<PAGE> 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: MARCH 31, 1998
--------------
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
- ----------------------------------------- (Zip Code)
(Address of principal executive offices)
(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.
<TABLE>
<CAPTION>
CLASSES OF COMMON STOCK NUMBER OF SHARES OUTSTANDING 05/12/98
<S> <C>
$2.50 PAR VALUE 95,190,350
</TABLE>
1
<PAGE> 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 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
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is contained throughout Item 2,
"Managements 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
<PAGE> 3
INDEX (CONTINUED)
PART II. OTHER INFORMATION (CONTINUED)
(b) Current Report on Form 8-K dated January 15,
1998 (reporting the Registrant's earnings
results for the period ended December 31,
1997)
Current Report on Form 8-K dated March 24,
1998 (reporting that the Registrant's Board
of Directors approved a 25% increase in its
quarterly dividend and declared a
three-for-two split on its common stock)
Current Report on Form 8-K dated March 30,
1998 (reporting that the Registrant had
completed its acquisition of New York
Bancorp as of the close of business March
27, 1998)
3
<PAGE> 4
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
----------------------------------------------------
MARCH 31, DEC. 31, MARCH 31,
1998 1997 1997
----------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash & Due from Banks .................................................. $ 152,011 $ 179,268 $ 125,403
Interest Earning Deposits .............................................. 6,121 7,787 2,619
Federal Funds Sold ..................................................... 17,500 4,000 --
Securities:
Available-for-Sale .................................................. 3,055,667 2,156,624 2,190,594
Held-to-Maturity .................................................... 709,600 1,763,308 1,799,442
------------ ------------ ------------
Total Securities ................................................. 3,765,267 3,919,932 3,990,036
------------ ------------ ------------
Loans .................................................................. 5,782,215 5,760,691 5,231,410
Less: Unearned Income ................................................ 21,408 21,560 25,589
Allowance for Loan Losses .................................. 75,103 74,393 74,024
------------ ------------ ------------
Net Loans ............................................ 5,685,704 5,664,738 5,131,797
------------ ------------ ------------
Intangible Assets ...................................................... 88,229 96,398 80,233
Premises & Equipment ................................................... 71,166 77,225 77,347
Accrued Income Receivable .............................................. 66,584 66,970 65,371
Other Assets ........................................................... 71,926 57,314 62,485
------------ ------------ ------------
Total Assets ...................................................... $ 9,924,508 $ 10,073,632 $ 9,535,291
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand Deposits ........................................................ $ 1,011,504 $ 948,458 $ 785,163
Savings, N.O.W. & Money Market Deposits ................................ 3,001,146 3,008,839 2,911,675
Other Time Deposits .................................................... 1,887,030 1,960,765 1,990,506
Certificates of Deposit, $100,000 & Over ............................... 471,428 419,877 440,046
------------ ------------ ------------
Total Deposits ................................................... 6,371,108 6,337,939 6,127,390
------------ ------------ ------------
Federal Funds Purchased & Securities Sold Under
Agreements to Repurchase ........................................... 2,002,690 2,104,036 1,752,181
Other Borrowings ....................................................... 385,000 449,600 452,759
Due to Brokers ......................................................... 10,467 60,866 363,593
Accrued Expenses & Other Liabilities ................................... 150,496 151,038 113,309
------------ ------------ ------------
Total Liabilities ................................................ $ 8,919,761 $ 9,103,479 $ 8,809,232
------------ ------------ ------------
Capital Securities ..................................................... $ 199,270 $ 199,264 $ 99,640
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 143,056,337 shares at March 31, 1998 ....................... 357,641 256,790 252,410
Additional Paid in Capital ............................................. 3,703 127,853 85,170
Retained Earnings ...................................................... 456,412 469,616 377,500
Unrealized Gains/(Losses) on Securities Available-for-Sale, net of taxes 26,283 17,124 (13,701)
Deferred Compensation .................................................. (18,817) (19,361) (13,857)
Treasury Stock at cost; 769,790 at March 31, 1998 ...................... (19,745) (81,133) (61,103)
------------ ------------ ------------
Total Stockholders' Equity ....................................... 805,477 770,889 626,419
------------ ------------ ------------
Total Liabilities and Stockholders' Equity ....................... $ 9,924,508 $ 10,073,632 $ 9,535,291
============ ============ ============
</TABLE>
4
<PAGE> 5
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
(in thousands, except per share amounts) 1998 1997
--------------------------
<S> <C> <C>
INTEREST INCOME
Loans ................................................ $ 123,495 $ 109,288
Mortgage-Backed Securities ........................... 54,491 46,880
U.S. Treasury & Government Agency Securities ......... 5,825 5,742
Other Securities ..................................... 4,577 2,110
State & Municipal Obligations ........................ 1,298 1,385
Federal Funds Sold & Securities Purchased Under
Agreements to Resell ................................ 755 183
Interest Earning Deposits ............................ 66 37
--------- ---------
Total Interest Income ................................ 190,507 165,625
--------- ---------
INTEREST EXPENSE
Savings, N.O.W. & Money Market Deposits .............. 16,612 16,493
Other Time Deposits .................................. 24,263 24,862
Certificates of Deposit, $100,000 & Over ............. 6,607 5,759
Federal Funds Purchased & Securities Sold Under
Agreements to Repurchase .......................... 31,886 16,598
Other Borrowings ..................................... 6,932 7,637
--------- ---------
Total Interest Expense ............................ 86,300 71,349
--------- ---------
Net Interest Income ............................... 104,207 94,276
Provision for Loan Losses ............................ 12,500 1,800
--------- ---------
Net Interest Income after Provision for Loan Losses 91,707 92,476
--------- ---------
NON-INTEREST INCOME
Fees & Service Charges on Deposit Accounts ........... 6,654 5,567
Broker Commissions & Trust Fees ...................... 2,473 2,309
Mortgage Banking Operations .......................... 1,023 1,097
Other Operating Income ............................... 3,618 1,432
Net Securities (Losses)/Gains ........................ (2,517) 82
--------- ---------
Total Non-Interest Income ....................... 11,251 10,487
--------- ---------
NON-INTEREST EXPENSE
Compensation & Employee Benefits ..................... 22,942 20,782
Amortization and Writedown of Intangible Assets ...... 8,168 1,840
Occupancy and Equipment .............................. 7,499 7,157
Capital Securities Costs ............................. 4,211 2,245
Other Operating Expenses ............................. 11,560 10,432
Merger Related Restructure Charge .................... 52,452 --
--------- ---------
Total Non-Interest Expense ....................... 106,832 42,456
--------- ---------
(Loss)/Income Before Income Taxes .................... (3,874) 60,507
(Benefit)/Provision for Income Taxes ................. (11,250) 24,528
--------- ---------
Net Income ...................................... $ 7,376 $ 35,979
========= =========
PER SHARE: (1)
Earnings Per Share - Basic ........................... $ 0.05 $ 0.26
Earnings Per Share - Diluted ......................... $ 0.05 $ 0.26
Cash Dividends ....................................... $ 0.125 $ 0.083
</TABLE>
(1) Amounts have been restated to give effect for the 3-for-2 Common Stock Split
declared March 24, 1998 and effective on May 15, 1998.
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998 1997
--------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income .................................................................. $ 7,376 $ 35,979
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Provision for Loan Losses ................................................... 12,500 1,800
Depreciation and Amortization ............................................... 2,844 2,673
Amortization and Writedown of Intangible Assets ............................. 8,168 1,840
Amortization of Securities Premiums ......................................... 3,007 2,553
Accretion of Discounts and Net Deferred Loan Fees ........................... (3,245) (1,692)
Net Securities Losses/(Gains) ............................................... 2,517 (82)
Change in Other Assets and Liabilities ...................................... 48,793 (8,787)
--------- ---------
Net Cash Provided by Operating Activities ............................... 81,960 34,284
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities, Redemptions, Calls and Principal Repayments on
Securities Held-to-Maturity ............................................. 107,367 51,086
Proceeds from Sales of Securities Available-for-Sale ........................ 363,235 6,554
Maturities and Principal Repayments on
Securities Available-for-Sale ........................................... 287,519 47,567
Purchases of Securities Available-for-Sale .................................. (626,724) (598,617)
Loans Originated and Principal Repayments on Loans, net ..................... (66,658) (185,938)
Proceeds from the Sale of Loans ............................................. 57,250 23,168
Transfers to and Sales of Other Real Estate, net ............................ 1,273 1,145
Premises and Equipment, net ................................................. 3,849 (1,286)
--------- ---------
Net Cash Provided by/(Used in) Investing Activities ..................... 127,111 (656,321)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Decrease in Customer Deposits Liabilities ............................... (12,162) (72,381)
Net (Decrease)/Increase in Borrowings ....................................... (222,552) 539,365
Treasury Stock Activity, net ................................................ 16,565 (2,225)
Common Stock Sold for Cash .................................................. 7,403 4,278
Dividends Paid to Shareholders .............................................. (13,364) (10,386)
--------- ---------
Net Cash (Used in)/Provided by Financing Activities ..................... (224,110) 458,651
--------- ---------
Net Decrease in Cash and Cash Equivalents ............................... (15,039) (163,386)
New York Bancorp Activity for the Three Months Ended December 31, 1997 ...... (384) --
Cash and Cash Equivalents at Beginning of Year .............................. 191,055 291,408
--------- ---------
Cash and Cash Equivalents at End of Year .................................... $ 175,632 $ 128,022
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Period for:
Interest Expense ........................................................ $ 87,947 $ 70,976
========= =========
Income Taxes ............................................................ $ 19,507 $ 22,067
========= =========
Securities Transferred from Held-to-Maturity to Available-for-Sale due to the
Merger with New York Bancorp in accordance with SFAS No.115 ............. $ 913,598 --
========= =========
During the Period the Registrant Purchased Various Securities which
Settled in the Subsequent Month ......................................... $ 10,467 $ 363,593
========= =========
</TABLE>
6
<PAGE> 7
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Additional Unrealized
Common Paid in Retained Securities Deferred Treasury
Stock Capital Earnings Gains/(Losses) Comp. Stock Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 ............... $169,243 $158,715 $352,581 ($3,195) ($5,193) ($62,717) $609,434
Net Income ............................... -- -- 35,979 -- -- -- 35,979
Cash Dividends - The Registrant .......... -- -- (8,283) -- -- -- (8,283)
Cash Dividends - NYB ..................... -- -- (2,487) -- -- -- (2,487)
Issuance of Common Stock ................. 834 3,244 -- -- -- -- 4,078
Treasury Stock Activity, net ............. -- 28 (237) -- (1,787) (1,996)
Restricted Stock Activity, net ........... -- 5,516 -- -- (8,664) 3,401 253
Amortization of Permanent Unrealized Loss
upon Transfer of Securities from
Available-for-Sale
to Held-to-Maturity, net of taxes .. -- -- (53) (492) -- -- (545)
Adjustment to Unrealized Gains/(Losses) on
Securities
Available-for-Sale, net of taxes ... -- -- -- (10,014) -- -- (10,014)
Issuance of Stock for the Two-for-One ...
Stock Split 82,333 (82,333)
--------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1997 .................. $ 252,410 $ 85,170 $ 377,500 ($13,701) ($13,857) ($61,103) $626,419
======================================================================================
BALANCE, DECEMBER 31, 1997 ............... $256,790 $127,853 $469,616 $17,124 ($19,361) ($81,133) $770,889
Net Income ............................... -- -- 7,376 -- -- -- 7,376
Cash Dividends -The Registrant ........... -- -- (17,789) -- -- -- (17,789)
Cash Dividends - NYB ..................... -- -- (3,219) -- -- -- (3,219)
Issuance of Common Stock ................. 2,871 14,975 -- -- -- -- 17,846
Treaury Stock Activity, net .............. (21,234) (19,911) (11,524) -- -- 61,388 8,719
Restricted Stock Activity, net ........... -- -- -- -- 544 -- 544
NYB Net Income for the Three Months
Ended December 31,1997 ............... -- -- 11,992 -- -- -- 11,992
Amortization of Permanent Unrealized Loss
upon Transfer of Securities from
Available-for-Sale
to Held-to-Maturity, net of taxes .. -- -- (40) (291) -- -- (331)
Adjustment to Unrealized Gains/(Losses) on
Securities
Available-for-Sale, net of taxes ... -- -- -- 9,450 -- -- 9,450
Issuance of Stock for the Three-for-Two .
Stock Split .............................. 119,214 (119,214) -- -- -- -- --
--------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1998 .................. $357,641 $ 3,703 $456,412 $26,283 ($18,817) ($19,745) $805,477
======================================================================================
</TABLE>
7
<PAGE> 8
NORTH FORK BANCORPORATION, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998 AND 1997
BASIS OF PRESENTATION
North Fork Bancorporation, Inc. (the "Registrant") through its banking
subsidiaries, North Fork Bank ("North Fork") and Branford Savings Bank
("Branford"), provides a variety of banking and financial services to middle
market and small business organizations, local governmental units, and retail
customers in the metropolitan New York area and the Connecticut County of New
Haven. On March 27, 1998, New York Bancorp ("NYB"), the parent company of Home
Federal Savings Bank ("Home"), was merged with and into the Registrant. The
merger has been accounted for under the pooling-of-interests method of
accounting and, accordingly, the Registrant's consolidated financial statements
include the consolidated accounts of NYB for all periods reported.
The Registrant reports its financial results on a calendar year basis,
whereas NYB had reported its financial results on a fiscal year basis, which
ended September 30. The consolidated financial results for periods prior to 1998
reflect the combination of the Registrant at and for the year ended December 31
with NYB at and for the years ended September 30. Certain of NYB's financial
information has been reclassified to conform with that of the Registrant.
The accounting and reporting policies of the Registrant 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 months ended March 31, 1998 are not
necessarily indicative of the results of operations which may be expected for
the full year 1998 or any other interim periods.
These statements should be read in conjunction with the Registrant's
summary of significant accounting policies, which are incorporated herein by
reference, in its 1997 Annual Report on Form 10-K.
8
<PAGE> 9
BUSINESS COMBINATIONS
New York Bancorp
On March 27, 1998, New York Bancorp was merged with and into the Registrant
in a transaction accounted for under the pooling-of-interests method of
accounting. Pursuant to the merger agreement, the Registrant issued 1.19 shares
of common stock for each share of NYB's common stock outstanding (26,603,264
common shares issued) and simultaneously retired 8,493,604 shares, as adjusted
of NYB's common stock, previously held as treasury shares with a cost basis of
$56.6 million. NYB had $3.4 billion in total assets, $2.0 billion in loans, net
of unearned, $1.7 billion in deposit liabilities, and $140.3 million in capital
at the merger date. The Registrant's previously reported components of
consolidated income and the amounts reflected in the accompanying consolidated
statements of income for the three months ended March 31, 1997 are as follows:
<TABLE>
<CAPTION>
NET INTEREST INCOME
<S> <C>
As Previously Reported .. $66,070
New York Bancorp ........ 28,206
-------
Combined ................ $94,276
-------
</TABLE>
<TABLE>
<CAPTION>
NET INCOME
<S> <C>
As Previously Reported $25,715
New York Bancorp ..... 10,264
-------
Combined ............. $35,979
-------
</TABLE>
NYB's reporting period had been as of and for the year ended September 30,
whereas the Registrant utilized a calendar year basis. NYB's financial results
for 1998 have been conformed to the calendar year reporting period of the
Registrant. All prior year consolidated financial results combine the Registrant
with NYB utilizing its respective fiscal reporting period. As a result, NYB's
operating results for the three month period ended December 31, 1997 have been
set forth separately as a component of consolidated stockholders' equity and are
not included in the Registrant's consolidated statements of income.
The following is a summary of New York Bancorp's results of operations and
cash flows for the three months ended December 31, 1997:
<TABLE>
<CAPTION>
STATEMENT OF INCOME DATA:
<S> <C>
Net Interest Income ................... $ 29,329
--------
Net Income ............................ $ 11,992
--------
STATEMENT OF CASH FLOWS DATA:
Cash Provided by Operating Activities . $ 19,896
Cash Used in Investing Activities ..... (65,460)
Cash Provided by Financing Activities . 45,180
--------
Net Decrease in Cash & Cash Equivalents ($ 384)
--------
</TABLE>
In connection with the merger, on March 27, 1998, NYB consummated a private
placement of 600,000 shares of its common stock (714,000 shares, as adjusted),
which were previously held in treasury, at a price of $43.625 per share ($36.66,
per share, as adjusted).
Additionally, the Registrant, in connection with the merger, recorded a
pre-tax charge for merger and related restructuring costs of $52.5 million. This
charge included $10.0 million in direct merger expenses, primarily investment
banking and other professional fees; $15.8 million in severance and other
employee related costs; $26.7 in facility and system costs associated with the
elimination of duplicate facilities, the write-off of certain property and
equipment, the cancellation of certain contractual obligations, and other
expenses associated with the merger. Additionally, the Registrant recorded a
$5.0 tax charge, net of federal benefit, relating to the recapture of Home's bad
debt reserve for State and local tax purposes. At March 31, 1998, $20.4 million
of the merger and related restructuring charge is included in other liabilities.
It is anticipated that the amount of this charge will be substantially paid in
1998, with the exception of certain obligations under long-term lease
arrangements.
9
<PAGE> 10
Branford Savings Bank
In December 1997, the Registrant completed its purchase acquisition of
Branford Savings Bank ("Branford"), a Connecticut chartered savings bank. At
December 31, 1997, Branford had total assets of $179 million, deposits of $160
million, and stockholders' equity of $16.6 million. Branford operates through
five full-service branch locations in the Connecticut county of New Haven. The
operating results of Branford are not significant to the consolidated financial
statements of the Registrant.
Additionally, on April 29, 1998 the Registrant entered into an agreement to
sell four branches and $67 million in deposits of Branford for a deposit premium
of 9%.
COMMON STOCK SPLIT
On March 24, 1998, the Board of Directors approved a three-for-two common
stock split. The new shares will be issued on May 15, 1998 to shareholders of
record on April 24, 1998. The par value of the Registrant's common stock remains
unchanged at $2.50. As a result, $119.2 million was transferred from additional
paid-in-capital to common stock at March 31, 1998 to reflect the assumed
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.
RECENT ACCOUNTING DEVELOPMENTS
Reporting Comprehensive Income
The Registrant adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") in January 1998. 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 non-owner 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.
Additionally, SFAS 130 allows an enterprise to present total comprehensive
income amount in the notes to the interim financial statements rather than on
the face of a statement, as required for the display in the annual financial
statements. For the three months ended March 31, 1998, comprehensive income was
$16.5 million, reflecting a $9.2 million adjustment to net income for unrealized
gains on securities available-for-sale, net of income taxes. Comprehensive
income for the three months ended March 31, 1997 was $25.5 million, reflecting
an increase of $10.5 million in the unrealized loss on securities
available-for-sale, net of income taxes.
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 implication of implementing SFAS 131 and believes that the adoption
will not have a material adverse effect on the Registrant.
10
<PAGE> 11
Employers' Disclosures about Pensions and Other Post-retirement Benefits
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Post-retirement Benefits" ("SFAS 132"). SFAS 132 revises employers' disclosures
about pensions and other post-retirement benefit plans; it does not change the
measurement or recognition under these plans. SFAS 132 standardizes the
disclosure requirements for pensions and other post-retirement benefits to the
extent practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer useful.
SFAS 132 is effective for fiscal years beginning after December 15, 1998.
The Registrant is currently evaluating the effect of SFAS 132 upon its financial
statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
The Registrant recognized net income of $7.4 million, or diluted earnings
per share of $.05, for the first quarter ended March 31, 1998, as compared with
net income of $36.0 million, or diluted earnings per share of $.26, for the
first quarter ended March 31, 1997. The quarter ended March 31, 1998 included,
for the first time, the operating results of New York Bancorp. Net income and
diluted earnings per share during the quarter were impacted by the recognition
of certain special charges and non-recurring items. The aggregate of these
special charges and non-recurring items was $74.3 million or $38.6 million after
taxes. They included a merger related restructure charge of $52.5 million,
associated with the NYB acquisition, an additional provision for loan losses of
$11.5 million, due principally to certain non-performing and marginally
performing loans acquired in the NYB acquisition being identified for sale,
securities losses of $2.5 million related to the Registrant's balance sheet
repositioning, a write-down of $6 million in intangible assets due to a
realignment in the Registrant's business arising from recent business
combinations, and the recognition of $1.8 million in other operating expenses,
primarily non-recurring compensation costs paid to former employees of Home. Tax
items include a charge of $5 million, net of federal benefit, relating to the
recapture of Home's bad debt reserve of State and Local tax purposes and a $20
million tax benefit derived from the restructuring of one of North Fork's
subsidiaries.
Net income and diluted earnings per share, exclusive of the aforementioned
items ("Core Earnings"), would have been $46.0 million, or $.33 per share, in
the first quarter ended March 31, 1998. Return on average total assets and
return on average stockholders' equity, excluding these items, would have been
1.81% and 24.20%, respectively.
11
<PAGE> 12
The following table sets forth a reconciliation from net income, as
reported, to Core Earnings for the three months ended March 31, 1998:
<TABLE>
<S> <C> <C>
(in thousands, except ratio and per share amounts)
Net Income (Earnings Per Share - Diluted $.05) $ 7,376
ITEMS EXCLUDED FROM CORE EARNINGS:
Merger Related Restructure Charge $ 52,452
Provision for Loan Losses 11,500
Writedown of Intangible Assets 6,000
Securities Losses 2,517
Other Operating Expenses 1,814
----------
74,283
Less: Related Tax Effect (20,682)
----------
$53,601
Add: Bad Debt Recapture, Net of Federal Benefit 5,000
Less: Tax Benefit (20,000)
---------
Core Earnings $45,977
=========
Core Earnings Per Share - Basic $0.33
Core Earnings Per Share - Diluted $0.33
Core Return on Average Stockholders Equity 24.20%
Core Return on Average Total Assets 1.81%
</TABLE>
NET INTEREST INCOME
Net interest income increased $9.9 million, or 10.5%, to $104.2 million for
the 1998 first quarter, as compared with $94.3 million for the comparable 1997
period. This growth was achieved through a 16.4% increase in average interest
earning assets. The net interest margin, on a tax equivalent basis, declined to
4.41% when compared to 4.61% during the 1997 period. The narrowing in net
interest margin was directly attributable to an increase in the level of higher
costing wholesale funding sources and to a lesser extent a modest decline in the
Registrant's overall yield on interest earning assets. This impact was partially
offset by the growth in average demand deposits, the issuance of $100 million in
capital securities in December 1997, and an increase in retained capital.
Interest income increased $24.9 million, or 15.0%, to $190.5 million in the
1998 first quarter, when compared to $165.6 million in 1997. This increase was
achieved through the $1.4 billion, or 16.4%, growth in interest earning assets
to $9.8 billion during the 1998 first quarter, when compared to $8.4 billion in
1997.
Average loans, net of unearned income, increased $689.1 million, or 13.5%,
to $5.8 billion for the 1998 first quarter, while remaining relatively constant
at approximately 60% of average interest earning assets. This level of growth
was achieved through continued strong demand across virtually all loan
categories. However, the residential mortgage loan portfolio continues to be
impacted by the heavy volume of refinancing activity. The corresponding yield on
average loans declined modestly from 8.70% to 8.67%.
Average securities increased $649.2 million or 19.7% to $3.9 billion for
the 1998 first quarter. The increase in average securities resulted from
management's decision to increase its mortgage-backed securities and corporate
debt securities portfolios. The yield on average securities declined modestly
from 7.06% to 7.01%.
Interest expense increased to $86.3 million in the first quarter of 1998,
reflecting an average cost of funds of 4.29%, as compared with $71.3 million, or
4.04%, in 1997. This increase resulted from a $1.0 billion increase in interest
bearing liabilities, due principally to a decision to fund balance sheet growth
with higher costing wholesale borrowings, which positively impacted net interest
income. This growth strategy is consistent with management's decision to more
efficiently utilize its excess capital.
Average securities sold under agreements to repurchase increased 89.7% to
$2.2 billion, reflecting an average cost of funds of 5.81% for the first
quarter, as compared to $1.2 billion, at an average cost of funds of 5.74% for
the
12
<PAGE> 13
1997 period.
Average demand deposits increased $186.4 million, or 24.0%, to $963.6
million during the first quarter of 1998, as compared to $777.2 million during
the 1997 period. The growth in the level of demand deposits has resulted from
management's emphasis on converting acquired savings bank locations into
full-service commercial banking locations. At March 31, 1998, demand deposits
represented 15.9% of total deposits, as compared to 12.8% at March 31, 1997.
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>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998 VS. 1997
--------------------------------------------------
CHANGE IN
AVERAGE AVERAGE NET INTEREST
(in thousands) VOLUME RATE INCOME
--------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME FROM EARNING ASSETS:
Interest Earning Deposits ................................. $34 ($5) $29
Securities ................................................ 11,222 (432) 10,790
Loans, net of unearned income (2) ......................... 14,728 (425) 14,303
Federal Funds Sold & Securities Purchased Under
Agreements to Resell ..................................... 565 7 572
--------------------------------------------------
Total Interest Income .................................. 26,549 (855) 25,694
--------------------------------------------------
INTEREST EXPENSE ON LIABILITIES:
Savings, N.O.W. & Money Market Deposits ................... 297 (178) 119
Time Deposits ............................................. (287) 536 249
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase .......................... 15,077 211 15,288
Other Borrowings .......................................... (1,244) 539 (705)
--------------------------------------------------
Total Interest Expense ................................. 13,843 1,108 14,951
--------------------------------------------------
Net Change in Net Interest Income ......................... $12,706 ($1,963) $10,743
--------------------------------------------------
</TABLE>
(1) The above table is presented on a tax equivalent basis.
(2) Non-accrual loans are included in average loans, net of unearned
income.
13
<PAGE> 14
The following tables present an analysis of net interest income by each
major category of interest earning assets and interest bearing liabilities for
the three month periods ended March 31, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998 1997
------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
(dollars in thousands ) BALANCE INTEREST RATE BALANCE INTEREST RATE
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Interest Earning Deposits ................. $ 6,880 $ 66 3.89% $ 3,349 $ 37 4.48%
Securities ................................ 3,945,275 68,182 7.01% 3,296,103 57,392 7.06%
Loans, net of unearned income (1) ......... 5,791,780 123,774 8.67% 5,102,670 109,471 8.70%
Federal Funds Sold and Securities
Purchased Under Agreements to Resell ..... 51,503 755 5.95% 12,954 183 5.73%
----------------------------- ----------------------------
Total Interest Earning Assets ........... 9,795,438 192,777 7.98% 8,415,076 167,083 8.05%
----------------------------- ----------------------------
NON INTEREST EARNING ASSETS:
Cash and Due from Banks ................... 152,748 145,237
Other Assets (2) .......................... 330,070 272,562
------------ ------------
Total Assets ............................. $ 10,278,256 $ 8,832,875
============ ============
INTEREST BEARING LIABILITIES:
Savings, N.O.W. & Money Market Deposits ... $ 3,005,521 $ 16,612 2.24% $ 2,952,084 $ 16,493 2.27%
Time Deposits ............................. 2,441,100 30,870 5.13% 2,464,048 30,621 5.04%
----------------------------- ----------------------------
Total Savings and Time Deposits ......... 5,446,621 47,482 3.54% 5,416,132 47,114 3.53%
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase .......... 2,224,817 31,886 5.81% 1,172,646 16,598 5.74%
Other Borrowings .......................... 477,731 6,932 5.88% 565,443 7,637 5.48%
----------------------------- ----------------------------
Total Interest Bearing Liabilities ....... 8,149,169 86,300 4.29% 7,154,221 71,349 4.04%
----------------------------- ----------------------------
Rate Spread ............................... 3.69% 4.01%
NON-INTEREST BEARING LIABILITIES
Demand Deposits ........................... 963,557 777,185
Other Liabilities ......................... 176,116 173,618
------------ ------------
Total Liabilities ........................ 9,288,842 8,105,024
Capital Securities ........................ 199,268 99,638
Stockholders' Equity ..................... 790,146 628,213
------------ ------------
Total Liabilities and Stockholders' Equity $ 10,278,256 $ 8,832,875
============ ============
Net Interest Income and Net Interest Margin 106,477 4.41% 95,734 4.61%
Less: Tax Equivalent Adjustment ........... (2,270) (1,458)
------------ ------------
Net Interest Income .................. $ 104,207 $ 94,276
============ ============
</TABLE>
(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 non-interest earning assets.
(3) The above table is presented on a tax equivalent basis.
NON-INTEREST INCOME
Non-interest income, exclusive of net securities losses and gains,
increased 32.3% to $13.8 million in the 1998 first quarter, compared with $10.4
million in the 1997 first quarter. Net securities losses during the current
quarter were $2.5 million, compared with net securities gains of $.1 million in
the 1997 corresponding period.
The increase in non-interest income during 1998 first quarter resulted from
a $1.1 million, or 19.5% increase in fees and service charges on deposit
accounts to $6.7 million, a $.2 million, or 7.1% increase in broker commissions
and trust fees to $2.5 million and a $2.2 million or 152.7% increase in other
operating income to $3.6 million. The growth in non-interest income is
attributable to management's success in delivering a full compliment of
financial services and products to its new market areas and expanded customer
base through its past acquisitions.
14
<PAGE> 15
Net securities losses recognized during the quarter were principally due to
the Registrant selling approximately $415 million in various securities, in
connection with its balance sheet repositioning (see the "Securities" section of
this report for additional detail).
The recent acquisition of New York Bancorp has provided the Registrant with
an expanded geographic presence and significantly larger customer base, which
should result in increased fee income during the remainder of 1998.
NON-INTEREST EXPENSE
Non-interest expense, exclusive of non-recurring merger related restructure
charges and other special items included in non-interest expense aggregating
$60.3 million, increased $4.0 million, or 9.4%, during the 1998 first quarter to
$46.5 million, as compared to $42.5 million during the comparable prior year
period. This increase is attributable to the $2.0 million increase in capital
securities costs due to the issuance of an additional $100 million in capital
securities in December 1997, increases in costs associated with the December
1997 purchase acquisition of Branford Savings Bank, and the costs associated
with the opening of several supermarket locations during the past 12 months.
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 tax equivalent basis and non-interest
income net of securities gains and losses, improved to 38.6% in the 1998 first
quarter, as compared with 39.7% for the comparable prior year period. Management
anticipates that during 1998 the core efficiency ratio will be further reduced
as the Registrant starts to fully realize the benefits of its recent acquisition
of NYB.
INCOME TAXES
The Registrant's effective tax rate exclusive of the certain special
charges, non-recurring items, and tax benefits was 35% for the first quarter of
1998, as compared to 40.5% for the comparable prior year period. The Registrant
anticipates that its effective tax rate for the remainder of 1998 will be
approximately 35%.
LOAN PORTFOLIO
The following table represents the components of the loan portfolio for the
periods indicated:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
MARCH 31, % OF DEC. 31, % OF MARCH 31, % OF
(dollars in thousands) 1998 TOTAL 1997 TOTAL 1997 TOTAL
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loans-Residential ................... $2,051,645 36% $2,144,029 36% $2,167,563 42%
Mortgage Loans-Multi-Family .................. 1,631,724 28% 1,534,623 27% 1,221,579 23%
Mortgage Loans-Commercial .................... 1,177,288 20% 1,192,071 21% 1,057,984 20%
Commercial & Industrial ...................... 450,612 8% 444,480 8% 397,842 8%
Consumer Loans and Leases .................... 414,296 7% 394,436 7% 330,563 6%
Construction and Land Loans ................. 56,650 1% 51,052 1% 55,879 1%
-----------------------------------------------------------------
$5,782,215 100% $5,760,691 100% $5,231,410 100%
-----------------------------------------------------------------
</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.
15
<PAGE> 16
ASSET QUALITY
The components of non-performing assets and restructured, accruing loans
are detailed in the table below:
<TABLE>
<CAPTION>
-------------------------------------
MARCH 31, DEC. 31, MARCH 31,
(in thousands) 1998 1997 1997
-------------------------------------
<S> <C> <C> <C>
Loans Ninety Days Past Due and Still Accruing ............................ $7,535 $6,414 $7,844
Non-Accrual Loans ........................................................ 17,753 31,231 49,952
-------------------------------------
Non-Performing Loans .................................................. 25,288 37,645 57,796
Other Real Estate ........................................................ 4,931 5,943 5,235
-------------------------------------
Non-Performing Assets ................................................. $30,219 $43,588 $63,031
=====================================
Restructured, Accruing Loans ............................................. $9,408 $14,567 $18,373
=====================================
</TABLE>
At March 31, 1998, non-performing assets, which include loans past due
ninety days and still accruing interest, non-accrual loans and other real
estate, was $30.2 million as compared to $43.6 million at December 31, 1997.
Non-performing assets declined $32.8 million, or 52.1%, at March 31, 1998 when
compared to $63.0 at March 31, 1997. This substantial decline was achieved
principally through the sale of non-performing loans for cash during the past 12
months. Non-performing loans at March 31, 1998 consisted of $2.8 million in
commercial loans, $6.5 million in commercial mortgages, $9.7 million in
residential mortgages, $1.4 million in construction and land loans, $4.6 million
in consumer loans and leases, and $.3 million in multi-family mortgages.
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 $9.4 million at March 31,
1998, as compared with $14.6 million at December 31, 1997, and $18.4 million at
March 31, 1997. 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. At March 31, 1998, 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:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998 1997
--------------------------
<S> <C> <C>
(dollars in thousands)
Balance at Beginning of Year ........................................................ $74,393 $73,280
Provision for Loan Losses ........................................................... 12,500 1,800
Recoveries Credited to the Allowance ................................................ 1,108 398
--------------------------
88,001 75,478
Losses Charged to the Allowance ..................................................... (12,843) (1,454)
NYB Net Activity for the Three Months Ended December31, 1997 ........................ (55) --
-------------------------
Balance at End of Period ............................................................ $75,103 $74,024
==========================
Ratio of Net Charge-Offs to Average Loans ........................................... 0.82% 0.08%
Allowance for Loan Losses to Period End Loans, net
of unearned income .............................................................. 1.30% 1.42%
Ratio of Allowance for Loan Losses to
Non-performing Loans ............................................................ 297% 128%
</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.
16
<PAGE> 17
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 - $5 million and are
secured by properties located in the 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 70% or less, and monitors operating
results and value of collateral carefully.
Consumer loan growth represents the growth of the auto loan business,
principally new car loans originated through an expanded dealer network. 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 - $25 thousand for periods ranging from 36 - 60 months.
The Bank accepts substantially only "A" rated paper or higher, which are
borrowers without past credit history problems.
A substantial portion of the loan portfolio have adjustable rate features
and the credit use inherent in these loans will increase with an increase in the
underlying indices.
The provision for loan losses of $12.5 million during the current quarter
reflects a non-recurring provision of $11.5 million arising substantially from
non-performing and marginally performing loans identified for sale. The
identified loans consisted principally of loans contained in New York Bancorp's
portfolio. In the quarter, approximately $32 million of such loans were sold for
cash. This compares with a provision for loan losses of $1.8 million recognized
in the 1997 comparable period. Net charge-offs during the first quarter of 1998
aggregated $11.7 million , or .82%, of average net loans, as compared with $1.1
million, or .08%, of average net loans during the comparable prior year period.
The net charge-offs recognized during the current quarter resulted principally
from the aforementioned loan sales.
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. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the allowance
for loan losses. Such agencies may require the Company to recognize additions to
the allowance based on their judgment of information available to them at the
time of their examination. Based on current economic conditions, management
considers the allowance for loan losses at March 31, 1998 adequate to cover the
possible credit losses inherent in the loan portfolio. The allowance for loan
losses at March 31, 1998 was $75.1 million, or 297% of non-performing loans and
1.30% of net loans. This compares with an allowance for loan losses of $74.0
million or 128% of non-performing loans and 1.42% of net loans at March 31,
1997.
17
<PAGE> 18
SECURITIES PORTFOLIO
The composition of and the amortized cost and estimated fair values of
held-to-maturity and available-for-sale securities portfolios were as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998 DEC. 31, 1997 MARCH 31, 1997
------------------------------------------------------------------------
HELD-TO-MATURITY SECURITIES AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
(in thousands) COST VALUE COST VALUE COST VALUE
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CMO's ................................. $435,396 $436,475 $1,224,842 $1,216,927 $1,198,280 $1,173,994
Mortgage-Backed Securities ............ 212,156 212,469 413,537 413,910 465,172 457,458
State & Municipal Obligations ......... 52,275 53,016 114,511 116,099 120,832 120,097
U.S. Government Agencies' Obligations . 651 651 96 96 2,544 2,476
Other Securities ...................... 9,122 9,162 10,322 10,379 12,614 12,664
------------------------------------------------------------------------
$709,600 $711,773 $1,763,308 $1,757,411 $1,799,442 $1,766,689
========================================================================
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998 DEC. 31, 1997 MARCH 31, 1997
-----------------------------------------------------------------------
AVAILABLE-FOR-SALE AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
(in thousands) COST VALUE COST VALUE COST VALUE
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CMO's ................................. $1,541,161 $1,546,051 $864,948 $871,064 $607,709 $603,111
Mortgage-Backed Securities ............ 891,957 899,903 758,952 766,549 1,105,696 1,091,539
State & Municipal Obligations ......... 60,714 61,522 - - - -
U.S. Government Agencies' Obligations . 207,311 210,361 242,685 245,940 263,607 259,765
U.S. Treasury Securities .............. 31,960 32,074 32,963 33,119 78,770 74,901
Equity Securities ..................... 199,894 224,320 168,568 177,491 161,854 161,278
Other Securities ...................... 76,047 81,436 57,972 62,461 - -
-----------------------------------------------------------------------
$3,009,044 $3,055,667 $2,126,088 $2,156,624 $2,217,636 $2,190,594
=======================================================================
</TABLE>
Management's strategy is to invest in securities with short-weighted
average lives minimizing exposure to future rises in interest rates. These are
principally mortgage-backed securities that provide stable 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
March 31, 1998 was 4.4 years.
In connection with the recent merger with NYB, the Registrant reclassified
approximately $913 million of investment securities from its held-to-maturity
portfolio to its available-for-sale portfolio. This transaction was done
pursuant to Statement of Financial Accounting Standard No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" to maintain the Registrant's
interest rate risk profile which existed prior to the merger with NYB. The
securities transferred were primarily mortgage-backed securities ("MBS") and
collateralized mortgage-backed obligation ("CMO") having a higher degree of
interest rate risk and volatility. Additionally, approximately $415 million of
these securities were identified for sale at the time of reclassification
resulting in a $2.5 million securities loss recognized during the quarter.
The net unrealized gain on securities available-for-sale increased $16.1
million to $46.6 million at March 31, 1998 when compared to $30.5 million at
December 31, 1997. This improvement was due to decreases in market interest
rates and substantial appreciation in the Registrant's equities holdings.
Collateralized mortgage obligations ("CMO") are collateralized by either
U.S. Government Agency MBS's or whole loans which are principally conservative
current pay sequentials or PAC structures with a current weighted average life
of approximately 4.1 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 rates and prepayments
would have on its MBS portfolio.
At March 31, 1998, equity securities maintained in the available-for-sale
portfolio were comprised principally of common stock and preferred stock of
financial institutions. Other securities maintained in the available-for-sale
portfolio were comprised principally of capital securities and debt securities
of financial institutions.
18
<PAGE> 19
At March 31, 1998, held-to-maturity securities carried at $246 million and
available-for-sale securities carried at $2.2 billion were pledged for various
purposes as required by law and to secure securities sold under agreements to
repurchase and other borrowings.
CAPITAL
The Registrant 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 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 I capital to total risk weighted assets of 4%
and a Tier I 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 March 31, 1998,
the most recent notification from the various banking regulators categorized the
Registrant 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 5% and not 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 March
31, 1998 and March 31, 1997, under the rules applicable at such date. At such
date, management believes that the Registrant meets all capital adequacy
requirements to which it is subject.
<TABLE>
<CAPTION>
MARCH31, 1998 MARCH 31, 1997
-----------------------------------------------
(dollars in thousands ) AMOUNT RATIO AMOUNT RATIO
-----------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 Capital ................................................ $ 890,235 15.43% $ 659,528 13.01%
Regulatory Requirement ........................................ 230,844 4.00% 202,810 4.00%
-----------------------------------------------
Excess ........................................................ $ 659,391 11.43% $ 456,718 9.01%
-----------------------------------------------
Total Risk Adjusted Capital ................................... $ 962,410 16.68% $ 722,906 14.26%
Regulatory Requirement ........................................ 461,687 8.00% 405,620 8.00%
-----------------------------------------------
Excess ........................................................ $ 500,723 8.68% $ 317,286 6.26%
-----------------------------------------------
Risk Weighted Assets .......................................... $5,771,088 $5,070,255
---------- ----------
</TABLE>
The Registrant's leverage ratio at March 31, 1998 and March 31, 1997 was
8.74% and 7.54%, respectively.
OTHER MATTERS
The Registrant continues its preparation for the "Year 2000 issue", that
is, the technological and computer program modifications that may be required to
ensure a smooth transition of the Registrant's information systems into the
twenty-first century. The Registrant and its subsidiaries are subject to
regulatory guidelines to ensure compliance with the Year 2000 issue. The
Registrant has initiated a review of its computer systems and programs to
determine which, if any, systems and programs are not capable of recognizing the
year 2000 date. Communication has been initiated with all of the Registrant's
vendors that supply the Registrant with these systems and programs. This
communication and assessment is on-going. Management is utilizing the regulatory
guidelines to assure compliance within the prescribed time frame (i.e. critical
applications updated and tested by December 31, 1998). Management does not
anticipate the costs associated with the resolution of the year 2000 issue to be
material.
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
19
<PAGE> 20
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. This approach also
considers the impact of pending merger transactions and the attendant impact on
the Registrant's strategic plan. 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 approach also considers the impact of pending merger transactions and the
attendant impact on the Registrant's strategic plan. This model measures net
interest income sensitivity and volatility to interest rate changes. This model
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 Registrant'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.
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.
The Registrant's sources of liquidity include dividends from its
subsidiaries, borrowings, and funds available through the capital markets.
Dividends from the Registrant's primary subsidiary, North Fork 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,
North Fork Bank had $99.7 million of retained earnings available for dividends
to the Registrant as of April 1, 1998.
The Registrant's 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 utilizing their unpledged securities portfolio, the sale of
securities from their available-for-sale portfolio, the securitization of loans
within the portfolio, whole loan sales, and growth in their core deposit base.
The Banks have the ability, as members of the Federal Home Loan Bank
("FHLB") system, to borrow $1.8 billion on a secured basis, utilizing mortgage
related loans and securities as collateral, for a term ranging from one day to
ten years at both fixed and variable rates. As of March 31, 1998, North Fork had
$1.1 billion in current advances and other outstanding borrowings, of which $60
million in such advances had an original maturity of greater than one year.
The Registrant 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 Registrant and its banking
subsidiaries have sufficient liquidity to meet their operating requirements.
On March 24, 1998, the Board of Directors increased the Registrant's
quarterly dividend to 12.5(cent) per share (on a post-split basis) from 10(cent)
per share. The dividend is payable May 15, 1998 to shareholders of record at the
close of business April 24, 1998.
20
<PAGE> 21
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: May 15, 1998 /s/ Daniel M. Healy
--------------------
Daniel M. Healy
Executive Vice President &
Chief Financial Officer
21
<PAGE> 1
[EXHIBIT 11]
NORTH FORK BANCORPORATION, INC.
COMPUTATION OF NET INCOME PER COMMON EQUIVALENT SHARE
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
---------------------------------
MARCH 31, 1998 MARCH 31, 1997
---------------------------------
<S> <C> <C>
Net Income .................................................................... $7,376,489 $35,979,305
Common Equivalent Shares:
Weighted Average Common Shares Outstanding - Basic ............................ 138,479,690 137,711,091
Weighted Average Common Equivalent Shares ..................................... 2,225,049 2,058,091
---------------------------------
Weighted Average Common and Common Equivalent Shares - Diluted ................ 140,704,739 139,769,182
---------------------------------
Net Income per Common Equivalent Share - Basic ................................ $0.05 $0.26
Net Income per Common Equivalent Share - Diluted .............................. $0.05 $0.26
</TABLE>
22
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> $152,011 $125,403
<INT-BEARING-DEPOSITS> 6,121 2,619
<FED-FUNDS-SOLD> 17,500 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 3,055,567 2,190,594
<INVESTMENTS-CARRYING> 709,600 1,799,442
<INVESTMENTS-MARKET> 711,773 1,763,308
<LOANS> 5,782,215 5,231,410
<ALLOWANCE> 75,103 74,024
<TOTAL-ASSETS> 9,924,508 9,535,291
<DEPOSITS> 6,371,108 6,127,390
<SHORT-TERM> 747,594 415,395
<LIABILITIES-OTHER> 360,233 576,542
<LONG-TERM> 1,540,096 1,789,545
0 0
0 0
<COMMON> 357,641 252,410
<OTHER-SE> 447,835 374,009
<TOTAL-LIABILITIES-AND-EQUITY> 9,924,508 9,535,291
<INTEREST-LOAN> 123,495 109,288
<INTEREST-INVEST> 66,191 56,117
<INTEREST-OTHER> 821 220
<INTEREST-TOTAL> 190,507 165,625
<INTEREST-DEPOSIT> 47,482 47,114
<INTEREST-EXPENSE> 86,300 71,349
<INTEREST-INCOME-NET> 104,207 94,276
<LOAN-LOSSES> 12,500 1,800
<SECURITIES-GAINS> (2,517) 82
<EXPENSE-OTHER> 106,832 42,456
<INCOME-PRETAX> (3,874) 60,507
<INCOME-PRE-EXTRAORDINARY> (3,874) 60,507
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,376 35,979
<EPS-PRIMARY> 0.05 0.26
<EPS-DILUTED> 0.05 0.26
<YIELD-ACTUAL> 4.41 4.51
<LOANS-NON> 17,753 49,952
<LOANS-PAST> 7,535 7,844
<LOANS-TROUBLED> 9,408 18,373
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 74,393 73,280
<CHARGE-OFFS> 12,843 1,454
<RECOVERIES> 1,108 398
<ALLOWANCE-CLOSE> 75,103 74,024
<ALLOWANCE-DOMESTIC> 75,103 74,024
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
