-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QhqjGN7ee1B5LKHxrT2Neq28r3ec8tLZ9hUnEp1HKNv9cNwDG9ZgyJnfgREybyL7 jG4fNSCZkapX70z++CjBRw== 0000950123-99-007243.txt : 19990901 0000950123-99-007243.hdr.sgml : 19990901 ACCESSION NUMBER: 0000950123-99-007243 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH FORK BANCORPORATION INC CENTRAL INDEX KEY: 0000352510 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 363154608 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10458 FILM NUMBER: 99679443 BUSINESS ADDRESS: STREET 1: 275 BROAD HOLLOW RD STREET 2: PO BOX 8914 CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5168441004 MAIL ADDRESS: STREET 1: 275 BROAD HOLLOW RD STREET 2: PO BOX 8914 CITY: MELVILLE STATE: NY ZIP: 11747 10-Q 1 NORTH FORK BANCORPORATION, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED: JUNE 30, 1999 NORTH FORK BANCORPORATION, INC. (Exact name of registrant as specified in its charter) DELAWARE 36-3154608 (State or other Jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 275 BROAD HOLLOW ROAD, MELVILLE, NEW YORK 11747 (Address of principal executive offices) (Zip Code) (516) 844-1004 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes (X) No ( ) Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASSES OF COMMON STOCK NUMBER OF SHARES OUTSTANDING 8/4/99 $2.50 PAR VALUE 136,372,837 1 2 INDEX PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) North Fork Bancorporation, Inc. and Subsidiaries. (1.)Consolidated Balance Sheets. (2.)Consolidated Statements of Income. (3.)Consolidated Statements of Comprehensive Income. (3.)Consolidated Statements of Cash Flows. (5.)Consolidated Statements of Changes in Stockholders' Equity. (6.)Notes to Consolidated Financial Statements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable. ITEM 2. CHANGES IN SECURITIES Not Applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. ITEM 5. OTHER INFORMATION Not Applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K The following exhibits are submitted herewith: (a) Exhibit # Description (11) Statement Re: Computation of per share earnings. (27) Financial Data Schedule. 2 3 CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, DECEMBER 31, JUNE 30, (in thousands, except per share amounts) 1999 1998 1998 ------------ ------------ ------------ ASSETS: Cash & Due from Banks ..................................................... $ 155,247 $ 151,576 $ 158,883 Money Market Investments .................................................. 177,372 28,929 18,523 Securities: Available-for-Sale ..................................................... 3,515,280 2,980,223 2,907,898 Held-to-Maturity ....................................................... 1,340,653 1,571,545 859,274 ------------ ------------ ------------ Total Securities .................................................... 4,855,933 4,551,768 3,767,172 ------------ ------------ ------------ Loans ..................................................................... 6,079,550 5,731,424 5,771,611 Less: Unearned Income ................................................... 15,939 17,131 19,440 Allowance for Loan Losses ..................................... 69,390 71,759 74,331 ------------ ------------ ------------ Net Loans ............................................... 5,994,221 5,642,534 5,677,840 ------------ ------------ ------------ Intangible Assets ......................................................... 82,109 84,676 94,607 Premises & Equipment ...................................................... 74,324 72,023 72,921 Accrued Income Receivable ................................................. 68,094 66,951 65,697 Other Assets .............................................................. 114,985 81,099 61,403 ------------ ------------ ------------ Total Assets ......................................................... $ 11,522,285 $ 10,679,556 $ 9,917,046 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY: Demand Deposits ........................................................... $ 1,437,155 $ 1,263,105 $ 1,103,184 Savings, NOW & Money Market Deposits ..................................... 2,864,959 2,950,022 3,010,656 Other Time Deposits ....................................................... 1,642,446 1,672,478 1,816,458 Certificates of Deposit, $100,000 & Over ................................. 544,907 542,017 556,114 ------------ ------------ ------------ Total Deposits ....................................................... 6,489,467 6,427,622 6,486,412 ------------ ------------ ------------ Federal Funds Purchased & Securities Sold Under Agreements to Repurchase ............................................... 3,014,796 2,955,096 2,165,096 Federal Home Loan Bank Advances ........................................... 835,000 10,000 60,000 Senior Notes Payable ...................................................... -- 25,000 25,000 Accrued Expenses & Other Liabilities ...................................... 179,443 231,299 135,894 ------------ ------------ ------------ Total Liabilities ................................................... $ 10,518,706 $ 9,649,017 $ 8,872,402 ------------ ------------ ------------ Capital Securities ........................................................ $ 199,301 $ 199,289 $ 199,276 STOCKHOLDERS' EQUITY: Preferred Stock, par value $1.00; authorized 10,000,000 shares, unissued .. -- -- -- Common Stock, par value $2.50; authorized 200,000,000 shares; issued 145,092,133 shares at June 30, 1999 ............................ 362,730 362,312 361,875 Additional Paid in Capital ................................................ 34,468 32,044 30,146 Retained Earnings ......................................................... 611,960 541,967 489,306 Accumulated Other Comprehensive Income - Unrealized (Losses)/Gains on Securities Available-for-Sale, net of taxes ......... (40,902) 9,337 23,170 Deferred Compensation ..................................................... (22,771) (24,365) (18,216) Treasury Stock at cost; 6,269,885 shares at June 30, 1999 ................ (141,207) (90,045) (40,913) ------------ ------------ ------------ Total Stockholders' Equity .......................................... 804,278 831,250 845,368 ------------ ------------ ------------ Total Liabilities and Stockholders' Equity .......................... $ 11,522,285 $ 10,679,556 $ 9,917,046 ============ ============ ============
3 4 CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------- ------------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, (in thousands, except per share amounts) 1999 1998 1999 1998 --------- --------- --------- --------- INTEREST INCOME: Loans ................................................... $ 123,330 $ 124,267 $ 243,277 $ 247,762 Mortgage-Backed Securities .............................. 67,317 46,215 129,977 100,706 Other Securities ........................................ 7,385 4,037 14,759 9,863 U.S. Treasury & Government Agency Securities ............ 2,468 5,985 5,367 10,559 State & Municipal Obligations ........................... 791 1,070 1,599 2,369 Money Market Investments ................................ 1,076 794 1,245 1,615 --------- --------- --------- --------- Total Interest Income ................................ 202,367 182,368 396,224 372,874 --------- --------- --------- --------- INTEREST EXPENSE: Savings, NOW & Money Market Deposits .................... 12,968 16,830 26,051 33,442 Other Time Deposits ..................................... 19,197 23,611 38,990 47,874 Certificates of Deposit, $100,000 & Over ................ 7,893 7,482 15,486 14,089 Federal Funds Purchased & Securities Sold Under Agreements to Repurchase ............................. 43,640 27,184 85,819 59,070 Other Borrowings ........................................ 5,271 2,747 6,389 9,678 --------- --------- --------- --------- Total Interest Expense ............................... 88,969 77,854 172,735 164,153 --------- --------- --------- --------- Net Interest Income .................................. 113,398 104,514 223,489 208,721 Provision for Loan Losses ............................... 1,250 1,000 2,500 13,500 --------- --------- --------- --------- Net Interest Income after Provision for Loan Losses .. 112,148 103,514 220,989 195,221 --------- --------- --------- --------- NON-INTEREST INCOME: Fees & Service Charges on Deposit Accounts .............. 6,859 6,466 13,426 12,893 Investment Management, Commissions & Trust Fees ......... 4,203 3,014 8,571 5,487 Mortgage Banking Operations ............................. 957 1,041 1,899 2,064 Other Operating Income .................................. 2,647 2,624 5,080 6,469 Net Securities Gains/(Losses) ........................... 7,017 1,718 9,720 (799) --------- --------- --------- --------- Total Non-Interest Income .......................... 21,683 14,863 38,696 26,114 --------- --------- --------- --------- NON-INTEREST EXPENSE: Compensation & Employee Benefits ........................ 21,402 18,862 42,633 41,803 Occupancy & Equipment, net .............................. 7,089 6,349 14,055 13,848 Capital Securities Costs ................................ 4,211 4,211 8,422 8,422 Amortization & Write-down of Intangible Assets .......... 2,084 2,046 4,159 10,215 Other Operating Expense ................................. 9,269 8,728 18,220 20,288 Merger Related Restructure Charge ....................... -- -- -- 52,452 --------- --------- --------- --------- Total Non-Interest Expense .......................... 44,055 40,196 87,489 147,028 --------- --------- --------- --------- Income Before Income Taxes .............................. 89,776 78,181 172,196 74,307 Provision for Income Taxes .............................. 31,416 27,285 60,268 16,035 --------- --------- --------- --------- Net Income ......................................... $ 58,360 50,896 $ 111,928 58,272 ========= ========= ========= ========= PER SHARE: Earnings Per Share - Basic .............................. $ 0.42 $ 0.36 $ 0.81 $ 0.42 Earnings Per Share - Diluted ............................ $ 0.42 $ 0.36 $ 0.80 $ 0.41 Cash Dividends .......................................... $ 0.15 $ 0.125 $ 0.30 $ 0.25 Weighted Average Shares Outstanding - Basic ............. 138,304 141,316 138,794 139,905 Weighted Average Shares Outstanding - Diluted ........... 139,183 142,462 139,690 141,149
4 5 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED -------------------------- -------------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1999 1998 1999 1998 --------- --------- --------- --------- Net Income ......................................... $ 58,360 $ 50,896 $ 111,928 $ 58,272 --------- --------- --------- --------- Other Comprehensive Income, net of Income Taxes: Unrealized (Losses)/Gains on Securities Available for Sale ........... (34,021) (1,395) (40,519) 5,247 Less: Reclassification of Realized (Gains)/Losses Included in Net Income .................. (7,017) (1,718) (9,720) 799 --------- --------- --------- --------- Other Comprehensive Income ......................... (41,038) (3,113) (50,239) 6,046 --------- --------- --------- --------- Comprehensive Income ............................... $ 17,322 $ 47,783 $ 61,689 $ 64,318 ========= ========= ========= =========
5 6 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 1998 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income .................................................................. $ 111,928 $ 58,272 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Provision for Loan Losses ................................................... 2,500 13,500 Depreciation and Amortization ............................................... 5,756 5,426 Amortization and Write-down of Intangible Assets ............................ 4,159 10,215 Amortization of Securities Premiums ......................................... 6,330 6,222 Accretion of Discounts and Net Deferred Loan Fees ........................... (4,442) (6,269) Net Securities (Gains)/Losses ............................................... (9,720) 799 Other, Net .................................................................. (34,174) 36,965 ----------- ----------- Net Cash Provided by Operating Activities ............................... 82,337 125,130 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of Securities Held-to-Maturity .................................... (15,462) (249,165) Maturities, Redemptions, Calls and Principal Repayments on Securities Held-to-Maturity ............................................. 244,942 206,305 Purchases of Securities Available-for-Sale .................................. (1,404,712) (1,316,018) Proceeds from Sales of Securities Available-for-Sale ........................ 69,621 861,774 Maturities, Redemptions, Calls and Principal Repayments on Securities Available-for-Sale ........................................... 717,972 620,780 Loans Originated, Net of Principal Repayments and Charge-offs ............... (422,762) (108,207) Proceeds from the Sale of Loans ............................................. 71,442 107,485 Transfers to Other Real Estate, Net of Sales ................................ 2,686 1,753 Purchases of Premises and Equipment, Net .................................... (6,664) 15 ----------- ----------- Net Cash (Used in)/Provided by Investing Activities ..................... (742,937) 124,722 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Increase in Customer Deposits Liabilities ............................... 61,845 103,142 Net Increase/(Decrease) in Borrowings ....................................... 894,700 (360,146) Net Decrease in Long-Term Debt .............................................. (35,000) -- Purchase of Treasury Stock .................................................. (50,929) -- Common Stock Sold for Cash .................................................. 2,078 25,099 Cash Dividends Paid ......................................................... (59,980) (31,212) ----------- ----------- Net Cash Provided by/(Used in) Financing Activities ..................... 812,714 (263,117) ----------- ----------- Net Increase/(Decrease) in Cash and Cash Equivalents .................... 152,114 (13,265) NYB Activity for the Three Months Ended December 31, 1997 ................... -- (384) Cash and Cash Equivalents at Beginning of the Period ........................ 180,505 191,055 ----------- ----------- Cash and Cash Equivalents at End of the Period .............................. $ 332,619 $ 177,406 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash Paid During the Period for: Interest Expense ........................................................ 171,291 170,389 =========== =========== Income Taxes ............................................................ 69,491 19,507 =========== =========== Securities Transferred from Held-to-Maturity to Available-for-Sale due to the Merger with NYB ......................................................... -- 913,598 =========== ===========
6 7 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Dollars in thousands, except per share amounts)
Unrealized Additional Securities Common Paid in Retained Gains/ Deferred Treasury Stock Capital Earnings (Losses) Compensation Stock Total --------- ---------- --------- ---------- ------------ ---------- --------- BALANCE, DECEMBER 31, 1997 ................. $ 256,790 $ 127,853 $ 469,616 $ 17,124 $ (19,361) $ (81,133) $ 770,889 Net Income ................................. -- -- 58,272 -- -- -- 58,272 Cash Dividends ($.25 per share) ............ -- -- (35,751) -- -- -- (35,751) Cash Dividends-NYB Pre-Merger .............. -- -- (3,219) -- -- -- (3,219) Issuance of Stock for the 3-for-2 Stock Split .................................. 120,288 (120,288) -- -- -- -- -- Issuance of Stock-Amivest Acquisition ...... 905 7,825 -- -- -- -- 8,730 Issuance of Stock (1,141,946 shares) ....... 146 14,656 -- -- -- 12,214 27,016 NYB Common Stock Retirement (12,740,406 shares) .................... (21,234) (35,398) -- -- -- 56,632 -- Restricted Stock Activity, net ............. -- -- -- -- 1,145 (99) 1,046 Stock Based Compensation Activity, net ..... 4,980 35,498 (11,524) -- -- (28,527) 427 NYB Net Income for the Three Months Ended December 31, 1997 ................ -- -- 11,992 -- -- -- 11,992 Amortization of Unrealized Loss on Securities Transferred from Available- for-Sale to Held-to-Maturity ........... -- -- (80) (251) -- -- (331) Adjustment to Unrealized Gains on Securities Available-for-Sale, net of taxes ....... -- -- -- 6,297 -- -- 6,297 --------- --------- --------- --------- --------- --------- --------- BALANCE, JUNE 30, 1998 ..................... $ 361,875 $ 30,146 $ 489,306 $ 23,170 $ (18,216) $ (40,913) $ 845,368 ========= ========= ========= ========= ========= ========= ========= BALANCE, DECEMBER 31, 1998 ................. $ 362,312 $ 32,044 $ 541,967 $ 9,337 $ (24,365) $ (90,045) $ 831,250 Net Income ................................. -- -- 111,928 -- -- -- 111,928 Cash Dividends ($.30 per share) ........... -- -- (41,763) -- -- -- (41,763) Issuance of Stock (101,969 shares) ......... 255 2,019 -- -- -- -- 2,274 Purchases of Treasury Stock (2,406,100 shares)................................. -- -- -- -- -- (50,929) (50,929) Restricted Stock Activity, net ............. -- 20 -- -- 1,594 (279) 1,335 Stock Based Compensation Activity, net ..... 163 385 -- -- -- 46 594 Amortization of Unrealized Loss on Securities Transferred from Available- for-Sale to Held-to-Maturity ........... -- -- (172) 172 -- -- -- Adjustment to Unrealized Gains on Securities Available-for-Sale, net of taxes ..... -- -- -- (50,411) -- -- (50,411) --------- --------- --------- --------- --------- --------- --------- BALANCE, JUNE 30, 1999 ..................... $ 362,730 $ 34,468 $ 611,960 $ (40,902) $ (22,771) $(141,207) $ 804,278 ========= ========= ========= ========= ========= ========= =========
7 8 NORTH FORK BANCORPORATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1999 AND 1998 BASIS OF PRESENTATION North Fork Bancorporation, Inc. (the "Company") through its principal bank subsidiary, North Fork Bank ("North Fork") and its investment management and broker/dealer subsidiaries, Compass Investment Services Corp. ("Compass") and Amivest Corporation ("Amivest"), provides a variety of commercial banking and related services to middle market and small business organizations, local governmental units, and retail customers in the New York metropolitan area. Its other bank subsidiary, Superior Savings of New England ("Superior"), operates from one location in the Connecticut county of New Haven, where it also conducts a telebanking operation focused on generating customer deposits and plans to deliver a complete electronic or internet banking platform in the future. The accounting and reporting policies of the Company are in conformity with generally accepted accounting principles and prevailing practices within the financial services industry. The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Such estimates are subject to change in the future as additional information becomes available or previously existing circumstances are modified. Actual results could differ from those estimates. Certain reclassifications have been made to prior year amounts to conform to current year presentations. Results of operations for the three and six month periods ended June 30, 1999 are not necessarily indicative of the results of operations which may be expected for the full year 1999 or any other interim periods. These statements should be read in conjunction with the Company's summary of significant accounting policies, which are incorporated herein by reference, in its 1998 Annual Report on Form 10-K. RECENT ACCOUNTING DEVELOPMENTS Accounting for Derivative Instruments and Hedging Activities In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign currency denominated forecasted transaction. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. Under SFAS 133, an entity that elects to apply hedge accounting is required to establish, at the inception of the hedge, the method it will use for assessing the effectiveness of the hedging derivative and the measurement approach for determining the ineffective aspect of the hedge. Those methods must be consistent with the entity's approach to managing risk. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" delaying SFAS 133's effective date to all fiscal quarters of all fiscal years beginning after June 15, 2000. Management is currently evaluating the effect SFAS 133 will have on its financial statements. At June 30, 1999, the Company was a party to three interest rate swap contracts with an aggregate notional value of $475 million. 8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS Statements Regarding Forward-Looking Information This report may contain certain statements, which involve risk and uncertainties, that constitute "forward-looking statements" under the Private Litigation Reform Act of 1995. These statements are based on the beliefs, assumptions, and expectations of the management of the Company. Words such as "expects", "believes", "should", "plans", "will", "estimates", and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future financial condition, performance or operations and involve certain risks and uncertainties that are difficult to quantify or, in some cases, to identify. Therefore, actual outcomes or results may differ materially from what is indicated or forecasted in such forward-looking statements. Factors that may cause or contribute to such differences include, among others, the following possibilities: (1) changes in economic or market conditions; (2) significantly increased competition in the banking and financial services industry; (3) changes in the interest rate environment, with reductions in bank margins; (4) significant changes in accounting, tax, or regulatory practices or requirements; and (5) business risks related to Year 2000 computer systems transition. OVERVIEW The following table sets forth selected financial highlights for the three and six month periods ended June 30, 1999 and 1998. The results for the six months ended 1998 have been adjusted to exclude the effect of the merger related restructure charge, incurred in the New York Bancorp ("NYB") merger, and other special items described below. The succeeding discussion and analysis describes the changes in components of operating results giving rise to net income.
THREE MONTHS ENDED SIX MONTHS ENDED ----------------------------- ----------------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, (in thousands, except ratios & per share amounts) 1999 1998 1999 1998 (1) ------------ ------------ ------------ ------------ EARNINGS: Net Income ........................... $ 58,360 $ 50,896 $ 111,928 $ 96,873 ------------ ------------ ------------ ------------ PER SHARE: Earnings Per Share - Basic ........... $ 0.42 $ 0.36 $ 0.81 $ 0.69 Earnings Per Share - Diluted ......... $ 0.42 $ 0.36 $ 0.80 $ 0.69 Cash Dividends ....................... $ 0.150 $ 0.125 $ 0.300 $ 0.250 Book Value ........................... $ 5.79 $ 5.90 $ 5.79 $ 5.90 Average Equivalent Shares - Basic .... 138,304 141,316 138,794 139,905 Average Equivalent Shares - Diluted .. 139,183 142,462 139,690 141,149 ------------ ------------ ------------ ------------ SELECTED RATIOS: Return on Average Total Assets ....... 2.05% 2.10% 2.02% 1.96% Return on Average Stockholders' Equity 27.08% 25.65% 26.40% 24.98% Core Efficiency Ratio ................ 34.30% 33.46% 34.40% 36.02% Net Interest Margin .................. 4.23% 4.65% 4.30% 4.53% ============ ============ ============ ============
(1) Financial highlights for the six months ended June 30, 1998 exclude the impact of the merger related restructure charge and other special items recognized in the first quarter of 1998. (These items are more fully described below.) Net income for the quarter ended June 30, 1999, increased 14.7% to $58.4 million, compared to net income of $50.9 million for the same period in 1998. Diluted earnings per share increased 16.7% to $.42 for the 1999 second quarter, compared to $.36 for the 1998 second quarter. Return on average total assets and return on average stockholders' equity were 2.05% and 27.08%, respectively for the second quarter ended June 30, 1999, as compared to 2.10% and 25.65%, respectively for the comparable prior year period. For the six months ended June 30, 1999, net income was $111.9 million, or diluted earnings per share of $.80, compared to net income of $58.3 million, or diluted earnings per share of $.41, for the six months ended June 30, 1998. Net income and diluted earnings per share during 1998 were impacted by the recognition of a merger related restructure charge and special items. The aggregate of these items was $74.3 million, or $38.6 million after taxes. They included a $52.5 million merger related restructure charge, an additional $11.5 million provision for loan losses, a $6 million write-down of an intangible asset, securities losses of $2.5 million, and $1.8 million in other operating expenses (net of $20.7 million in tax benefits). Tax items included a charge of $5 million related to the recapture of NYB's banking subsidiary, Home Federal Savings Bank, bad debt reserve for state and local tax purposes, and a benefit of $20 million, which resulted from a non-taxable distribution from a corporate reorganization. 9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) OVERVIEW (CONTINUED) On June 22, 1999, the Board of Directors declared a regular quarterly cash dividend of $.15 per common share. The dividend is payable August 13, 1999 to shareholders of record at the close of business on July 23, 1999. In October 1998, the Board of Directors approved the repurchase of up to 14.3 million of the Company's common shares, or approximately 10% of its shares outstanding. As of June 30, 1999, approximately 5.0 million shares, or 3.5%, had been repurchased. NET INTEREST INCOME Net interest income, which represents the difference between interest earned on interest earning assets and interest incurred on interest bearing liabilities, is the Company's primary source of revenue and earnings. Net interest income is affected by the level and composition of assets, liabilities and equity, as well as changes in market interest rates. Net interest income for the quarter ended June 30, 1999 increased $8.9 million, or 8.5% over the second quarter of 1998 to $113.4 million. The increase in net interest income was primarily due to an increase in the level of average interest earning assets, partially offset by a 42 basis point decline in the net interest margin to 4.23% from 4.65%. The decline in the net interest margin was due in large measure to management's decision to improve net interest income by adding interest earning assets and interest bearing liabilities at narrower spreads than historically obtained on loans funded by customer deposits. Similarly, the Company's net interest margin declined on a linked quarter basis by 13 basis points when compared to 4.36% in the first quarter of 1999. This decline was expected as competition for quality loans continued and the Company utilized its capital base by funding earning asset growth with borrowings at rates generally higher than its deposit costs. During the second quarter of 1999, interest income increased $20 million over the second quarter of 1998 to $202.4 million. The improvement in interest income was primarily due to an increase in average interest earning assets of $1.7 billion, or 18.5%, partially offset by a 54 basis point decline in the average yield on earning assets from 8.04% to 7.50%. The largest portion of the increase in average interest earning assets was investment securities, which increased $1.4 billion, or 42.7%, which resulted from management's decision to increase net interest income as previously described. These securities, principally collateralized mortgage-backed securities, have been classified as available-for-sale. However, this positive impact on interest income was partially offset by a 49 basis point decline in the average yield on securities to 6.54% for the second quarter of 1999, when compared to 7.03% in the comparable prior year period. This decline was due to the aforementioned growth in the securities portfolio, prepayment activity, and the reinvestment of related cash flows into lower yielding securities reflecting market interest rates at the time. Management believes that the declining trend in the net interest margin may stabilize in subsequent quarters due to the general rise in long-term interest rates. Average loans increased $223.6 million, or 3.9%, to $6.0 billion in the second quarter of 1999, when compared to comparable 1998 period levels. Loans represented 54.8% of average interest earning assets and 91.3% of average total deposits. However, the net interest margin and interest income were negatively impacted by the 39 basis point decline in yield on average loans to 8.28% for the second quarter of 1999, when compared to 8.67% for 1998, as intense competition for quality loans, combined with prepayment and refinancing activity due to current market interest rates continued. Interest expense for the quarter ended June 30, 1999 increased $11.1 million, or 14.3%, over the second quarter of 1998 to $89 million, due to a $1.3 billion, or 17.9%, increase in average interest bearing liabilities to $8.8 billion. The impact of the increase in the level of average interest bearing liabilities was partially offset by a 13 basis point decline in the Company's average cost of funds to 4.04% for the second quarter of 1999, as compared to 4.17% for the comparable prior year period. The increase in average interest bearing liabilities resulted from management's decision to fund its growth in interest earning assets with repurchase agreements and Federal Home Loan Bank ("FHLB") advances. As a result of this decision, average total borrowings increased $1.6 billion, or 78.7%, to $3.6 billion during the second quarter of 1999, when compared to $2.0 billion during the comparable prior year period. The average cost of funds on total borrowings during these periods declined 50 basis points to 5.42% from 5.92%. Average time and savings deposits, which continue to represent a stable funding source, were $5.2 billion, reflecting an average cost of funds of 3.09% during the second quarter of 1999, compared to $5.5 billion, with an average cost of funds of 3.52% for the comparable 1998 period. Both the level and cost of interest bearing deposits were impacted by the decision to lower rates and overlay North Fork's pricing and integration strategy on liabilities assumed in the NYB merger. 10 11 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) NET INTEREST INCOME (CONTINUED) Average demand deposits increased $293.4 million, or 27.5%, to $1.4 billion during the 1999 second quarter, as compared to $1.1 billion in the 1998 second quarter. The growth in demand deposits has been achieved through the successful conversion of acquired savings bank locations into full-service commercial banking locations, and an emphasis on developing long-term deposit relationships with its borrowers. At June 30, 1999, demand deposits represented 22.2% of total deposits, as compared to 17.0% at June 30, 1998. The following table sets forth a summary analysis of the relative impact on net interest income of changes in the average volume of interest earning assets and interest bearing liabilities and changes in average rates on such assets and liabilities. Due to the numerous simultaneous volume and rate changes during the period analyzed, it is not possible to precisely allocate changes between volumes and rates. For presentation purposes, changes which are not solely due to volume changes or rate changes have been allocated to these categories based on the respective percentage changes in average volume and average rates as they compare to each other. In addition, average interest earning assets include non-accrual loans. FOR THE PERIODS ENDED JUNE 30,
THREE MONTHS ENDED SIX MONTHS ENDED 1999 VS. 1998 1999 VS. 1998 ------------------------------------ ------------------------------------- CHANGE IN NET CHANGE IN NET AVERAGE AVERAGE INTEREST AVERAGE AVERAGE INTEREST (in thousands) VOLUME RATE INCOME VOLUME RATE INCOME --------- -------- -------- --------- -------- -------- INTEREST INCOME FROM EARNING ASSETS: Securities ................................ 23,228 (3,692) 19,536 33,770 (7,596) 26,174 Loans, net of unearned income (1) ......... 4,729 (5,732) (1,003) 5,253 (9,829) (4,576) Money Market Investments .................. 668 277 945 (73) 365 292 -------- -------- -------- -------- -------- -------- Total Interest Income .................. 28,625 (9,147) 19,478 38,950 (17,060) 21,890 -------- -------- -------- -------- -------- -------- INTEREST EXPENSE ON LIABILITIES: Savings, N.O.W. & Money Market Deposits ... (619) (3,243) $ (3,862) (756) (6,635) $ (7,391) Time Deposits ............................. (1,661) (2,342) (4,003) (3,518) (3,969) (7,487) Federal Funds Purchased and Securities Sold Under Agreements to Repurchase .......... 18,555 (2,099) 16,456 30,641 (3,892) 26,749 Other Borrowings .......................... 2,354 170 2,524 (2,868) (421) (3,289) -------- -------- -------- -------- -------- -------- Total Interest Expense ................. 18,629 (7,514) 11,115 23,499 (14,917) 8,582 -------- -------- -------- -------- -------- -------- Net Change in Net Interest Income ......... $ 9,996 $ (1,633) $ 8,363 $ 15,451 $ (2,143) $ 13,308 ======== ======== ======== ======== ======== ========
(1) Non-accrual loans are included in average loans, net of unearned income. 11 12 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) NET INTEREST INCOME (CONTINUED) The following tables present an analysis of net interest income by each major category of interest earning assets and interest bearing liabilities for the three and six month periods ended June 30, 1999 and 1998, respectively.
FOR THE THREE MONTHS ENDED JUNE 30, 1999 1998 -------------------------------- ------------------------------ AVERAGE AVERAGE AVERAGE AVERAGE (dollars in thousands) BALANCE INTEREST RATE BALANCE INTEREST RATE ----------- -------- ------- --------- -------- ------- INTEREST EARNING ASSETS: Securities 4,839,340 78,942 6.54% 3,391,330 59,406 7.03% Loans, net of unearned income (1) 5,989,582 123,575 8.28% 5,766,021 124,578 8.67% Money Market Investments 97,403 1,739 7.16% 60,035 794 5.30% ----------- -------- ---------- -------- Total Interest Earning Assets 10,926,325 204,256 7.50% 9,217,386 184,778 8.04% ----------- -------- ---------- -------- NON INTEREST EARNING ASSETS: Cash and Due from Banks 166,249 164,800 Other Assets (2) 308,161 330,357 ----------- ---------- Total Assets $11,400,735 $9,712,543 =========== ========== INTEREST BEARING LIABILITIES: Savings, N.O.W. & Money Market Deposits $ 2,926,640 $ 12,968 1.78% $3,042,297 $ 16,830 2.22% Time Deposits 2,277,183 27,090 4.77% 2,416,746 31,093 5.16% ----------- -------- ---------- -------- Total Savings and Time Deposits 5,203,823 40,058 3.09% 5,459,043 47,923 3.52% Federal Funds Purchased and Securities Sold Under Agreements to Repurchase 3,206,472 43,640 5.46% 1,850,899 27,184 5.89% Other Borrowings 415,275 5,271 5.09% 175,549 2,747 6.28% ----------- -------- ---------- -------- Total Borrowings 3,621,747 48,911 5.42% 2,026,448 29,931 5.92% ----------- -------- ---------- -------- Total Interest Bearing Liabilities 8,825,570 88,969 4.04% 7,485,491 77,854 4.17% ----------- -------- ---------- -------- Rate Spread 3.45% 3.87% NON-INTEREST BEARING LIABILITIES Demand Deposits 1,360,246 1,066,830 Other Liabilities 158,866 139,019 ----------- ---------- Total Liabilities 10,344,682 8,691,340 Capital Securities 199,299 199,274 Stockholders' Equity 856,754 821,929 ----------- ---------- Total Liabilities and Stockholders' Equity $11,400,735 $9,712,543 =========== ========== Net Interest Income & Net Interest Margin 115,287 4.23% 106,924 4.65% Less: Tax Equivalent Adjustment (1,889) (2,410) -------- -------- Net Interest Income $113,398 $104,514 ======== ========
(1) Non-accrual loans are included in average loans, net of unearned income. (2) Unrealized gains/(losses) on available-for-sale securities are recorded in other assets. (3) Interest income on a tax equivalent basis includes the additional amount of income that would have been earned if the Company's investment in tax exempt money market investments, state and municipal obligations, non-taxable loans, and equity securities had been made in securities and loans subject to Federal, State and local income tax yielding the same after tax income. The tax equivalent amount for $1.00 of non-taxable money market investments, investment income, non-taxable loan income, interest income from U.S. obligations (included in taxable securities) was $1.75, $1.58, $1.56, and $1.03 for the three and six months ended June 30, 1999; $n/a, $1.58, $1.56, and $1.03 for the three and six months ended June 30, 1998, respectively. 12 13 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) NON-INTEREST INCOME During the second quarter of 1999, non-interest income, exclusive of net securities gains, increased $1.6 million, or 11.6%, to $14.7 million, when compared to $13.1 million in the comparable prior year period This growth was achieved through a $.4 million or 6.1% increase in fees and service charges on deposit accounts to $6.9 million, a $1.2 million, or 39.5% increase in investment management and trust fees to $4.2 million, partially offset by a $.1 million, or 8.1%, decline in mortgage banking operations to $1.0 million. Contributing to the growth in investment management, commissions and trust fees are the operating results of Amivest, which was acquired in a purchase transaction, in June 1998. Net securities gains recognized during the most recent quarter were $7.0 million, as compared to $1.7 million in the comparable prior year period. These gains resulted primarily from the sale of substantially all of the Company's equity position in a local thrift holding company. The Company has been successful in making investments of this type that have materialized as a source of recurring gains. NON-INTEREST EXPENSE Non-interest expense increased $3.9 million in the second quarter of 1999 to $44.1 million, when compared to the comparable prior year period. Compensation and employee benefits increased $2.5 million during this period, due primarily to the Company's expanded use of incentive compensation to achieve its objective of growing demand deposits and generating non-interest income, annual merit increases, and increased costs associated with employee benefits. Occupancy and equipment expense increased $.7 million, due primarily to costs associated with addressing the Y2K issue. (See the Year 2000 section for further discussion.) In the six month period ended June 30, 1998, the Company recorded a $6 million intangible asset write-down, having an original balance of approximately $34 million, associated with a purchase transaction of a predecessor business. The Company, in accordance with its stated accounting policy regarding intangible assets, reviewed this asset for possible impairment due to its acquisition of NYB and the consolidation of certain overlapping branch locations. After evaluating the remaining assets and liabilities associated with the intangible asset, principally branch facilities and customer deposits, it was determined that, due to the closure of certain branch locations and the pro rata decline in customer deposits, a charge was necessary for that portion of the intangible asset deemed to have no future economic benefit. The Company's core efficiency ratio, which represents the ratio of non-interest expense, net of other real estate costs and other non-recurring charges, to net interest income on a tax equivalent basis and non-interest income, net of securities gains and losses, was 34.3% in the 1999 second quarter, as compared with 33.5% for the comparable prior year period. The core efficiency ratio demonstrates management's ability to maintain a disciplined approach to monitoring its operating structure and controlling related costs. INCOME TAXES The effective tax rate for the three and six months ended June 30, 1999 remained unchanged at 35%, when compared to the effective tax rate exclusive of the merger related restructure charge and special items recognized during 1998. Management anticipates that the effective tax rate for the remainder of 1999 will remain at approximately 35%. LOAN PORTFOLIO The following table represents the components of the loan portfolio for the periods indicated:
JUNE 30, % OF DECEMBER 31, % OF JUNE 30, % OF (dollars in thousands) 1999 TOTAL 1998 TOTAL 1998 TOTAL ---------- ----- ------------ ----- ---------- ----- Mortgage Loans-Residential . $1,974,531 32% $1,901,759 33% $2,014,352 35% Mortgage Loans-Multi-Family 1,686,881 28% 1,651,590 29% 1,646,733 29% Mortgage Loans-Commercial .. 1,216,097 20% 1,104,228 19% 1,158,172 20% Consumer Loans and Leases .. 589,233 10% 481,691 9% 417,477 7% Commercial & Industrial .... 553,760 9% 520,130 9% 471,026 8% Construction and Land Loans 59,048 1% 72,026 1% 63,851 1% ---------- --- ---------- --- ---------- --- $6,079,550 100% $5,731,424 100% $5,771,611 100% ========== === ========== === ========== ===
The loan portfolio is concentrated primarily in loans secured by real estate in the New York metropolitan area. The risk inherent in the portfolio is dependent not only upon regional and general economic stability, which affects property values, but also the financial well-being and creditworthiness of the borrowers. At June 30, 1999, loans outstanding totaled $6.1 billion, as compared to $5.7 billion at December 31, 1998 and $5.8 billion at June 30, 1998. While experiencing solid growth in loan origination activity, the absolute growth in the portfolio balances have been tempered by prepayments. The accelerated level of prepayment activity is due in large measure to the interest rate environment and aggressive pricing levels offered by competitors, principally thrift companies and Wall Street conduits. Management anticipates that loan growth should continue in the near-term. 13 14 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) LOAN PORTFOLIO (CONTINUED) The growth in the loan portfolio during recent years has resulted from both originations and acquisitions. To minimize the credit risk related to the portfolio's real estate concentration, management utilizes prudent underwriting standards as well as diversifying the type and locations of loan placements. The multi-family lending business includes loans on various types and geographically diverse apartment complexes. Multi-family mortgages are dependent largely on sufficient income to cover operating expenses and may be affected by government regulation, such as rent control regulations, which could impact the 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. The residential mortgage portfolio is comprised primarily of first mortgage loans on owner occupied 1-4 family residences located in the New York metropolitan area. The commercial mortgage portfolio contains loans secured by professional office buildings, retail stores, shopping centers and industrial developments. Commercial loans consist primarily of loans to small and medium size businesses. Consumer loans represent credit to individuals for household, family, and other personal expenditures and consist primarily of loans to finance new and used automobiles. Land loans are used to finance the acquisition of vacant land for future residential and commercial development. Construction loans finance the construction of industrial developments and single-family subdivisions. The Company's real estate underwriting standards include various limits on the loan-to-value ratios based on the type of property, and management considers, among other things, the creditworthiness of the borrower, the location of the real estate, the condition and value of the security property, the quality of the organization managing the property, and the viability of the project including occupancy rates, tenants and lease terms. Additionally, the underwriting standards require appraisals and periodic inspections of the properties as well as ongoing monitoring of operating results. ASSET QUALITY The components of non-performing assets and restructured, accruing loans are detailed in the table below:
JUNE 30, DECEMBER 31, JUNE 30, (in thousands) 1999 1998 1998 -------- ------------ -------- Loans Ninety Days Past Due and Still Accruing $ 4,526 $ 7,684 $ 6,965 Non-Accrual Loans ........................... 9,350 7,592 11,653 ------- ------- ------- Non-Performing Loans ........................ 13,876 15,276 18,618 Other Real Estate ........................... 646 3,217 3,717 ------- ------- ------- Non-Performing Assets ....................... $14,522 $18,493 $22,335 ======= ======= ======= Restructured, Accruing Loans ................ -- $ 584 $ 4,319 ======= ======= =======
At June 30, 1999, non-performing assets, which include loans 90 days past due and still accruing interest, non-accrual loans, and other real estate, declined to $14.5 million, when compared to $18.5 million at December 31, 1998. Non-performing assets at June 30, 1998 declined $7.8 million, or 35%, when compared to $22.3 million at June 30, 1998. This decline was achieved principally through the sale of non-performing assets for cash, principal repayments on loans, the workout of non-performing loans to performing status, and charge-offs. Non-performing loans at June 30, 1999 consisted of $4.4 million in residential mortgages, $3.9 million in consumer loans and leases, $2.4 million in commercial mortgages, $2.3 million in commercial loans, and $.8 million in multi-family mortgages. 14 15 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) ASSET QUALITY (CONTINUED) The following table represents a summary of the changes in the allowance for loan losses:
FOR THE SIX MONTHS ENDED JUNE 30, (dollars in thousands) 1999 1998 -------- -------- Balance at Beginning of Year ................................ $ 71,759 $ 74,393 Provision for Loan Losses ................................... 2,500 13,500 Recoveries Credited to the Allowance ........................ 2,146 1,961 -------- -------- 76,405 89,854 Charge-Offs ................................................. (7,015) (15,468) NYB Net Activity for the Three Months Ended December 31, 1997 -- (55) -------- -------- Balance at End of Period .................................... $ 69,390 $ 74,331 ======== ======== Net Charge-Offs to Average Loans ............................ 0.33% 0.95% Non-Performing Assets to Total Assets ....................... 0.13% 0.23% Allowance for Loan Losses to Period End Loans, net .......... 1.14% 1.29% Allowance for Loan Losses to Non-performing Loans ........... 500% 400%
The provision for loan losses for the six months ended June 30, 1999 declined to $2.5 million, when compared to $13.5 million for the comparable prior year period. Reflected in the 1998 period was a special provision of $11.5 million. This additional provision was due to the sale of $32 million in non-performing and marginally performing loans, at amounts below the loans carrying values, acquired in the NYB merger. Due to the aforementioned sale, the Company recognized a corresponding charge to the allowance for loan losses. This decision was predicated on the fact that management could sell these loans into a liquid market, reinvest the cash into other interest earning assets, and mitigate potential carrying costs associated with their future workout and resolution. Historically, NYB did not actively sell non-performing and marginally performing loans as part of its workout and recovery process. Subsequent to these sales, the Company restored its post-merger reserve coverage ratios to approximate pre-merger levels. The determination of the adequacy of the allowance for loan losses and the periodic provisioning for estimated losses included in the consolidated financial statements is the responsibility of management. The evaluation process is undertaken on a quarterly basis but may increase in frequency should conditions arise that would require management's prompt attention. Conditions giving rise to such action are business combinations, opportunities to dispose of non-performing and marginally performing loans by bulk sale or any development which may indicate an adverse trend. The methodology employed for assessing the appropriateness of the allowance consists of the following criteria: - The establishment of reserve amounts for all specifically identified criticized loans, including those arising from business combinations, that have been designated as requiring attention by management's internal loan review program, bank regulatory examinations or the Company's external auditors. - An average one year loss factor is applied to smaller balance homogenous types of loans not subject to specific review. These loans include residential 1-4 family properties and consumer loans. - An allocation to the remaining loans giving effect to historical loss experience over several years and linked to cyclical trends. Recognition is also given to the changed risk profile brought about from the aforementioned business combinations, customer knowledge, the results of the ongoing credit-quality monitoring processes and the cyclical nature of economic and business conditions. An important consideration in applying these methodologies is the concentration of real estate related loans located in the New York metropolitan area. Since many of the loans depend upon the sufficiency of collateral, any adverse trend in the real estate markets could seriously affect underlying values available to protect the Company from loss. This condition existed in the early part of the decade when the Company experienced sizable real estate loan losses. Other evidence used to support the amount of the allowance and its components are as follows: - Regulatory examinations - The amount and trend of criticized loans - Actual losses - Peer comparisons with other financial institutions - Economic data associated with the real estate market in the Company's market area - Opportunities to dispose of marginally performing loans for cash consideration Based upon the process employed and giving recognition to all attendant factors associated with the loan portfolio, management considers the allowance for loan losses to be adequate at June 30, 1999. 15 16 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) SECURITIES PORTFOLIO The composition of and the amortized cost and estimated fair values of available-for-sale and held-to-maturity securities portfolios were as follows:
JUNE 30, 1999 DECEMBER 31, 1998 JUNE 30, 1998 ----------------------------------------------------------------------------------- AVAILABLE-FOR-SALE AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR (in thousands) COST VALUE COST VALUE COST VALUE ----------------------------------------------------------------------------------- U.S. Treasury Securities .................. $19,948 $20,047 $30,952 $31,345 $30,958 $31,105 U.S. Government Agencies' Obligations ..... 118,109 118,356 162,464 167,411 197,812 200,991 Mortgage-Backed Securities ................ 831,069 816,474 728,849 731,815 835,036 842,490 CMO's Agency Issuances .................... 462,655 445,928 190,249 191,961 247,811 249,329 CMO's Private Issuances ................... 1,752,151 1,715,758 1,440,806 1,445,481 1,185,572 1,188,547 Equity Securities ......................... 209,471 210,177 207,407 204,584 217,637 237,956 Other Securities .......................... 193,635 188,540 202,815 207,626 151,979 157,480 ----------------------------------------------------------------------------------- $3,587,038 $3,515,280 $2,963,542 $2,980,223 $2,866,805 $2,907,898 -----------------------------------------------------------------------------------
------------------------------------------------------------------------------ HELD-TO-MATURITY AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR (in thousands) COST VALUE COST VALUE COST VALUE ------------------------------------------------------------------------------ State & Municipal Obligations ............. 68,921 68,466 71,837 73,111 61,538 62,145 Mortgage-Backed Securities ................ 492,109 480,390 560,815 562,330 415,088 415,860 CMO's Agency Issuances .................... 19,911 19,843 41,988 42,113 72,584 72,943 CMO's Private Issuances ................... 737,821 719,546 873,070 872,914 291,478 292,467 Other Securities .......................... 21,891 21,470 23,835 23,728 18,586 18,625 ------------------------------------------------------------------------------ $1,340,653 $1,309,715 $1,571,545 $1,574,196 $859,274 $862,040 ------------------------------------------------------------------------------
Management's strategy is to invest in securities with short-weighted average lives minimizing exposure to future increases in interest rates. These are principally mortgage-backed securities ("MBS") that provide stable cash flows which may be reinvested at current market interest rates. The combined weighted average life of the held-to-maturity and available-for-sale securities portfolios at June 30, 1999 was 3.1 years. Collateralized mortgage obligations ("CMO") are collateralized by either U.S. Government Agency MBS's or whole loans, which are principally AAA rated conservative current pay sequentials or PAC structures, with a current weighted average life of approximately 2.6 years. Prepayments on MBS's, including CMO's, are monitored as part of the portfolio management function. Management typically invests in MBS's with stable cash flows and relatively short duration, thereby limiting the impact of interest rate fluctuations on the portfolio. Management regularly performs simulation testing to assess the impact that interest and market rate changes would have on the MBS portfolio. At June 30, 1999, equity securities maintained in the available-for-sale portfolio were comprised of FHLB common stock and common and preferred stock of certain publicly traded companies. Other securities maintained in the available-for-sale portfolio consist of capital securities of certain financial institutions. At June 30, 1999, securities carried at $3.5 billion were pledged for various purposes as required by law and to secure securities sold under agreements to repurchase and other borrowings. CAPITAL The Company and its bank subsidiaries are subject to the risk based capital guidelines administered by the banking regulatory agencies. The risk based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Under these guidelines, assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk weighted assets and off-balance sheet items. The guidelines require all banks and bank holding companies to maintain a minimum ratio of total risk based capital to total risk weighted assets of 8%, including a minimum ratio of Tier I capital to total risk weighted assets of 4% and a Tier I capital to average assets of 3% ("Leverage Ratio"). Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators, that, if undertaken, could have a direct material effect on the Company's financial statements. As of June 30, 1999, the most recent notification from the various banking regulators categorized the Company and its bank subsidiaries as well capitalized under the regulatory framework for prompt corrective action. Under the capital adequacy guidelines, a well capitalized institution must maintain a minimum total risk based capital to total risk weighted assets ratio of at least 10%, a minimum Tier I capital to total risk weighted assets ratio of at least 6%, a minimum leverage ratio of at least 3% and not be subject to any written order, agreement or directive. There are no conditions or events since such notification that management believes have changed this classification. 16 17 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) CAPITAL (CONTINUED) The following table sets forth the Company's regulatory capital at June 30, 1999 and 1998, under the rules applicable at such dates. Management believes that the Company meets all capital adequacy requirements to which it is subject.
JUNE 30, 1999 JUNE 30, 1998 ------------------------------------------------------- (dollars in thousands ) AMOUNT RATIO AMOUNT RATIO ------------------------------------------------------- Tier 1 Capital $962,373 14.52% $926,867 16.06% Regulatory Requirement 265,110 4.00% 230,895 4.00% ------------------------------------------------------- Excess $697,263 10.52% $695,972 12.06% ------------------------------------------------------- Total Risk Adjusted Capital $1,032,081 15.57% $999,049 17.31% Regulatory Requirement 530,221 8.00% 461,791 8.00% ------------------------------------------------------- Excess $501,860 7.57% $537,258 9.31% ------------------------------------------------------- Risk Weighted Assets $6,627,759 $5,772,384 -------------- -------------
The Company's leverage ratio at June 30, 1999 and June 30, 1998 was 8.50% and 9.64%, respectively. The Tier 1, total risk-based and leverage capital ratios of North Fork were 12.02%, 13.08%, and 6.91%, respectively, at June 30, 1999. The decrease in the Company's regulatory capital ratios, when comparing June 30, 1999 ratios to June 30, 1998 ratios, is due primarily to management's decision to utilize its excess capital by increasing its level of interest earning assets, principally through the purchase of investment securities classified as available-for-sale (see the "Net Interest Income" section for further discussion). Additionally, capital levels at both the Company and at North Fork have been impacted by the Company's ten percent Common Stock Repurchase Program, which was approved by the Board of Directors in October 1998. As of June 30, 1999, the Company had repurchased 5.0 million shares, or approximately 3.5%, thereby increasing treasury stock by approximately $108 million. If the Company were to complete the repurchase program by December 31, 1999, funded principally from dividends from North Fork, both the Company's and North Fork's capital ratios would continue to meet the regulatory capital guidelines for well capitalized institutions (see the "Liquidity" section for a further discussion on dividend availability from North Fork). YEAR 2000 The Year 2000 date change (commonly referred to as "Y2K") creates numerous technical issues resulting from computer technology using two digit date fields, rather than four digits, to define the applicable year. The Y2K date change, which is common to most corporations including banks, concerns the inability of information systems, primarily, but not exclusively, computer software programs, to properly recognize and process date sensitive information beyond January 1, 2000. The Company's information systems are primarily processed in-house, using programs developed by third-party vendors and to a lesser extent, utilizing third-party service providers. Therefore, the direct effort to correct Y2K issues has been undertaken largely by third-parties and has not been within the Company's direct control. The Company has brought mission critical systems into compliance through the installation of updated or replacement programs developed by these third-parties. The Company began addressing the Y2K date change in October 1996 with the establishment of a Y2K Committee ("the Committee"). The Committee is comprised of senior management and personnel representing various areas directly or indirectly affected by the Y2K date change. A formal Year 2000 program was developed by the Committee and initially approved by the Board of Directors in 1997. The Committee has completed an assessment of its information technology ("IT") and non-IT systems, identified mission critical systems, and created a formal tracking system. Mission critical systems have been defined as all computer hardware and software necessary for the successful continuation of a core business activity. In addition to the computer systems identified as mission critical, the Committee also identified other essential services that may be impacted by Y2K date change such as utilities, telecommunications, and credit bureau information. The Committee communicates with the providers of these essential services to monitor their progress in addressing Y2K issues. To date, no information has been provided to suggest such essential services will not be Y2K compliant. The Company's plan to address the Y2K date change was developed in accordance with the management process outlined in the Federal Financial Institutions Examination Council ("FFIEC") Year 2000 statement issued on May 5, 1997, which consisted of the following phases: (a) awareness; (b) assessment; (c) renovation; (d) validation; and (e) implementation. Numerous subsequent FFIEC statements have been issued, which have been incorporated into the Year 2000 program. The Company has completed the awareness, assessment, renovation, validation, and implementation phases for its banking subsidiaries. The Year 2000 Program for its other subsidiaries is substantially complete and is expected to be completed by August 31, 1999. On an ongoing basis, third-party service provider and vendor progress in addressing the Y2K issue is monitored. 17 18 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) YEAR 2000 (CONTINUED) Contingency plans, which include timetables and various alternatives based upon the failure of a system(s) to be adequately modified and/or sufficiently tested and validated to ensure Year 2000 compliance, have been developed. These contingency plans are refined on an ongoing basis. There can be no assurance that either the Year 2000 program or contingency plans will avoid partial or total system interruptions. Since implementing the Y2K Program, the Company has expended approximately $1.8 million with external vendors and anticipates incurring an additional $.3 million to complete the Year 2000 Program. During the most recent quarter, the Company incurred approximately $.4 million in Y2K related expenses. The principal components of the expenditures incurred have been for the replacement of personal computer equipment and the purchase or upgrade of third-party software. External modification and internal costs have been expensed as incurred. Costs of new hardware and software have been capitalized and are being depreciated in accordance with policies. If the Year 2000 Program is unsuccessful, it may have a material, adverse effect on its future operating results and financial condition. Recognizing the importance of customer awareness, the Company provides Y2K information to the various segments of its customer base, including all depositors. Additionally, an assessment of the Y2K readiness of the significant loan customers has been completed and updated as needed. ASSET/LIABILITY MANAGEMENT The Company's primary earnings source is the net interest margin, which is affected by changes in the level of interest rates, the relationship between rates, the impact of interest rate fluctuations on asset prepayments, the level and composition of assets and liabilities, and the credit quality of the loan portfolio. Management's asset/liability objectives are to maintain a strong, stable net interest margin, to utilize its capital effectively without taking undue risks and to maintain adequate liquidity. The risk assessment program includes a coordinated approach to the management of liquidity, capital and interest rate risk. This risk assessment process is governed by policies and limits established by senior management which are reviewed and approved by the Asset/Liability Committee of the Board of Directors ("ALCO"). ALCO, comprised of members of senior management and the Board, meets periodically to evaluate the impact of changes in market interest rates on interest earning assets and interest bearing liabilities, net interest margin, capital and liquidity, and to evaluate the Company's strategic plans. The balance sheet structure is primarily short-term with most assets and liabilities repricing or maturing in less than five years. Management monitors the sensitivity of net interest income by utilizing a dynamic simulation model complemented by a traditional gap analysis. This model measures net interest income sensitivity and volatility to interest rate changes. It involves a degree of estimation based on certain assumptions that management believes to be reasonable. Factors considered include actual maturities, estimated cash flows, repricing characteristics, deposit growth/retention and, primarily, the relative sensitivity of assets and liabilities to changes in market interest rates. Utilizing this process, management can estimate and project the impact of changes in interest rates on net interest income. This relative sensitivity is important to consider since the Company's core deposit base is not subject to the same degree of interest rate sensitivity as its assets. Core deposit costs are internally controlled and generally exhibit less sensitivity to changes in interest rates than the adjustable rate assets whose yields are based on external indices and change in concert with market interest rates. Management has established certain limits for the potential volatility of net interest income, assuming certain levels of change in market interest rates with the objective of maintaining a stable level of net interest income under various probable rate scenarios. Management may choose to extend the maturity of its funding source and/or reduce the repricing mismatches of its assets or liabilities by using interest rate swaps. Additionally, management may use interest rate collars, interest rate floors, and interest rate cap agreements to assist in insulating it from volatile interest rate changes. Based upon the aforementioned factors regarding the simulation model, projected net interest income for the next twelve months was modeled based on both an immediate rise or fall in interest rates as well as gradual movements in interest rates over the twelve month period. Based on the information and assumptions in effect at June 30, 1999, management believes that a 100 basis point gradual increase in interest rates over the next twelve months would decrease net interest income by $8.9 million, or 1.9%, while a gradual decrease in interest rates would increase net interest income by $6.8 million, or 1.4%. Management utilizes the traditional gap analysis to complement its income simulation modeling, primarily focusing on the longer term structure of the balance sheet, since the gap analysis does not assess the relative sensitivity of assets and liabilities to changes in interest rates. The gap analysis is prepared based on the maturity and repricing characteristics of interest earning assets and interest bearing liabilities for selected time periods. The mismatch between repricings or maturities within a time period is commonly referred to as the "gap" for that period. A positive gap (asset sensitive), where interest-rate sensitive assets exceed interest-rate sensitive liabilities, generally will result in the net interest margin increasing in a rising rate environment and decreasing in a falling rate environment. A negative gap (liability sensitive) will generally have the opposite results on the net interest margin. However, the gap analysis is static in nature; therefore, the maturity and repricing characteristics of interest earning assets and interest bearing liabilities can change considerably with changes in interest rates. 18 19 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) LIQUIDITY The objective of liquidity management is to ensure the availability of sufficient resources to meet all financial commitments and to capitalize on opportunities for business expansion. Liquidity management addresses the ability to meet deposit withdrawals either on demand or at contractual maturity, to repay other borrowings as they mature and to make new loans and investments as opportunities arise. Sources of liquidity include dividends from its subsidiaries, borrowings, the sale of securities from the available-for-sale portfolio, and funds available through the capital markets. Dividends from the Company's primary subsidiary, North Fork, are limited by New York State Banking Department regulations to the current year's earnings plus the prior two years' retained net profits. Pursuant to this regulation, North Fork had $242.4 million of retained earnings available for dividends as of July 1, 1999. The current dividend availability at North Fork would be sufficient to allow the Company to complete its current share repurchase program, should market conditions warrant. The Bank subsidiaries have numerous sources of liquidity, including loan and security principal repayments and maturities, lines-of-credit with other financial institutions, the ability to borrow under repurchase agreements and FHLB advances utilizing its unpledged securities and mortgage related loan portfolios, respectively, the sale of securities from their available-for-sale portfolios, the securitization of loans, whole loan sales, and growth in their core deposit bases. The Bank subsidiaries currently have the ability to borrow an additional $2.9 billion on a secured basis, utilizing mortgage related loans and securities as collateral. At June 30, 1999, the Company had $2.5 billion in outstanding borrowings with the FHLB. The Company and its banking subsidiaries' liquidity positions are monitored daily to ensure the maintenance of an optimum level and efficient use of available funds. Management believes that the Company and its banking subsidiaries have sufficient liquidity to meet their operating requirements. 19 20 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 6, 1999 /s/ Daniel M. Healy -------------------- Daniel M. Healy Executive Vice President & Chief Financial Officer 20 EX-11 2 COMPUTATION OF NET INCOME PER COMMON SHARE 1 [EXHIBIT 11] NORTH FORK BANCORPORATION, INC. COMPUTATION OF NET INCOME PER COMMON EQUIVALENT SHARE JUNE 30, 1999 (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED ----------------------------------------------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1999 1998 1999 1998 ----------------------------------------------------------- Net Income $58,359,545 $50,895,586 $111,927,516 $58,272,074 Common Equivalent Shares: Weighted Average Common Shares Outstanding 139,289,004 141,316,444 138,793,944 139,904,910 Weighted Average Common Equivalent Shares 915,541 1,146,034 896,528 1,243,764 ----------------------------------------------------------- Weighted Average Common and Common Equivalent Shares 140,204,545 142,462,478 139,690,472 141,148,674 ----------------------------------------------------------- Net Income per Common Equivalent Share - Basic $0.42 $0.36 $0.81 $0.42 Net Income per Common Equivalent Share - Diluted $0.42 $0.36 $0.80 $0.41
21 EX-27 3 FINANCIAL DATA SCHEDULE
9 6-MOS DEC-31-1999 JUN-30-1999 155,247 158,872 18,500 0 3,515,280 1,340,653 1,309,715 6,079,550 69,390 11,522,285 6,489,467 1,465,000 378,744 2,384,796 0 0 362,730 441,548 11,522,285 123,330 77,961 1,076 202,367 40,058 88,969 113,398 1,250 7,017 44,055 89,776 89,776 0 0 58,360 0.42 0.42 4.23 9,350 4,526 0 0 71,759 7,015 2,146 69,390 69,390 0 0
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