<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: SEPTEMBER 30, 2000
NORTH FORK BANCORPORATION, INC.
(Exact name of Company as specified in its charter)
DELAWARE 36-3154608
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
275 BROADHOLLOW ROAD, MELVILLE, NEW YORK 11747
(Address of principal executive offices) (Zip Code)
(631) 844-1004
(Company's telephone number, including area code)
Indicate by check mark whether the Company (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 Company 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.
CLASS OF COMMON STOCK NUMBER OF SHARES OUTSTANDING 11/10/00
$.01 PAR VALUE 163,705,092
<PAGE> 2
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
North Fork Bancorporation, Inc. and Subsidiaries.
4) Consolidated Balance Sheets.
5) Consolidated Statements of Income.
6) Consolidated Statements of Cash Flows.
7) Consolidated Statements of Changes in Stockholders' Equity.
8) Consolidated Statements of Comprehensive Income.
9) Notes to Consolidated Financial Statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is contained throughout Item 2,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and is incorporated by reference.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
LITIGATION INVOLVING DIME BANCORP, INC.
The Company was a party to six separate lawsuits in connection with its
offer to acquire all of the outstanding common stock of Dime Bancorp,
Inc. ("Dime"). As more fully described herein the Company, on September
29, 2000, allowed its offer to acquire Dime to expire. The current
status of each of these lawsuits is as follows:
Delaware Litigation. On March 6, 2000, the Company filed a complaint
in the Delaware Court of Chancery against Dime and several of Dime's
directors alleging that the board of directors breached its fiduciary
duties by taking certain actions with respect to the then-pending merger
between Dime and Hudson United Bancorp. On October 30, 2000, the Company
voluntarily discontinued its claim without prejudice.
Dime Antitrust Litigation. On March 10, 2000, Dime filed a complaint
in the Supreme Court of the State of New York, County of New York,
against the Company and FleetBoston, alleging violations of New York
State antitrust laws. On October 11, 2000, Dime voluntarily discontinued
its claim without prejudice.
Dime Federal Securities Litigation. On March 21, 2000, Dime filed
suit in the United States District Court for the Eastern District of New
York against the Company and members of its board of directors in
connection with alleged false and misleading statements contained in
documents distributed by the Company to Dime's stockholders. On April
24, 2000, the Company filed a counterclaim in the District Court against
Dime for alleged false and misleading statements in documents sent by
Dime to its stockholders. On October 27, 2000, Dime and the Company
filed a joint stipulation voluntarily dismissing their respective claims
without prejudice.
Dime Litigation Against Salomon Smith Barney. On March 29, 2000 Dime
filed a lawsuit in the Supreme Court of New York, County of New York
against Salomon Smith Barney Inc. ("Salomon"), whom the Company had
engaged as a financial advisor and co-dealer manager in connection with
the Offer. On May 15, 2000, Dime filed a First Amended Complaint with
the Supreme Court of New York naming both Salomon and the Company as
defendants. On September 13, 2000, the Supreme Court of New York denied
a motion by the Company to dismiss Dime's amended complaint. The Company
denies Dime's allegations, and discovery is being conducted by the
parties. On October 19, 2000, Dime moved for partial summary judgment
against Salomon on its claim that Salomon breached its contract with
Dime. On October 30, 2000, Salomon moved for summary judgment in its
favor and against Dime. Those motions remain pending.
Dime Savings Employee Litigation. On May 8, 2000, Dime Savings Bank
filed a complaint in the Supreme Court of New York alleging breach of
contract against the Company and North Fork Bank. On October 16, 2000,
the Court denied the Company's motion to dismiss the complaint but
granted North Fork Bank's motion to dismiss the complaint.
2
<PAGE> 3
INDEX (CONTINUED)
PART II. OTHER INFORMATION (CONTINUED)
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
LITIGATION INVOLVING DIME BANCORP, INC. (CONTINUED
Delaware Proxy Litigation. On July 14, 2000, the Company filed a
complaint against Dime and certain members of Dime's board of directors
in the Court of Chancery of the State of Delaware. The complaint, among
other things, seeks (1) a declaratory judgment as to the effect of
withhold votes cast at Dime's 2000 annual meeting of stockholders, such
that the Dime's nominees would have the status of holdover directors,
and (2) an order requiring Dime to hold an election to fill seats now
occupied by Dime's nominees at a timely convened special meeting of
stockholders or, in the alternative, no later than Dime's 2001 annual
meeting of stockholders. On July 24, 2000, certain stockholders of Dime
filed a similar suit in the Court of Chancery of the State of Delaware.
On August 14, 2000, North Fork moved for summary judgment. On September
13, 2000, Dime filed its response to the motions for summary judgment
filed by the Company and the stockholder-plaintiffs. Dime also
cross-moved for summary judgment against the claims alleged in the
complaints filed by the Company and the stockholder-plaintiffs. Oral
arguments on these motions were held on October 16, 2000. On November 7,
2000 the Court issued an opinion confirming the Company's position that
the class of directors of Dime nominated by Dime for re-election at
Dime's 2000 annual meeting of stockholders were not re-elected to a new
three year term and that such class of directors must stand for
re-election at Dime's 2001 annual meeting of stockholders.
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
(99.1) Description of certain litigation involving the
Company (incorporated by reference to the section
entitled "The Offer-Litigation " on pages 46-52 of
Amendment No. 3 to the Company's Registration
Statement filed on Form S-4 (registration no.
333-32492) filed with the Securities and Exchange
Commission (the "Commission") on May 15, 2000).
(99.2) Description of certain litigation involving the
Company (incorporated by reference to Item 5. Other
Events, numbers 1-4 of the Current Report on Form
8-K, dated May 15, 2000 and filed with the Commission
on May 22, 2000).
(99.3) Description of certain litigation involving the
Company (incorporated by reference to Item 5. Other
Events of the Current Report on Form 8-K, dated July
14, 2000 and filed with the Commission on July 19,
2000).
(b) Current Reports on Form 8-K
1) Current Report on Form 8-K dated July 13, 2000 (reporting the
Company's earnings results for the quarter ended June 30, 2000).
2) Current Report on Form 8-K dated July 14, 2000 (containing
information updating certain information contained in the
Registration Statement).
3) Current Report on Form 8-K dated July 14, 2000 (containing
information updating certain information contained in the
Registration Statement).
4) Current Report on Form 8-K dated July 28, 2000 (containing
information updating certain information contained in the
Registration Statement).
INDEX (CONTINUED)
3
<PAGE> 4
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(b) Current Reports on Form 8-K continued
5) Current Report on Form 8-K dated August 10, 2000 (containing
information updating certain information contained in the
Registration Statement).
6) Current Report on Form 8-K dated September 26, 2000 (containing
information updating certain information contained in the
Registration Statement).
7) Current Report on Form 8-K dated September 29, 2000 (containing
information updating certain information contained in the
Registration Statement).
4
<PAGE> 5
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
(in thousands, except per share amounts) SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
2000 1999 1999
<S> <C> <C> <C>
ASSETS:
Cash & Due from Banks ............................................ $ 265,236 $ 317,434 $ 177,169
Money Market Investments ......................................... 42,322 85,767 232,656
Securities:
Available-for-Sale ............................................ 3,472,720 3,682,210 3,688,203
Held-to-Maturity .............................................. 1,162,015 1,351,504 1,473,518
------------ ------------ ------------
Total Securities ........................................... 4,634,735 5,033,714 5,161,721
------------ ------------ ------------
Loans ............................................................ 9,223,262 7,913,328 7,634,700
Less: Unearned Income .......................................... 16,113 15,640 15,913
Allowance for Loan Losses ............................ 88,454 74,525 74,887
------------ ------------ ------------
Net Loans ...................................... 9,118,695 7,823,163 7,543,900
------------ ------------ ------------
Intangible Assets ................................................ 346,878 79,151 81,052
Premises & Equipment ............................................. 96,084 92,652 91,910
Accrued Income Receivable ........................................ 97,952 78,651 80,829
Other Assets ..................................................... 138,000 165,624 141,380
------------ ------------ ------------
Total Assets ................................................ $ 14,739,902 $ 13,676,156 $ 13,510,617
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Demand Deposits .................................................. $ 1,880,803 $ 1,558,044 $ 1,516,592
Savings, NOW & Money Market Deposits ............................ 4,082,062 3,598,481 3,541,319
Other Time Deposits .............................................. 2,284,432 1,965,827 2,037,465
Certificates of Deposit, $100,000 & Over ........................ 612,894 519,211 606,198
------------ ------------ ------------
Total Deposits .............................................. 8,860,191 7,641,563 7,701,574
------------ ------------ ------------
Federal Funds Purchased & Securities Sold Under
Agreements to Repurchase ...................................... 2,563,682 2,665,200 2,676,416
Other Borrowings ................................................. 1,452,712 1,894,000 1,544,000
Accrued Expenses & Other Liabilities ............................. 207,135 276,981 297,511
------------ ------------ ------------
Total Liabilities .......................................... $ 13,083,720 $ 12,477,744 $ 12,219,501
------------ ------------ ------------
Capital Securities ............................................... $ 244,333 $ 199,314 $ 199,308
STOCKHOLDERS' EQUITY:
Preferred Stock, Par Value $1.00; Authorized 10,000,000 Shares,
Unissued ..................................................... -- -- --
Common Stock, Par Value $0.01; Authorized 500,000,000 Shares;
Issued 174,358,676 Shares at September 30, 2000 ............. 1,744 1,931 1,931
Additional Paid in Capital ....................................... 356,154 560,979 561,191
Retained Earnings ................................................ 1,101,148 1,026,546 991,989
Accumulated Other Comprehensive Income - Unrealized Losses on
Securities Available-for-Sale, net of taxes ................... (18,361) (37,818) (12,630)
Deferred Compensation ............................................ (25,504) (28,007) (21,944)
Treasury Stock at Cost; 175,210 at September 30, 2000............ (3,332) (524,533) (428,729)
------------ ------------ ------------
Total Stockholders' Equity ................................. 1,411,849 999,098 1,091,808
------------ ------------ ------------
Total Liabilities and Stockholders' Equity ................. $ 14,739,902 $ 13,676,156 $ 13,510,617
============ ============ ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
(in thousands, except per share amounts) 2000 1999 2000 1999
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans ..................................................... $ 187,251 $ 150,673 $ 538,097 $ 441,599
Mortgage-Backed Securities ................................ 67,705 70,314 210,165 203,586
Other Securities .......................................... 12,771 8,243 35,785 25,246
U.S. Treasury & Government Agency Securities .............. 2,700 3,379 7,825 10,296
State & Municipal Obligations ............................. 963 917 2,811 2,517
Money Market Investments .................................. 583 2,897 2,600 5,726
--------- --------- --------- ---------
Total Interest Income ..................................... 271,974 236,423 797,283 688,970
--------- --------- --------- ---------
INTEREST EXPENSE:
Savings, NOW & Money Market Deposits ...................... 19,909 16,453 58,727 49,448
Other Time Deposits ....................................... 30,007 24,241 86,484 72,440
Certificates of Deposit, $100,000 & Over .................. 8,804 7,861 23,681 24,543
Federal Funds Purchased & Securities Sold Under Agreements
to Repurchase ........................................... 42,518 39,260 114,825 125,078
Other Borrowings .......................................... 20,721 16,282 71,255 24,063
--------- --------- --------- ---------
Total Interest Expense ................................. 121,959 104,097 354,972 295,572
--------- --------- --------- ---------
Net Interest Income .................................... 150,015 132,326 442,311 393,398
Provision for Loan Losses ................................. 2,250 1,251 13,500 3,763
--------- --------- --------- ---------
Net Interest Income after Provision for Loan Losses .... 147,765 131,075 428,811 389,635
--------- --------- --------- ---------
NON-INTEREST INCOME:
Fees & Service Charges on Deposit Accounts ................ 10,271 7,998 28,327 21,754
Investment Management, Commissions & Trust Fees ........... 4,850 3,776 14,207 12,348
Mortgage Banking Operations ............................... 964 946 2,761 2,845
Other Operating Income .................................... 6,002 3,148 16,810 9,802
Gain on Sale of Branch Facilities ......................... 2,657 -- 13,049 --
Net Securities Gains/(Losses) ............................. 5,532 180 (3,069) 9,900
Gain on Sale of Loans ..................................... -- -- 2,303 --
--------- --------- --------- ---------
Total Non-Interest Income ............................ 30,276 16,048 74,388 56,649
--------- --------- --------- ---------
NON-INTEREST EXPENSE:
Compensation & Employee Benefits .......................... 28,542 25,668 84,879 76,339
Occupancy & Equipment, net ................................ 9,627 8,695 27,411 25,464
Capital Securities Costs .................................. 5,140 4,211 14,914 12,633
Amortization of Intangible Assets ......................... 5,671 2,108 14,660 6,267
Dime Related Expenses ..................................... 5,200 -- 13,500 --
Other Operating Expenses .................................. 12,040 10,535 34,572 32,315
Merger Related Restructure Charge ......................... -- -- 50,499 --
--------- --------- --------- ---------
Total Non-Interest Expense ............................ 66,220 51,217 240,435 153,018
--------- --------- --------- ---------
Income Before Income Taxes ................................ 111,821 95,906 262,764 293,266
Provision for Income Taxes ................................ 39,137 34,574 102,150 105,634
--------- --------- --------- ---------
Net Income ........................................... $ 72,684 $ 61,332 $ 160,614 $ 187,632
========= ========= ========= =========
PER SHARE:
Earnings Per Share - Basic ................................ $ 0.42 $ 0.38 $ 0.95 $ 1.14
Earnings Per Share - Diluted .............................. $ 0.42 $ 0.37 $ 0.95 $ 1.13
Cash Dividends ............................................ $ 0.18 $ 0.15 $ 0.54 $ 0.45
Weighted Average Shares Outstanding - Basic ............... 171,951 162,337 168,659 165,298
Weighted Average Shares Outstanding - Diluted ............. 173,213 163,715 169,856 166,757
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
6
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
(in thousands) 2000 1999
<S> <C> <C>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ........................................................................... $ 160,614 $ 187,632
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Provision for Loan Losses ............................................................ 13,500 3,763
Depreciation and Amortization ........................................................ 11,079 10,778
Amortization of Intangible Assets .................................................... 14,660 6,267
Amortization of Securities Premiums .................................................. 4,137 8,386
Accretion of Discounts and Net Deferred Loan Fees .................................... (16,138) (7,299)
Net Securities Losses/(Gains) ........................................................ 3,069 (9,900)
Gain on Sale of Branch Facilities .................................................... (13,049) --
Gain on Sale of Loans ................................................................ (2,303) --
Other, net ........................................................................... (7,738) 31,612
----------- -----------
Net Cash Provided by Operating Activities ........................................ 167,831 231,239
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Securities Held-to-Maturity ............................................. (16,212) (382,346)
Maturities, Redemptions, Calls and Principal Repayments on
Securities Held-to-Maturity ...................................................... 204,767 686,759
Purchases of Securities Available-for-Sale ........................................... (511,207) (1,670,060)
Proceeds from Sales of Securities Available-for-Sale ................................. 1,637,048 71,111
Maturities and Principal Repayments on Securities Available-for-Sale ................. 354,615 889,420
Loans Originated, Net of Principal Repayments and Charge-offs ........................ (598,303) (811,987)
Proceeds from the Sale of Loans ...................................................... 261,485 81,337
Transfers to Other Real Estate, net of sales ......................................... 236 2,925
Sale/(Purchases) of Premises and Equipment, net ...................................... 14,603 (10,159)
Purchase Acquisition, net of cash acquired ........................................... 36,858 --
----------- -----------
Net Cash Provided by/(Used in) Investing Activities .............................. 1,383,890 (1,143,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (Decrease)/Increase in Customer Deposit Liabilities .............................. (282,951) 118,009
Net (Decrease)/Increase in Borrowings ................................................ (1,266,810) 1,215,320
Net Decrease in Long Term Debt ....................................................... -- (35,000)
Purchase of Treasury Stock ........................................................... (10,216) (181,837)
Common Stock Issued for Cash ......................................................... 3,042 4,906
Cash Dividends Paid .................................................................. (90,429) (93,166)
----------- -----------
Net Cash (Used in)/Provided by Financing Activities .............................. (1,647,364) 1,028,232
----------- -----------
Net (Decrease)/Increase in Cash and Cash Equivalents ............................. (95,643) 116,471
Cash and Cash Equivalents at Beginning of the Period ................................. 403,201 293,354
----------- -----------
Cash and Cash Equivalents at End of the Period ....................................... $ 307,558 $ 409,825
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Period for:
Interest Expense ................................................................. 347,903 299,284
=========== ===========
Income Taxes ..................................................................... 44,912 84,482
=========== ===========
During the Year the Company Purchased Various Securities which
Settled in the Subsequent Period ................................................. -- 10,941
=========== ===========
In February 2000, the Company acquired all of the outstanding common stock of
Reliance Bancorp, Inc. Each share of Reliance's common stock was exchanged for
2.0 shares of the Company's common stock. Non-cash activity related to the
Reliance acquisition not reflected as of February 18, 2000 is as follows:
Fair Value of Assets Acquired ......................................................... $2,344,276
Intangible Assets ..................................................................... 282,387
Common Stock Issued ................................................................... 332,947
----------
Liabilities Assumed ................................................................... $2,293,716
==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
7
<PAGE> 8
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Additional Unrealized
Common Paid in Retained Securities
Stock Capital Earnings Gains/(Losses)
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 ........... $1,929 $556,773 $879,441 $50,208
Net Income ........................... -- -- 187,632 --
Cash Dividends ($.45 per share) ...... -- -- (61,480) --
Cash Dividends-Acquired Company ...... -- -- (12,642) --
Issuance of Stock (103,858 shares) ... 1 2,236 -- --
Purchase of Treasury Stock (8,962,400
shares)............................... -- -- -- --
Loss on Reissuance of
Treasury-Acquired Company............. -- -- (790) --
Restricted Stock Activity, net ....... -- 39 -- --
Stock Based Compensation Activity,
net................................... 1 2,143 -- --
Amortization of Unrealized Loss on
Securities Transferred from Available
-for-Sale to Held-to-Maturity......... -- -- (172) 172
Adjustment to Unrealized Gains/
(Losses) on Securities Available-for-
Sale, net of taxes.................... -- -- -- (63,010)
------ -------- ---------- --------
BALANCE, SEPTEMBER 30, 1999 .......... $1,931 $561,191 $991,989 ($12,630)
====== ======== ======== ========
BALANCE, DECEMBER 31, 1999 ........... $1,931 $560,979 $1,026,546 ($37,818)
Net Income ........................... -- -- 160,614 --
Cash Dividends ($.54 per share) ...... -- -- (93,946) --
Cash Dividends-Acquired Company ...... -- -- (4,718) --
Issuance of Stock-Reliance Acquisition
(17,120,638 shares)................... -- (38,989) -- --
Fair Value of Options-Reliance
Acquisition........................... -- 14,075 -- --
Issuance of Stock (183,371 shares) ... 2 2,986 -- --
JSB Common Stock Retired (19,687,149
shares)............................... (197) (184,871) 13,539 --
Purchases of Treasury Stock (636,300
shares)............................... -- -- -- --
Restricted Stock Activity, net ....... -- 2 -- --
Stock Based Compensation Activity,
net................................... 8 1,972 (887) --
Adjustment to Unrealized Gains/
(Losses) on Securities Available-for-
Sale, net of taxes.................... -- -- -- 19,457
------ -------- ---------- --------
BALANCE, SEPTEMBER 30, 2000 .......... $1,744 $356,154 $1,101,148 ($18,361)
====== ======== ========== ========
</TABLE>
<TABLE>
<CAPTION>
Deferred Treasury
Compensation Stock Total
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 ........... ($24,365) ($250,260) $1,213,726
Net Income ........................... -- -- 187,632
Cash Dividends ($.45 per share) ...... -- -- (61,480)
Cash Dividends-Acquired Company ...... -- -- (12,642)
Issuance of Stock (103,858 shares) ... -- 890 3,127
Purchase of Treasury Stock (8,962,400
shares)............................... -- (181,837) (181,837)
Loss on Reissuance of
Treasury-Acquired Company............. -- -- (790)
Restricted Stock Activity, net ....... 2,421 (385) 2,075
Stock Based Compensation Activity, net -- 2,863 5,007
Amortization of Unrealized Loss on
Securities
Transferred from ..................... -- -- --
Available-for-Sale to Held-to-Maturity
Adjustment to Unrealized
Gains/(Losses) on Securities
Available-for-Sale, net of taxes -- -- (63,010)
-------- ------- ----------
BALANCE, SEPTEMBER 30, 1999 .......... ($21,944) ($428,729) $1,091,808
======== ========= ==========
BALANCE, DECEMBER 31, 1999 ........... ($28,007) ($524,533) $999,098
Net Income ........................... -- -- 160,614
Cash Dividends ($.54 per share) ...... -- -- (93,946)
Cash Dividends-Acquired Company ...... -- -- (4,718)
Issuance of Stock-Reliance
Acquisition (17,120,638 shares)....... -- 357,861 318,872
Fair Value of Options-Reliance
Acquisition .......................... -- -- 14,075
Issuance of Stock (183,371 shares) ... -- 54 3,042
JSB Common Stock Retired (19,687,149
shares) .............................. -- 171,529 --
Purchases of Treasury Stock (636,300
shares) .............................. -- (10,216) (10,216)
Restricted Stock Activity, net ....... 2,503 (349) 2,156
Stock Based Compensation Activity, net -- 2,322 3,415
Adjustment to Unrealized
Gains/(Losses) on Securities
Available-for-Sale, net of taxes -- -- 19,457
-------- ------- ----------
BALANCE, SEPTEMBER 30, 2000 .......... ($25,504) ($3,332) $1,411,849
======== ======= ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
8
<PAGE> 9
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
30, 30, 30, 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net Income .............................................. $72,684 $61,332 $160,614 $187,632
------- ------- -------- --------
Other Comprehensive Income, net
of Income Taxes:
Unrealized Gains/(Losses) on
Securities Available for Sale ................ 26,670 (14,230) 17,462 (56,502)
Less: Reclassification of Realized (Gains)/Losses
Included in Net Income ............................... (3,596) (115) 1,995 (6,336)
------- ------- -------- --------
Other Comprehensive Income/(Loss) ....................... 23,074 (14,345) 19,457 (62,838)
------- ------- -------- --------
Comprehensive Income .................................... $95,758 $46,987 $180,071 $124,794
======= ======= ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
9
<PAGE> 10
NORTH FORK BANCORPORATION, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2000 AND 1999
FORWARD LOOKING STATEMENTS
This document and other documents filed by the Company with the Securities
and Exchange Commission ("SEC") have forward-looking statements. In addition,
the Company's senior management may make forward-looking statements orally to
analysts, investors, the media, and others. Forward-looking statements might
include one or more of the following:
- Projections of revenues, income, earnings per share, capital
expenditures, dividends, capital structure, or other financial items;
- Descriptions of plans or objectives of management for future
operations, products, or services, including pending acquisition
transactions;
- Forecasts of future economic performance; and
- Descriptions of assumptions underlying or relating to any of the
foregoing.
Forward-looking statements can be identified by the fact that they do not
relate strictly to historical or current facts. They often include words such as
"believe", "expect", "anticipate", "intend", "plan", "estimate", or words of
similar meaning, or future of conditional verbs such as "will", "would",
"should", "could", or "may".
Forward-looking statements give the Company's expectations or predictions
of future conditions, events or results. They are not guarantees of future
performance. By their nature, forward-looking statements are subject to risks
and uncertainties. There are a number of factors, many of which are beyond the
Company's control, that could cause actual conditions, events, or results to
differ significantly from those described in the forward-looking statements.
Factors that may cause or contribute to such differences include, among
others, the following possibilities: (1) changes in general business and
economic conditions on both a regional and national level; (2) increased
competition in terms of the products and services the Company offers and the
markets in which the Company conducts its business; (3) changes in the interest
rate environment, which may impact interest margins; and (4) accounting, tax,
legislative, regulatory, and technological changes may also affect the business
in which the Company is engaged.
Forward-looking statements speak only as of the date they are made. The
Company does not undertake to update forward-looking statements to reflect
circumstances or events that occur after the date the forward-looking statements
are made.
BASIS OF PRESENTATION
North Fork Bancorporation, Inc. (the "Company") is a $14.7 billion
multi-bank holding company headquartered in Melville, New York. The Company's
primary bank subsidiary, North Fork Bank ("North Fork"), operates through 149
full-service retail-banking facilities located in the New York metropolitan
area, one of the most densely populated and wealthiest markets in the nation.
North Fork focuses on providing superior customer service to both personal and
commercial clients by offering the convenience of telephone banking as well as
an array of financial products and brokerage/investment management services
through its non-bank subsidiaries, Compass Investment Services Corp. ("Compass")
and Amivest Corporation ("Amivest"). The Company's other bank subsidiary,
Superior Savings of New England N.A. ("Superior"), a nationally chartered bank
located in the Connecticut county of New Haven, operates from one location.
Superior currently conducts a telebanking operation focused on gathering
deposits throughout the New England region. In July 2000, Superior's charter was
changed from a Connecticut state chartered savings bank to a nationally
chartered bank.
On February 18, 2000, Reliance Bancorp, Inc. ("Reliance"), the parent
company of Reliance Federal Savings Bank, was merged with and into the Company.
The transaction has been accounted for in accordance with the purchase method of
accounting and, accordingly, the Company's consolidated results of operations
reflect Reliance activity subsequent to the acquisition date.
On February 29, 2000, JSB Financial, Inc. ("JSB"), the parent company of
Jamaica Savings Bank ("Jamaica"), was merged with and into the Company. The
merger has been accounted for in accordance with the pooling-of-interests method
of accounting and, accordingly, the Company's consolidated financial statements
include the accounts of JSB for all periods reported.
10
<PAGE> 11
BASIS OF PRESENTATION (CONTINUED)
The accounting and reporting policies of the Company are in conformity with
accounting principles generally accepted in the United States and prevailing
practices within the financial services industry. The preparation of financial
statements in conformity with generally accepted accounting principles requires
that management make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Such estimates are subject to change in
the future as additional information becomes available or previously existing
circumstances are modified. Actual results could differ from those estimates.
Certain reclassifications have been made to prior year amounts to conform to
current year presentations.
Results of operations for the three and nine month periods ended September
30, 2000 are not necessarily indicative of the results of operations which may
be expected for the full year 2000 or any other interim periods.
These statements should be read in conjunction with the Company's 1999
Annual Report on Form 10-K, which is incorporated herein by reference.
RECENT ACCOUNTING DEVELOPMENTS
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). In June 1999,
the FASB issued Statement of Financial Accounting Standards No. 137
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133" delaying SFAS 133's effective
date no later than January 1, 2001. SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. The
statement requires that all derivative instruments be recorded on the balance
sheet at fair value. However, the accounting for changes in fair value of the
derivative instrument depends on whether the derivative instrument qualifies
as a hedge. If the derivative instrument qualifies as a hedge, the accounting
treatment varies based on the type of risk being hedged. If the derivative
instrument does not qualify as a hedge, changes in fair value are reported in
earnings when they occur. Under SFAS 133, an entity that elects to apply
hedge accounting is required to establish, at the inception of the hedge, the
method it will use for assessing the effectiveness of the hedging derivative
and the measurement approach for determining the ineffective aspect of the
hedge. Those methods must be consistent with the entity's approach to
managing risk.
In June 2000, the FASB issued Statement of Financial Accounting Standards
No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment to SFAS No. 133. The Company does not anticipate
implementing this statement prior to January 1, 2001. The impact of this
statement will be dependent upon the fair value, nature, and purpose of the
derivative instruments held by the Company as of January 2001. Management is
currently evaluating the effect SFAS 133 and SFAS 138 will have on its
financial position and results of operations. At September 30, 2000, the
Company was party to several interest rate swap and floor contracts with an
aggregate notional value of $950 million.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140 "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" ("SFAS 140"). SFAS 140 replaces FASB
Statement No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities", ("SFAS 125"). SFAS 140 revised
the standards of accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures, but it
carries over most of SFAS 125's provisions without reconsideration. SFAS 140
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 140 is
effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after March 31, 2001. SFAS 140 is effective for
recognition and reclassification of collateral and for disclosures relating
to securitization transactions and collateral for fiscal years ending after
December 15, 2000. Management does not believe that adoption of this
statement will have a material adverse effect on the Company's consolidated
financial statements.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
BUSINESS COMBINATIONS
JSB Financial, Inc.
On February 29, 2000, JSB Financial, Inc., the parent company of Jamaica
Savings Bank, was merged with and into the Company in a transaction accounted
for in accordance with the pooling-of-interests method of accounting. On
March 10, 2000, Jamaica Savings Bank was merged with and into North Fork.
Pursuant to the merger agreement, the Company issued 3.0 shares of common
stock for each share of JSB's common stock outstanding. Accordingly, the
Company issued 28,312,851 of its common shares, simultaneously retired
19,687,149 shares, as adjusted, of JSB's common stock held in treasury and
reserved 2,410,500 common shares for JSB's outstanding stock options at the
merger date. JSB had $1.7 billion in total assets, $1.3 billion in loans,
$1.1 billion in deposit liabilities, and $376.4 million in stockholders'
equity at the merger date. Jamaica operated from 13 retail-banking facilities
in the New York City boroughs of Manhattan and Queens and in Nassau and
Suffolk Counties, New York. The Company's previously reported components of
consolidated income and the amounts reflected in the accompanying
consolidated statements of income for the three and nine month periods ended
September 30, 1999 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
(in thousands) SEPTEMBER 30, SEPTEMBER 30,
1999 1999
<S> <C> <C>
NET INTEREST INCOME
As Previously Reported ................... $113,364 $336,853
JSB Financial, Inc. ...................... 18,962 56,545
------- --------
Combined ................................. $132,326 $393,398
======= ========
NET INCOME
ex
As Previously Reported ................... $54,130 $166,058
JSB Financial, Inc. ...................... 7,202 21,574
------- --------
Combined ................................. $61,332 $187,632
======= ========
</TABLE>
The following table sets forth a summary of the components reflected
in the Merger Related Restructure Charge recognized during the first
quarter of 2000:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Merger Expenses .................................................. $6,534
Restructure Charge:
Merger Related Compensation and Severance Costs ............. 36,419
Facility and System Costs ................................... 5,163
Other Merger Related Costs .................................. 2,383
-------
Total Pre-Tax Merger and Related Restructure Charge ............. $50,499
=======
</TABLE>
Merger expenses consist primarily of investment banking fees, legal fees,
other professional fees, and expenses associated with shareholder and
customer notifications. The restructure charge component represents merger
related compensation and severance costs, which consist primarily of employee
severance, compensation arrangements, transitional staffing and related
employee benefits expenses. Facility and system costs consist primarily of
lease termination charges and equipment write-offs resulting from the
consolidation of overlapping branch locations and duplicate headquarters and
operational facilities. Also reflected are the costs associated with the
cancellation of certain data and item processing contracts and the
deconversion of JSB's computer systems. Other merger related costs arise
primarily from the application of the Company's accounting practices to the
accounts of the merged business and, to a lesser extent, other expenses
associated with the integration of operations. Additionally, the Company
recorded a $6.6 million tax charge, net of federal benefit, relating to the
recapture of Jamaica's bad debt reserve for state and local tax purposes. It
is anticipated that this charge will be substantially paid in 2000, with
the exception of certain obligations under long-term lease arrangements.
At September 30, 2000, $1.2 million of the merger related restructure
charge was reflected in accrued expenses and other liabilities in the
consolidated balance sheet.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
BUSINESS COMBINATIONS (CONTINUED)
Reliance Bancorp, Inc.
On February 18, 2000, Reliance was merged with and into the Company in a
transaction accounted for using the purchase method of accounting. In
accordance with the purchase method of accounting, the accompanying
consolidated statements of income include the results of operations for
Reliance subsequent to the acquisition date. The consolidated balance sheet
reflects the assets and liabilities of Reliance at their estimated fair
values. Pursuant to the merger agreement, the Company issued 2.0 shares of
its common stock for each share of Reliance's common stock outstanding. The
Company reissued from its treasury 17,120,638 common shares in exchange for
outstanding Reliance shares and reserved for issuance 1,369,348 common shares
for Reliance's outstanding stock options at the date of acquisition. The
excess of the Company's cost over the fair value of net assets acquired was
approximately $282.4 million and is being amortized on a straight-line basis
over 20 years.
Reliance had $2.4 billion in total assets, $1.0 billion in loans, $1.5
billion in deposit liabilities, and $175 million in stockholders' equity at
the merger date. Reliance Federal Savings Bank operated from 29
retail-banking facilities throughout Suffolk and Nassau Counties, New York,
as well as the New York City borough of Queens.
PROPOSED BUSINESS COMBINATION
Dime Bancorp Inc.
On March 5, 2000, the Company announced its intention to commence an offer
(the "Offer") to exchange .9302 shares of the Company's common stock and
$2.00 in cash for each outstanding share of common stock of Dime Bancorp,
Inc., a Delaware corporation ("Dime"), the parent company of Dime Savings
Bank of New York, FSB ("Dime Savings Bank"). On September 29, 2000, without
the conditions to the Offer being satisfied, the Company allowed the offer to
expire. The Company instructed its exchange agent to return promptly all Dime
shares tendered pursuant to the Offer and not withdrawn. The Company also
announced that it terminated the investment agreement with FleetBoston
Financial Corporation ("FleetBoston") in which FleetBoston would have
invested $250 million in the Company in connection with the Offer. On October
2, 2000, the Company formally requested that the SEC withdraw its
registration statement on Form S-4. Dime related expenses incurred during the
three and nine month periods ended September 30, 2000 were $5.2 million and
$13.5 million, respectively.
OVERVIEW
The following tables set forth selected summary financial data for the
Company. The succeeding discussion and analysis describes the changes in
components of operating results giving rise to net income.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
(in thousands, except ratios & per 2000 1999 2000 1999
share amounts)
<S> <C> <C> <C> <C>
EARNINGS:
Net Income .............................. $72,684 $61,332 $160,614 $187,632
PER SHARE:
Earnings Per Share - Basic .............. $0.42 $0.38 $0.95 $1.14
Earnings Per Share - Diluted ............ $0.42 $0.37 $0.95 $1.13
Cash Dividends .......................... $0.18 $0.15 $0.54 $0.45
Book Value .............................. $8.11 $6.77 $8.11 $6.77
Average Equivalent Shares - Basic ....... 171,951 162,337 168,659 165,298
Average Equivalent Shares - Diluted...... 173,213 163,715 169,856 166,757
Actual Shares Outstanding................ 174,183 161,185 174,183 161,185
SELECTED RATIOS:
Return on Average Total Assets .......... 1.97% 1.83% 1.48% 1.94%
Return on Average Stockholders' Equity... 20.28% 21.12% 16.13% 21.31%
Yield on Earning Assets ................. 7.91% 7.43% 7.85% 7.53%
Cost of Funds ........................... 4.41% 4.03% 4.29% 3.98%
Net Interest Margin ..................... 4.41% 4.19% 4.40% 4.32%
Core Efficiency Ratio ................... 34.66% 33.91% 34.26% 34.40%
</TABLE>
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
OVERVIEW (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, DECEMBER 31, SEPTEMBER 30,
(in thousands, except ratios & per 2000 2000 1999 1999
share amounts)
<S> <C> <C> <C> <C>
CAPITAL RATIOS
Risk Based Capital
Tier 1 .................................... 15.16% 14.71% 13.70% 14.85%
Total ..................................... 16.21% 15.77% 14.95% 16.07%
Leverage Ratio ............................ 9.28% 8.87% 8.57% 9.25%
BALANCE SHEET HIGHLIGHTS
Total Assets ................................... $14,739,902 $14,682,748 $13,676,156 $13,510,617
Loans, net ..................................... 9,207,149 9,083,782 7,897,688 7,618,787
Allowance for Loan Losses ...................... 88,454 88,010 74,525 74,887
Securities Available-for-Sale .................. 3,472,720 3,449,273 3,682,210 3,688,203
Securities Held-to-Maturity .................... 1,162,015 1,219,444 1,351,504 1,473,518
Intangible Assets .............................. 346,878 352,549 79,151 81,052
Demand Deposits ................................ 1,880,803 1,846,973 1,558,044 1,516,592
Interest Bearing Deposits ...................... 6,979,388 7,074,447 6,083,519 6,184,982
Borrowings ..................................... 4,016,394 3,944,992 4,559,200 4,220,416
Capital Securities ............................. 244,333 244,326 199,314 199,308
Stockholders' Equity ........................... 1,411,849 1,342,503 999,098 1,091,808
</TABLE>
Net income for the third quarter of 2000 was $72.7 million, compared with
$61.3 million for the third quarter of 1999. Diluted earnings per common share
for the third quarter of 2000 was $.42, compared with $.37 for the third quarter
of 1999. Net income for the first nine months of 2000 was $160.6 million, or
$.95 per share. Net income for the first nine months of 2000, excluding the
effect of the merger related restructure charge associated with the acquisition
of JSB, was $204 million, or $1.20 per share, compared with $187.6 million, or
$1.13 per share, for the first nine months of 1999. The net effect or the
non-recurring items, including the Dime related expenses was insignificant to
earnings per share, excluding the merger related restructure charge, net of
taxes.
Return on average assets and return on average stockholders' equity for the
third quarter of 2000 was 1.97% and 20.28%, respectively, compared with 1.83%
and 21.12% in the same period of 1999. Return on average assets and return on
average stockholders' equity for the first nine months of 2000, excluding the
merger related restructure charge, was 1.88% and 20.49%, respectively, compared
with 1.94% and 21.31% in the same period of 1999.
On September 28, 2000, the Company's Board of Directors approved a common
stock repurchase program of up to 10% of its outstanding common shares, or
approximately 17 million shares.
NET INTEREST INCOME
Net interest income, which represents the difference between interest
earned on interest earning assets and interest incurred on interest bearing
liabilities, is the Company's primary source of earnings. Net interest income is
affected by the level and composition of assets, liabilities, and equity, as
well as changes in market interest rates.
Net interest income was $150.0 million in the third quarter of 2000,
compared with $132.3 million in the third quarter of 1999. The Company's net
interest margin was 4.41% in the third quarter of 2000, compared with 4.19% in
the third quarter of 1999. Net interest income was $442.3 million for the first
nine months of 2000, compared with $393.4 million for the comparable period of
1999. The Company's net interest margin was 4.40% for the first nine months of
2000, compared with 4.32% during the comparable prior year period.
Interest income increased $35.6 million to $272.0 million for the third
quarter of 2000, when compared to $236.4 million for the 1999 third quarter. The
growth in interest income was due to a 48 basis point improvement in the yield
on average interest earning assets to 7.91% and an increase in the level of
average interest earning assets of $1,075 million to $13,843 million. The growth
in average interest earning assets was due in large measure to the acquisition
of Reliance, which added approximately $2.3 billion in interest earning assets.
Absolute growth levels were partially offset by management's decision during the
first quarter of 2000 to sell approximately $1.1 billion in securities
classified as available-for-sale, reducing the Company's exposure to further
rises in interest rates. The proceeds were used to reduce the level of higher
costing short-term borrowings. Additionally, the mix of interest earning assets
has changed modestly as management has elected to fund loan growth through the
cash flows being generated from the securities portfolio rather than increasing
the level of borrowings.
During the third quarter of 2000, average loans increased $1,760 million,
or 24%, to $9,134 million, when compared to third quarter 1999 levels, of which
$991.4 million was acquired in the Reliance transaction. Internal loan
originations accounted for the remainder of the increase, with each component
of the loan portfolio contributing to the growth. The yield on average loans
improved to 8.17%, when compared to 8.12% during the comparable prior year
period. Average loans represent 66% of average interest earning assets, as
compared to 57.8% in the comparable prior year period.
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
NET INTEREST INCOME (CONTINUED)
Average securities declined $496.3 million to $4,667 million in the third
quarter of 2000, while the yield on average securities improved 99 basis points
to 7.43%. Factors contributing to the decline in average securities and the
improvement in yield were as follows: (a) approximately $1.2 billion in
securities were acquired in the Reliance purchase transaction, with a book yield
of 7.85%, (b) the aforementioned sale of $1.1 billion in the lower yielding
available-for-sale securities; and (c) the reinvestment of cash flows from the
securities portfolio at higher rates due to market conditions.
For the quarter ended September 30, 2000, interest expense increased $17.9
million, or 17.2%, over the comparable prior year period to $122.0 million. This
was attributable to a $774.7 million, or 7.6%, increase in average interest
bearing liabilities to $11,013 million and an increase of 38 basis points in the
Company's average cost of funds to 4.41% for the third quarter of 2000, as
compared to 4.03% for the comparable prior year period.
Average total borrowings declined $63.0 million, or 1.6%, to $3,960 million
during the third quarter of 2000. The average cost of funds on total borrowings
increased 87 basis points to 6.35% from 5.48%, reflecting market interest rates
during the respective periods. In the current interest rate environment,
management has kept the average duration of its other borrowings short-term.
Average time and savings deposits, which continue to represent a stable
funding source, increased $837.7 million to $7,053 million, reflecting an
average cost of funds of 3.31% during the third quarter of 2000, from $6,215
million, which had an average cost of funds of 3.10% during the comparable prior
year period. This increase was due primarily to the acquisition of Reliance
partially offset by a modest decline in deposit balances at the former Reliance
and Jamaica branches, as both product and rate structures previously offered
were conformed to those offered at North Fork.
Average demand deposits increased $344 million, or 23.3%, to $1,822 million
during the 2000 third quarter, as compared to $1,478 million in the 1999 third
quarter. The growth in demand deposits has been achieved as a result of the
emphasis on developing long-term deposit relationships with borrowers, the use
of incentive compensation plans, conversion of previously acquired savings bank
locations into full-service commercial banking locations, and the Company's
expanded presence in the Manhattan marketplace. At September 30, 2000, demand
deposits represented 21.2% of total deposits, as compared to 19.7% at September
30, 1999.
The use of derivative instruments, principally interest rate swaps,
decreased interest expense by approximately $1.9 million during the third
quarter of 2000. These derivative financial instruments were immaterial to the
overall cost of funds and net interest margin during these respective period
ends.
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. Because of the numerous simultaneous volume and rate changes during
the periods analyzed, it is not possible to precisely allocate changes to volume
or rate. For presentation purposes, changes which are not solely due to 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
2000 VS. 1999 2000 VS. 1999
CHANGE IN CHANGE IN NET
AVERAGE AVERAGE NET INTEREST AVERAGE AVERAGE INTEREST
(in thousands) VOLUME RATE INCOME VOLUME RATE INCOME
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME FROM EARNING ASSETS:
Securities ..................................... ($8,599) $11,975 $3,376 ($8,705) $29,542 $20,837
Loans, net of unearned income (2) .............. 35,708 856 36,564 102,009 (5,554) 96,455
Money Market Investments ....................... (3,252) (381) (3,633) (4,517) (112) (4,629)
------- ------ ------- ------- ---- -------
Total Interest Income ....................... 23,857 12,450 36,307 88,787 23,876 112,663
------- ------ ------- ------- ---- -------
INTEREST EXPENSE ON LIABILITIES:
Savings, NOW, & Money Market Deposits .......... 2,721 735 3,456 6,801 2,478 9,279
Time Deposits .................................. 3,263 3,446 6,709 8,746 4,436 13,182
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase ............... (1,406) 4,664 3,258 (21,687) 11,434 (10,253)
Other Borrowings ............................... 456 3,983 4,439 42,369 4,823 47,192
------- ------ ------- ------- ---- -------
Total Interest Expense ...................... 5,034 12,828 17,862 36,229 23,171 59,400
------- ------ ------- ------- ---- -------
Net Change in Net Interest Income .............. $18,823 ($378) $18,445 $52,558 $705 $53,263
------- ------ ------- ------- ---- -------
</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.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
NET INTEREST INCOME (CONTINUED)
The following tables present an analysis of net interest income by each
major category of interest earning assets and interest bearing liabilities for
the three and nine-month periods ended September 30, 2000 and 1999,
respectively.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 2000 1999
30,
AVERAGE AVERAGE AVERAGE AVERAGE
(in thousands ) BALANCE INTEREST RATE BALANCE INTEREST RATE
-------------------------------------------------------------------------------
INTEREST EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Securities............................... $ 4,666,907 $87,206 7.43% $5,163,193 $83,830 6.44%
Loans, net of unearned income (1)........ 9,134,407 187,482 8.17% 7,374,800 150,918 8.12%
Money Market Investments................. 41,582 708 6.77% 229,843 4,341 7.49%
--------------------- -------------------------------
Total Interest Earning Assets.......... 13,842,896 275,396 7.91% 12,767,836 239,089 7.43%
--------------------- -------------------------------
NON INTEREST EARNING ASSETS:
Cash and Due from Banks.................. 240,632 177,796
Other Assets (2)......................... 566,656 336,842
----------- --------------
Total Assets........................... $14,650,184 $13,282,474
=========== ==============
INTEREST BEARING LIABILITIES:
Savings, NOW, & Money Market
Deposits............................... $ 4,112,386 $19,909 1.93% $3,537,844 $16,453 1.85%
Time Deposits............................ 2,940,404 38,811 5.25% 2,677,222 32,102 4.76%
--------------------- -------------------------------
Total Savings and Time Deposits........ 7,052,790 58,720 3.31% 6,215,066 48,555 3.10%
Federal Funds Purchased and
Securities Sold Under Agreements
to Repurchase.......................... 2,712,483 42,518 6.24% 2,809,073 39,260 5.54%
Other Borrowings......................... 1,247,272 20,721 6.61% 1,213,674 16,282 5.32%
--------------------- -------------------------------
Total Borrowings....................... 3,959,755 63,239 6.35% 4,022,747 55,542 5.48%
--------------------- -------------------------------
Total Interest Bearing
Liabilities........................ 11,012,545 121,959 4.41% 10,237,813 104,097 4.03%
--------------------- -------------------------------
Rate Spread.............................. 3.51% 3.40%
NON-INTEREST BEARING LIABILITIES
Demand Deposits.......................... 1,821,494 1,477,621
Other Liabilities........................ 181,691 225,852
----------- --------------
Total Liabilities....................... 13,015,730 11,941,286
Capital Securities....................... 244,330 199,305
Stockholders' Equity.................... 1,390,124 1,141,883
----------- --------------
Total Liabilities and Stockholders'....
Equity............................... $14,650,184 $13,282,474
=========== ==============
Net Interest Income & Net Interest....... 153,437 4.41% 134,992 4.19%
Margin ................................
Less: Tax Equivalent Adjustment.......... (3,422) (2,666)
--------- -----------------
Net Interest Income................. $150,015 $132,326
========= =================
</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 assets.
(3) Interest income on a tax equivalent basis includes the additional amount of
income that would have been earned if the Company's investment in tax
exempt money market investments and securities, state and municipal
obligations, non-taxable loans, equity securities, and U.S. Treasuries had
been made in securities and loans subject to Federal, State, and Local
income taxes yielding the same after tax income. The tax equivalent amount
for $1.00 of those aforementioned categories was $1.75, $1.58, $1.55,
$1.43, and $1.03 for the three months ended September 30, 2000; N/A,
$1.58, $1.56, $1.43, and $1.03 for the three months ended September 30,
1999, respectively.
16
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
NET INTEREST INCOME (CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
AVERAGE AVERAGE AVERAGE AVERAGE
(in thousands ) BALANCE INTEREST RATE BALANCE INTEREST RATE
INTEREST EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Securities......................... $4,831,560 $265,526 7.34% $5,005,774 $244,689 6.54%
Loans, net of unearned income (1).. 8,848,247 538,794 8.13% 7,180,446 442,339 8.24%
Money Market Investments........... 66,166 3,203 6.47% 159,587 7,832 6.56%
----------- ------- ----------- --------
Total Interest Earning Assets.... 13,745,973 807,523 7.85% 12,345,807 694,860 7.53%
----------- ------- ----------- --------
NON INTEREST EARNING ASSETS:
Cash and Due from Banks............ 235,175 178,685
Other Assets (2)................... 506,695 408,031
----------- -----------
Total Assets..................... $14,487,843 $12,932,523
=========== ===========
INTEREST BEARING LIABILITIES:
Savings, NOW, & Money Market Deposits $4,060,030 $58,727 1.93% $3,586,330 $49,448 1.84%
Time Deposits...................... 2,926,664 110,165 5.03% 2,692,563 96,983 4.82%
----------- -------- ----------- --------
Total Savings and Time Deposits.. 6,986,694 168,892 3.23% 6,278,893 146,431 3.12%
Federal Funds Purchased and
Securities Sold Under Agreements
to Repurchase...................... 2,543,779 114,825 6.03% 3,042,175 125,078 5.50%
Other Borrowings................... 1,519,466 71,255 6.26% 602,557 24,063 5.34%
----------- --------- ----------- --------
Total Borrowings................. 4,063,245 186,080 6.12% 3,644,732 149,141 5.47%
----------- --------- ----------- --------
Total Interest Bearing Liabilities 11,049,939 354,972 4.29% 9,923,625 295,572 3.98%
----------- --------- ----------- --------
Rate Spread........................ 3.56% 3.54%
NON-INTEREST BEARING LIABILITIES
Demand Deposits.................... 1,744,596 1,386,415
Other Liabilities.................. 169,107 223,217
----------- -----------
Total Liabilities................. 12,963,642 11,533,257
Capital Securities................. 236,308 199,299
Stockholders' Equity.............. 1,287,893 1,199,967
----------- -----------
Total Liabilities and Stockholders'
Equity......................... $14,487,843 $12,932,523
=========== ===========
Net Interest Income & Net Interest 452,551 4.40% 399,288 4.32%
Margin ............................
Less: Tax Equivalent Adjustment.... (10,240) (5,890)
-------- --------
Net Interest Income........... $442,311 $393,398
======== ========
</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 assets.
(3) Interest income on a tax equivalent basis includes the additional amount of
income that would have been earned if the Company's investment in tax
exempt money market investments and securities, state and municipal
obligations, non-taxable loans, equity securities, and U.S. Treasuries had
been made in securities and loans subject to Federal, State, and Local
income taxes yielding the same after tax income. The tax equivalent amount
for $1.00 of those aforementioned categories was $1.75, $1.58, $1.55,
$1.43, and $1.03 for the nine months ended September 30, 2000; N/A, $1.58,
$1.56, $1.43, and $1.03 for the nine months ended September 30, 1999,
respectively.
NON-INTEREST INCOME
Non-interest income, exclusive of gains recognized on the sale of certain
securities and branch facilities, increased $6.2 million, or 39.2%, to $22.1
million in the 2000 third quarter, when compared to $15.9 million in the
comparable prior year quarter. The improvement in non-interest income was
achieved through a $2.3 million, or 28.4%, increase in fees and service charges
on deposit accounts to $10.3 million; a $2.9 million, or 90.7%, increase in
other operating income to $6.0 million and a $1.1 million, or 28.4%, increase in
investment management, commissions and trust fees to $4.9 million. The increase
in fees and service charges on deposit accounts was attributable to increased
levels of demand deposits, revisions to deposit fee structures, and the
acquisitions of JSB and Reliance. Contributing to the growth in other operating
income was fee income generated by the Company's recently acquired check cashing
subsidiary, CBMC, Inc. (d/b/a "Money Centers") and the introduction of
additional fee based services. The Money Centers operate through five Manhattan
locations and were acquired in the Reliance transaction. Investment management,
commissions and trust fees should continue to grow as these products and
services are offered to the former JSB and Reliance customer base.
17
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
NON-INTEREST INCOME (CONTINUED)
Net securities gains recognized during the most recent quarter were $5.5
million, as compared to $.2 million during the 1999 third quarter. These gains
resulted primarily from the sale of equity positions in certain publicly traded
companies.
Additionally, during the most recent quarter, the Company recognized a gain
of $2.7 million in connection with the sale of certain branch facilities.
NON-INTEREST EXPENSE
Non-interest expense, exclusive of Dime related acquisition expenses,
increased $9.8 million, or 19.1%, to $61.0 million during the most recent
quarter, as compared to $51.2 million during the comparable prior year period.
The increase in non-interest expense is attributable to a $3.6 million increase
in amortization of intangible assets, a $2.9 million increase in compensation
and employee benefits, a $.9 million increase in capital securities costs, a
$.9 million increase in occupancy and equipment costs, and $1.5 million in other
operating expenses.
The increase in the amortization of intangible assets is due to the
increase in goodwill recorded in connection with the Reliance acquisition. The
increase in compensation and employee benefits expense is due primarily to the
Company's recent acquisition of Reliance, the expanded use of incentive
compensation plans to achieve its objective of growing demand deposits and
generating fee income, annual merit increases, increased costs associated with
employee benefits, costs associated with expanding its presence in Manhattan,
and the formation of All Points Capital Corp. The increase in capital securities
costs resulted from the assumption of $45 million in capital securities
previously issued by Reliance in April 1998. The increase in occupancy and
equipment costs and other operating expenses is also due to the Reliance
acquisition and the opening of de novo branches in Manhattan. During 2000, North
Fork has added two additional branches in Manhattan and is scheduled to open
another two prior to year end.
During the quarter, the Company incurred $5.2 million in expenses related
to its proposed acquisition of Dime Bancorp, Inc. To date, the Company has
incurred $13.5 million in connection with its effort to acquire Dime Bancorp,
Inc. Expenses incurred to date have consisted principally of legal fees,
professional fees, and shareholder notifications and mailings.
The Company's core efficiency ratio, which represents the ratio of
non-interest expense, net of other real estate costs and other non-recurring
charges, to net interest income on a tax equivalent basis and non-interest
income, net of securities gains and losses and other non-recurring income, was
34.7% in the 2000 third quarter, as compared with 33.9% for the comparable prior
year period. The core efficiency ratio for the first nine months of 2000 was
34.3% and remained unchanged when compared to the same period in 1999. The core
efficiency ratio demonstrates management's ability to maintain a disciplined
approach to monitoring its operating structure and controlling related costs.
INCOME TAXES
The effective tax rate for the three and nine months ended September 30,
2000, exclusive of the merger and related restructuring costs and other special
items, was 35.0%, as compared to 36.0% for the three and nine months ended
September 30, 1999. Management anticipates that the effective tax rate for the
remainder of 2000 will be approximately 35%.
LOAN PORTFOLIO
The following table represents the components of the loan portfolio for the
periods indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, % OF DECEMBER 31, % OF SEPTEMBER 30, % OF
(in thousands) 2000 TOTAL 1999 TOTAL 1999 TOTAL
------------- -------- ------------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loans-Multi-Family .............. $3,325,529 36% $2,827,272 36% $2,750,160 36%
Mortgage Loans-Residential ............... 2,635,079 29% 2,221,779 28% 2,217,011 29%
Mortgage Loans-Commercial ................ 1,457,031 16% 1,327,001 17% 1,280,306 17%
Commercial & Industrial .................. 921,016 10% 697,763 8% 612,202 8%
Consumer Loans and Leases ................ 750,240 8% 752,256 10% 700,704 9%
Construction and Land Loans ............. 134,367 1% 87,257 1% 74,317 1%
---------- --- ---------- --- ---------- ---
$9,223,262 100% $7,913,328 100% $7,634,700 100%
=========== ======= ============ ======= ============ ==========
</TABLE>
The loan portfolio is concentrated primarily in loans secured by real
estate in the New York metropolitan area. The risk inherent in the portfolio,
principally credit risk, is effected not only by regional and general economic
stability, which affects property values, but also the financial well being and
creditworthiness of the borrowers.
18
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
LOAN PORTFOLIO (CONTINUED)
Loans outstanding at September 30, 2000 increased $1,588 million, or 20.8%,
to $9,223 million, as compared to $7,635 million at September 30, 1999. The
growth experienced during the past year has resulted from both originations and
the Reliance purchase acquisition. The absolute level of growth has been
tempered by management's decision to periodically sell certain loans, which it
believes would not have performed as well in a weak economy. During 2000, the
Company sold approximately $138.3 million of such loans.
Reliance provided the Company with approximately $1.0 billion in loans,
principally multi-family and residential mortgages, and consumer loans. The
composition of the Company's loan portfolio at September 30, 2000 has remained
approximately the same when compared to pre-merger and acquisition levels.
Multi-family and residential loans represented 65% of the portfolio, while
pre-merger and acquisition these components represented 58% of the portfolio at
December 31, 1999.
The Company continues to experience strong internally generated loan
growth. Core loan growth was approximately $532.8 million, or 10.7%, on an
annualized basis during the first nine months of 2000. Contributing to this
increase has been the success experienced by the Company through its recently
formed subsidiary, All Points Capital Corp., which originates lease financing
transactions to existing customers of North Fork and through a national
distribution network. All Points, during its first ten months of operations, has
originated $192.4 million in loans.
To minimize the credit risk related to the portfolio's real estate
concentration, management utilizes prudent underwriting standards as well as
diversifying the type and locations of loan placements. The multi-family lending
business includes loans on various types and geographically diverse apartment
complexes. Multi-family mortgages are dependent largely on sufficient income to
cover operating expenses and may be affected by government regulation, such as
rent control regulations, which could impact the future cash flows of the
property. Most multi-family mortgages do not fully amortize. Therefore, the
principal outstanding is not significantly reduced prior to contractual
maturity. The residential mortgage portfolio is comprised primarily of first
mortgage loans on owner occupied 1-4 family residences located in the New York
metropolitan area. The commercial mortgage portfolio contains loans secured by
professional office buildings, retail stores, shopping centers and industrial
developments. Commercial loans consist primarily of loans to small and medium
size businesses. Consumer loans represent credit to individuals for household,
family, and other personal expenditures and consist primarily of loans to
finance new and used automobiles. The consumer loan portfolio does not contain
higher risk credit card and sub prime loans. Land loans are used to finance the
acquisition of vacant land for future residential and commercial development.
Construction loans finance the construction of industrial developments and
single-family subdivisions. The construction and land development portfolios do
not contain any AD&C loans.
The Company's real estate underwriting standards include various limits on
the loan-to-value ratios based on the type of property, and management
considers, among other things, the creditworthiness of the borrower, the
location of the real estate, the condition and value of the security property,
the quality of the organization managing the property, and the viability of the
project including occupancy rates, tenants and lease terms. Additionally, the
underwriting standards require appraisals and periodic inspections of the
properties as well as ongoing monitoring of operating results.
ASSET QUALITY
The components of non-performing assets and restructured, accruing loans
are detailed in the table below:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
(in thousands) 2000 1999 1999
<S> <C> <C> <C>
Loans Ninety Days Past Due and Still Accruing .......................... $5,582 $6,131 $4,941
Non-Accrual Loans ...................................................... 8,450 8,997 10,684
------- ------- -------
Non-Performing Loans ................................................... 14,032 15,128 15,625
Other Real Estate ...................................................... 884 787 863
------- ------- -------
Non-Performing Assets .................................................. $14,916 $15,915 $16,488
======= ======= =======
Restructured, Accruing Loans ........................................... $- $- $-
======= ======= =======
</TABLE>
19
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
ASSET QUALITY (CONTINUED
At September 30, 2000, non-performing assets were $14.9 million, compared
to $15.9 million at December 31, 1999 and $16.5 million at September 30, 1999.
The current level of non-performing assets is a result of the effectiveness of
the Company's loan administration and workout procedures, as well as a strong
local economy. The decline in non-performing assets during the most recent
period when compared to year ago levels was achieved despite the Company
acquiring approximately $7.1 million in non-performing assets from Reliance.
Non-performing loans at September 30, 2000 consisted of $5.2 million in consumer
loans, $4.5 million in residential mortgages, $1.9 million in commercial
mortgages, $2.0 million in commercial loans and land, $.2 million in
multi-family mortgages, and $.2 million in construction and land loans. Future
levels of non-performing assets will be influenced by the economic environment,
interest rates, and other internal and external factors existing at the time. As
such, no assurance can be given as to future levels of non-performing assets.
The following table represents a summary of the changes in the allowance
for loan losses for the nine months ended September 30:
<TABLE>
<CAPTION>
(in thousands) 2000 1999
------------------
<S> <C> <C>
Balance at Beginning of Year...................................... $74,525 $77,683
Provision for Loan Losses......................................... 13,500 3,763
Recoveries........................................................ 5,244 3,428
------------------
93,269 84,874
Charge-Offs....................................................... (13,884) (9,987)
Additional Allowance Acquired..................................... 9,069 $-
------------------
Balance at End of Period.......................................... $88,454 $74,887
==================
Ratio of Net Charge-Offs to Average Loans......................... 0.13% 0.12%
Ratio of Allowance for Loan Losses to Period End Loans, net....... 0.96% 0.98%
Ratio of Allowance for Loan Losses to Non-performing Loans........ 630% 479%
</TABLE>
The provision for loan losses during the most recent quarter increased to
$2.3 million, as compared to $1.3 million for the comparable prior year period.
The nine month results reflect a special provision of $6.8 million recognized by
management in order to conform the provisioning policies of the acquired
institutions to those of the Company and to restore the Company's post-merger
reserve coverage ratios to approximate pre-merger levels.
The determination of the adequacy of the allowance for loan losses and the
periodic provisioning for estimated losses included in the consolidated
financial statements is the responsibility of management. The evaluation process
is undertaken on a quarterly basis but may increase in frequency should
conditions arise that would require management's prompt attention. Conditions
giving rise to such action are business combinations, opportunities to dispose
of non-performing and marginally performing loans by bulk sale or any
development, which may indicate an adverse trend.
The methodology employed for assessing the appropriateness of the
allowance consists of the following criteria:
- The establishment of reserve amounts for all specifically identified
criticized loans, including those arising from business combinations,
that have been designated as requiring attention by management's
internal loan review program, bank regulatory examinations or the
Company's external auditors.
- An average one year loss factor is applied to smaller balance
homogenous types of loans not subject to specific review. These loans
include residential 1-4 family properties and consumer loans.
- An allocation to the remaining loans giving effect to historical loss
experience over several years and linked to cyclical trends.
Recognition is also given to the changed risk profile brought about from
previous business combinations, the results of the ongoing credit-quality
monitoring processes and the cyclical nature of economic and business
conditions. An important consideration in applying these methodologies is the
concentration of real estate related loans located in the New York metropolitan
area.
Since many of the loans depend upon the sufficiency of collateral, any
adverse trend in the real estate markets could seriously affect underlying
values available to protect the Company from loss. This condition existed in the
early 1990's when the Company experienced sizable real estate loan losses.
Other evidence used to support the amount of the allowance and its
components are as follows:
- Regulatory examinations
- The amount and trend of criticized loans
- Actual losses
- Peer comparisons with other financial institutions
- Economic data associated with the real estate market in the Company's
market area
- Opportunities to dispose of marginally performing loans for cash
consideration
20
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
ASSET QUALITY (CONTINUED)
Based upon the process employed and giving recognition to all attendant
factors associated with the loan portfolio, management considers the allowance
for loan losses to be adequate at September 30, 2000. This conclusion is
further supported by the fact that the Company does not have any syndicated
loans in its portfolio.
SECURITIES PORTFOLIO The composition of and the amortized cost and estimated
fair values of available-for-sale and held-to-maturity securities portfolios
were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999 SEPTEMBER 30, 1999
AVAILABLE-FOR-SALE AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
(in thousands) COST VALUE COST VALUE COST VALUE
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities ................. $20,035 $19,991 $20,046 $19,978 $19,951 $20,013
U.S. Government Agencies' ................ 133,368 133,481 88,709 86,210 118,053 117,582
Obligations
Mortgage-Backed Securities ............... 617,879 608,914 895,855 869,882 802,747 785,397
CMO's Agency Issuances ................... 492,945 487,660 489,151 463,087 482,846 466,577
CMO's Private Issuances .................. 1,621,918 1,620,010 1,781,288 1,724,183 1,809,350 1,766,311
Equity Securities ........................ 268,613 279,760 273,701 336,554 282,874 348,993
Other Securities (1) ..................... 350,176 322,904 198,861 182,316 193,582 183,330
---------- ---------- ---------- ---------- ---------- ----------
$3,504,934 $3,472,720 $3,747,611 $3,682,210 $3,709,403 $3,688,203
========== ========== ========== ========== ========== ==========
HELD-TO-MATURITY
(in thousands)
U.S. Government Agencies' ................ $24 $24 $20,051 $20,047 $80,000 $79,973
Obligations
State & Municipal Obligations ............ 82,411 81,265 76,173 74,171 77,156 76,634
Mortgage-Backed Securities ............... 384,131 372,648 447,209 427,895 468,156 454,694
CMO's Agency Issuances ................... 73,996 73,218 115,027 113,470 128,073 127,186
CMO's Private Issuances .................. 604,996 583,125 674,072 645,700 699,689 679,613
Other Securities ......................... 16,457 15,959 18,972 18,313 20,444 20,012
---------- ---------- ---------- ---------- ---------- ----------
$1,162,015 $1,126,239 $1,351,504 $1,299,596 $1,473,518 $1,438,112
========== ========== ========== ========== ========== ==========
</TABLE>
(1) Amortized cost and fair value includes $197.4 million, $170.7 million, and
$159.9 million in Federal Home Loan Bank stock at September 30, 2000,
December 31, 1999, and September 30, 1999, respectively.
Management's strategy is to invest in securities with short-weighted
average lives minimizing exposure to future increases in interest rates. These
are principally mortgage-backed securities ("MBS"), including collateralized
mortgage obligations ("CMO"), that provide stable cash flows, which may be
reinvested at current market interest rates. The combined weighted average life
of the held-to-maturity and available-for-sale securities portfolios at
September 30, 2000 was 5.7 years.
CMO's are collateralized by either U.S. Government Agency MBS's or whole
loans, which are principally AAA rated conservative current pay sequentials or
planned amortization class ("PAC") structures, with a current weighted average
life of approximately 4.3 years.
Prepayments on MBS's, including CMO's, are monitored as part of the
portfolio management function. Management typically invests in MBS's with stable
cash flows and relatively short duration, thereby limiting the impact of
interest rate fluctuations on the portfolio. Management regularly performs
simulation testing to assess the impact that interest and market rate changes
would have on the MBS portfolio.
Equity securities maintained in the available-for-sale portfolio were
comprised of FHLB common stock and common and preferred stock of certain
publicly traded companies. Other securities maintained in the available-for-sale
portfolio consist of capital securities of certain financial institutions and
corporate bonds.
At September 30, 2000, securities carried at $3.0 billion were pledged to
secure securities sold under agreements to repurchase, other borrowings, and for
other purposes as required by law.
CAPITAL
The Company and its bank subsidiaries are subject to the risk based capital
guidelines administered by the banking regulatory agencies. The risk based
capital guidelines are designed to make regulatory capital requirements more
sensitive to differences in risk profiles among banks and bank holding
companies, to account for off-balance sheet exposure and to minimize
disincentives for holding liquid assets. Under these guidelines, assets and
off-balance sheet items are assigned to broad risk categories, each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk weighted assets and off-balance sheet items. The
guidelines require all banks and bank holding companies to maintain a minimum
ratio of total risk based capital to total risk weighted assets of 8%, including
a minimum ratio of Tier I capital to total risk weighted assets of 4% and a Tier
I capital to average assets of 4% ("Leverage Ratio"). Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly additional
discretionary actions by regulators, that, if undertaken, could have a direct
material effect on the Company's financial statements. As of September 30, 2000,
the most recent notification from the various banking regulators categorized the
Company and its bank subsidiaries as well capitalized under the regulatory
framework for prompt corrective action. Under the capital adequacy guidelines, a
well capitalized institution
21
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
CAPITAL (CONTINUED)
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 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 Company's regulatory capital at
September 30, 2000 and 1999, under the rules applicable at such dates.
Management believes that the Company meets all capital adequacy requirements to
which it is subject.
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
(dollars in thousands ) AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C>
Tier 1 Capital ............................. $1,327,665 15.16% $1,221,442 14.85%
Regulatory Requirement ..................... 350,296 4.00% 329,030 4.00%
-------- ----- ---------- -----
Excess ..................................... $977,369 11.16% $892,412 10.85%
======== ===== ========== =====
Total Risk Adjusted Capital ................ $1,419,715 16.21% $1,321,716 16.07%
Regulatory Requirement ..................... 700,592 8.00% 658,060 8.00%
-------- ----- ---------- -----
Excess ..................................... $719,123 8.21% $663,656 8.07%
======== ===== ========== =====
Risk Weighted Assets ....................... $8,757,395 $8,225,745
========== ==========
</TABLE>
The Company's Leverage Ratio at September 30, 2000 was 9.28%. The Tier 1,
Total Risk-Based and Leverage Capital Ratios of North Fork were 12.86%, 13.93%,
and 7.83%, respectively, at September 30, 2000.
On September 28, 2000, the Company's Board of Directors approved a common
stock repurchase program of up to 10% of outstanding common shares, or
approximately 17 million shares. As of November 9, 2000, the Company had
repurchased 10.6 million shares at an average price of $19.55. The Company
believes that at the conclusion of the current repurchase program it will
continue to be well capitalized.
On September 28, 2000, the Board of Directors declared a regular quarterly
cash dividend of $.18 per common share. The dividend is payable November 15,
2000 to shareholders of record at the close of business October 26, 2000.
In February 2000, the Company's shareholders approved a resolution to amend
the Company's certificate of incorporation to increase the number of authorized
shares of common stock from 200 million to 500 million and to reduce the par
value of its common stock from $2.50 per share to $.01 per share. All periods
reported have been retroactively adjusted to reflect the change in par value.
ASSET/LIABILITY MANAGEMENT
The Company's primary earnings source is the net interest margin, which is
affected by changes in the level of interest rates, the relationship between
rates, the impact of interest rate fluctuations on asset prepayments, the level
and composition of assets and liabilities, and the credit quality of the loan
portfolio. Management's asset/liability objectives are to maintain a strong,
stable net interest margin, to utilize its capital effectively without taking
undue risks and to maintain adequate liquidity.
The risk assessment program includes a coordinated approach to the
management of liquidity, capital and interest rate risk. This risk assessment
process is governed by policies and limits established by senior management
which are reviewed and approved by the Asset/Liability Committee of the Board of
Directors ("ALCO"). ALCO, comprised of members of senior management and the
Board, meets periodically to evaluate the impact of changes in market interest
rates on interest earning assets and interest bearing liabilities, net interest
margin, capital and liquidity, and to evaluate the Company's strategic plans.
The balance sheet structure is primarily short-term with most assets and
liabilities repricing or maturing in less than five years. Management monitors
the sensitivity of net interest income by utilizing a dynamic simulation model
complemented by a traditional gap analysis. This model measures net interest
income sensitivity and volatility to interest rate changes. It involves a degree
of estimation based on certain assumptions that management believes to be
reasonable. Factors considered include actual maturities, estimated cash flows,
repricing characteristics, deposit growth/retention and, primarily, the relative
sensitivity of assets and liabilities to changes in market interest rates.
Utilizing this process, management can estimate and project the impact of
changes in interest rates on net interest income. This relative sensitivity is
important to consider since the Company's core deposit base is not subject to
the same degree of interest rate sensitivity as its assets. Core deposit costs
are internally controlled and generally exhibit less sensitivity to changes in
interest rates than the adjustable rate assets whose yields are based on
external indices and change in concert with market interest rates. Management
has established certain limits for the potential volatility of net interest
income, assuming certain levels of change in market interest rates with the
objective of maintaining a stable level of net interest income under various
probable rate
22
<PAGE> 23
ASSET/LIABILITY MANAGEMENT (CONTINUED)
scenarios. Management may choose to extend the maturity of its funding source
and/or reduce the repricing mismatches of its assets or liabilities by using
interest rate swaps. Additionally, management may use interest rate collars,
interest rate floors, and interest rate cap agreements to assist in insulating
it from volatile interest rate changes.
Management utilizes the traditional gap analysis to complement its income
simulation modeling, primarily focusing on the longer term structure of the
balance sheet, since the gap analysis does not assess the relative sensitivity
of assets and liabilities to changes in interest rates. The gap analysis is
prepared based on the maturity and repricing characteristics of interest earning
assets and interest bearing liabilities for selected time periods. The mismatch
between repricings or maturities within a time period is commonly referred to as
the "gap" for that period. A positive gap (asset sensitive), where interest-rate
sensitive assets exceed interest-rate sensitive liabilities, generally will
result in the net interest margin increasing in a rising rate environment and
decreasing in a falling rate environment. A negative gap (liability sensitive)
will generally have the opposite results on the net interest margin. However,
the gap analysis is static in nature; therefore, the maturity and repricing
characteristics of interest earning assets and interest bearing liabilities can
change considerably with changes in interest rates.
LIQUIDITY RISK MANAGEMENT
The objective of liquidity risk management is to ensure the ability of the
Company and its subsidiaries to meet all their financial obligations. These
obligations include but are not limited to the payment of deposits on demand or
at contractual maturity, the repayment of borrowings as they mature, the ability
to fund new loans and investments as opportunities arise, and the ability to
capitalize on opportunities to expand the Company's current business as
opportunities arise.
The Company's sources of liquidity include dividends from its
subsidiaries, borrowings, the sale of securities from the available-for-sale
portfolio, and funds available through the capital markets. Dividends from the
Company's primary subsidiary, North Fork, are limited by New York State Banking
Department regulations to the current year's earnings plus the prior two years'
retained net profits. Pursuant to this regulation, North Fork had $168.7 million
of retained earnings available for dividends as of October 1, 2000.
The bank subsidiaries have numerous sources of liquidity including cash
and due from banks, loan and security principal repayments and maturities,
lines-of-credit with other financial institutions, the ability to borrow under
repurchase agreements and Federal Home Loan Bank advances utilizing unpledged
securities and mortgage related loan portfolios, respectively, the sale of
securities from their available-for-sale portfolios, the securitization of
loans, whole loan sales, and growth in their core deposit base.
The bank subsidiaries currently have the ability to borrow an additional
$4.0 billion on a secured basis, utilizing mortgage related loans and securities
as collateral. At September 30, 2000, the Company had $3.2 billion in
outstanding borrowings with the FHLB.
The Company and its banking subsidiaries' liquidity positions are
monitored daily to ensure the maintenance of an optimum level and efficient use
of available funds. Management believes that the Company and its banking
subsidiaries have sufficient liquidity to meet their operating requirements.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 2000 /s/ Daniel M. Healy
-------------------
Daniel M. Healy
Executive Vice President &
Chief Financial Officer
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