to $24.5 million, $19.5 million and $12.7 million, respectively.

Litigation

The Company and its subsidiaries are subject to certain pending and threatened legal actions that arise out of the normal course of business. Management believes that the resolution of any pending or threatened litigation will not have a material adverse effect on the Company’s financial condition or results of operations.

NOTE 19 — DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107 “Disclosures About Fair Value of Financial Instruments” (“SFAS 107”) requires the Company to disclose estimated fair values for its financial instruments. Fair value estimates are made at a specific point in time, based on relevant market data and information about the financial instrument. SFAS 107 has no effect on the financial position or results of operations in the current year or any future period. Furthermore, the fair values disclosed under SFAS 107 are not representative of the total value of the Company.

If quoted market prices are not available, SFAS 107 permits using the present value of anticipated future cash flows to estimate fair value. Accordingly, the estimated fair value will be influenced by prepayment and discount rate assumptions. This method may not provide the actual amount that would be realized in the ultimate sale of the financial instrument.

Cash, Cash Equivalents and Securities

The carrying amounts for cash and cash equivalents are reasonable estimates of fair value. The fair value of securities is estimated based on quoted market prices as published by various quotation services, or if quoted market prices are not available, on dealer quotes. The following table presents the carrying value and estimated fair value of cash, cash equivalents and securities at December 31,


	*2003*				2002
	*Carrying*		*Estimated*		Carrying		Estimated
(in thousands)	*Amount*		*Fair Value*		Amount		Fair Value

Cash and Cash Equivalents	$	*531,391*	$	*531,391*	$	424,338	$	424,338
Securities Held-to-Maturity		*190,285*		*195,312*		307,878		317,289
Securities Available-for-Sale		*7,128,542*		*7,128,542*		8,555,892		8,555,892

Total Cash, Cash Equivalents and Securities	$	*7,850,218*	$	*7,855,245*	$	9,288,108	$	9,297,519


70		North Fork Bancorporation

Loans

Fair values are estimated for portfolios of loans with similar financial characteristics. The fair value of performing loans is calculated by discounting the estimated cash flows through expected maturity or repricing using the current rates at which similar loans would be made to borrowers with similar credit risks. For non-performing loans, the present value is separately discounted consistent with management’s assumptions in evaluating the adequacy of the allowance for loan losses. The following table presents the carrying amount and the estimated fair value of the loan portfolio as of December 31,

2003

2002

Carrying

Estimated

Carrying

Estimated

(in thousands)

Amount

Fair Value

Amount

Fair Value

Gross Loans

12,376,512

12,606,865

11,390,655

11,793,337

Deposit Liabilities and Borrowings

The carrying amounts for demand deposits, savings, NOW, money market accounts and borrowings with an interest sensitive period of 90 days or less are reasonable estimates of their fair values. Fair values for time deposits and borrowings are estimated by discounting the future cash flows using the rates currently offered for deposits and borrowings of similar remaining maturities.

The following table presents the carrying amount and estimated fair value of the deposits and borrowings as of December 31,


	*2003*				2002
	*Carrying*		*Estimated*		Carrying		Estimated
(in thousands)	*Amount*		*Fair Value*		Amount		Fair Value

Demand Deposits	$	*4,080,134*	$	*4,080,134*	$	3,417,534	$	3,417,534
Savings		*3,770,683*		*3,770,683*		3,440,573		3,440,573
NOW and Money Market		*4,519,476*		*4,519,476*		3,347,385		3,347,385
Time Deposits		*2,745,822*		*2,752,277*		2,987,038		2,998,989

Total Deposits	$	*15,116,115*	$	*15,122,570*	$	13,192,530	$	13,204,481


Borrowings with an Interest Sensitive Period of 90 days or less	$	*746,154*	$	*746,154*	$	3,426,000	$	3,426,000
Borrowings with an Interest Sensitive Period greater than 90 days		*2,475,000*		*2,610,609*		1,975,000		2,159,988
Subordinated Debt		*476,499*		*532,331*		499,140		535,447
Capital Securities		*259,244*		*274,192*		268,926		272,991

Total Borrowings	$	*3,956,897*	$	*4,163,286*	$	6,169,066	$	6,394,426

Commitments to Extend Credit and Letters of Credit

These financial instruments generally are not sold or traded, and estimated fair values are not readily available. However, the fair value of commitments to extend credit and letters of credit is based on fees currently charged to enter into similar agreements with comparable credit risks and the current creditworthiness of the counterparties. Commitments to extend credit issued by the Company are generally short-term in nature and, if drawn upon, are issued under current market terms and conditions for credits with comparable risks.

At December 31, 2003 and 2002, there was no significant unrealized appreciation or depreciation on these financial instruments.


Annual Report 2003		71

Notes to Consolidated Financial Statements continued

NOTE 20 — RECENT ACCOUNTING PRONOUNCEMENTS

Accounting for Costs Associated with Exit or Disposal Activities

Effective January 1, 2003, the Company adopted SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). SFAS 146 requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred and be measured at fair value. Previous guidance required the recognition of such costs be at the date of management’s commitment to an exit plan. SFAS 146 was effective for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS 146 had no impact on the Company’s financial statements.

Consolidation of Variable Interest Entities

In the first quarter of 2004, FIN 46R will require companies, such as North Fork, that have previously issued trust preferred securities (Capital Securities) through statutory business trusts, to deconsolidate their investment in those trusts. Deconsolidation will result in a re-characterization of the underlying consolidated debt obligations from the previous trust preferred securities obligations to the junior subordinated debenture obligations that exist between North Fork and the issuing trust entities.

In July 2003, the Board of Governors of the Federal Reserve System issued a supervisory letter instructing bank holding companies to continue to include trust preferred securities (Capital Securities) in Tier 1 capital for regulatory capital purposes until further notice. The Federal Reserve intends to review the regulatory implications of any accounting treatment changes and, if necessary, provide further appropriate guidance. There can be no assurance that the Federal Reserve will continue to allow institutions to include Capital Securities in Tier 1 capital for regulatory capital purposes. As of December 31, 2003, assuming the Company no longer included the Capital Securities issued by North Fork Capital Trust I, North Fork Capital Trust II, and Reliance Capital Trust I in Tier 1 capital, the Company would still exceed the regulatory threshold for capital adequacy (See “Notes to Consolidated Financial Statements” — Footnote 10 — “Capital Securities” for additional information).

Accounting for Derivative Instruments and Hedging Activities

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities” (“SFAS 149”). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” In particular, SFAS 149 clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative and clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 was effective for contracts entered into or modified after June 30, 2003. Adoption of SFAS 149 did not have a material effect on the Company’s financial statements.


72		North Fork Bancorporation

Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS 150”). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. SFAS 150 was effective immediately for financial instruments entered into or modified after May 31, 2003; otherwise, it was effective for all existing contracts on July 1, 2003. However, the effective date of the statement’s provisions related to the classification and measurement of certain mandatorily redeemable non-controlling interests has been deferred indefinitely by the FASB, pending further Board action. Adoption of SFAS 150 did not have a material effect on the Company’s financial statements.

Employers’ Disclosures about Pensions and Other Postretirement Benefits

In December 2003, the FASB revised SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits” (“SFAS 132”). SFAS 132 requires additional disclosures to those in the original SFAS 132 regarding the plan assets, obligations, cash flows, and interim period benefit cost. SFAS 132 applies to defined benefit pension plans and other defined benefit post-retirement plans. The additional disclosures were added so that users of financial statements could better evaluate retirement benefit plans, including the risks that may affect future earnings and cash flows. The provisions of SFAS 132 were effective for fiscal years ending after December 15, 2003 and have been addressed in Footnote 13 — “Retirement and Other Employee Benefit Plans”.


Annual Report 2003		73

Independent Auditors’ Report

(KPMG LLP LOGO)

To the Stockholders and Board of Directors of North Fork Bancorporation, Inc.

We have audited the accompanying consolidated balance sheets of North Fork Bancorporation, Inc. and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, cash flows, changes in stockholders’ equity, and comprehensive income for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of North Fork Bancorporation, Inc. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

(KPMG LLP SIGNATURE)
New York, New York
February 25, 2004


74		North Fork Bancorporation

Report of Management

Management of North Fork Bancorporation, Inc. is responsible for the preparation, integrity and fair presentation of the consolidated financial statements and other financial information in this annual report. The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and, where necessary, are based on management’s best estimates and judgment. Other financial information contained elsewhere in this annual report is consistent with that contained in the consolidated financial statements.

Management maintains accounting systems and internal controls to meet its responsibilities for reliable consolidated financial statements. There are inherent limitations in the effectiveness of internal controls, including the possibility of circumvention or overriding of controls. Furthermore, because of changes in conditions, the effectiveness of internal controls may vary over time. These systems and controls are designed to provide reasonable assurance that assets are safeguarded and transactions are properly recorded and executed in accordance with management’s authorization. An internal audit function is maintained to continually evaluate the adequacy and effectiveness of such internal controls, policies, and procedures.

KPMG LLP, independent auditors, are engaged to audit the Company’s consolidated financial statements in accordance with auditing standards generally accepted in the United States of America and the independent auditor’s report expresses their opinion as to the fair presentation, in all material respects, of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Their audit provides an objective assessment of the degree to which management meets its responsibility for financial reporting.

The Board of Directors fulfills its oversight role for the financial statements through the Audit Committee, which is composed entirely of outside directors. The Audit Committee meets regularly with management, the internal auditors and the independent auditors, to discuss internal controls and accounting, auditing and financial reporting matters. The Audit Committee reviews and approves the scope of internal and external audits, as well as recommendations made with respect to internal controls by the independent and internal auditors and the various regulatory agencies. KPMG LLP and the internal auditors meet with the Audit Committee with and without management present.

Management assessed the Company’s system of internal control over financial reporting as of December 31, 2003 based on criteria for effective internal control over financial reporting described in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, as of December 31, 2003, the Company’s system of internal control over financial reporting met those criteria.



JOHN ADAM KANAS		DANIEL M. HEALY
Chairman, President and Chief Executive Officer		Executive Vice President and Chief Financial Officer


Annual Report 2003		75

Corporate and Shareholder Information

Executive Management

John Adam Kanas

Chairman, President & Chief Executive Officer

John Bohlsen

Vice Chairman

Daniel M. Healy

Executive Vice President & Chief Financial Officer

Aurelie S. Campbell

Vice President & Corporate Secretary

Board of Directors

John Adam Kanas, Chairman

John Bohlsen, Vice Chairman

Allan C. Dickerson

Lloyd A. Gerard

Daniel M. Healy

Katherine Heaviside

Raymond A. Nielsen

James F. Reeve

George H. Rowsom

Dr. Kurt Schmeller

Corporate Headquarters

275 Broadhollow Road

Melville, NY 11747

Investor Relations

Shareholders seeking information about the Company may obtain analyst presentations, press releases and government filings from North Fork’s website www.northforkbank.com. Additional inquiries can be directed to the Corporate Secretary’s office, 275 Broadhollow Road, Melville, New York 11747 or by calling 631-501-4618.

Dividend Services

Dividend Reinvestment Plan (DRP) — The DRP provides shareholders with a convenient means to acquire additional shares of stock through the re-investment of dividends and/or making optional cash payments without a brokerage commission or service charges. “Registered” holders may call 1-800-317-4445 for an enrollment package. Accounts held in “Street” name should contact their broker.

“Registered” shareholders can arrange for direct deposit of cash dividends - Direct deposit provides a safe, timesaving method of receiving cash dividends. “Registered” shareholders can automatically have their dividends deposited on the date of payment into a checking, savings, or money market account at any financial institution providing Automated Clearing House services by calling our Transfer Agent, Equiserve Trust Company, N.A., at 1-800-870-2340.

Shareholder Account Inquiries

Shareholders who wish to change the name, address or ownership of their stock, consolidate accounts, eliminate duplicate mailings or replace lost certificates or dividend checks, should contact the Stock Registrar and Transfer Agent at the address and phone number listed.

Stock Registrar and Transfer Agent

Equiserve Trust Company, N.A.

P.O. Box 43069

Providence, RI 02940-3069

Private Couriers/Registered Mail:

Equiserve Trust Company, N.A.

66 Brooks Drive

Braintree, MA 02184

Email access is available through Equiserve’s web page at

www.equiserve.com

Hearing Impaired — TTD: 1-800-952-9245

Shareholder Assistance: 1-800-317-4445

Stock Listing

North Fork Bancorporation, Inc. is traded on the New York Stock Exchange under the symbol NFB. Newspaper stock listings: NoForkBcp or NoFrkBc.

Annual Meeting

The annual meeting of shareholders will be held April 27, 2004, 10 a.m. at the Wyndham Wind Watch Hotel, 1717 Vanderbilt Motor Parkway, Hauppauge, New York 11788, 631-232-9800.

			• Parallel yield curve shifts for market rates (i.e. treasuries, LIBOR, swaps, etc.) with an assumed floor of 50 basis points.

			• Maintaining our current asset and liability spreads to market interest rates.

			• Savings and money market deposit rates experience a 40% impact of market interest rate movements after 3 months and have a floor of 15 and 25 basis points, respectively.

			• NOW deposit rates experience a 15% impact of market interest rate movements immediately and have a floor of 10 basis points.

	•		Equity Securities: Not more than 60% of assets
	•		Debt Securities: Not more than 40% of assets

⁽¹⁾		Standby letters of credit are considered guarantees in accordance with the criteria specified by FIN 45, which was adopted on January 1, 2003. After that date, the Company issued or modified standby letters of credit with an aggregate contract value of $222.6 million that are included in other liabilities in the accompanying consolidated balance sheet at their estimated fair value of $1.2 million as of December 31, 2003. The fair value of these instruments is recognized as income over the initial term of the guarantee.

⁽²⁾		At December 31, 2003, commitments to extend credit with maturities of less than one year totaled $1.3 billion, while $.3 billion matures between one to three years. Standby and commercial letters of credit are issued with original maturity terms of twelve months or less.