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