FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

NORTH FORK BANCORPORATION, INC.

(Exact name of Company as specified in its charter)


DELAWARE		36-3154608

(State or other Jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


275 BROADHOLLOW ROAD, MELVILLE, NEW YORK		11747

(Address of principal executive offices)		(Zip Code)

(631) 531-2970

(Company’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all the reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


CLASS OF COMMON STOCK		NUMBER OF SHARES OUTSTANDING –8/3/06

$.01 Par Value		465,838,512

Item 1. Financial Statements

Consolidated Balance Sheets (Unaudited)


	June 30,			December 31,			June 30,
(in thousands except share amounts)	2006			2005			2005
Assets:
Cash & Due from Banks	$	1,000,195		$	1,037,406		$	826,921
Money Market Investments		22,295			24,843			38,023
Securities:
Available-for-Sale ($3,175,760, $4,107,473 and $5,313,374 pledged at June 30, 2006, December 31, 2005 and June 30, 2005, respectively)		9,867,618			11,295,977			12,924,780
Held-to-Maturity ($11,761, $13,409 and $18,746 pledged at June 30, 2006, December 31, 2005 and June 30, 2005, respectively) (Fair Value $96,321, $105,128 and $121,437 at June 30, 2006, December 30, 2005 and June 30, 2005, respectively)		97,344			104,210			118,429

Total Securities		9,964,962			11,400,187			13,043,209

Loans:
Loans Held-for-Sale		5,406,341			4,359,267			6,398,119
Loans Held-for-Investment		35,551,560			33,232,236			32,482,774
Less: Allowance for Loan Losses		224,571			217,939			217,872

Net Loans Held-for-Investment		35,326,989			33,014,297			32,264,902
Goodwill		5,918,116			5,918,116			5,888,195
Identifiable Intangibles		96,373			114,091			132,468
Premises & Equipment		447,633			438,040			426,099
Mortgage Servicing Rights, net		272,543			267,424			253,482
Accrued Income Receivable		213,492			205,892			205,678
Other Assets		712,896			837,308			908,593

Total Assets	$	59,381,835		$	57,616,871		$	60,385,689

Liabilities and Stockholders’ Equity:
Deposits:
Demand	$	7,561,888		$	7,639,231		$	7,586,939
Savings, NOW & Money Market		21,377,573			20,910,161			21,659,890
Time		7,875,144			8,067,181			8,219,517

Total Deposits		36,814,605			36,616,573			37,466,346

Federal Funds Purchased & Collateralized Borrowings		11,249,615			9,700,621			11,387,571
Other Borrowings		1,463,066			1,477,364			1,506,337
Accrued Expenses & Other Liabilities		791,972			820,072			809,155

Total Liabilities	$	50,319,258		$	48,614,630		$	51,169,409

Stockholders’ Equity:
Preferred Stock, par value $1.00; authorized 10,000,000 shares, unissued	$	—		$	—		$	—
Common Stock, par value $0.01; authorized 1,000,000,000 shares; issued 480,682,118 Shares at June 30, 2006		4,807			4,806			4,792
Additional Paid in Capital		6,875,810			7,035,314			7,007,286
Retained Earnings		2,779,501			2,581,047			2,354,784
Accumulated Other Comprehensive Loss		(207,161	)		(108,898	)		(21,076	)
Deferred Compensation (See Note 1)		—			(154,772	)		(115,160	)
Treasury Stock at Cost; 14,934,674 Shares at June 30, 2006		(390,380	)		(355,256	)		(14,346	)

Total Stockholders’ Equity		9,062,577			9,002,241			9,216,280

Total Liabilities and Stockholders’ Equity	$	59,381,835		$	57,616,871		$	60,385,689

See accompanying notes to consolidated financial statements

Consolidated Statements of Income (Unaudited)


	Three Months Ended					Six Months Ended
	June 30,			June 30,		June 30,			June 30,
(in thousands, except per share amounts)	2006			2005		2006			2005
Interest Income:
Loans Held-for-Investment	$	531,756		$	472,218	$	1,037,492		$	924,435
Loans Held-for-Sale		76,088			73,065		139,780			139,913
Mortgage-Backed Securities		96,437			133,375		195,952			275,382
Other Securities		29,173			30,124		57,818			59,531
Money Market Investments		570			662		1,112			1,395

Total Interest Income		734,024			709,444		1,432,154			1,400,656

Interest Expense:
Savings, NOW & Money Market Deposits		134,731			82,455		252,164			152,051
Time Deposits		59,658			40,391		119,448			73,857
Federal Funds Purchased & Collateralized Borrowings		89,628			105,238		173,102			204,245
Other Borrowings		20,119			19,287		40,075			37,111

Total Interest Expense		304,136			247,371		584,789			467,264

Net Interest Income		429,888			462,073		847,365			933,392
Provision for Loan Losses		9,000			9,000		18,000			18,000

Net Interest Income after Provision for Loan Losses		420,888			453,073		829,365			915,392

Non-Interest Income:
Mortgage Banking Income		105,769			90,680		201,841			201,775
Customer Related Fees & Service Charges		40,291			41,902		81,394			83,908
Investment Management, Commissions & Trust Fees		9,127			10,287		18,796			21,358
Other Operating Income		22,500			15,378		34,857			29,456
Securities Gains, net		4,099			10,884		10,821			15,519
Trading Losses on Derivative Instruments		(23,223	)		—		(21,070	)		—

Total Non-Interest Income		158,563			169,131		326,639			352,016

Non-Interest Expense:
Employee Compensation & Benefits		145,248			139,014		286,559			274,383
Occupancy & Equipment, net		51,254			46,949		102,546			92,903
Amortization of Identifiable Intangibles		8,859			9,133		17,718			18,266
Other Operating Expenses		55,310			54,697		112,026			110,894
Merger Related Expenses		5,233			—		5,233			—
Settlement Recovery		(16,031	)		—		(16,031	)		—

Total Non-Interest Expense		249,873			249,793		508,051			496,446

Income Before Income Taxes		329,578			372,411		647,953			770,962
Provision for Income Taxes		108,761			130,345		217,008			269,861

Net Income	$	220,817		$	242,066	$	430,945		$	501,101

Earnings Per Share:
Basic	$	0.49		$	0.52	$	0.95		$	1.07
Diluted	$	0.48		$	0.51	$	0.94		$	1.06

See accompanying notes to consolidated financial statements

Consolidated Statements of Cash Flows (Unaudited)


*For the Six Months Ended June 30,*
(in thousands)	2006			2005
Cash Flows from Operating Activities:
Net Income	$	430,945		$	501,101
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Loan Losses		18,000			18,000
Depreciation		23,653			20,617
Net Amortization/(Accretion):
Securities		11,629			13,681
Loans		8,222			8,841
Borrowings & Time Deposits		(79,569	)		(64,637	)
Intangibles		17,719			18,266
Deferred Compensation		14,019			11,357
Gain on Sale of Loans Held-for-Investment		—			(4,293	)
Securities Gains		(10,821	)		(15,519	)
Capitalization of Mortgage Servicing Rights		(32,839	)		(81,154	)
Amortization of Mortgage Servicing Rights		45,412			40,580
Temporary (Recovery)/Impairment Charge — Mortgage Servicing Rights		(18,592	)		34,971
Loans Held-for-Sale:
Originations (1)		(16,273,448	)		(18,837,611	)
Proceeds from Sale		15,164,479			17,681,069
Gains on Sale of Loans		(184,065	)		(225,944	)
Other		245,959			760,312
Other, Net		96,313			52,700

Net Cash Used in Operating Activities		(522,984	)		(67,663	)


Cash Flows from Investing Activities:
Loans Held-for-Investment Originated, Net of Principal Repayments and Charge-offs		(2,356,363	)		(2,984,916	)
Purchases of Securities Available-for-Sale		(806,026	)		(1,537,330	)
Proceeds from Sale of Securities Available-for-Sale		965,022			1,983,910
Maturities, Redemptions, Calls and Principal Repayments on Securities Available-for-Sale		1,146,695			2,097,417
Purchases of Securities Held-to-Maturity		(1,000	)		(1,000	)
Maturities, Redemptions, Calls and Principal Repayments on Securities Held-to-Maturity		7,744			24,737
Proceeds from Sale of Loans Held-for-Investment		29,663			960,503
Purchases of Premises and Equipment, net		(33,246	)		(30,713	)

Net Cash (Used in)/Provided by Investing Activities	$	(1,047,511	)	$	512,608


Cash Flows from Financing Activities:
Net Increase in Customer Deposit Liabilities	$	217,883		$	2,672,497
Net Increase/(Decrease) in Borrowings		1,599,919			(3,162,063	)
Purchase of Treasury Stock		(131,839	)		—
Exercise of Options and Common Stock Sold for Cash		77,582			55,867
Cash Dividends Paid		(232,809	)		(209,202	)

Net Cash Provided by/(Used in) Financing Activities		1,530,736			(642,901	)

Net Decrease in Cash and Cash Equivalents		(39,759	)		(197,956	)
Cash and Cash Equivalents at Beginning of the Period		1,062,249			1,062,900

Cash and Cash Equivalents at End of the Period	$	1,022,490		$	864,944


Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for:
Interest Expense	$	631,238		$	520,294

Income Taxes	$	132,552		$	86,662

During the Period, the Company Purchased Various Securities which Settled in the Subsequent Period	$	45,726		$	70,166


(1)		Excludes loans retained in the held-for-investment portfolio totaling $1.4 billion and $3.6 billion during 2006 and 2005, respectively

See accompanying notes to consolidated financial statements

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)


									Accumulated
									Other									Total
(Dollars in thousands, except share	Common		Additional Paid			Retained			Comprehensive			Deferred			Treasury			Stockholders’
amounts)	Stock		In Capital			Earnings			(Loss)/Income			Compensation			Stock			Equity
Balance, December 31, 2004	$	4,745	$	6,968,493		$	2,064,148		$	240		($	125,174	)	($	31,373	)	$	8,881,079
Net Income		—		—			501,101			—			—			—			501,101
Cash Dividends ($.44 per share)		—		—			(210,465	)		—			—			—			(210,465	)
Issuance of Stock (147,590 shares)		47		1,072			—			—			—			3,119			4,238
Restricted Stock Activity, net		—		1,207			—			—			10,014			(191	)		11,030
Stock Based Compensation Activity, net		—		36,514			—			—			—			14,099			50,613
Other Comprehensive Loss, net of tax		—		—			—			(21,316	)		—			—			(21,316	)

Balance, June 30, 2005	$	4,792	$	7,007,286		$	2,354,784		($	21,076	)	($	115,160	)	($	14,346	)	$	9,216,280

Balance, December 31, 2005	$	4,806	$	7,035,314		$	2,581,047		$	(108,898	)	($	154,772	)	($	355,256	)	$	9,002,241
Net Income		—		—			430,945			—			—			—			430,945
Cash Dividends ($.50 per share)		—		—			(232,491	)		—			—			—			(232,491	)
Issuance of Stock (152,769 shares)		1		236			—			—			—			3,991			4,228
Reclassification of Deferred Compensation to Additional Paid in Capital upon Adoption of SFAS No. 123(R)		—		(154,772	)		—			—			154,772			—			—
Restricted Stock Activity, net		—		14,462			—			—			—			60			14,522
Stock Based Compensation Activity, net		—		(19,430	)		—			—			—			92,664			73,234
Purchases of Treasury Stock (5,101,900 shares)		—		—			—			—			—			(131,839	)		(131,839	)
Other Comprehensive Loss, net of tax		—		—			—			(98,263	)		—			—			(98,263	)

Balance, June 30, 2006	$	4,807	$	6,875,810		$	2,779,501		($	207,161	)	$	—		($	390,380	)	$	9,062,577

See accompanying notes to consolidated financial statements

Consolidated Statements of Comprehensive Income (Unaudited)


	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
(in thousands)	2006			2005			2006			2005
Net Income	$	220,817		$	242,066		$	430,945		$	501,101

Other Comprehensive Income
Unrealized (Losses)/Gains On Securities:
Changes in Unrealized (Losses)/Gains Arising During the Period	$	(66,801	)	$	127,453		$	(163,089	)	$	(33,371	)
Less: Reclassification Adjustment for Gains Included in Net Income		(4,099	)		(10,884	)		(10,821	)		(15,519	)

Changes in Unrealized (Losses) /Gains Arising During the Period		(70,900	)		116,569			(173,910	)		(48,890	)
Related Tax Effect on Unrealized (Losses) /Gains During the Period		30,487			(50,095	)		74,783			21,019

Net Change in Unrealized (Losses) /Gains Arising During the Period		(40,413	)		66,474			(99,127	)		(27,871	)

Unrealized Gains/(Losses) On Derivative Instruments:
Changes in Unrealized Gains/(Losses) Arising During the Period	$	443		$	(1,131	)	$	1,021		$	9,707
Add: Reclassification Adjustment for Expenses Included in Net Income		203			690			496			1,790

Changes in Unrealized Gains/(Losses) Arising During the Period		646			(441	)		1,517			11,497
Related Tax Effect on Unrealized Gains/(Losses) During the Period		(277	)		191			(653	)		(4,942	)

Net Change in Unrealized (Losses) /Gains Arising During the Period		369			(250	)		864			6,555

Net Other Comprehensive (Loss)/Income	$	(40,044	)	$	66,224		$	(98,263	)	$	(21,316	)

Comprehensive Income	$	180,773		$	308,290		$	332,682		$	479,785

See accompanying notes to consolidated financial statements

North Fork Bancorporation, Inc.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

June 30, 2006 and 2005

In this quarterly report on Form 10-Q, where the context requires, “the Company”, “North Fork”, “we”, “us”, and “our” refer to North Fork Bancorporation, Inc. and its subsidiaries.

Note 1 — Business and Summary of Significant Accounting Policies

North Fork Bancorporation, Inc. is a regional bank holding company organized under the laws of the State of Delaware and registered as a “bank holding company” under the Bank Holding Company Act of 1956, as amended. We are not a “financial holding company” as defined under the federal law. We are committed to providing superior customer service, while offering a full range of banking products and financial services, to both our consumer and commercial customers. Our primary subsidiary, North Fork Bank, operates from more than 350 retail bank branches in the New York Metropolitan area. We also operate a nationwide mortgage business, GreenPoint Mortgage Funding Inc. (“GreenPoint Mortgage” or “GPM”). Through our other non-bank subsidiaries, we offer financial products and services to our customers including asset management, securities brokerage, and the sale of alternative investment products. We also operate a second subsidiary bank, Superior Savings of New England, N.A. (“Superior”), which focuses on telephonic and media-based generation of deposits.

Proposed Plan of Merger with Capital One Financial Corporation

On March 12, 2006, North Fork announced that it had entered into an Agreement and Plan of Merger with Capital One Financial Corporation (“Capital One”) pursuant to which North Fork would merge with and into Capital One, with Capital One continuing as the surviving corporation. Capital One, headquartered in McLean, Virginia, is a financial holding company whose banking and non-banking subsidiaries market a variety of financial products and services. Capital One’s primary products and services offered through its subsidiaries include credit card products, deposit products, consumer and commercial lending, automobile and other motor vehicle financing, and a variety of other financial products and services for consumers, small businesses and commercial clients.

Subject to the terms and conditions of the merger agreement, each holder of North Fork common stock will have the right, subject to proration, to elect to receive, for each share of North Fork common stock, cash or Capital One common stock, in either case having a value equal to $11.25 plus the product of in connection with the proposed merger, 0.2216 times the average closing sales price of Capital One’s common stock for the five trading days immediately preceding the merger date. Based on Capital One’s closing NYSE stock price of $89.92 on March 10, 2006, the transaction is valued at $31.18 per North Fork share, for a total transaction value of approximately $14.6 billion.

The merger is subject to certain conditions, including approval by North Fork stockholders and Capital One stockholders, receipt of regulatory approvals and other customary closing conditions, and is expected to close in the fourth quarter of 2006. In connection with the proposed merger, Capital One filed with the Securities and Exchange Commission (the “SEC”) a Registration Statement on Form S-4 that included a joint proxy statement of Capital One and North Fork that also constitutes a prospectus of Capital One. Capital One and North Fork mailed the joint proxy statement/prospectus to their respective shareholders on or about July 14, 2006. Investors and security holders are urged to read the definitive joint proxy statement/prospectus (including all filings subsequent to the date of mailing that are incorporated by reference therein as provided in the joint proxy statement/prospectus) regarding the proposed merger.

Basis of Presentation

The accounting and financial reporting policies of the Company and its subsidiaries 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. Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. All significant inter-company accounts and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to current period presentation.

These unaudited interim consolidated financial statements and related management’s discussion and analysis should be read together with the consolidated financial information in our 2005 Annual Report on Form 10-K/A, previously filed with the United States Securities and Exchange Commission (“SEC”). Results of operations for the six months ended June 30, 2006 are not necessarily indicative of the results of operations which may be expected for the full year 2006 or any future interim period.

In reviewing and understanding the financial information contained herein, you are encouraged to read the significant accounting policies contained in Note 1 — Business and Summary of Significant Accounting Policies of our 2005 Annual Report in Form 10-K/A. There have not been any significant changes in the factors or methodology used in determining accounting estimates or applied in our critical accounting policies since December 2005 that are material in relation to our financial condition or results of operations.

Accounting for Stock-Based Compensation

On January 1, 2006, we adopted SFAS No. 123R — “Accounting for Stock Based Compensation, Share Based Payment”, (SFAS 123R) which replaced the guidance prescribed in SFAS 123. SFAS 123R requires that compensation costs relating to share-based payment transactions be recognized in the financial statements. The associated costs will be measured based on the fair value of the equity or liability instruments issued. SFAS 123R covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. Restricted stock awards previously recorded as deferred compensation, a component of stockholders’ equity were reclassified to additional paid-in-capital upon adoption. Restricted Stock Awards are recorded at fair value at the date of grant and are amortized to compensation expense over the awards vesting period in accordance with SFAS 123R. This accounting practice is consistent with our prior accounting treatment of restricted stock awards. Substantially, all employee stock options are awarded at the end of the year as part of an employees overall compensation, based on the individual’s performance during that year, and either vest immediately or over a nominal period. Therefore, the effect on net income of expensing stock options during the three and six months ended June 30, 2006 was not material.

Critical Accounting Policies

We have identified four accounting policies that are critical to our financial statement presentation and require critical accounting estimates, involving significant valuation adjustments, on the part of management. The following is a description of those policies:

Provision and Allowance for Loan Losses

The allowance for loan losses is available to cover probable losses inherent in the loans held-for-investment portfolio. Loans held-for-investment, 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 changing risk profile resulting from business combinations, customer performance, 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 1-4 Family Mortgages, Commercial Mortgages, Commercial and Industrial, Consumer, and Construction and Land, which are more fully described in the section entitled Management’s Discussion and Analysis, — “Loans Held-for-Investment.” An important consideration is our concentration of real estate related loans.

The methodology employed for assessing the adequacy 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, or bank regulatory examinations (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 1-10. 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 could have a significant adverse effect on the quality of our loan portfolio. This may lead management to consider that the overall allowance level should be greater than the amount determined by the allocation process described above.

Accounting for 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.

Fair value hedges result in the immediate recognition through earnings of gains or losses on the derivative instrument, as well as corresponding losses or gains on the hedged financial instrument to the extent they are attributable to the hedged risk. The gain or loss on the effective portion of a derivative instrument designated as a cash flow hedge is reported as a component of other comprehensive income, and reclassified to earnings in the same period that the hedged transaction affects earnings. The gain or loss on the ineffective portion of the derivative instrument, if any, is recognized in 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 earnings during the period of change.

In the event of early termination of a derivative contract, previously 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 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 earnings.

As part of our mortgage banking operations, we enter into commitments to originate or purchase loans whereby the interest rate on the loan is determined prior to funding (“interest rate lock commitment”). Interest rate lock commitments related to loans that we intend to sell in the secondary market are considered free-standing derivatives. These derivatives are required to be recorded at fair value, with changes in fair value recorded in current period earnings. In accordance with Staff Accounting Bulletin No. 105, “Application of Accounting Principles to Loan Commitments”, interest rate lock commitments are initially valued at zero. Changes in fair value subsequent to inception are based on changes in the fair value of loans with similar characteristics and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and passage of time. In general, the probability that a loan will fund increases if mortgage rates rise and decreases if mortgage rates fall.

The initial value inherent in the loan commitment at origination is recognized through gain on sale of loans when the underlying loan is sold.

We are exposed to interest rate risk from the time an interest rate lock commitment is made to a borrower to the time the resulting mortgage loan is sold in the secondary market. To manage this risk, we use derivatives, primarily forward sales contracts on mortgage backed securities and forward delivery commitments, in an amount equal to the portion of interest rate contracts expected to close. The duration of these derivatives are selected to have the changes in their fair value correlate closely with the changes in fair value of the interest rate lock commitments on loans to be sold. These derivatives are also required to be recorded at fair value, with changes in fair value recorded in current period earnings.

Representation and Warranty Reserve

The representation and warranty reserve is available to cover probable losses inherent with the sale of loans in the secondary market. In the normal course of business, certain representations and warranties are made to investors at the time of sale, which permit the investor to return the loan to the seller or require the seller to indemnify the investor (make whole) for any losses incurred by the investor while the loan remains outstanding.

The evaluation process for determining the adequacy of the representation and warranty reserve and the periodic provisioning for estimated losses is performed for each product type on a quarterly basis. Factors considered in the evaluation process include historical sales volumes, aggregate repurchase and indemnification activity and actual losses incurred. Additions to the reserve are recorded as a reduction to the gain on sale of loans. Losses incurred on loans where we are required to either repurchase the loan or make payments to the investor under the indemnification provisions are charged against the reserve. The representation and warranty reserve is included in accrued expenses and other liabilities in the consolidated balance sheet.

Mortgage Servicing Rights

The right to service mortgage loans for others, or Mortgage Servicing Rights (“MSRs”), is recognized when mortgage loans are sold in the secondary market and the right to service those loans for a fee is retained. The MSRs initial carrying value is determined by allocating the recorded investment in the underlying mortgage loans between the assets sold and the interest retained based on their relative fair values at the date of transfer. Fair value of the MSRs is determined using the present value of the estimated future cash flows of net servicing income. MSRs are carried at the lower of the initial carrying value, adjusted for amortization, or fair value. MSRs are amortized in proportion to, and over the period of, estimated net servicing income. The amortization of MSRs is periodically analyzed and adjusted to reflect changes in prepayment speeds.

To determine fair value, a valuation model that calculates the present value of estimated future net servicing income is utilized. We use assumptions in the valuation model that market participants use when estimating future net servicing income, including prepayment speeds, discount rates, default rates, cost to service, escrow account earnings, contractual servicing fee income, ancillary income and late fees.

MSRs are periodically evaluated for impairment based on the difference between the carrying amount and current fair value. To evaluate and measure impairment, the underlying loans are stratified based on certain risk characteristics, including loan type, note rate and investor servicing requirements. If it is determined that temporary impairment exists, a valuation allowance is established through a charge to earnings for any excess of amortized cost over the current fair value, by risk stratification. If determined in future periods that all or a portion of the temporary impairment no longer exists for a particular risk stratification, the valuation allowance is reduced by increasing earnings. However, if impairment for a particular risk stratification is deemed other-than-temporary (recovery of a recorded valuation allowance is remote), a direct write-down, permanently reducing the carrying value of the MSRs is recorded. The periodic evaluation of MSRs for other-than-temporary impairment considers both historical and projected trends in interest rates, payoff activity and whether impairment could be recovered through increases in market interest rates.

NOTE 2 — SECURITIES

The amortized cost and estimated fair values of available-for-sale securities are as follows:


	June 30, 2006				December 31, 2005				June 30, 2005
Available-for-Sale	Amortized		Fair		Amortized		Fair		Amortized		Fair
(in thousands)	Cost		Value		Cost		Value		Cost		Value
CMO Agency Issuances	$	3,188,748	$	3,036,421	$	3,604,117	$	3,511,285	$	4,269,559	$	4,231,390
CMO Private Issuances		3,305,213		3,179,137		3,484,016		3,409,789		3,941,709		3,926,929
Agency Pass-Through Certificates		1,744,499		1,685,025		1,986,388		1,956,487		2,328,213		2,335,485
State & Municipal Obligations		671,738		663,997		884,742		881,238		768,793		771,349
Equity Securities (1) (2)		732,923		724,836		663,371		675,525		685,873		693,509
U.S. Treasury & Agency Obligations		188,734		184,003		233,468		231,152		278,294		277,806
Other Securities		398,535		394,199		628,737		630,501		685,176		688,312

Total Available-for-Sale Securities	$	10,230,390	$	9,867,618	$	11,484,839	$	11,295,977	$	12,957,617	$	12,924,780


(1)		Amortized cost and fair value includes $426.8 million, $265.8 million and $291.8 million in Federal Home Loan Bank Stock at June 30, 2006, December 31, 2005 and June 30, 2005, respectively.

(2)		Amortized cost and fair value includes $273.8 million and $266.0 million at June 30, 2006, respectively, $332.3 million and $342.8 million at December 31, 2005, respectively and $332.3 million and $337.4 million at June 30, 2005, respectively of Federal Home Loan Mortgage Corporation and Federal National Mortgage Association Preferred Stock, respectively.

The amortized cost and estimated fair values of held-to-maturity securities are as follows:


	June 30, 2006				December 31, 2005				June 30, 2005
Held-to-Maturity	Amortized		Fair		Amortized		Fair		Amortized		Fair
(in thousands)	Cost		Value		Cost		Value		Cost		Value
Agency Pass-Through Certificates	$	42,400	$	40,852	$	46,155	$	45,814	$	50,491	$	51,428
State & Municipal Obligations		36,562		37,571		38,301		40,116		41,372		43,951
CMO Private Issuances		8,648		8,215		9,430		8,958		15,356		14,902
Other Securities		9,734		9,683		10,324		10,240		11,210		11,156

Total Held-to-Maturity Securities	$	97,344	$	96,321	$	104,210	$	105,128	$	118,429	$	121,437

At June 30, 2006, securities carried at $6.8 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 $3.2 billion, while securities pledged under agreements pursuant to which the secured parties may not sell or repledge approximated $3.6 billion at June 30, 2006.

NOTE 3 — LOANS

The composition of loans designated as held-for-sale are summarized as follows:


Loans Held-for-Sale	June 30,		% of			December 31,		% of			June 30,		% of
(dollars in thousands)	2006		Total			2005		Total			2005		Total
Residential Mortgages	$	4,319,709		81	%	$	3,824,547		89	%	$	5,481,104		87	%
Home Equity		1,035,928		19			496,656		11			852,137		13

Total	$	5,355,637		100	%	$	4,321,203		100	%	$	6,333,241		100	%
Deferred Origination Costs		50,704					38,064					64,878

Total Loans Held-for-Sale	$	5,406,341				$	4,359,267				$	6,398,119

The composition of loans held-for-investment are summarized as follows:


Loans Held-for- Investment	June 30,		% of			December 31,		% of			June 30,		% of
(dollars in thousands)	2006		Total			2005		Total			2005		Total
Commercial Mortgages	$	7,079,501		20	%	$	6,206,416		19	%	$	5,725,316		18	%
Commercial & Industrial		5,806,928		16			4,709,440		14			3,879,830		12

Total Commercial		12,886,429		36	%		10,915,856		33	%		9,605,146		30	%
Residential Mortgages		14,519,282		41			15,068,443		45			16,176,829		49
Multi-Family Mortgages		5,134,232		15			4,821,642		15			4,485,420		14
Consumer		1,749,383		5			1,558,782		5			1,521,869		5
Construction & Land		1,222,981		3			829,273		2			653,002		2

Total	$	35,512,307		100	%	$	33,193,996		100	%	$	32,442,266		100	%
Unearned Income & Deferred Origination Costs, net		39,253					38,240					40,508

Total Loans Held-for -Investment	$	35,551,560				$	33,232,236				$	32,482,774

At June 30, 2006, loans held-for-investment of $8.9 billion were pledged as collateral under borrowing arrangements with the Federal Home Loan Bank of New York.

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 properties 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.

The following table presents the components of non-performing assets as of the dates indicated:


	June 30,			December 31,			June 30,
(in thousands)	2006			2005			2005
Commercial Mortgages	$	1,833		$	498		$	6,409
Commercial & Industrial		9,384			7,970			7,768

Total Commercial		11,217			8,468			14,177
Residential Mortgages		14,219			19,315			63,979
Multi-Family Mortgages		—			550			44
Consumer		1,837			2,684			2,179
Construction and Land		—			—			308

Non-Performing Loans Held-for-Investment	$	27,273		$	31,017		$	80,687
Non-Performing Loans Held-for-Sale		27,148			13,931			45,377
Other Real Estate		3,255			4,101			14,557

Total Non-Performing Assets	$	57,676		$	49,049		$	140,621

Allowance for Loan Losses to Non-Performing Loans Held-for-Investment		823	%		703	%		270	%
Allowance for Loan Losses to Total Loans Held-for-Investment		.63			.66			.67
Non-Performing Loans to Total Loans Held-for-Investment		.08			.09			.25
Non-Performing Assets to Total Assets		.10			.09			.23

Non-performing loans held-for-investment includes loans ninety days past due and still accruing totaling $1.6 million, $3.5 million and $4.7 million at June 30, 2006, December 31, 2005 and June 30, 2005, respectively.

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, including potential sales of such assets.

NOTE 4 — ALLOWANCE FOR LOAN LOSSES

A summary of changes in the allowance for loan losses for loans held-for-investment is shown below for the periods indicated:


	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in thousands)	2006			2005			2006			2005
Balance at Beginning of Period	$	221,256		$	215,307		$	217,939		$	211,097
Provision For Loan Losses		9,000			9,000			18,000			18,000

Total		230,256			224,307			235,939			229,097
Recoveries Credited to the Allowance		4,029			4,141			7,181			9,143
Losses Charged to the Allowance		(9,714	)		(10,576	)		(18,549	)		(20,368	)

Balance at End of Period	$	224,571		$	217,872		$	224,571		$	217,872

Annualized Net Charge-offs to Average Loans, net		.07	%		.08	%		.07	%		.07	%

NOTE 5 — FEDERAL FUNDS PURCHASED AND COLLATERALIZED BORROWINGS

The following table summarizes the components of federal funds purchased and collateralized borrowings for the periods indicated:


	June 30,		December 31,		June 30,
(in thousands)	2006		2005		2005
Federal Funds Purchased	$	1,412,000	$	2,634,000	$	1,957,925
Securities Sold Under Repurchase Agreements		2,735,387		3,783,017		5,211,985
Federal Home Loan Bank Advances		7,102,228		3,283,604		4,217,661

Total Federal Funds Sold and Collateralized Borrowings	$	11,249,615	$	9,700,621	$	11,387,571

The expected maturity or repricing of Federal Home Loan Bank (“FHLB”) Advances and Securities Sold under Repurchase Agreements (“Repo’s”) at June 30, 2006 is as follows:


(dollars in thousands)	FHLB		Average					Average					Average
Maturity	Advances		Rate (1)			Repo’s		Rate (1)			Total (2)		Rate (1)
2006	$	5,925,015		5.08	%	$	1,082,527		3.86	%	$	7,007,542		4.89	%
2007		150,000		3.77			700,000		3.05			850,000		3.18
2008		650,000		2.67			550,000		4.30			1,200,000		3.42
2009		200,000		2.93			—		—			200,000		2.93
2010		100,000		5.90			275,000		3.90			375,000		4.44
Thereafter		—		—			100,000		4.39			100,000		4.39

Total	$	7,025,015		4.78	%	$	2,707,527		3.76	%	$	9,732,542		4.49	%


(1)		Reflects the impact of purchase accounting adjustments and interest rate swaps.

(2)		Excludes $77.2 million and $27.9 million of purchase accounting discounts on the FHLB Advances and Repo’s, respectively.

Interest rate swaps were used to convert $75 million in Repo’s from variable rates to fixed rates. These swaps qualify as cash flow hedges and are explained in more detail in “Note 9 — Derivative Financial Instruments.”

NOTE 6 — OTHER BORROWINGS

The following tables summarize other borrowings outstanding as of the dates indicated:

SUBORDINATED NOTES


	June 30,			December 31,			June 30,
(in thousands)	2006			2005			2005
Parent Company:
5.875% Subordinated Notes due August 2012	$	349,453		$	349,408		$	349,364
5.0% Fixed Rate/Floating Rate Subordinated Notes due August 2012		150,000			150,000			150,000
Subsidiary Bank:
9.25% Subordinated Bank Notes due October 2010		175,613			178,622			181,632

Total Subordinated Notes		675,066			678,030			680,996
Fair Value Hedge Adjustment		(38,745	)		(31,040	)		(18,993	)

Total Subordinated Notes Carrying Amount	$	636,321		$	646,990		$	662,003

$350 million of 5.875% Subordinated Notes and $150 million of 5% Fixed Rate/Floating Rate Subordinated Notes which mature in 2012, were issued in August 2002 and qualify as Tier II capital for regulatory purposes. The 5.875% Subordinated Notes bear interest at a fixed rate through maturity, pay interest semi-annually 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, we have the right to redeem the Fixed Rate/Floating Rate Notes at par plus accrued interest.

At June 30, 2006, $350 million in pay floating swaps, designated as fair value hedges on the 5.875% Subordinated Notes, were used to convert a corresponding amount of the Notes from their stated fixed rates to variable rates indexed to three-month LIBOR. At December 31, 2005 and June 30, 2005, $150 million in pay floating swaps, designated as fair value hedges on the 5.0% Fixed/Floating Rate Subordinated Notes were used to convert their stated fixed rates to variable rates indexed to three-month LIBOR. As of April 1, 2006 it was determined that there swaps did not meet the stated requirements of the short cut method of accounting as prescribed in SFAS No. 133 and accordingly they were reclassified as trading instruments and are more fully described in Note 9 – Derivative Financial Instruments. The fair value hedge adjustments in the table above includes the effect of the on the $150 million 5.0% Fixed/Floating Subordinated Noted resulting from the fair value hedges that existed at December 31, 2005 and June 30, 2005, respectively.

$150 million of 9.25% Subordinated Bank Notes mature in 2010, pay interest semi-annually and have a carrying value of $175.6 million at June 30, 2006. These Notes were assumed through a prior acquisition and include a remaining fair value discount totaling $25.6 million, $28.6 million and $31.6 million at June 30, 2006, December 31, 2005 and June 30, 2005, respectively, which reduces the effective cost of funds to 4.61%. As of June 30, 2006, $120 million qualified as Tier II capital for regulatory purposes.

JUNIOR SUBORDINATED DEBT (related to Trust Preferred Securities):


	June 30,		December 31,		June 30,
(in thousands)	2006		2005		2005
8.70% Junior Subordinated Debt — due December 2026	$	102,845	$	102,839	$	102,833
8.00% Junior Subordinated Debt — due December 2027		102,817		102,811		102,804
8.17% Junior Subordinated Debt — due May 2028		46,547		46,547		46,547
9.10% Junior Subordinated Debt — due June 2027		228,553		235,867		236,560

Total Junior Subordinated Debt		480,762		488,064		488,744
Fair Value Hedge Adjustment		—		7,427		15,984

Total Junior Subordinated Debt Carrying Amount	$	480,762	$	495,491	$	504,728

Capital Securities (or “Trust Preferred Securities”), which qualify as Tier I Capital for regulatory purposes, were issued through Wholly-Owned Statutory Business Trusts (the “Trusts”). The Trusts were initially capitalized by the Company and the proceeds of both the common stock and Capital Securities were used to acquire Junior Subordinated Debt issued by the Company. The Capital Securities are obligations of the Trusts. The Junior Subordinated Debt and Capital Securities bear the same interest rates, are due concurrently and are non-callable at any time in whole or in part for ten years from the date of issuance, except in certain limited 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 9.10% Junior Subordinated Debt due June 2027 was assumed through a prior acquisition and includes a remaining fair value discount of $22.4 million, $29.7 million and $30.4 million at June 30, 2006, December 31, 2005 and June 30, 2005, respectively, which reduced the effective cost of funds to 7.63%.

Pay floating swaps with a $245 million notional value were previously designated as fair value hedges of the 8.70%, 8.00% and 8.17% Junior Subordinated Debt issuances. These swaps were used to convert a corresponding amount of debt from their stated fixed rates to variable rates indexed to three-month LIBOR. As a result of a detailed review of our accounting treatment for all derivative transactions these swaps were reclassified as trading instruments, effective March 31, 2006 and are more fully described in Note 9 – Derivative Financial Instruments.

SENIOR NOTES:


	June 30,		December 31,			June 30,
(in thousands)	2006		2005			2005
3.20% Senior Notes — due June 2008	$	345,983	$	344,945		$	343,907
Fair Value Hedge Adjustment		—		(10,062	)		(4,301	)

Total Senior Notes Carrying Amount	$	345,983	$	334,883		$	339,606

$350 million of 3.20% Senior Notes mature in 2008, and pay interest semi-annually. These notes include the remaining fair value premium from a prior acquisition of $4.0 million, $5.1 million and $6.1 million at June 30, 2006, December 31, 2005 and June 30, 2005, respectively, which increased the effective cost of funds to 3.84%.

Pay floating swaps with a $350 million, notional value were previously designated as fair value hedges on the Senior Notes. These swaps were used to convert a corresponding amount of Notes from their stated fixed rates to variable rates indexed to three-month LIBOR. As a result of a detailed review of our accounting treatment for all derivative transactions these swaps were reclassified as trading instruments, effective April 1, 2006 and are more fully described in Note 9 – Derivative Financial Instruments.

NOTE 7 — MORTGAGE SERVICING RIGHTS

The following table sets forth the change in the carrying value and fair value of mortgage servicing rights for the periods indicated:


	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
(dollars in thousands)	2006			2005			2006			2005
Mortgage Servicing Rights:
Balance, Beginning of Period	$	283,626		$	283,268		$	290,550		$	254,857
Originations		15,779			31,099			32,839			81,154
Amortization		(21,814	)		(20,591	)		(45,412	)		(40,580	)
Sales		(514	)		(5,323	)		(900	)		(6,978	)

Balance, End of Period	$	277,077		$	288,453		$	277,077		$	288,453

Valuation allowance:
Balance, Beginning of Period	$	(7,435	)	$	—		$	(23,126	)	$	—
Temporary Recovery/(Impairment) on Mortgage Servicing Rights		2,901			(34,971	)		18,592			(34,971	)

Balance, End of Period	$	(4,534	)	$	(34,971	)	$	(4,534	)	$	(34,971	)



Mortgage Servicing Rights, net	$	272,543		$	253,482		$	272,543		$	253,482

Fair Value of Mortgage Servicing Rights	$	301,109		$	253,871		$	301,109		$	253,871


Ratio of Mortgage Servicing Rights to Related Loans Serviced for Others		0.97	%		0.86	%		0.97	%		0.86	%


Weighted Average Service Fee		0.28	%		0.29	%		0.28	%		0.29	%

The table below provide the significant assumptions used in estimating the fair value of servicing assets for the periods indicated:


	June 30,			June 30,
	2006			2005
Weighted Avg. Prepayment Rate (includes default Rate)		24.90			29.70
Weighted Avg. Life (in years)		4.1			3.1
Cash Flows, Discount Rate		10.50	%		10.60	%

At June 30, 2006, the sensitivities to immediate 10% and 20% increases in the weighted average prepayment rates would decrease the fair value of mortgage servicing rights by $12.3 million and $23.3 million, respectively.

At June 30, 2006, the aggregate principal balance of mortgage loans serviced for others, excluding interim servicing was $28.0 billion.

NOTE 8 — REPRESENTATION AND WARRANTY RESERVE

The representation and warranty reserve is available to cover probable losses inherent with the sale of loans in the secondary market. In the normal course of business, certain representations and warranties are made to investors at the time of sale, which permit the investor to return the loan to us or require us to indemnify the investor (make whole) for any losses incurred by the investor while the loan remains outstanding. The representation and warranty reserve is included in accrued expenses and other liabilities on the consolidated balance sheet.

A summary of the changes in the representation and warranty reserve is shown below for the periods indicated:


	At and for the			At and for the
	Three Months Ended			Six Months Ended
(in thousands)	June 30, 2006			June 30, 2006
Balance at Beginning of Period	$	131,745		$	128,620
Provisions for Estimated Losses (1)		11,844			23,325
Losses Incurred		(16,642	)		(24,998	)

Balance at End of Period	$	126,947		$	126,947


(1)		The provision is reported as a reduction to gain on sale of loans.

NOTE 9 — 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, we deal only with counterparties of good credit standing and establish counterparty credit limits. In connection with our interest rate risk management process, we periodically enter 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 liabilities outstanding as of June 30, 2006:

(dollars in thousands)

Hedged

Notional

Fixed

Variable

Maturity

Liability

Amount

Interest Rate

Pay Fixed Swaps – 2008

Repurchase Agreements

75,000

6.14

5.16

Pay Floating Swaps – 2012

5.875% Subordinated Notes

350,000

5.88

7.47

At June 30, 2006, $75 million in pay fixed swaps, designated as cash flow hedges, were outstanding. These agreements change the repricing characteristics of certain repurchase agreements, requiring us 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. At June 30, 2006, these swaps had an unrealized loss of $0.7 million, which is recorded as a component of other liabilities on the accompanying balance sheet (the net of tax balance of $0.4 million is reflected in stockholders’ equity as a component of accumulated other comprehensive loss). The use of pay fixed swaps increased interest expense by $0.2 million and $0.7 million in the second quarters of 2006 and 2005, respectively. For the six months ended June 30, 2006 and 2005, these swaps increased interest expense by $0.5 million and $1.8 million, respectively. Based upon the current interest rate environment, approximately $0.2 million of the unrealized loss is expected to be reclassified from accumulated other comprehensive loss in the next twelve months.

At June 30, 2006, $350 million of 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. At June 30, 2006, the fair value adjustment on these swaps resulted in a loss of $38.7 million and is reflected as a component of other liabilities. The carrying amount of the $350 million in subordinated notes was decreased by an identical amount. These swaps increased interest expense by approximately $1.3 million $2.1 million and reduced interest expense by $0.4 million and $1.3 million for the three and six months ended June 30, 2006 and 2005, respectively. There was no hedge ineffectiveness recorded in the Consolidated Statements of Income on these transactions for all periods reported.

As part of our mortgage banking operations, we enter into commitments to originate or purchase loans whereby the interest rate on the loan is determined prior to funding (“interest rate lock commitment”). Interest rate lock commitments on mortgage loans that we intend to sell in the secondary market are considered free-standing derivatives. These derivatives are carried at fair value with changes in fair value recorded as a component of gain on sale of loans. In accordance with Staff Accounting Bulletin No. 105, “Application of Accounting Principles to Loan Commitments”, interest rate lock commitments are initially valued at zero. Changes in fair value subsequent to inception are determined based upon current secondary market prices for underlying loans with similar coupons, maturity and credit quality, subject to the anticipated probability that the loan will fund within the terms of the commitment. The initial value inherent in the loan commitments at origination is recognized through gain on sale of loans when the underlying loan is sold. Both the interest rate lock commitments and the related hedging instruments are recorded at fair value with changes in fair value being recorded in current earnings in gain on sale of loans.

Generally, if interest rates increase, the value of our interest rate lock commitments and funded loans decrease and loan sale margins are adversely impacted. We hedge the risk of overall changes in fair value of loans held-for-sale and interest rate lock commitments generally by entering into mandatory commitments to deliver mortgage whole loans to various investors, selling forward contracts on mortgage backed securities of Fannie Mae and Freddie Mac and, to a lesser extent, by using futures and options to economically hedge the fair value of interest rate lock commitments. Under SFAS 133, certain of these positions qualify as fair value hedges of a portion of the funded loan portfolio held-for-sale and result in adjustments to the carrying value of designated loans through gain on sale based on fair value changes attributable to the hedged risk. The forward contracts, futures and options used to economically hedge the loan commitments are accounted for as non-designated hedges and naturally offset loan commitment mark-to-market gains and losses recognized as a component of gain on sale.

The notional amount of all forward contracts was $2.2 billion at June 30, 2006. The forward contracts designated as fair value hedges associated with mortgage loans held-for-sale had a notional value of $1.7 billion at June 30, 2006. The notional amount of forward contracts used to manage the risk associated with interest rate lock commitments on mortgage loans was $554 million at June 30, 2006.

The following table shows hedge ineffectiveness on fair value hedges included in gain on sale of loans for the period indicated:


	Three Months Ended						Six Months Ended
(in thousands )	June 30, 2006			June 30, 2005			June 30, 2006			June 30, 2005
(Loss)/Gain on Hedged Mortgage Loans	$	(7,042	)	$	9,053		$	(9,382	)	$	2,169
(Loss)/Gain on Derivatives		5,579			(9,595	)		7,938			(3,373	)

Hedge Ineffectiveness	$	(1,463	)	$	(542	)	$	(1,444	)	$	(1,204	)

Trading Instruments

The following table details the interest rate swaps designated as trading instruments as of June 30, 2006:


(dollars in thousands)	Previously Hedged	Notional		Fixed			Variable
Maturity	Liability	Amount		Interest Rate			Interest Rate
Pay Floating Swaps
2007	5.00% Subordinated Notes	$	150,000		5.00	%		7.48	%
2008	3.20% Senior Notes		350,000		3.20	%		4.93	%
2026	8.70% Junior Subordinated Debt		100,000		8.70	%		7.03	%
2027	8.00% Junior Subordinated Debt		100,000		8.00	%		6.40	%
2028	8.17% Junior Subordinated Debt		45,000		8.17	%		7.93	%

During 2006, we performed a detailed review of our accounting treatment for all derivative transactions and determined that certain transactions did not meet the requirements of the “short-cut” method of accounting under SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities”. As a result, hedge accounting was not appropriate for the transactions contained in the above table since inception. Accordingly, they have been reclassified as trading instruments on the accompanying balance sheet. For the three and six months ended June 30, 2006, $23.2 million and $21.1 million was recorded as trading losses on the accompanying statement of income, respectively. We believe that the interest rate swaps have and will continue to be effective economic hedges. There was no impact nor will there be any future impact on our cash flows resulting from this change.

NOTE 10 — OTHER COMMITMENTS AND CONTINGENT LIABILITIES

Credit Related Commitments

We offer traditional off-balance sheet financial products to meet the financing needs of our customers through both our retail banking and mortgage banking segments. They include commitments to extend credit, lines of credit and letters of credit. Funded commitments are reflected in the consolidated balance sheets as loans.

Retail Banking

Our retail banking segment provides the following types of off-balance sheet financial products to customers:

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, since many commitments expire without being funded.

Each customer’s creditworthiness is evaluated prior to issuing these commitments and may require the customer to pledge certain collateral prior to the extension of credit. 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. We are 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.

We typically issue 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 for our retailing banking segment at June 30, 2006:


(in thousands)	2006
Commitments to Extend Credit on Loans Held-for-Investment (1)	$	4,854,297
Standby Letters of Credit (2)		528,212
Commercial Letters of Credit		25,191


(1)		At June 30, 2006, commitments to extend credit on loans held-for-investment with maturities of less than one year totaled $2.4 billion, while $2.4 billion mature between one and three years.

(2)		Standby letters of credit are considered guarantees and are reflected in other liabilities in the accompanying Consolidated Balance Sheet at their estimated fair value of $1.8 million as of June 30, 2006. The fair value of these instruments is recognized as income over the initial term of the guarantee.

Mortgage Banking

At June 30, 2006, the pipeline of residential mortgage loans (including Home Equity Lines of Credit) was $6.2 billion and included $1.5 billion of fixed rate loans and $4.7 billion of adjustable rate loans. The pipeline represents total applications approved but not yet funded.

We are also contractually committed to fund the undrawn portion of Home Equity Lines of Credit (“HELOCs”), which were previously originated. This commitment extends to both HELOCs held-for-sale and those previously sold with servicing retained.

The following table presents total commitments and lines of credit outstanding for GPM at June 30, 2006:


(in thousands)	2006
Commitments to Originate Mortgage Loans Held-for-Sale	$	6,246,558
Commitments to Fund HELOC’s		215,247

NOTE 11 — RETIREMENT AND OTHER EMPLOYEE BENEFITS

The components of net periodic benefit costs for pension and post-retirement benefits are as follows:


	Three Months Ended												Six Months Ended
	June 30,												June 30,
	2006			2005			2006			2005			2006			2005			2006			2005
(in thousands)	Pension						Post-Retirement						Pension						Post-Retirement
Components of Net Periodic Benefit Cost:
Service Cost	$	3,134		$	2,563		$	492		$	513		$	6,268		$	5,126		$	984		$	1,026
Interest Cost		2,716			2,600			480			704			5,432			5,200			960			1,408
Expected Return on Plan Assets		(5,192	)		(4,974	)		(131	)		(64	)		(10,384	)		(9,948	)		(262	)		(128	)
Amortization of Prior Service Cost		114			(66	)		(20	)		(20	)		181			(132	)		(40	)		(40	)
Amortization of Transition Asset/Obligation		—			(24	)		73			73			—			(131	)		146			146
Recognized Actuarial Loss/(Gain)		437			273			(14	)		94			874			546			(28	)		188

Net Periodic Benefit Cost	$	1,209		$	372		$	880		$	1,300		$	2,371		$	661		$	1,760		$	2,600

We do not anticipate making a contribution to either our pension plan or post-retirement benefit plan in 2006.

Bank Owned Life Insurance

We maintain three Bank Owned Life Insurance Trusts (commonly referred to as BOLI) on the consolidated balance sheet. The BOLI trusts were formed to offset future employee benefit costs and to provide additional benefits due to their tax exempt nature. Only officer level employees, who have consented, have been insured under the program.

The underlying structure of the initial BOLI trust formed, requires that the assets supporting the insurance policies be reported on the consolidated balance sheet, principally as a component of the available-for-sale securities portfolio and the related income to be characterized as either interest income or gain/(loss) on sale of securities. At June 30, 2006 and 2005, $232.7 million and $225.0 million, respectively were held by the trust and are principally included in the available-for-sale securities portfolio. Based on the underlying structures of the other two BOLI trusts, the cash surrender values (“CSV”) of the life insurance policies held by the trusts are required to be classified as other assets on the consolidated balance sheet and the related income/(loss) be characterized as other income. The cash surrender value of the policies held by these trusts were $214.2 million and $205.7 million at June 30, 2006 and 2005, respectively.

NOTE 12 — BUSINESS SEGMENTS

The retail banking business provides a full range of banking products and services through more than 350 branches located throughout the New York Metropolitan area. The mortgage banking segment is conducted through GreenPoint Mortgage, which originates, sells and services a wide variety of mortgages secured by 1-4 family residences and small commercial properties, on a nationwide basis.

The segment information presented in the table below is prepared according to the following methodologies:

	•		Revenues and expenses directly associated with each segment are included in determining net income.

	•		Transactions between segments are based on specific criteria or appropriate third party interest rates.

	•		Inter-company eliminations are reflected in the “Other” column.

Management believes that the following tables provides a reasonable representation of each segment’s contribution to consolidated net income for the three months ended June 30, 2006 and 2005, respectively.


(in thousands)	Retail			Mortgage		Segment						Consolidated
For the Three Months Ended June 30, 2006	Banking			Banking		Totals			Other			Operations

Net Interest Income	$	425,788		$	3,981	$	429,769		$	119		$	429,888
Provision for Loan Losses		9,000			—		9,000			—			9,000

Net Interest Income After Provision for Loan Losses		416,788			3,981		420,769			119			420,888

Non-Interest Income:
Mortgage Banking Income		—			126,623		126,623			(20,854	)		105,769
Customer Related Fees & Service Charges		40,291			—		40,291			—			40,291
Investment Management, Commissions & Trust Fees		9,127			—		9,127			—			9,127
Other Operating Income		18,077			4,423		22,500			—			22,500
Securities Gains, net		4,099			—		4,099			—			4,099
Trading Losses		(23,223	)		—		(23,223	)		—			(23,223	)

Total Non-Interest Income		48,371			131,046		179,417			(20,854	)		158,563

Non-Interest Expense:
Employee Compensation & Benefits		96,017			49,231		145,248			—			145,248
Occupancy & Equipment Expense, net		40,443			10,811		51,254			—			51,254
Other Operating Expense		59,277			18,845		78,122			(13,953	)		64,169
Merger Related Expenses		5,233			—		5,233			—			5,233
Settlement Recovery		(16,031	)		—		(16,031	)		—			(16,031	)

Total Non-Interest Expense		184,939			78,887		263,826			(13,953	)		249,873

Income Before Income Taxes		280,220			56,140		336,360			(6,782	)		329,578
Provision for Income Taxes		89,579			22,031		111,610			(2,849	)		108,761

Net Income	$	190,641		$	34,109	$	224,750		$	(3,933	)	$	220,817

Total Assets	$	52,634,925		$	6,746,910	$	59,381,835		$	—		$	59,381,835


(in thousands)	Retail		Mortgage		Segment					Consolidated
For the Three Months Ended June 30, 2005	Banking		Banking		Totals		Other			Operations

Net Interest Income	$	432,093	$	29,799	$	461,892	$	181		$	462,073
Provision for Loan Losses		9,000		—		9,000		—			9,000

Net Interest Income After Provision for Loan Losses		423,093		29,799		452,892		181			453,073

Non-Interest Income:
Mortgage Banking Income		—		114,534		114,534		(23,854	)		90,680
Customer Related Fees & Service Charges		41,902		—		41,902		—			41,902
Investment Management, Commissions & Trust Fees		10,287		—		10,287		—			10,287
Other Operating Income		13,415		1,963		15,378		—			15,378
Securities Gains, net		10,884		—		10,884		—			10,884

Total Non-Interest Income		76,488		116,497		192,985		(23,854	)		169,131

Non-Interest Expense:
Employee Compensation & Benefits		87,882		51,132		139,014		—			139,014
Occupancy & Equipment Expense, net		37,374		9,575		46,949		—			46,949
Other Operating Expense		55,928		17,738		73,666		(9,836	)		63,830

Total Non-Interest Expense		181,184		78,445		259,629		(9,836	)		249,793

Income Before Income Taxes		318,397		67,851		386,248		(13,837	)		372,411
Provision for Income Taxes		107,659		28,497		136,156		(5,811	)		130,345

Net Income	$	210,738	$	39,354	$	250,092	$	(8,026	)	$	242,066

Total Assets	$	53,519,909	$	6,865,780	$	60,385,689	$	—		$	60,385,689

Management believes that the following table provides a reasonable representation of each segment’s contribution to consolidated net income for the six months ended June 30, 2006 and 2005, respectively.


(in thousands)	Retail			Mortgage		Segment						Consolidated
For the Six Months Ended June 30, 2006	Banking			Banking		Totals			Other			Operations

Net Interest Income	$	825,018		$	22,101	$	847,119		$	246		$	847,365
Provision for Loan Losses		18,000			—		18,000			—			18,000

Net Interest Income After Provision for Loan Losses		807,018			22,101		829,119			246			829,365

Non-Interest Income:
Mortgage Banking Income		—			242,862		242,862			(41,021	)		201,841
Customer Related Fees & Service Charges		81,394			—		81,394			—			81,394
Investment Management, Commissions & Trust Fees		18,796			—		18,796			—			18,796
Other Operating Income		29,726			5,131		34,857			—			34,857
Securities Gains, net		10,821			—		10,821			—			10,821
Trading Losses		(21,070	)		—		(21,070	)		—			(21,070	)

Total Non-Interest Income		119,667			247,993		367,660			(41,021	)		326,639

Non-Interest Expense:
Employee Compensation & Benefits		190,049			96,510		286,559			—			286,559
Occupancy & Equipment Expense, net		81,092			21,454		102,546			—			102,546
Other Operating Expense		120,963			35,424		156,387			(26,643	)		129,744
Merger Related Expenses		5,233			—		5,233			—			5,233
Settlement Recovery		(16,031	)		—		(16,031	)		—			(16,031	)

Total Non-Interest Expense		381,306			153,388		534,694			(26,643	)		508,051

Income Before Income Taxes		545,379			116,706		662,085			(14,132	)		647,953
Provision for Income Taxes		177,179			45,766		222,945			(5,937	)		217,008

Net Income	$	368,200		$	70,940	$	439,140		$	(8,195	)	$	430,945


(in thousands)	Retail		Mortgage		Segment					Consolidated
For the Six Months Ended June 30, 2005	Banking		Banking		Totals		Other			Operations
Net Interest Income	$	870,147	$	62,871	$	933,018	$	374		$	933,392
Provision for Loan Losses		18,000		—		18,000		—			18,000

Net Interest Income After Provision for Loan Losses		852,147		62,871		915,018		374			915,392

Non-Interest Income:
Mortgage Banking Income		—		247,289		247,289		(45,514	)		201,775
Customer Related Fees & Service Charges		83,908		—		83,908		—			83,908
Investment Management, Commissions & Trust Fees		21,358		—		21,358		—			21,358
Other Operating Income		25,807		3,649		29,456		—			29,456
Securities Gains, net		15,519		—		15,519		—			15,519

Total Non-Interest Income		146,592		250,938		397,530		(45,514	)		352,016

Non-Interest Expense:
Employee Compensation & Benefits		178,794		95,589		274,383		—			274,383
Occupancy & Equipment Expense, net		73,693		19,210		92,903		—			92,903
Other Operating Expense		109,324		36,542		145,866		(16,706	)		129,160

Total Non-Interest Expense		361,811		151,341		513,152		(16,706	)		496,446

Income Before Income Taxes		636,928		162,468		799,396		(28,434	)		770,962
Provision for Income Taxes		213,566		68,236		281,802		(11,941	)		269,861

Net Income	$	423,362	$	94,232	$	517,594	$	(16,493	)	$	501,101

The table below presents the components of mortgage banking income for the periods indicated:


	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
(in thousands)	2006			2005			2006			2005

Gain on Sale of Loans Held-for-Sale	$	102,316		$	120,576		$	184,065		$	225,944
Mortgage Banking Fees, net		22,366			25,666			44,596			51,382
Amortization of Mortgage Servicing Rights		(21,814	)		(20,591	)		(45,412	)		(40,580	)
Temporary (Impairment Charge)/Recovery - Mortgage Servicing Rights		2,901			(34,971	)		18,592			(34,971	)

Total Mortgage Banking Income	$	105,769		$	90,680		$	201,841		$	201,775

NOTE 13 — RECENT ACCOUNTING PRONOUNCEMENTS

Accounting for Uncertainty in Income Taxes

On July 13, 2006, the FASB issued FIN 48 “Accounting for Uncertainty in Income Taxes” which attempts to set out a consistent framework for preparers to use to determine the appropriate level of tax reserves to maintain for “uncertain tax positions.” This interpretation of FASB Statement No. 109 uses a two-step approach wherein a tax benefit is recognized if a position is more likely than not to be sustained. The amount of the benefit is then measured to be the highest tax benefit which is greater than fifty percent likely to be realized. FIN 48 also sets out disclosure requirements to enhance transparency of an entity’s tax reserves. We are required to adopt this Interpretation as of January 1, 2007. We are still evaluating the impact of the adoption of FIN 48.

Accounting for Servicing of Financial Assets

In March 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 156 (“SFAS No. 156”), Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 156 requires all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable, and permits for subsequent measurement using either fair value measurement with changes in fair value reflected in earnings or the amortization and impairment requirements of Statement No. 140. The subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value eliminates the necessity for entities that manage the risks inherent in servicing assets and servicing liabilities with derivatives to qualify for hedge accounting treatment and eliminates the characterization of declines in fair value as impairments or direct write-downs. SFAS 156 is effective for an entity’s first fiscal year beginning after September 15, 2006. We are currently assessing the financial statement impact of implementing this pronouncement.

NOTE 14 — SUBSEQUENT EVENTS

We have agreed in principle to settle the previously disclosed purported North Fork stockholder class action challenging the proposed merger between Capital One Financial Corporation and North Fork. In the settlement, we will agree to establish a settlement fund in an aggregate amount of $20 million, out of which the plaintiffs’ attorneys fees will be paid, with the remaining balance of the settlement fund to be allocated among North Fork stockholders who are members of the class as of the completion of the merger (other than those stockholders who perfect appraisal rights or opt out of the settlement). We believe that this settlement will result in an expense of approximately $10 million in the third quarter of 2006. In the settlement, Capital One will agree to waive any right to realize total profit in excess of $630 million under the North Fork stock option agreement granted to Capital One in connection with the merger.

Under the terms of the settlement, all claims relating to the merger agreement and the proposed merger will be dismissed and released on behalf of the settlement class. The settlement is subject to approval by the court in which the action is pending. Upon approval of the proposed settlement by the court, plaintiffs’ attorneys are expected to apply for an award of attorneys’ fees and expenses, which will be paid from the settlement fund.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts but instead represent only our beliefs regarding future events, many of which by their nature, are inherently uncertain and beyond our control. Forward-looking statements may be identified by the use of such words as: “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “project” 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, the representation and warranty reserve or other reserves;

	•		descriptions of management plans or objectives for future operations, products, or services;

	•		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 are less favorable than expected;

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

	•		competitive pressures among financial services companies which may increase significantly;

	•		competitive pressures in the mortgage origination business which could have an adverse effect on origination volumes and gain on sale profit margins;

	•		changes in the interest rate environment may negatively affect interest margins, mortgage loan originations and the valuation of mortgage servicing rights;

	•		changes in the securities and bond markets;

	•		changes in real estate markets, including possible erosion in values, which may negatively affect loan origination and portfolio quality;

	•		legislative or regulatory environments, requirements or changes adversely affect businesses in which we are engaged;

	•		accounting principles, policies, practices or guidelines;

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

	•		technological changes, including increasing dependence on the Internet

	•		competition and its effect on pricing, spending, third-party relationships and revenues.

Other risks related to the proposed plan of merger with Capital One include, but are not limited to:

	•		the ability to obtain regulatory approvals for the contemplated transaction with Capital One on the proposed terms and schedule;

	•		the failure of Capital One or North Fork stockholders to approve the transaction; • disruption from the transaction making it more difficult to maintain relationships with customers, employees or suppliers;

Readers are cautioned that 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 or revise any 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.

Summary

Business Overview

North Fork Bancorporation, Inc. is a regional bank holding company organized under the laws of the State of Delaware and registered as a “bank holding company” under the Bank Holding Company Act of 1956, as amended. It is not a “financial holding company” as defined under the federal law. We are committed to providing superior customer service, while offering a full range of banking products and financial services, to both our consumer and commercial customers. Our primary subsidiary, North Fork Bank, operates from more than 350 retail bank branches in the New York Metropolitan area. We also operate a nationwide mortgage business, GreenPoint Mortgage Funding Inc. (“GreenPoint Mortgage” or “GPM”). Through our other non-bank subsidiaries, we offer financial products and services to our customers including asset management, securities brokerage, and the sale of alternative investment products. We also operate a second subsidiary bank, Superior Savings of New England, N.A. (“Superior”), which focuses on telephonic and media-based generation of deposits.

Proposed Plan of Merger with Capital One Financial Corporation

On March 12, 2006, North Fork announced that it had entered into an Agreement and Plan of Merger with Capital One Financial Corporation (“Capital One”) pursuant to which North Fork would merge with and into Capital One, with Capital One continuing as the surviving corporation. Capital One, headquartered in McLean, Virginia, is a financial holding company whose banking and non-banking subsidiaries market a variety of financial products and services. Its primary products and services offered through its subsidiaries include credit card products, deposit products, consumer and commercial lending, automobile and other motor vehicle financing, and a variety of other financial products and services to consumers, small business and commercial clients.

Subject to the terms and conditions of the merger agreement, each holder of North Fork common stock will have the right, subject to proration, to elect to receive, for each share of North Fork common stock, cash or Capital One common stock, in either case having a value equal to $11.25 plus the product of 0.2216 times the average closing sales price of Capital One’s common stock for the five trading days immediately preceding the merger date. Based on Capital One’s closing NYSE stock price of $89.92 on March 10, 2006, the transaction is valued at $31.18 per North Fork share, for a total transaction value of approximately $14.6 billion.

The merger is subject to certain conditions, including approval by North Fork stockholders and Capital One stockholders, receipt of regulatory approvals and other customary closing conditions, and is expected to close in the fourth quarter of 2006. In connection with the proposed merger, Capital One filed with the Securities and Exchange Commission (the “SEC”) a Registration Statement on Form S-4 that included a joint proxy statement of Capital One and North Fork that also constitutes a prospectus of Capital One. Capital one and North Fork mailed the joint proxy statement/prospectus to their respective shareholders on or about July 14, 2006. Investors and security holders are urged to read the definitive joint proxy statement/prospectus (including all filings subsequent to the date of mailing that are incorporated by reference therein as provided in the joint proxy statement/prospectus) regarding the proposed merger.

Business Segments

Our operating activities are divided into two primary business segments (Retail Banking and Mortgage Banking):

Retail Banking — Our retail banking segment is conducted principally through North Fork Bank. North Fork Bank operates over 350 branches located in the New York Metropolitan area, through which we provide a full range of banking products and services to both commercial and consumer clients. We are a significant provider of commercial and commercial real estate loans, multi-family mortgages, construction and land development loans, asset based lending services, lease financing and business credit services, including lines of credit. Our consumer lending operations emphasize indirect automobile loans. We offer our customers a complete range of deposit products through our branch network and on-line banking services. We provide our clients, both commercial and consumer, with a full complement of cash management services including on-line banking, and offer directly or through our securities and insurance affiliates a full selection of alternative investment products. We also provide trust, investment management and custodial services through North Fork Bank’s Trust Department and investment advisory services through our registered investment advisor.

Revenue from our retail banking segment, principally net interest income, is the difference between the interest income we earn on our loan and investment portfolios and the cost of funding those portfolios. Our primary source of such funds are deposits and collateralized borrowings. We also earn income from fees charged on the various deposit and loan products. Other income includes the sale of alternative investment products (mutual funds and annuities), trust services, discount brokerage and investment management. The primary delivery channel for these products is the retail bank’s branches.

We actively participate in community development lending, both through North Fork Bank and through a separate community development subsidiary.

Mortgage Banking — Our national mortgage banking segment originates, sells and services a wide variety of mortgages secured by 1-4 family residences and small commercial properties. Most loans are originated through a national wholesale loan broker and correspondent lender network. We offer a broad range of mortgage loan products, to provide maximum flexibility to borrowers, including Jumbo A, specialty, conforming agency mortgage loans, home equity loans and commercial loans. Originations are generally sold into the secondary market and from time to time securitized if market conditions warrant such execution. Certain products including commercial mortgages, are retained in the Bank’s loan portfolio. GPM has established loan distribution channels with various financial institutions including banks, investment banks, broker-dealers, and real estate investment trusts (REITs), as well as both Fannie Mae and Freddie Mac. During the second quarter of 2006, we originated $9.9 billion in loans and sold $7.8 billion at an average gain on sale totaling 130 basis points. The composition of total loan originations was: 49% Specialty, 32% Jumbo A, 13% Home Equity and 6% Agency. Option ARMS, both Alt-A and Jumbo A, accounted for 28% of originations during the second quarter of 2006. All option ARM originations are sold into the secondary market, servicing released. Mortgage originations for new purchases represented 45% of second quarter 2006 production. The weighted average FICO score for all originations was 714. We do not originate sub prime loans, nor will we sacrifice quality to drive origination volume and gain on sales.

We also engage in mortgage loan servicing, which includes customer service, escrow administration, default administration, payment processing, investor reporting and other ancillary services related to the general administration of mortgage loans. As of June 30, 2006, the mortgage loan servicing portfolio consisted of mortgage loans with an aggregate unpaid principal balance of $49.2 billion, of which $31.9 billion was serviced for investors other than North Fork. Loans held-for-sale totaled $5.4 billion, while the pipeline was $6.2 billion ($2.6 billion was covered under interest rate lock commitments) at June 30, 2006.

The following table sets forth a summary reconciliation of each business segment’s contribution to consolidated net income as reported:


	For the					For the
	Three Months Ended					Six Months Ended
Summary Consolidated Net Income	June 30, 2006					June 30, 2006
(dollars in thousands)	$		%			$		%
Retail Banking	$	190,641		86	%	$	368,200		85	%
Mortgage Banking (1)		30,176		14			62,745		15

Consolidated Net Income	$	220,817		100	%	$	430,945		100	%


(1)		Excludes net inter-company activity of $3.9 million and $8.2 million, after taxes for the three and six months ended June 30, 2006, respectively.

Financial Overview

Selected financial highlights for the three and six months ended June 30, 2006 and 2005 are set forth in the table below. The succeeding discussion and analysis describes the changes in components of operating results.


	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
(in thousands, except ratios & per share amounts)	2006			2005			2006			2005
Earnings:
Net Income	$	220,817		$	242,066		$	430,945		$	501,101
Per Share:
Earnings Per Share — Basic	$	.49		$	.52		$	.95		$	1.07
Earnings Per Share — Diluted		.48			.51			.94			1.06
Cash Dividends		.25			.22			.50			.44
Dividend Payout Ratio		53	%		44	%		54	%		42	%
Book Value	$	19.46		$	19.26		$	19.46		$	19.26
Tangible Book Value (2)	$	6.54		$	6.68		$	6.54		$	6.68
Average Equivalent Shares — Basic		455,279			469,413			454,601			467,953
Average Equivalent Shares — Diluted		460,495			474,909			459,699			474,118
Selected Ratios:
Return on Average Total Assets		1.52	%		1.58	%		1.50	%		1.66	%
Return on Average Tangible Assets (1)		1.74			1.79			1.72			1.89
Return on Average Equity		9.79			10.59			9.65			11.11
Return on Average Tangible Equity (1)		30.07			31.61			29.92			33.71
Yield on Interest Earning Assets (3)		5.95			5.46			5.92			5.49
Cost of Funds		2.96			2.24			2.89			2.14
Net Interest Margin (3)		3.53			3.59			3.55			3.69
Efficiency Ratio (4)		40.69			36.43			43.51			36.19

This document contains certain supplemental financial information, described in the following notes, which has been determined by methods other than accounting principles generally accepted in the United States of America (“GAAP”) that management uses in its analysis of the Company’s performance. Management believes these non-GAAP financial measures provide information useful to investors in understanding the underlying operational performance of the Company, its business and performance trends and facilitates comparisons with the performance of others in the financial services industry.

(1)		Return on average tangible assets and return on average tangible equity which represent non-GAAP measures are computed, on an annualized basis as follows:

		- Return on average tangible assets is computed by dividing net income, as reported plus amortization of identifiable intangible assets, net of taxes by average total assets less average goodwill and average identifiable intangible assets. (See detailed schedule on exhibit 99.1)

		- Return on average tangible equity is computed by dividing net income, as reported plus amortization of identifiable intangible assets, net of taxes by average total equity less average goodwill and average identifiable intangible assets. (See detailed schedule on exhibit 99.1)

(2)		Tangible book value is calculated by dividing period-end stockholders’ equity, less period-end goodwill and identifiable intangible assets, by period end shares outstanding. (See detailed schedule on exhibit 99.1).

(3)		Presented on a tax equivalent basis.

(4)		The efficiency ratio, which represents a non-GAAP measure, is defined as the ratio of non-interest expense net of amortization of identifiable intangibles, recourse settlement and merger charges to net interest income on a tax equivalent basis and other non-interest income net of securities gains, temporary (impairment)/recovery on mortgage servicing right and trading losses on derivative instruments.

Financial Results

Net income for the second quarter ended June 30, 2006 was $220.8 million or diluted earnings per share of $.48 compared to $242.1 million or $.51 diluted earnings per share in the comparable prior year period. Returns on average tangible equity and average tangible assets during the second quarter were 30.1% and 1.74%, respectively, compared to 31.61% and 1.79% in the second quarter of 2005. Net income for the six months ended June 30, 2006 was $430.9 million, or diluted earnings per share of $.94 as compared to $501.1 million or diluted earnings per share of $1.06 for the same period of 2005. Returns on average tangible equity and average tangible assets were 29.9% and 1.72%, respectively, during the six months ended June 30, 2006, as compared to 33.7% and 1.89%, respectively, for the comparable prior year period.

Highlights for the second quarter ended June 30, 2006 when compared to the same period in 2005 include:

	•		Robust commercial loan and total loan growth (excluding residential) of 34% and 29%, respectively

	•		Reduced non-performing assets by $82.9 million or 59%, improving reserve coverage

	•		Mortgage loan originations of $9.9 billion from our mortgage banking subsidiary

	•		Continued reduction in the securities portfolio

	•		Declaration of the regular quarterly cash dividend of $.25 per common share

Balance Sheet Repositioning

During the second quarter of 2005, we re-evaluated our asset/liability strategy in response to the Federal Reserve Bank raising short-term interest rates, while long-term rates remained fairly constant. To stabilize our declining net interest margin and reduce interest rate risk exposure, we liquidated lower yielding assets through portfolio sales and cash flows. The liquidity generated throughout the previous twelve months was utilized to fund higher yielding loan growth (excluding residential) and allowed us to redeploy excess capital through share repurchases.

This balance sheet repositioning started with the sale of $2.4 billion in securities available-for-sale and residential loans held-for-investment in the second quarter of 2005. As this interest rate environment persisted throughout the remainder of 2005 and into 2006, we continued to reduce lower yielding assets through portfolio cash flows. During the past twelve months, lower yielding assets (securities and residential mortgages) declined by $4.7 billion. During the same period, higher yielding loans (excluding residential loans) grew by $4.7 billion or 29%, reducing our reliance on residential mortgages which represented 41% of total loans at June 30, 2006, compared to 49% at June 30, 2005. We also repurchased 20.0 million shares at an average price of $26.14 during the twelve month period ended June 30, 2006. Subsequent to entering into the transaction with Capital One on March 12, 2006, we stopped repurchasing our common stock. As a result of this strategy, we have elected to reduce current earnings in exchange for a more prudent balance sheet.

It is important to note that future net interest income, margin trends and earnings per share trends will continue to be dependent upon the magnitude of loan demand, deposit growth and the movement of market interest rates. Future operating results will also be impacted by trends in the overall economy.

Net Interest Income

Net interest income is the difference between interest income earned on assets, such as loans and securities and interest expense incurred on liabilities, such as deposits and borrowings. 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.

The following table presents an analysis of net interest income (on a tax equivalent basis) by each major category of interest-earning assets and interest-bearing liabilities for the three months ended June 30,:


	2006								2005
	Average					Average			Average					Average
(dollars in thousands)	Balance		Interest			Rate			Balance		Interest			Rate
Interest Earning Assets:
Loans Held-for-Investment (2)	$	34,654,439	$	534,972			6.19	%	$	32,631,577	$	473,934			5.83	%
Loans Held-for-Sale (2)		4,978,945		76,088			6.13			5,754,088		73,065			5.09
Securities (1)		10,718,973		136,500			5.11			14,556,278		173,698			4.79
Money Market Investments		47,343		670			5.68			87,406		684			3.14

Total Interest Earning Assets	$	50,399,700	$	748,230			5.95	%	$	53,029,349	$	721,381			5.46	%

Non-Interest Earning Assets:
Cash and Due from Banks	$	999,159							$	1,015,667
Other Assets (1)		7,001,834								7,435,447

Total Assets	$	58,400,693							$	61,480,463

Interest Bearing Liabilities:
Savings, NOW & Money Market Deposits	$	21,707,006	$	134,731			2.49	%	$	21,794,356	$	82,455			1.52	%
Time Deposits		8,200,104		59,658			2.92			7,876,539		40,391			2.06

Total Savings and Time Deposits		29,907,110		194,389			2.61			29,670,895		122,846			1.66

Federal Funds Purchased & Collateralized Borrowings		9,845,733		89,628			3.65			13,095,195		105,238			3.22
Other Borrowings (4)		1,454,216		20,119			5.55			1,484,336		19,287			5.21

Total Borrowings		11,299,949		109,747			3.90			14,579,531		124,525			3.43

Total Interest Bearing Liabilities	$	41,207,059	$	304,136			2.96		$	44,250,426	$	247,371			2.24

Interest Rate Spread							2.99	%							3.22	%
Non-Interest Bearing Liabilities:
Demand Deposits	$	7,414,598							$	7,290,545
Other Liabilities		734,575								768,821

Total Liabilities		49,356,232								52,309,792
Stockholders’ Equity		9,044,461								9,170,671

Total Liabilities and Stockholders ‘ Equity	$	58,400,693							$	61,480,463

Net Interest Income and Net Interest Margin (3)			$	444,094			3.53	%			$	474,010			3.59	%
Less: Tax Equivalent Adjustment				(14,206	)							(11,937	)

Net Interest Income			$	429,888							$	462,073

(1)		Unrealized gains/(losses) on available-for-sale securities are recorded in other assets.

(2)		For purposes of these computations, non-accrual loans are included in average loans

(3)		Interest income on a tax equivalent basis includes the additional amount of income that would have been earned if investments in tax exempt money market investments and securities, state and municipal obligations, non-taxable loans, public 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 $1.78, $1.73, $1.57, $1.27, and $1.11 for the three months ended June 30, 2006; and $1.78, $1.72, $1.57, $1.18, and $1.05 for the three months ended June 30, 2005.

(4)		For purposes of these computations, the fair value adjustments from hedging activities are included in the average balance of the related hedged item and the impact of the hedge is included as an adjustment to interest expense.


	2006								2005
	Average					Average			Average					Average
(dollars in thousands)	Balance		Interest			Rate			Balance		Interest			Rate
Interest Earning Assets:
Loans Held-for-Investment (2)	$	34,152,261	$	1,043,458			6.16	%	$	31,961,915	$	927,498			5.85	%
Loans Held-for-Sale (2)		4,639,308		139,780			6.08			5,374,595		139,913			5.25
Securities (1)		10,915,620		275,840			5.10			14,873,921		354,383			4.80
Money Market Investments		46,382		1,271			5.53			87,198		1,431			3.31

Total Interest Earning Assets	$	49,753,571	$	1,460,349			5.92	%	$	52,297,629	$	1,423,225			5.49	%

Non-Interest Earning Assets:
Cash and Due from Banks	$	1,027,278							$	1,035,913
Other Assets (1)		7,109,757								7,513,649

Total Assets	$	57,890,606							$	60,847,191

Interest Bearing Liabilities:
Savings, NOW & Money Market Deposits	$	21,604,412	$	252,164			2.35	%	$	21,488,577	$	152,051			1.43	%
Time Deposits		8,153,226		119,448			2.95			7,718,745		73,857			1.93

Total Savings and Time Deposits		29,757,638		371,612			2.52			29,207,322		225,908			1.56

Federal Funds Purchased & Collateralized Borrowings		9,590,390		173,102			3.64			13,232,552		204,245			3.11
Other Borrowings (4)		1,465,100		40,075			5.52			1,495,100		37,111			5.01

Total Borrowings		11,055,490		213,177			3.89			14,727,652		241,356			3.30

Total Interest Bearing Liabilities	$	40,813,128	$	584,789			2.89		$	43,934,974	$	467,264			2.14

Interest Rate Spread							3.03	%							3.35	%
Non-Interest Bearing Liabilities:
Demand Deposits	$	7,376,108							$	7,073,060
Other Liabilities		693,186								744,719

Total Liabilities		48,882,422								51,752,753
Stockholders’ Equity		9,008,184								9,094,438

Total Liabilities and Stockholders’ Equity	$	57,890,606							$	60,847,191

Net Interest Income and Net Interest Margin (3)			$	875,560			3.55	%			$	955,961			3.69	%
Less: Tax Equivalent Adjustment				(28,195	)							(22,569	)

Net Interest Income			$	847,365							$	933,392

(1)		Unrealized gains/(losses) on available-for-sale securities are recorded in other assets.

(2)		For purposes of these computations, non-accrual loans are included in average loans.

(3)		Interest income on a tax equivalent basis includes the additional amount of income that would have been earned if investments in tax exempt money market investments and securities, state and municipal obligations, non-taxable loans, public 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 $1.78, $1.72, $1.57, $1.26, and $1.12 for the six months ended June 30, 2006; and $1.78, $1.72, $1.57, $1.22, and $1.04 for the six months ended June 30, 2005.

(4)		For purposes of these computations, the fair value adjustments from hedging activities are included in the average balance of the related hedged item and the impact of the hedge is included as an adjustment to interest expense.

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 to volume or rate. For presentation purposes, changes which are not solely due to changes in volume or rate have been allocated to these categories based on the respective percentage changes in average volume and average rates as they compare to each other.


	Three Months Ended June 30,									Six Months Ended June 30,
	2006 vs. 2005									2006 vs. 2005
	Change in									Change in
	Average			Average			Net Interest			Average			Average			Net Interest
(in thousands)	Volume			Rate			Income			Volume			Rate			Income
Interest Income from Earning Assets:
Loans-Held-for-Investment	$	30,298		$	30,740		$	61,038		$	65,458		$	50,502		$	115,960
Loans Held-for-Sale		(10,641	)		13,664			3,023			(20,542	)		20,409			(133	)
Securities		(48,241	)		11,043			(37,198	)		(98,967	)		20,424			(78,543	)
Money Market Investments		(405	)		391			(14	)		(854	)		694			(160	)

Total Interest Income	$	(28,989	)	$	55,838		$	26,849		$	(54,905	)	$	92,029		$	37,124

Interest Expense on Liabilities:
Savings, NOW & Money Market Deposits	$	(332	)	$	52,608		$	52,276		$	824		$	99,289		$	100,113
Time Deposits		1,721			17,546			19,267			4,369			41,222			45,591
Federal Funds Purchased and Collateralized Borrowings		(28,413	)		12,803			(15,610	)		(62,212	)		31,069			(31,143	)
Other Borrowings		(400	)		1,232			832			(757	)		3,721			2,964

Total Interest Expense		(27,424	)		84,189			56,765			(57,776	)		175,301			117,525

Net Change in Net Interest Income	$	(1,565	)	$	(28,351	)	$	(29,916	)	$	2,871		$	(83,272	)	$	(80,401	)

During the second quarter of 2006, net interest income declined $32.2 million to $429.9 million when compared to $462.1 million in the same period of 2005, while the net interest margin declined 6 basis points from 3.59% to 3.53%. During the six months ended June 30, 2006, net interest income decreased $86.0 million when compared to the prior year period, while the net interest margin declined 14 basis points from 3.69% to 3.55%. Factors contributing to the decline in both net interest income and net interest margin included: (a) the impact of higher short-term interest rates on funding costs (both deposits and borrowings); (b) the pressure placed on interest earning asset yields due to the flat yield curve and; (c) the impact of intense competition on deposit and loan pricing. The balance sheet repositioning strategy tempered the net interest margin while reducing net interest income and net income in exchange for a more prudent balance sheet.

Interest income for the second quarter of 2006 increased $24.6 million to $734.0 million compared to $709.4 million in the same period of 2005. During this same period, the yield on average interest earning assets increased 49 basis points from 5.46% to 5.95%.

Loans held-for-sale averaged $5.0 billion during the most recent quarter of 2006 representing a decrease of $.8 billion from the same period in 2005, as yields improved 104 basis points to 6.13% due to changes in market interest rates. Period end loan balances totaled $5.4 billion and were funded principally with short-term borrowings. The yield and level of these earning assets will fluctuate with changes in origination volume, loan portfolio composition, market interest rates for new originations and the timing of loan sales.

Loans held-for-investment averaged $34.7 billion for the second quarter of 2006, representing an increase of $2.0 billion from the same period in 2005, as yields increased 36 basis points to 6.19%. During the six months ended June 30, 2006, loans held-for-investment averaged $34.2 billion, an increase of $2.2 billion from 2005 while yields increased 31 basis points to 6.16%. Loan growth was experienced in all categories (excluding lower yielding residential loans), especially higher yielding commercial loans which also contributed to commercial deposit growth. As of June 30, 2006, our loans held-for-investment to deposits ratio was 97%. (See “Financial Condition — Loans Held-For-Investment” section for additional information).

Securities averaged $10.7 billion for the second quarter of 2006, representing a $3.8 billion decrease from the prior period, as yields increased 32 basis points to 5.11%. During the six months ended June 30, 2006, securities averaged $10.9 billion, a decrease of $4.0 billion from 2005, as yields increased 30 basis points to 5.10%. This decline in average securities was due to our continued balance sheet repositioning discussed previously. Yields improved during the period due to the liquidation of lower yielding securities and the reinvestment of a portion of the proceeds at current market interest rates.

Average interest bearing liabilities declined $3.0 billion to $41.2 billion, while funding costs increased 72 basis points to 2.96% during the second quarter of 2006. During the six months ended June 30, 2006, average interest bearing liabilities decreased $3.1 billion to $40.8 billion, while funding costs increased 75 basis points to 2.89%. The decrease was due to our balance sheet repositioning. Funding costs increased as a direct result of increases in short-term market interest rates and intense competition for deposits in our markets.

Average demand deposits grew $124 million to $7.4 billion in the second quarter of 2006. During the six months ended June 30, 2006, average demand deposits increased $303 million from the prior year period to $7.4 billion. Total demand deposits contributed 56 basis points to our net interest margin this quarter compared to 45 basis points in 2005. At quarter end, demand deposits represented 21% of total deposits. Average Savings, NOW and Money Market deposits (defined as “core deposits” inclusive of demand) remained flat at $21.7 billion, while the corresponding cost of funds increased 97 basis points to 2.49% during the second quarter of 2006. The modest growth in core deposits and increases in funding costs were attributable to intense competitive pressure in our markets and higher short-term interest rates. We have remained prudent in our deposit pricing strategy and have elected not to compete solely on rate. Additionally, the impact of competition for core deposits was tempered by our focused effort on expanding the existing branch network, developing long-term deposit relationships with borrowers as demonstrated by commercial loan growth, the use of incentive compensation plans, and the introduction of new cash management products and services. Core deposits have traditionally provided us with a lower cost funding source than time deposits and collateralized borrowings, benefiting our net interest margin and income. Average time deposits grew $.3 billion or 4.1% to $8.2 billion, while the corresponding cost of funds increased 86 basis points to 2.92% due to the impact of higher short-term interest rates.

Average federal funds purchased and collateralized borrowings decline $3.2 billion in the second quarter of 2006 while the cost of funds increased 43 basis points from the prior period. During the six months ended June 30, 2006, average federal funds purchased and collateralized borrowings decreased $3.6 billion from the prior year period to $9.6 billion, while overall costs increased 53 basis points to 3.64%. The decline in average federal funds purchased and collateralized borrowings was due in part to our balance sheet repositioning and the decline in the average balance of loans held-for-sale. Funding costs rose as a direct result of increases in short-term market interest rates. A large portion of these borrowings are utilized to fund loans held-for-sale and will fluctuate with the level of these interest earning assets. The use of interest rate swaps increased interest expense by approximately $.2 million and $.7 million for the three months ended June 30, 2006 and 2005, respectively.

Average other borrowings remained relatively unchanged in the second quarter of 2006, while the cost of funds rose 34 basis points to 5.55% when compared to the comparable prior year period due to the use of interest rate swaps. Certain other borrowings were converted from fixed to floating indexed to three-month LIBOR utilizing these swaps, which increased interest expense by $1.3 million during the second quarter of 2006 and reduced interest expense by $2.9 million during the same period in 2005. (See Item 1, Condensed Notes to the Consolidated Financial Statements, Note 9 — “Derivative Financial Instruments” for additional information).

Provision and Allowance for Loan Losses

The provision for loan losses totaled $9.0 million for the second quarter of 2006, unchanged when compared to the comparable prior year period. As of June 30, 2006, the ratio of the allowance for loan losses to non-performing loans held-for-investment improved to 823% as compared to 270% for the comparable prior year period. This improvement resulted from our success in significantly reducing non-performing loans, while maintaining modest net charge-off levels. Net charge-offs, as an annualized percentage of average loans held-for-investment, was 7 basis points for the second quarter of 2006 compared to 8 basis points in the comparable prior year period. The allowance for loan losses to total loans held-for-investment was 63 basis points and 67 basis points, respectively for the same periods. The provisioning and resulting allowance for loan loss levels are consistent with the growth, composition and current credit quality of the loans held-for-investment portfolio, as well as our provisioning policy. (See “Notes to the Consolidated Financial Statements Note 1 — Business and Summary of Significant Accounting Policies — Critical Accounting Policies” for additional information).

The following table presents the impact of allocating the allowance for loan losses on loans held-for-investment as of June 30, 2006, into our two primary portfolio segments.


				Residential &			Commercial &
(Dollars in thousands)	Total			Multi-Family			All Other Loans
Loans Held-for-Investment	$	35,551,560		$	19,692,767		$	15,858,793
Allowance for Loan Losses	$	224,571		$	61,223		$	163,348
Non-Performing Loans Held-for-Investment	$	27,273		$	14,219		$	13,054
Allowance for Loan Losses to Loans-Held-for Investment		.63	%		.31	%		1.03	%
Allowance for Loan Losses to Non-Performing Loans Held-for-Investment		823	%		431	%		1,251	%

As a result of the process employed and giving recognition to all attendant factors associated with the loan portfolio, the allowance for loan losses at June 30, 2006 is considered to be adequate by management.

Non-Interest Income

Non-interest income decreased $10.6 million to $158.6 million in the second quarter of 2006 compared to $169.1 million in 2005. During the second quarter of 2006, we recorded cumulative market value trading losses of $23.2 million due to our reclassification of certain derivatives to trading instruments during 2006. We reviewed our accounting treatment for all derivatives transactions and determined that certain transactions did not meet the requirements of the “short cut” method of accounting under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”. As a result, hedge accounting was not appropriate for certain transactions since inception and were reclassified as trading instruments. Non-interest income, excluding trading losses increased $12.7 million or 7.5% when compared to the prior year period. Mortgage banking income increased $15.1 million to $105.8 million during the second quarter of 2006. This increase is comprised of: (a) $2.9 million temporary impairment recovery on mortgage servicing rights compared to a $34.9 million impairment charge in the prior quarter partially offset by (b) a $4.5 million decline in mortgage servicing fees, net of amortization of mortgage servicing rights; and (c) a $18.3 million decrease in gain on sale of loans held-for-sale. Mortgage banking income is more fully explained in the “Mortgage Banking” section of this discussion and analysis. The modest decline in the customer related fees and service charges resulted from a decrease in consumer deposits during the past year. Investment management, commissions and trust fees decreased $1.2 million primarily due to a decline in customer demand for insurance products. Other operating income increased $7.1 million due to the sale of non-marketable investments. Net securities gains were $4.1 million in the second quarter of 2006 compared to $10.9 million in the same period for 2005. Securities gains were derived principally from the sale of mortgage-backed securities and certain debt and equity securities.

Non-Interest Expense

Non-interest expense was $249.9 million during the second quarter of 2006 representing a modest increase when compared to 2005. A settlement recovery of $16.0 million was recorded during the second quarter of 2006 resulting from the release of certain accrued liabilities on corporate guarantees pertaining to the former GreenPoint manufactured housing business. We incurred $5.2 million in professional fees related to the merger with Capital One. Non-interest expense, excluding the settlement recovery and merger related expenses, increased $10.9 million or 4.4% when compared to the prior year period. Employee compensation and benefits increased $6.2 million to $145.2 million during the second quarter of 2006, impacted by the hiring of several senior lenders and support staff to pursue new business initiatives, new branch openings, annual merit increases, increased health insurance costs and incentive based compensation growth linked to deposit and fee income generation as well as held-for-sale originations. Increases in occupancy and equipment costs of $4.3 million are also due to the new branch openings, upgrades to existing branches and facilities, technology investments, new business initiatives and support systems, and increased fuel and maintenance costs. We have made significant investments in technology and delivery channels providing our customers with a wide array of easy to use and competitively priced products and services. Amortization of identifiable intangibles and related core deposit intangibles are related to prior acquisitions.

The efficiency ratio, which represents a non-GAAP measure, is used by the financial services industry to measure an organization’s operating efficiency. The ratio, which is calculated by dividing non-interest expense excluding amortization of identifiable intangible assets, recourse settlement and merger charges by net interest income (on a tax equivalent basis) and non-interest income, excluding securities gains and the temporary (impairment)/recovery charge on mortgage servicing rights and trading losses on derivatives, was 40.69% for the second quarter of 2006, as compared to 36.43% in 2005.

Income Taxes

Our effective tax rate for the three and six months ended June 30, 2006 was 33% and 33.50%, respectively as compared to 35% for the three and six months ended June 30, 2005.

Mortgage Banking

The following table sets forth financial highlight information on the mortgage banking segment for the periods indicated:


	For the Three Months Ended						For the Six Months Ended
(in thousands)	June 30, 2006			June 30, 2005			June 30, 2006			June 30, 2005
Net Interest Income	$	3,981		$	29,799		$	22,101		$	62,871
Non-Interest Income:
Gain on Sale of Loans (1)		109,098			134,411			198,196			254,377
Mortgage Servicing Fees (2)		36,438			35,685			71,486			68,463
Amortization of Mortgage Servicing Rights		(21,814	)		(20,591	)		(45,412	)		(40,580	)
Temporary Recovery/(Impairment) Charge - Mortgage Servicing Rights		2,901			(34,971	)		18,592			(34,971	)
Other Operating Income		4,423			1,963			5,131			3,649

Total Non-Interest Income		131,046			116,497			247,993			250,938

Non-Interest Expense:
Employee Compensation & Benefits		49,231			51,132			96,510			95,589
Occupancy & Equipment Expense, net		10,811			9,575			21,454			19,210
Other Operating Expense		18,845			17,738			35,424			36,542

Total Non-Interest Expense		78,887			78,445			153,388			151,341

Income Before Income Taxes		56,140			67,851			116,706			162,468
Provision for Income Taxes		22,031			28,497			45,766			68,236

Net Income	$	34,109		$	39,354		$	70,940		$	94,232

Total Assets	$	6,746,910		$	6,865,780		$	6,746,910		$	6,865,780

(1)		Includes $6.7 million, $14.1 million,$13.8 million and $28.4 million of inter-company gains on sale of loans for the three and six months ended 2006 and 2005, respectively.

(2)		Includes $14.1 million,$26.9 million, $10.1 million and $17.1 million of inter-company mortgage servicing fees for the three and six months ended 2006 and 2005, respectively.

For the three months and six months ended June 30, 2006, the mortgage banking segment recognized net income of $34.1 million and $70.9 million compared to $39.4 million and $94.2 million for the same period of 2005, respectively. Net interest income for this segment declined $25.8 million to $4.0 million during the second quarter of 2006. Inter-company interest expense increased $27.4 million to $71.8 million from $44.4 million during the second quarter of 2006, resulting from increases in short-term market interest rates. Average loans held-for-sale were $5.0 billion and $5.7 billion, yielding 6.13% and 5.09% for the quarters ended June 30, 2006 and 2005, respectively. The yield and level of loans held-for-sale will fluctuate with changes in origination volumes, loan portfolio composition, market interest rates for new originations and the timing of loan sales.

The gain on sale of loans totaled $109.1 million and $134.4 million during the second quarter of 2006 and 2005, respectively (See “Gain on Sale of Loans” in this section for further details) and mortgage banking fees were $36.4 million and $35.7 million, respectively, for the same periods.

In the most recent quarter, we recovered $2.9 million of the temporary impairment charge of $35.0 million previously recognized in the second quarter of 2005 on mortgage servicing rights. For the six months ended June 30, 2006, we have recovered $18.6 million of the temporary impairment charge. The recovery is due primarily to lower prepayment assumptions caused by increases in both the 2 year and 10 year treasury yields.

Loan originations during the second quarter of 2006 totaled $9.9 billion, while loans sold aggregated $7.8 billion with an average gain on sale margin of 130 basis points. The gain on sale margin was impacted by increased competition as certain of our competitors were willing to accept lower spreads in the specialty segment to maintain volume and to offset narrower spreads in their other product offerings.

The composition of loans originated during second quarter of 2006 was: 49% Specialty, 32% Jumbo A, 13% Home Equity and 6% Agency. Option ARMs, both Alt-A and Jumbo accounted for 28% of originations. All option ARM originations are sold into the secondary market, servicing released. New purchases represented 45% of production during the year as compared to 48% during the same period of 2005. The weighted average FICO score for all originations was 714. We do not originate sub-prime loans, nor will we sacrifice quality to drive origination volume and gain on sale margins.

Gain on Sale of Loans

We sell whole loans or from time to time may securitize loans, which involves the private placement or public offering of pass-through asset backed securities. This approach allows us to capitalize on favorable conditions in either the securitization or whole loan sale market. During the periods presented herein, we have only executed whole loan sales. These sales were completed with no direct credit enhancements, but do include certain standard representations and warranties, which permit the purchaser to return the loan if certain deficiencies exist in the loan documentation or in the event of early payment default. Gain on sale and related margins are affected by changes in the valuation of mortgage loans held-for-sale and interest rate lock commitments, the impact of the valuation of derivatives utilized to manage the exposure to interest rate risk associated with mortgage loan commitments and mortgage loans held-for-sale, and the impact of adjustments related to liabilities established for representations and warranties made in conjunction with the loan sale. Gain on sale and related sale margins are also impacted by pricing pressures caused by competition within the mortgage origination business.

The following table summarizes loans originated, sold, average margins and gains for the periods indicated:


	For the Three Months Ended						For the Six Months Ended
	June 30,			June 30,			June 30,			June 30,
(Dollars in thousands)	2006			2005			2006			2005

Loans Originated:
Specialty Products	$	4,861,775		$	5,302,469		$	8,896,064		$	9,533,580
Jumbo	$	3,173,457		$	4,840,739		$	5,428,110		$	8,635,930
Home Equity/Seconds		1,281,321			1,566,306			2,283,936			3,055,054
Agency		573,124			712,748			1,053,338			1,230,615

Total Loans Originated	$	9,889,677		$	12,422,262		$	17,661,448		$	22,455,179

Loans Sales:
Specialty Products	$	4,162,568		$	4,394,898		$	8,194,599		$	8,728,682
Jumbo		2,432,546			2,643,372			4,127,270			4,611,460
Home Equity/Seconds		755,613			1,466,771			1,671,630			3,047,268
Agency		492,891			596,805			986,915			1,067,715

Total Loan Sales	$	7,843,618		$	9,101,846		$	14,980,414		$	17,455,125

Average Margin on Loan Sales:
Specialty Products		1.64	%		1.35	%		1.44	%		1.40	%
Jumbo		0.94	%		1.05	%		0.92	%		1.02	%
Home Equity/Seconds		1.25	%		2.05	%		1.49	%		1.74	%
Agency		0.33	%		0.32	%		0.35	%		0.30	%

Average Margin on Loan Sales		1.30	%		1.31	%		1.23	%		1.29	%

Gains on Sale of Loans:
Specialty Products	$	68,419		$	59,455		$	117,845		$	122,205
Jumbo		22,837			27,773			37,838			46,956
Home Equity/Seconds		9,413			30,139			24,912			52,997
Agency		1,647			1,882			3,470			3,250

Total Gain on Sale of Loans (1)	$	102,316		$	119,249		$	184,065		$	225,408

(1)

The gain on sale of whole loans for the three and six months ended June 30, 2005, differs from the amounts reported under accounting principles generally accepted in the United States of America on the accompanying Consolidated Income Statement due to a fair value adjustment of $(1.3) million and $(.5) million, respectively on loans held-for-sale at October 1, 2004 which were sold during 2005.

Financial Condition

Loans Held-for-Investment

The composition of loans held-for-investment are summarized as follows:


	June 30,		% of			December 31,		% of			June 30,		% of
(dollars in thousands)	2006		Total			2005		Total			2005		Total
Commercial Mortgages	$	7,079,501		20	%	$	6,206,416		19	%	$	5,725,316		18	%
Commercial & Industrial		5,806,928		16			4,709,440		14			3,879,830		12

Total Commercial		12,886,429		36	%		10,915,856		33	%		9,605,146		30	%
Residential Mortgages		14,519,282		41			15,068,443		45			16,176,829		49
Multi-Family Mortgages		5,134,232		15			4,821,642		15			4,485,420		14
Consumer		1,749,383		5			1,558,782		5			1,521,869		5
Construction & Land		1,222,981		3			829,273		2			653,002		2

Total	$	35,512,307		100	%	$	33,193,996		100	%	$	32,442,266		100	%

Loans held-for-investment increased $3.1 billion to $35.5 billion for the quarter ended June 30, 2006, compared to $32.4 billion at June 30, 2005. Consistent with our balance sheet management strategy, commercial loans grew $3.3 billion or 34% during the past year, while residential mortgages declined $1.7 billion or 10% during the same period. Commercial loans as a percentage of total loans increased from 30% in 2005 to 36% in 2006, while residential loans declined from 49% to 41%.

Commercial lending activity continues to remain strong within our market area. Our pipeline of outstanding commitments remains near historical levels. We continue to benefit from previous initiatives to expand our geographic presence, sales force and product offerings.

Although we have deemphasized residential loans in favor of higher yielding commercial loans, the quality of our residential mortgage portfolio remains excellent. The weighted average FICO score at June 30, 2006 was 732. Approximately 86% of the portfolio is comprised of Jumbo/Agency conforming mortgages and 93% of the total portfolio is owner occupied. Interest only loans constitute 38% of the portfolio, while the average original loan amount was $291 thousand. We do not portfolio option ARMs, negative amortization loans or home equity loans. Future decisions to retain residential loans will be impacted by mortgage origination volumes, growth in other loan categories, deposit growth and changes in market interest rates.

Multi-family loans grew $648.8 million or 14.5% when compared to the same period in 2005. Multi-family and commercial mortgage loans are primarily secured by real estate in the New York Metropolitan area and are diversified in terms of risk and repayment sources. The underlying collateral includes multi-family apartment buildings 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.

Consumer loan volume, principally indirect auto loans, increased modestly as automobile manufacturers are no longer offering the aggressive incentives and financing programs they had in the past.

The risk inherent in the mortgage portfolio is managed 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 largely dependent 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 throughout the United States, with a concentration in the New York Metropolitan area and California. 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 type, real estate location, property condition, quality of the organization managing the property, and the borrower’s creditworthiness. They also address 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 include 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 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 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.

Securities

Securities decreased $3.1 billion or 23.6% to $10.0 billion at June 30 ,2006 when compared to June 30, 2005. This decrease was consistent with our balance sheet repositioning strategy. Portfolio cash flows and a portion of the proceeds generated from securities sales during the previous twelve months were used to fund commercial loan growth, repurchase common stock and pay down short-term borrowings. (See “Balance Sheet Repositioning” section for further details).

Mortgage Backed Securities represented 80% of total securities at June 30, 2006, and included pass-through certificates guaranteed by GNMA, FHLMC or FNMA and collateralized mortgage-backed obligations (“CMOs”) backed by government agency pass-through certificates or whole loans. The pass-through certificates included both fixed and adjustable rate instruments. CMOs, by virtue of the underlying collateral or structure, are AAA rated and are either fixed rate current pay sequentials and PAC structures or adjustable rate issues. (See Item 1, Notes to the Consolidated Financial Statements Note 2, “Securities” for additional information). The adjustable rate pass-throughs and CMOs are principally Hybrid ARMs. Hybrid ARMs typically have a fixed initial rate of interest from 3 through 7 years and at the end of that term convert to a one year adjustable rate of interest indexed to short term benchmarks (i.e. LIBOR or 1 year Treasuries). Hybrid ARMs included in Pass-throughs and CMOs as of June 30, 2006 aggregated $2.4 billion.

Our goal is to maintain a securities portfolio with a short weighted average life and duration. This is accomplished using instruments with short final maturities, predictable cash flows and adjustable interest rates. These attributes allow us to proactively manage as market conditions change so that cash flows may either be reinvested in securities at current market interest rates, used to fund loan growth or pay off short-term borrowings. These characteristics have contributed to the 3.7 year weighted average life and 3.1 year duration of the MBS portfolio as of June 30, 2006.

The yield and fair value of securities, specifically the MBS portfolio, are impacted by changes in market interest rates and related prepayment activity. Given the portfolio’s composition, related prepayment activity would moderately decrease in a rising interest rate environment, extending the portfolio’s weighted average life. Conversely, the opposite would occur in a declining interest rate environment. The resultant impact of these changes would be to either extend or shorten the period over which net premiums would be amortized, thereby affecting income and yields. The impact of any changes would be minimal as net premiums totaled $25.9 million or approximately 31 basis points of outstanding MBS balances at June 30, 2006.

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 $273.8 million of FNMA and FHLMC (“GSE”) Preferred stock, $426.8 million in Federal Home Loan Bank common stock, and common and preferred stocks 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, the overall interest-rate risk profile is considered, as well as the adequacy of expected returns relative to risks assumed, including prepayments. In managing the securities portfolio, available-for-sale securities may be sold 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

The composition of deposits are summarized as follows:


	June 30,		December 31,		June 30,
(in thousands)	2006		2005		2005

Demand	$	7,561,888	$	7,639,231	$	7,586,939
NOW & Money Market		16,331,950		15,606,231		15,848,473
Savings		5,045,623		5,303,930		5,811,417
Time		5,114,428		5,428,921		5,152,330
Certificates of Deposit, $100,000 & Over		2,760,716		2,638,260		3,067,187

Total Deposits	$	36,814,605	$	36,616,573	$	37,466,346

Total deposits decreased $651.7 million or 1.7% to $36.8 billion at June 30, 2006 when compared to the prior year period. The decline was due to aggressive pricing by our competitors, offering higher deposit rates and free services to attract consumers. Despite intense competitive pressure, we have chosen to remain disciplined and selective in pricing deposits, continuing to concentrate on growing our commercial customer base. Commercial accounts constituted approximately one third of total deposits at June 30, 2006. We do not anticipate any imminent strategic change from our competitors. Factors contributing to deposit growth during the current year include: (i) the continued expansion and maturation of our retail branch network, (ii) the ongoing branch upgrade and relocation program providing for greater marketplace identity, (iii) expanded branch hours providing additional accessibility and convenience, (iv) commercial loan growth, (v) the introduction of new cash management products and services and (vi) the use of incentive based compensation linked to deposit growth.

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 (“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 June 30, 2006, 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. 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. 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. This interest rate risk management strategy can involve modifying the repricing characteristics of certain assets and liabilities utilizing interest rate swaps, caps and floors.

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:

	•		The balance sheet composition remains static.

	•		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 or liability spreads to market interest rates.

	•		The model considers the magnitude and timing of the repricing of financial instruments, loans and deposit products, including the effect of changing interest rates on expected prepayments and maturities.

	•		NOW deposit rates experience a 15% impact of market 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.


	Changes in Net Interest Income
(dollars in thousands)	$ Change			% Change
Change in Interest Rates
+ 200 Basis Points	$	(77,550	)		(4.86	)%
+ 100 Basis Points		(34,295	)		(2.15	)
- 100 Basis Points		29,040			1.82

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 at June 30, 2006, assuming an immediate increase or decrease in interest rates.


	Market Value of Equity
(dollars in thousands)	$ Change			% Change
Change in Interest Rates
+ 200 Basis Points	$	(521,558	)		(5.5	)%
- 200 Basis Points	$	181,977			1.9
Policy Limit		N/A			(25.0	)%

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 June 30, 2006, dividends for North Fork Bank were limited under such guidelines to $1.3 billion. From a regulatory standpoint, North Fork Bank, with its current balance sheet structure, had the ability to dividend approximately $0.8 billion, 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 have the ability to borrow an additional $7.3 billion on a secured basis, utilizing mortgage related loans and securities as collateral. At June 30, 2006, our banking subsidiaries had $7.7 billion in advances and repurchase agreements were 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 $1.0 billion at June 30, 2006. 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.

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 Ratio”) of 8%, including Tier 1 capital to total risk weighted assets (“Tier 1 Capital Ratio”) 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 June 30, 2006, 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 require a well capitalized institution to 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.

The following table sets forth our risk-based capital amounts and ratios as of:


	June 30, 2006					June 30, 2005
(dollars in thousands)	Amount		Ratio			Amount		Ratio
Tier 1 Capital	$	3,690,093		10.26	%	$	3,635,796		10.50	%
Regulatory Requirement		1,439,788		4.00			1,385,310		4.00

Excess	$	2,250,305		6.25	%	$	2,250,486		6.50	%

Total Risk Adjusted Capital	$	4,534,117		12.61	%	$	4,506,469		13.01	%
Regulatory Requirement		2,879,576		8.00			2,770,620		8.00

Excess	$	1,654,541		4.60	%	$	1,735,849		5.01	%

Risk Weighted Assets	$	35,994,699				$	34,632,749

The Company’s leverage ratio at June 30, 2006 and 2005 was 7.04% and 6.56%, respectively.

The following table sets forth the capital ratios of our banking subsidiaries at June 30, 2006:


Capital Ratios:	North Fork			Superior
Tier 1 Capital		11.42	%		11.49	%
Total Risk Adjusted		12.39			11.76
Leverage Ratio		7.82			5.92

On June 27, 2006, the Board of Directors declared its regular quarterly cash dividend of $.25 per common share. The dividend will be payable on August 15, 2006 to shareholders of record at the close of business on July 28, 2006.

On January 24, 2006, the Board of Directors authorized the repurchase of an additional 12 million shares, increasing the total remaining authorized for repurchase to 14.4 million. At June 30, 2006, 9.2 million shares were available to be purchased under the program. The Company discontinued repurchasing shares since the announcement of its proposed acquisition by Capital One. We did repurchase 5.1 million shares in the first quarter of 2006 at an average cost of $25.84. The current program has no fixed expiration date. 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.

Regulatory Matters

United States anti-money laundering (“AML”) laws, including The Bank Secrecy Act, as amended by the USA Patriot Act, and related implementing regulations, have imposed significant, additional requirements on financial institutions. The Federal Deposit Insurance Corporation (“FDIC”) and the New York State Banking Department (“NYSBD”) have identified certain supervisory issues with respect to the Bank’s AML compliance program that require management’s attention. Management has been engaged in discussions with the FDIC and the NYSBD concerning this matter and has initiated appropriate action to address the issues raised. The Bank entered into an informal memorandum of understanding (“MOU”) with both the FDIC and the NYSBD with respect to these matters effective as of August 23, 2005. A memorandum of understanding is characterized by regulatory authorities as an informal action that is neither published nor made publicly available by agencies and is used when circumstances warrant a milder form of action than a formal supervisory action, such as a formal written agreement or cease and desist order. Management has developed a remediation plan to comply with the requirements of the MOU and continues to make progress in implementing the plan, as well as making additional enhancements to our AML compliance program.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 imposed significant new responsibilities on publicly held companies such as North Fork, particularly in the area of corporate governance. We, like other public companies, have reviewed and reinforced our internal controls and financial reporting procedures in response to the various requirements of Sarbanes-Oxley and implementing regulations issued by the Securities and Exchange Commission and the New York Stock Exchange. We have observed and will continue to observe full compliance with these new legal requirements. We have always emphasized best practices in corporate governance as the most effective way of assuring shareholders that their investment is properly managed and their interests remain paramount.

Future Legislation

From time to time legislation is introduced in Congress and state legislatures with respect to the regulation of financial institutions. Such legislation may change our operating environment and the operating environment of our subsidiaries in substantial and unpredictable ways. We cannot determine the ultimate effect that potential legislation, if enacted, or implementing regulations, would have on our financial condition or results of operations or on our shareholders.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information required by this item is contained throughout Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and is incorporated by reference herein.

Item 4. Controls and Procedures

(a) Disclosure Controls and Procedures. Management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On March 15, 2006, a putative class action complaint was filed on behalf of the public shareholders of North Fork against North Fork and each of its directors in the Supreme Court of New York, New York County, entitled Lasker v. Kanas et al. (Index No. 06-103557). On March 16, 2006, a putative class action complaint was filed on behalf of the public shareholders of North Fork against North Fork and each of its directors in the Supreme Court of New York, Nassau County, entitled Showers v. Kanas et al. (Index No. 06-004624). Two further putative class actions on behalf of the public shareholders of North Fork were subsequently filed, one in the Supreme Court of New York, Nassau County on March 21, 2006 (entitled New Jersey Building Laborers Pension & Annuity Fund v. Kanas et al., Index No. 06-004786), and another in the Supreme Court of New York, New York County on April 12, 2006 (entitled Gold v. Kanas, et al., Index No. 06-105091). By an order of the Court dated May 22, 2006, the Showers action and the New Jersey Building action were consolidated in the Supreme Court, Nassau County, under the Index No. 06-004624 (the “Nassau Action”). By an order of the Court dated May 31, 2006, the Lasker action and the Gold action were consolidated in the Supreme Court, New York County, under the Index No. 06-103557 (the “New York Action”). The plaintiffs in the Nassau Action subsequently agreed to voluntarily dismiss the Nassau Action with prejudice and to join the New York Action. These complaints alleged, among other things, that the directors of North Fork breached their fiduciary duties by failing to maximize shareholder value in the transaction. Among other things, the complaints sought class action status, a court order enjoining North Fork and its directors from proceeding with or consummating the merger, and the payment of attorneys’ and experts’ fees.

On August 7, 2006, following settlement discussions between North Fork and the representatives of the putative plaintiff class of North Fork shareholders in the New York Action, the putative class representatives, the defendants (including North Fork) and Capital One entered into a memorandum of understanding (the “MOU”) with regard to the settlement of the New York Action. The MOU states that the parties will enter into a settlement agreement providing for, among other things, (i) Capital One to irrevocably waive any right to receive, any portion of the Total Profit (defined in the stock option agreement as the maximum amount of profit that Capital One may recognize in connection with the exercise of its option to acquire North Fork shares) to which it may become entitled to the extent such Total Profit exceeds $630 million (notwithstanding the fact that the stock option agreement currently provides for a Total Profit of up to $730 million); (ii) North Fork to issue a press release disclosing the settlement and to include certain disclosures in a Current Report on Form 8-K (and thereby incorporate such disclosures by reference into the Proxy Statement/Prospectus); (iii) North Fork to establish a settlement fund within 10 days after execution of the MOU in an aggregate amount of $20 million, out of which plaintiffs’ attorneys fees, in an amount approved by the court, will be paid, with the remaining balance of the settlement fund to be allocated among members of a class, to be certified by the court, of holders of North Fork common stock as of the Effective Time (as defined in the Merger Agreement) on a pro rata basis in accordance with ownership of North Fork common stock by members of that class at the Effective Time; provided, that the pro rata share of any member of the class who has properly exercised dissenter’s rights or opted out of the settlement fund will not be considered for purposes of calculating the total number of shares held by members of the class as of the Effective Time; (iv) an agreement to stipulate for certification of a non-opt-out class (subject to certain

exceptions) of North Fork shareholders and to a dismissal with prejudice and a complete settlement and release of all claims of the plaintiffs and the proposed class against the defendants (including North Fork), Capital One and their respective related parties and representatives which have been or could have been asserted by plaintiffs and the proposed class against the defendants (including North Fork), Capital One, and their respective related parties and representatives relating to the Merger and the related transactions (including any claims that could have been asserted under state or federal law in any other court, including federal court) and (v) a complete release of claims that the defendants may have against the plaintiffs arising out of, relating to or in connection with the New York Action. The MOU provides that plaintiffs’ counsel will apply to the court for an award of attorneys fees and costs in an amount equal to no more than 30% of the settlement fund and defendants agree not to oppose the application. Under the MOU, plaintiffs’ attorneys fees and costs will be paid solely out of and not in addition to the settlement fund. The settlement contemplated by the MOU is subject to the execution by the parties of a definitive settlement agreement, the approval of that agreement by the Court and the consummation of the Merger.

On March 16, 2006, Carol Fisher, a purported shareholder of North Fork, filed a complaint in the United States District Court for the Eastern District of New York against North Fork, John A. Kanas, John Bohlsen, and Daniel M. Healy entitled Fisher v. Kanas et al., No. 06-CV-1187. As amended on April 21, 2006, the Fisher action alleges that North Fork and certain of its directors violated Section 14(a) and/or Section 20(a) of the Securities Exchange Act and breached common law fiduciary duties by failing to cause certain information relating to North Fork’s executive compensation arrangements (including certain change-in-control provisions) to be disclosed in certain public filings. On August 4, 2006, the court in that action issued an order denying the plaintiff’s motion seeking leave to commence limited discovery of documents pursuant to an exception to the stay of discovery otherwise applicable under the Private Securities Litigation Reform Act of 1995. Among other things, the Fisher complaint seeks an injunction against certain compensation payments and the payment of attorneys’ fees. North Fork also intends to defend this lawsuit vigorously.

Additionally, we are commonly subject to various pending and threatened legal actions relating to the conduct of our normal business activities. In management’s opinion, the ultimate aggregate liability, if any, arising out of any such pending on threatened legal actions will not be material to the Company’s consolidated financial statements or results of operations.

Item 1A. Risk Factors

For a summary of risk factors relevant to our operations, see Part I, Item 1A, “Risk Factors” in our 2005 Annual Report on Form 10-K. There have been no material change in risk factors relevant to our operations since December 31, 2005.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides common stock repurchases made by us or on our behalf during the period:


			Total Number of	Maximum Number of
			Shares Purchased as	Shares that May Yet
	Total Number of	Average Price Paid	Part of Publicly	Be Purchased Under
Period	Shares Purchased	Per Share	Announced Program	the Program
April 1, 2006 – April 30, 2006	—	n/a	—	9,269,550 Shares
May 1, 2006 – May 31, 2006	—	n/a	—	9,269,550 Shares
June 1, 2006 – June 30, 2006	—	n/a	—	9,269,550 Shares

Item 4. Submission of Matters to a Vote of Security Holders

The Company’s Annual Meeting of Stockholders, previously scheduled for Tuesday, April 25, 2006 has been rescheduled for August 22, 2006 at 10:00 am. The meeting was postponed in order to allow us to combine our Annual Meeting of Stockholders with the Special Meeting of Stockholders to vote on the proposed merger with Capital One.

Item 5. Other Information

Recent Developments

As noted above under the heading “Legal Proceedings,” North Fork has entered into an agreement in principle to settle stockholder litigation relating to the proposed Capital One merger. North Fork will seek coverage for a portion of the $20 million settlement fund under existing insurance policies.


	Page
PART 1. FINANCIAL INFORMATION (unaudited)
Item 1. Financial Statements
Consolidated Balance Sheets		3
Consolidated Statements of Income		4
Consolidated Statements of Cash Flows		5
Consolidated Statements of Changes in Stockholders’ Equity		6
Consolidated Statements of Comprehensive Income		7
Condensed Notes to Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3. Quantitative and Qualitative Disclosures About Market Risk		42
Item 4. Controls and Procedures		43
PART 2. OTHER INFORMATION
Item 1. Legal Proceedings		43
Item 1A. Risk Factors		44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		44
Item 4. Submission of Matters to a Vote of Security Holders		44
Item 5. Other Information		44
Item 6. Exhibits		45
EX-11: STATEMENT RE: COMPUTATION OF NET INCOME
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION
EX-99.1: SUPPLEMENTAL PERFORMANCE MEASUREMENTS


Exhibit Number		Description of Exhibit

(11)		Statement Re: Computation of Net Income Per Common and Common Equivalent Share

(31.1)		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(31.2)		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(32.1)		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(32.2)		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(99.1)		Supplemental Performance Measurements


Date: August 9, 2006		North Fork Bancorporation, Inc.

		/s/ Daniel M. Healy Daniel M. Healy
		Executive Vice President and Chief Financial Officer