<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: JUNE 30, 2000
NORTH FORK BANCORPORATION, INC.
(Exact name of Company as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
(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.
<TABLE>
<CAPTION>
CLASS OF COMMON STOCK NUMBER OF SHARES OUTSTANDING 8/10/2000
--------------------- --------------------------------------
<S> <C>
$.01 PAR VALUE 173,972,192
</TABLE>
1
<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 is a party to six separate lawsuits in connection with its
pending offer to acquire all of the outstanding common stock of Dime
Bancorp, Inc. ("Dime"). A complete description of this litigation is
contained in: (1) the section captioned "The Offer - Litigation" on
pages 46 through 52 of Amendment No. 3 to the Company's Registration
Statement on Form S-4, Registration No. 333-32492, filed with the
Securities and Exchange Commission (the, "Commission") on May 15, 2000
(the "Exchange Offer S-4") and is included as Exhibit 99.1 to this
Quarterly Report on Form 10-Q, and incorporated herein by reference in
response to Item 1 of Part II of Form 10-Q; (2) 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 and is included in Exhibit
99.2 to this Quarterly Report on Form 10-Q, and incorporated herein by
reference in response to Item 1 of Part II of Form 10-Q; and (3) Item
5. Other Events of he Current Report on Form 8-K, dated July 14, 2000
and filed with the Commission on July 19, 2000 and is included as
Exhibit 99.3 to this Quarterly Report on Form 10-Q, and incorporated
herein by reference in response to Item 1 of Part II of Form 10-Q.
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:
<TABLE>
<CAPTION>
(a) Exhibit # Description
<S> <C>
(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).
</TABLE>
2
<PAGE> 3
INDEX (CONTINUED)
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(b) Current Reports on Form 8-K
1) Current Report on Form 8-K/A dated April 14, 2000
(amending the Current Report on Form 8-K filed with the
Commission on March 3, 2000).
2) Current Report on Form 8-K dated April 18, 2000
(containing the audited supplemental consolidated balance
sheets of the Company as of December 31, 1999 and 1998,
and the related audited supplemental consolidated
statements of income, cash flows, changes in stockholders'
equity, and comprehensive income for each of the years in
the three-year period ended December 31, 1999. The
financial statements give retroactive effect to the merger
of the Company and JSB Financial, Inc. on February 29,
2000).
3) Current Report on Form 8-K dated April 24, 2000 (reporting
the Company's earnings results for the quarter ended March
31, 2000).
4) Current Report on Form 8-K dated May 15, 2000 (containing
certain updated information to Amendment No. 3 to the
Company's Registration Statement filed on Form S-4 with
the Securities and Exchange Commission relating to the
offer (the "offer') by North Fork to exchange 0.9302
shares of North Fork common stock and $2.00 in cash for
each outstanding share of common stock of Dime Bancorp,
Inc. ("Dime")).
5) Current Report on Form 8-K dated May 26, 2000 (announcing
that the Company was extending the expiration date of the
offer until 12:00 midnight, New York City time, on June
30, 2000).
6) Current Report on Form 8-K dated June 27, 2000 (announcing
that the Company was extending the expiration date of the
offer until 12:00 midnight, New York City time, on July
31, 2000).
7) Current Report on Form 8-K dated June 30, 2000 (announcing
that the Company began sending a letter to stockholders of
Dime, in connection with the Company's solicitation of
proxies from Dime stockholders to withhold authority for
each of Dime's five nominees for election to the Board of
Directors of Dime at the 2000 Annual Meeting of
Stockholders of Dime Bancorp, Inc.).
3
<PAGE> 4
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------------------
JUNE 30, DECEMBER 31, JUNE 30,
(in thousands, except per share amounts) 2000 1999 1999
------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Cash and Due from Banks ................................................ $ 248,269 $ 317,434 $ 169,640
Money Market Investments ............................................... 72,807 85,767 241,872
Securities:
Available-for-Sale .................................................. 3,449,273 3,682,210 3,612,810
Held-to-Maturity .................................................... 1,219,444 1,351,504 1,562,017
------------------------------------------------
Total Securities ................................................. 4,668,717 5,033,714 5,174,827
------------------------------------------------
Loans .................................................................. 9,100,542 7,913,328 7,272,019
Less: Unearned Income ................................................ 16,760 15,640 18,277
Allowance for Loan Losses .................................. 88,010 74,525 75,333
------------------------------------------------
Net Loans ............................................ 8,995,772 7,823,163 7,178,409
------------------------------------------------
Intangible Assets ...................................................... 352,549 79,151 82,109
Premises and Equipment ................................................. 100,517 92,652 93,026
Accrued Income Receivable .............................................. 91,208 78,651 77,099
Other Assets ........................................................... 152,909 165,624 125,324
------------------------------------------------
Total Assets ...................................................... $ 14,682,748 $ 13,676,156 $ 13,142,306
================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Demand Deposits ........................................................ $ 1,846,973 $ 1,558,044 $ 1,503,254
Savings, NOW, and Money Market Deposits ................................ 4,123,281 3,598,481 3,514,651
Other Time Deposits .................................................... 2,373,567 1,965,827 2,023,971
Certificates of Deposit, $100,000 & Over .............................. 577,599 519,211 600,254
------------------------------------------------
Total Deposits .................................................... 8,921,420 7,641,563 7,642,130
------------------------------------------------
Federal Funds Purchased and Securities Sold Under
Agreements to Repurchase ............................................ 2,800,282 2,665,200 3,014,796
Other Borrowings ....................................................... 1,144,710 1,894,000 885,000
Accrued Expenses and Other Liabilities ................................. 229,507 276,981 221,886
------------------------------------------------
Total Liabilities ................................................ $ 13,095,919 $ 12,477,744 $ 11,763,812
------------------------------------------------
Capital Securities ..................................................... $ 244,326 $ 199,314 $ 199,301
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 174,041,526 shares at June 30, 2000 ......................... 1,740 1,931 1,931
Additional Paid in Capital ............................................. 352,503 560,979 560,741
Retained Earnings ...................................................... 1,059,843 1,026,546 954,593
Accumulated Other Comprehensive Income - Unrealized (Losses)/Gains
on Securities Available-for-Sale, net of taxes ..................... (41,435) (37,818) 1,715
Deferred Compensation .................................................. (26,585) (28,007) (22,771)
Treasury Stock at Cost; 186,420 at June 30, 2000 ...................... (3,563) (524,533) (317,016)
------------------------------------------------
Total Stockholders' Equity ....................................... 1,342,503 999,098 1,179,193
------------------------------------------------
Total Liabilities and Stockholders' Equity ....................... $ 14,682,748 $ 13,676,156 $ 13,142,306
================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
(in thousands, except per share amounts) 2000 1999 2000 1999
----------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans ................................................ $ 181,922 $ 146,641 $ 350,846 $ 290,926
Mortgage-Backed Securities ........................... 71,662 69,069 142,460 133,272
Other Securities ..................................... 13,306 7,863 23,014 17,004
U.S. Treasury and Government Agency Securities ....... 2,684 3,858 5,125 6,917
State and Municipal Obligations ...................... 929 791 1,848 1,600
Money Market Investments ............................. 639 1,785 2,017 2,829
----------------------------------------------------
Total Interest Income ................................ 271,142 230,007 525,310 452,548
----------------------------------------------------
INTEREST EXPENSE:
Savings, NOW, and Money Market Deposits .............. 19,909 16,431 38,818 32,995
Other Time Deposits .................................. 30,023 23,765 56,477 48,199
Certificates of Deposit, $100,000 and Over ........... 7,690 8,491 14,877 16,682
Federal Funds Purchased and Securities Sold Under
Agreements to Repurchase .......................... 38,726 43,640 72,307 85,818
Other Borrowings ..................................... 21,828 5,972 50,535 7,782
----------------------------------------------------
Total Interest Expense ............................ 118,176 98,299 233,014 191,476
----------------------------------------------------
Net Interest Income ............................... 152,966 131,708 292,296 261,072
Provision for Loan Losses ............................ 2,250 1,255 11,250 2,512
----------------------------------------------------
Net Interest Income after Provision for Loan Losses 150,716 130,453 281,046 258,560
----------------------------------------------------
NON-INTEREST INCOME:
Fees and Service Charges on Deposit Accounts ......... 9,601 7,058 18,056 13,756
Investment Management, Commissions and Trust Fees .... 4,623 4,203 9,356 8,572
Mortgage Banking Operations .......................... 942 957 1,797 1,898
Other Operating Income ............................... 5,584 3,384 10,808 6,654
Gain on Sale of Branch Facilities .................... 10,392 -- 10,392 --
Net Securities Gains/(Losses) ........................ 11,148 7,017 (8,600) 9,720
Gain on Sale of Loans ................................ -- -- 2,303 --
----------------------------------------------------
Total Non-Interest Income ....................... 42,290 22,619 44,112 40,600
----------------------------------------------------
NON-INTEREST EXPENSE:
Compensation and Employee Benefits ................... 27,730 25,344 56,337 50,671
Occupancy and Equipment, net ......................... 8,864 8,424 17,784 16,769
Capital Securities Costs ............................. 5,140 4,211 9,774 8,422
Amortization of Intangible Assets .................... 5,671 2,084 8,989 4,159
Other Operating Expenses ............................. 10,964 11,077 22,532 21,779
Dime Related Expenses ................................ 2,300 -- 8,300 --
Merger Related Restructure Charge .................... -- -- 50,499 --
----------------------------------------------------
Total Non-Interest Expense ....................... 60,669 51,140 174,215 101,800
----------------------------------------------------
Income Before Income Taxes ........................... 132,337 101,932 150,943 197,360
Provision for Income Taxes ........................... 46,318 36,679 63,012 71,060
----------------------------------------------------
Net Income ...................................... $ 86,019 $ 65,253 $ 87,931 $ 126,300
====================================================
PER SHARE:
Earnings Per Share - Basic ........................... $ 0.50 $ 0.39 $ 0.53 $ 0.76
Earnings Per Share - Diluted ......................... $ 0.50 $ 0.39 $ 0.52 $ 0.75
Cash Dividends ....................................... $ 0.18 $ 0.15 $ 0.36 $ 0.30
Weighted Average Shares Outstanding - Basic .......... 171,672 166,169 166,994 166,804
Weighted Average Shares Outstanding - Diluted ........ 172,847 167,594 168,144 168,311
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
(in thousands) 2000 1999
----------------------------
<S> <C> <C>
FOR THE SIX MONTHS ENDED JUNE 30,
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income .................................................................... $ 87,931 $ 126,300
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Provision for Loan Losses ..................................................... 11,250 2,512
Depreciation and Amortization ................................................. 7,273 7,000
Amortization of Intangible Assets ............................................. 8,989 4,159
Amortization of Securities Premiums ........................................... 2,790 6,330
Accretion of Discounts and Net Deferred Loan Fees ............................. (10,518) (4,738)
Net Securities Losses/(Gains) ................................................. 8,600 (9,720)
Other, net .................................................................... 16,333 (14,981)
----------------------------
Net Cash Provided by Operating Activities ................................. 132,648 116,862
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Securities Held-to-Maturity ...................................... (10,083) (290,706)
Maturities, Redemptions, Calls and Principal Repayments on
Securities Held-to-Maturity ............................................... 141,509 507,210
Purchases of Securities Available-for-Sale .................................... (358,857) (1,406,623)
Proceeds from Sales of Securities Available-for-Sale .......................... 1,585,216 69,621
Maturities and Principal Repayments on Securities Available-for-Sale .......... 228,264 717,972
Loans Originated, Net of Principal Repayments and Charge-offs ................. (467,574) (437,124)
Proceeds from the Sale of Loans ............................................... 252,321 71,535
Transfers to Other Real Estate, net of sales .................................. 207 3,205
Purchases of Premises and Equipment, net ...................................... (119) (8,270)
Purchase Acquisition, net of Cash Acquired .................................... 36,858 --
----------------------------
Net Cash Provided by/(Used in) Investing Activities ....................... 1,407,742 (773,180)
----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (Decrease)/Increase in Customer Deposits Liabilities ...................... (221,722) 48,456
Net (Decrease)/Increase in Borrowings ......................................... (1,338,212) 894,700
Net Decrease in Long Term Debt ................................................ -- (35,000)
Purchase of Treasury Stock .................................................... (10,216) (68,924)
Common Stock Sold for Cash .................................................... 2,030 3,686
Cash Dividends Paid ........................................................... (54,395) (68,442)
----------------------------
Net Cash (Used in)/Provided by Financing Activities ....................... (1,622,515) 774,476
----------------------------
Net Decrease in Cash and Cash Equivalents ................................. (82,125) 118,158
Cash and Cash Equivalents at Beginning of the Period .......................... 403,201 293,354
----------------------------
Cash and Cash Equivalents at End of the Period ................................ $ 321,076 $ 411,512
============================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Period for:
Interest Expense .......................................................... 242,036 190,027
============================
Income Taxes .............................................................. 1,412 75,957
============================
During the Year the Company Purchased Various Securities which
Settled in the Subsequent Period .......................................... 35,206 2,537
----------------------------
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 above for the period ended February 18, 2000
are 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
6
<PAGE> 7
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------------------
Additional Unrealized
Common Paid in Retained Securities
(in thousands, except per share amounts) Stock Capital Earnings Gains/(Losses)
------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 ................................ $ 1,929 $ 556,773 $ 879,441 $ 50,208
Net Income ................................................ -- -- 126,300 --
Cash Dividends ($.30 per share) .......................... -- -- (41,763) --
Cash Dividends-Acquired Company ........................... -- -- (8,462) --
Issuance of Stock (101,969 shares) ........................ 1 2,273 -- --
Purchase of Treasury Stock (3,385,900 shares) ............. -- -- -- --
Loss on Reissuance of Treasury-Acquired Company ........... -- -- (751) --
Restricted Stock Activity, net ............................ -- 20 -- --
Stock Based Compensation Activity, net .................... 1 1,675 -- --
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 .................... -- -- -- (48,665)
-----------------------------------------------
BALANCE, JUNE 30, 1999 .................................... $ 1,931 $ 560,741 $ 954,593 $ 1,715
===============================================
BALANCE, DECEMBER 31, 1999 ................................ $ 1,931 $ 560,979 $1,026,546 ($ 37,818)
Net Income ................................................ -- -- 87,931 --
Cash Dividends ($.36 per share) ........................... -- -- (62,569) --
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 (124,924 shares) ........................ 1 1,975 -- --
JSB Common Stock Retired (19,687,149 shares) .............. (197) (184,872) 13,540 --
Purchases of Treasury Stock (636,300 shares) .............. -- -- -- --
Restricted Stock Activity, net ............................ -- (20) -- --
Stock Based Compensation Activity, net .................... 5 (645) (887) --
Adjustment to Unrealized Gains/(Losses) on Securities
Available-for-Sale, net of taxes .................... -- -- -- (3,617)
-----------------------------------------------
BALANCE, JUNE 30, 2000 .................................... $ 1,740 $ 352,503 $1,059,843 ($ 41,435)
===============================================
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------
Deferred Treasury
(in thousands, except per share amounts) Compensation Stock Total
--------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 ................................ ($24,365) ($250,260) $1,213,726
Net Income ................................................ -- -- 126,300
Cash Dividends ($.30 per share) .......................... -- -- (41,763)
Cash Dividends-Acquired Company ........................... -- -- (8,462)
Issuance of Stock (101,969 shares) ........................ -- -- 2,274
Purchase of Treasury Stock (3,385,900 shares) ............. -- (68,924) (68,924)
Loss on Reissuance of Treasury-Acquired Company ........... -- -- (751)
Restricted Stock Activity, net ............................ 1,594 (279) 1,335
Stock Based Compensation Activity, net .................... -- 2,447 4,123
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 .................... -- -- (48,665)
--------------------------------------
BALANCE, JUNE 30, 1999 .................................... ($22,771) ($317,016) $1,179,193
======================================
BALANCE, DECEMBER 31, 1999 ................................ ($28,007) ($524,533) $ 999,098
Net Income ................................................ -- -- 87,931
Cash Dividends ($.36 per share) ........................... -- -- (62,569)
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 (124,924 shares) ........................ -- 54 2,030
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 ............................ 1,422 (228) 1,174
Stock Based Compensation Activity, net .................... -- 1,970 443
Adjustment to Unrealized Gains/(Losses) on Securities
Available-for-Sale, net of taxes .................... -- -- (3,617)
--------------------------------------
BALANCE, JUNE 30, 2000 .................................... ($26,585) ($ 3,563) $1,342,503
======================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
7
<PAGE> 8
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
(in thousands) 2000 1999 2000 1999
------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income ....................................... $ 86,019 $ 65,253 $ 87,931 $ 126,300
------------------------------------------------------
Other Comprehensive Income, net of Income Taxes:
Unrealized Losses on Securities Available-for-Sale (1,268) (33,065) (9,207) (42,272)
Less: Reclassification of Realized (Gains)/Losses
Included in Net Income ................ (7,246) (4,491) 5,590 (6,221)
------------------------------------------------------
Other Comprehensive Loss ......................... (8,514) (37,556) (3,617) (48,493)
------------------------------------------------------
Comprehensive Income ............................. $ 77,505 $ 27,697 $ 84,314 $ 77,807
======================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
8
<PAGE> 9
NORTH FORK BANCORPORATION, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2000 AND 1999
FORWARD LOOKING STATEMENTS
Certain statements under this caption, which involve risk and
uncertainties constitute "forward looking statements under the Private
Securities Litigation Reform Act of 1995. These statements are based on the
beliefs, assumptions, and expectations of management of the Company. Words such
as "expects", "believes", "should", "plans", "will", "estimates", and variations
of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
financial condition, performance or operations and involve certain risks and
uncertainties that are difficult to quantify or, in some cases, to identify.
Therefore, actual outcomes or results may differ materially from what is
indicated or forecasted in such forward-looking statements. Factors that may
cause or contribute to such differences include, among others, the following
possibilities: (1) changes in economic or market conditions; (2) significantly
increased competition among financial service companies; (3) changes in the
interest rate environment, which may reduce interest margins; and (4)
accounting, tax, legislative or regulatory changes may adversely affect the
business in which the Company is engaged.
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 154
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 NA ("Superior"), a nationally chartered bank
located in the Connecticut county of New Haven, operates from one location,
where it 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.
The accounting and reporting policies of the Company are in conformity
with generally accepted accounting principles and prevailing practices within
the financial services industry. The preparation of financial statements in
conformity with generally accepted accounting principles requires that
management make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Such estimates are subject to change in
the future as additional information becomes available or previously existing
circumstances are modified. Actual results could differ from those estimates.
Certain reclassifications have been made to prior year amounts to conform to
current year presentations.
Results of operations for the three and six month periods ended June
30, 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.
9
<PAGE> 10
RECENT ACCOUNTING DEVELOPMENTS
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
It requires that entities recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a foreign
currency denominated forecasted transaction. The accounting for changes in the
fair value of a derivative depends on the intended use of the derivative and the
resulting designation. Under SFAS 133, an entity that elects to apply hedge
accounting is required to establish, at the inception of the hedge, the method
it will use for assessing the effectiveness of the hedging derivative and the
measurement approach for determining the ineffective aspect of the hedge. Those
methods must be consistent with the entity's approach to managing risk.
In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137 "Accounting for Derivative Instruments and Hedging Activities
- Deferral of the Effective Date of FASB Statement No. 133" delaying SFAS 133's
effective date to all fiscal quarters of all fiscal years beginning after June
15, 2000. Management is currently evaluating the effect SFAS 133 will have on
its financial statements. At June 30, 2000, the Company was a party to five
interest rate swap contracts with an aggregate notional value of $400 million.
10
<PAGE> 11
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
six month periods ended June 30, 1999 are as follows:
THREE MONTHS SIX MONTHS
ENDED ENDED
-------------------------
JUNE 30, JUNE 30,
(in thousands) 1999 1999
-------------------------
NET INTEREST INCOME
As Previously Reported $113,398 $223,489
JSB Financial, Inc. .. 18,310 37,583
------------------------
Combined ............. $131,708 $261,072
NET INCOME
As Previously Reported $ 58,360 $111,928
JSB Financial, Inc. .. 6,893 14,372
------------------------
Combined ............. $ 65,253 $126,300
========================
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. At June 30, 2000,
$3.9 million of the merger related restructure charge was reflected in
accrued expenses and other liabilities in the consolidated balance
sheet. It is anticipated that the amount of this charge will be
substantially paid in 2000, with the exception of certain obligations
under long-term lease arrangements.
11
<PAGE> 12
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. The Company
intends promptly after the completion of the Offer to seek to merge
Dime with the Company or a wholly owned subsidiary. As a result of the
merger, each share of Dime common stock which has not been exchanged or
accepted for exchange in the Offer would be converted into the same
number of shares of the Company's common stock and the same amount of
cash as is paid in the Offer, subject to appraisal rights. The purpose
of the Offer is for the Company to acquire control of, and, thereafter,
the entire common equity interest in Dime. The Offer is subject to
certain conditions including the receipt of all regulatory approvals
and the execution of a definitive merger agreement between the Company
and Dime. The foregoing description of the Company's proposed
acquisition of Dime is qualified in its entirety by reference to
Amendment No. 3 to the Company's Registration Statement on Form S-4
(registration no. 333-32492), filed with the Securities and Exchange
Commission on May 15, 2000 ("Amendment No. 3"), and any amendments
thereto.
In connection with the Offer, the Company entered into a stock
purchase agreement with FleetBoston Financial Corporation
("FleetBoston"). Pursuant to this agreement, FleetBoston agreed to
purchase (i) 250,000 shares of the Company's 7.5% Series B
Non-Cumulative Convertible Preferred Stock, par value $1.00 per share
and with a liquidation preference of $1,000.00 per share, at a
conversion price of $18.69 per share of the Company's common stock and
(ii) Common Stock Purchase Rights to acquire 7,500,000 shares of the
Company's common stock at an exercise price of $17.88 for an aggregate
purchase price of $250 million. FleetBoston's investment would be made
in connection with, and at the time of the completion of the Offer. A
complete description of the Company's arrangement with FleetBoston is
more fully described and is qualified in its entirety by reference to
Amendment No. 3.
OVERVIEW
The following table sets forth selected financial highlights for the
Company in the three and six month periods ended June 30, 2000 and 1999. The
2000 second quarter results reflect the Company's first full quarter of
operations subsequent to its acquisitions of JSB and Reliance. The succeeding
discussion and analysis describes the changes in components of operating results
giving rise to net income.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
OVERVIEW (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
(in thousands, except ratios & per share amounts) 2000 1999 2000 1999
------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS:
Net Income .................................. $ 86,019 $ 65,253 $ 87,931 $ 126,300
------------------------------------------------------
PER SHARE:
Earnings Per Share - Basic .................. $ 0.50 $ 0.39 $ 0.53 $ 0.76
Earnings Per Share - Diluted ................ $ 0.50 $ 0.39 $ 0.52 $ 0.75
Cash Dividends .............................. $ 0.18 $ 0.15 $ 0.36 $ 0.30
Book Value .................................. $ 7.72 $ 7.08 $ 7.72 $ 7.08
Average Equivalent Shares - Basic ........... 171,672 166,169 166,994 166,804
Average Equivalent Shares - Diluted ......... 172,847 167,594 168,144 168,311
------------------------------------------------------
SELECTED RATIOS:
Return on Average Total Assets (1) .......... 2.35% 2.01% 1.23% 2.00%
Return on Average Stockholders' Equity (1) .. 25.10% 21.82% 13.81% 21.43%
Core Efficiency Ratio ....................... 32.96% 34.62% 34.05% 34.64%
Net Interest Margin ......................... 4.52% 4.31% 4.39% 4.39%
</TABLE>
(1) Return on average total assets and average stockholders' equity, excluding
merger related expenses and other special items, was 2.01% and 21.45% for
the three months ended June 30, 2000, respectively, and 1.93% and 21.68%
for the six months ended June 30, 2000, respectively.
The Company reported net income for the quarter ended June 30, 2000 of
$86 million, or diluted earnings per share of $.50. Net income and diluted
earnings per share during the quarter were impacted by gains recognized from the
sale of certain branch facilities and equity securities, partially offset by
additional expenses incurred in the Company's attempt to acquire Dime. Earnings
and diluted earnings per share, exclusive of these items ("Core Earnings"),
was $73.5 million, or $.43, as compared to earnings, exclusive of securities
gains, of $60.8 million, or diluted earnings per share of $.36, for the
quarter ended June 30, 1999.
Net Income for the first six months of 2000 was $87.9 million, or
diluted earnings per share of $.52. Net Income and diluted earnings per share
during this period were impacted by the recognition of the merger related and
restructuring charge and other special items, which aggregated $61.5 million, or
$50.1 million, after taxes. Earnings, exclusive of these items, was $138.1
million, or adjusted diluted earnings per share of $.82, for the six months
ended June 30, 2000, as compared with earnings, exclusive of securities gains,
of $120.1 million, or diluted earnings per share of $.71, for the comparable
prior year period. The following tables set forth the reconciliation from net
income, as reported, to Core Earnings for the three and six months ended June
30, 2000 and 1999, respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
---------------------------------------------------
JUNE 30, 2000 JUNE 30, 1999
---------------------------------------------------
<S> <C> <C> <C> <C>
Net Income, as reported ............. $ 86,019 $ 65,253
Items Excluded from Core Earnings:
Gain on Sale of Branch Facilities (10,392) --
Net Securities (Gains)/Losses ... (11,148) (7,017)
Dime Related Expenses ........... 2,300 --
-------- --------
(19,240) (7,017)
Related Tax Effect .............. 6,734 2,526
-------- --------
(12,506) (4,491)
-------- --------
Core Earnings ........... $ 73,513 $ 60,762
======== ========
Core Earnings per Share - Basic ..... $ 0.43 $ 0.37
Core Earnings per Share - Diluted ... $ 0.43 $ 0.36
</TABLE>
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
OVERVIEW (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
-----------------------------------------------
JUNE 30, 2000 JUNE 30, 1999
-----------------------------------------------
<S> <C> <C> <C> <C>
Net Income, as reported .................................. $ 87,931 $ 126,300
Items Excluded from Core Earnings:
Gain on Sale of Branch Facilities .................... (10,392) --
Net Securities (Gains)/Losses ........................ 8,600 (9,720)
Dime Related Expenses ................................ 8,300 --
Special Provision for Loan Losses .................... 6,750 --
Gain on Loan Sales ................................... (2,303) --
Merger Related Restructure Charge .................... 50,499 --
--------- ---------
61,454 (9,720)
Related Tax Effect ................................... (17,927) 3,499
--------- ---------
43,527 (6,221)
Jamaica Tax Bad Debt Recapture, Net of Federal Benefit 6,600 --
--------- ---------
Core Earnings ................................ $ 138,058 $ 120,079
========= =========
Core Earnings per Share - Basic .......................... $ 0.83 $ 0.72
Core Earnings per Share - Diluted ........................ $ 0.82 $ 0.71
</TABLE>
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 for the quarter ended June 30, 2000 increased $21.3
million, or 16.1%, to $153.0 million, when compared to $131.7 million for the
1999 second quarter. This growth was achieved through an increase in the level
of interest earning assets (principally loans) and a 21 basis point increase in
the net interest margin.
Interest income for the quarter ended June 30, 2000 increased $41.1
million, or 17.9%, to $271.1 million, when compared to $230.0 million for the
1999 second quarter. The growth in interest income was due to a 44 basis point
improvement in the yield on average interest earning assets to 7.93% and an
increase in the level of average interest earning assets of $1.5 billion, or
12.1%, to $13.9 billion. 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.
During the second quarter of 2000, average loans increased $1.8
billion, or 25.5%, to $9.0 billion, when compared to second quarter 1999 levels.
Approximately $1.0 billion represented loans acquired from Reliance. Internal
loan origination's accounted for the remainder of the increase, with each
component of the loan portfolio contributing to the growth. However, the net
interest margin and interest income were negatively impacted by a modest 7 basis
point decline in yield on average loans to 8.15% during the 2000 second quarter.
Average loans represent 64.5% of average interest earning assets, as compared to
57.7% in the comparable prior year period. Loans represented 102% of total
deposits at June 30, 2000.
Average securities declined modestly to $4.9 billion in the second
quarter of 2000, when compared to $5.1 billion in the 1999 second quarter, while
the yield on average securities improved 102 basis points to 7.53%. 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 flow on the securities portfolio at
higher rates due to market conditions.
For the quarter ended June 30, 2000, interest expense increased $19.9
million, or 20.2%, over the comparable prior year period to $118.2 million. This
was attributable to a $1.2 billion, or 12.2%, increase in average interest
bearing liabilities to $11.2 billion and an increase of 29 basis points in the
Company's average cost of funds to 4.24% for the second quarter of 2000, as
compared to 3.95% for the comparable prior year period.
Average total borrowings increased $302.9 million, or 8.2%, to $4.0
billion during the second quarter of 2000, when compared to $3.7 billion during
the comparable prior year period. The average cost of funds on total borrowings
increased 71 basis points to 6.13% from 5.42%, 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.
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
NET INTEREST INCOME (CONTINUED)
Average time and savings deposits, which continue to represent a stable
funding source, increased $919.9 million to $7.2 billion, reflecting an average
cost of funds of 3.20% during the second quarter of 2000, from $6.3 billion,
with an average cost of funds of 3.09%. This increase was due primarily to the
acquisition of Reliance. The increase was 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 $390.3 million, or 28.5%, to $1.8
billion during the 2000 second quarter, as compared to $1.4 billion in the 1999
second 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, and the successful conversion of previously
acquired savings bank locations into full-service commercial banking locations.
At June 30, 2000, demand deposits represented 20.7% of total deposits, as
compared to 19.7% at June 30, 1999.
The use of derivative instruments, principally interest rate swaps,
decreased interest expense by approximately $1.4 million during the second
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 SIX MONTHS ENDED
2000 VS. 1999 2000 VS. 1999
----------------------------------------------------------------------------------
CHANGE IN CHANGE IN
AVERAGE AVERAGE NET INTEREST AVERAGE AVERAGE NET INTEREST
(in thousands) VOLUME RATE INCOME VOLUME RATE INCOME
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME FROM EARNING ASSETS:
Securities ................................ $ (3,176) $ 12,401 $ 9,225 $ (1,029) $ 18,496 $ 17,467
Loans, net of unearned income ............. 36,591 (1,323) 35,268 66,780 (6,891) 59,889
Money Market Investments .................. (2,337) 657 (1,680) (1,414) 418 (996)
-------------------------------------------------------------------------------
Total Interest Income .................. 31,078 11,735 42,813 64,337 12,023 76,360
-------------------------------------------------------------------------------
INTEREST EXPENSE ON LIABILITIES:
Savings, NOW, and Money Market Deposits ... 2,695 783 3,478 3,977 1,846 5,823
Time Deposits ............................. 4,092 1,365 5,457 5,465 1,008 6,473
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase .......... (9,151) 4,237 (4,914) (20,065) 6,554 (13,511)
Other Borrowings .......................... 14,260 1,596 15,856 41,503 1,250 42,753
-------------------------------------------------------------------------------
Total Interest Expense ................. 11,896 7,981 19,877 30,880 10,658 41,538
-------------------------------------------------------------------------------
Net Change in Net Interest Income ......... $ 19,182 $ 3,754 $ 22,936 $ 33,457 $ 1,365 $ 34,822
===============================================================================
</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 six month periods ended June 30, 2000 and 1999, respectively.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 2000 1999
-----------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
(dollars in thousands) BALANCE INTEREST RATE BALANCE INTEREST RATE
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Securities ................................. $ 4,900,775 $ 91,789 7.53% $ 5,088,793 $ 82,564 6.51%
Loans, net of unearned income (1) .......... 8,989,125 182,153 8.15% 7,164,798 146,885 8.22%
Money Market Investments ................... 38,569 767 8.00% 166,588 2,447 5.89%
--------------------------- ----------------------------
Total Interest Earning Assets ............ 13,928,469 274,709 7.93% 12,420,179 231,896 7.49%
--------------------------- ----------------------------
NON INTEREST EARNING ASSETS:
Cash and Due from Banks .................... 243,139 174,861
Other Assets (2) ........................... 566,799 410,751
------------ ------------
Total Assets ............................. $ 14,738,407 $ 13,005,791
============ ============
INTEREST BEARING LIABILITIES:
Savings, NOW, and Money Market Deposits .... $ 4,204,952 $ 19,909 1.90% $ 3,622,644 $ 16,431 1.82%
Time Deposits .............................. 3,031,302 37,713 5.00% 2,693,697 32,256 4.80%
--------------------------- ----------------------------
Total Savings and Time Deposits .......... 7,236,254 57,622 3.20% 6,316,341 48,687 3.09%
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase ........... 2,580,818 38,726 6.04% 3,206,472 43,640 5.46%
Other Borrowings ........................... 1,393,806 21,828 6.30% 465,275 5,972 5.15%
--------------------------- ----------------------------
Total Borrowings ......................... 3,974,624 60,554 6.13% 3,671,747 49,612 5.42%
--------------------------- ----------------------------
Total Interest Bearing Liabilities ..... 11,210,878 118,176 4.24% 9,988,088 98,299 3.95%
--------------------------- ----------------------------
Rate Spread ................................ 3.69% 3.54%
NON-INTEREST BEARING LIABILITIES
Demand Deposits ............................ 1,773,792 1,383,538
Other Liabilities .......................... 178,066 203,239
------------ ------------
Total Liabilities ........................ 13,162,736 11,574,865
Capital Securities ......................... 244,324 199,299
Stockholders' Equity ....................... 1,331,347 1,231,627
------------ ------------
Total Liabilities and Stockholders' Equity $ 14,738,407 $ 13,005,791
============ ============
Net Interest Income & Net Interest Margin .. 156,533 4.52% 133,597 4.31%
Less: Tax Equivalent Adjustment ............ (3,567) (1,889)
------------ ------------
Net Interest Income ................... $ 152,966 $ 131,708
============ ============
</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 June 30, 2000; $N/A, $1.58,
$1.56, $1.43, and $1.03 for the three months ended June 30, 1999,
respectively.
16
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
NET INTEREST INCOME (CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 2000 1999
------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
(dollars in thousands ) BALANCE INTEREST RATE BALANCE INTEREST RATE
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Securities $ 4,914,881 $ 178,321 7.30% $ 4,946,985 $ 160,854 6.56%
Loans, net of unearned income (1) 8,703,649 351,312 8.12% 7,070,981 291,423 8.31%
Money Market Investments 78,492 2,495 6.39% 124,586 3,491 5.65%
---------------------------- ----------------------------
Total Interest Earning Assets 13,697,022 532,128 7.81% 12,142,552 455,768 7.57%
---------------------------- ----------------------------
NON INTEREST EARNING ASSETS:
Cash and Due from Banks 231,784 179,417
Other Assets (2) 476,775 444,217
------------ ------------
Total Assets $ 14,405,581 $ 12,766,186
============ ============
INTEREST BEARING LIABILITIES:
Savings, NOW and Money Market Deposits $ 4,033,564 $ 38,818 1.94% $ 3,620,192 $ 32,995 1.84%
Time Deposits 2,919,717 71,354 4.91% 2,701,817 64,881 4.84%
---------------------------- ----------------------------
Total Savings and Time Deposits 6,953,281 110,172 3.19% 6,322,009 97,876 3.12%
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase 2,458,626 72,307 5.91% 3,160,658 85,818 5.48%
Other Borrowings 1,657,060 50,535 6.13% 291,933 7,782 5.38%
---------------------------- ----------------------------
Total Borrowings 4,115,686 122,842 6.00% 3,452,591 93,600 5.47%
---------------------------- ----------------------------
Total Interest Bearing Liabilities 11,068,967 233,014 4.23% 9,774,600 191,476 3.95%
---------------------------- ----------------------------
Rate Spread 3.58% 3.62%
NON-INTEREST BEARING LIABILITIES
Demand Deposits 1,706,386 1,342,285
Other Liabilities 162,815 221,575
------------ ------------
Total Liabilities 12,938,168 11,338,460
Capital Securities 232,254 199,296
Stockholders' Equity 1,235,159 1,228,430
------------ ------------
Total Liabilities and Stockholders' Equity $ 14,405,581 $ 12,766,186
============ ============
Net Interest Income & Net Interest Margin 299,114 4.39% 264,292 4.39%
Less: Tax Equivalent Adjustment (6,818) (3,220)
------------ ------------
Net Interest Income $ 292,296 $ 261,072
============ ============
</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 six months ended June 30, 2000; $N/A, $1.58,
$1.56, $1.43, and $1.03 for the six months ended June 30, 1999,
respectively.
NON-INTEREST INCOME
Non-interest income, exclusive of gains recognized on the sale of
certain securities and branch facilities, increased $5.2 million, or 33.0%, to
$20.8 million in the 2000 second quarter, when compared to $15.6 million in the
comparable prior year quarter. The improvement in non-interest income was
achieved through a $2.5 million, or 36.0%, increase in fees and service charges
on deposit accounts to $9.6 million; a $2.2 million, or 65.0%, increase in other
operating income, to $5.6 million and a $.4 million, or 10.0%, increase in
investment management, commissions and trust fees to $4.6 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 "The Money Centers") and the introduction of
additional fee based services. The Money Centers operate through five Manhattan
locations and was acquired in the Reliance transaction. Investment management,
commissions and trust fees grew at a modest pace and should continue to improve
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
$11.1 million, as compared to $7.0 million during the 1999 second 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 $10.4 million in connection with the sale of certain branch facilities.
NON-INTEREST EXPENSE
Non-interest expense, exclusive of Dime related acquisition expenses,
increased $7.2 million, or 14.1%, to $58.4 million during the most recent
quarter, as compared to $51.1 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 $2.4 million increase in compensation
and employee benefits, a $.9 million increase in capital securities costs, and a
$.4 million increase in occupancy and equipment costs.
The increase in the amortization of intangible assets is principally
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, and costs associated with expanding its presence in the
New York City market area. The increase in capital securities costs resulted the
assumption of $45 million in capital securities previously issued by Reliance in
April 1998.
During the quarter, the Company incurred $2.3 million in expenses
related to its proposed acquisition of Dime Bancorp, Inc. To date, the Company
has incurred $8.3 million in connection with its effort to acquire Dime Bancorp,
Inc. Expenses incurred 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
32.96% in the 2000 second quarter, as compared with 34.62% for the comparable
prior year period. The core efficiency ratio demonstrates management's ability
to maintain a disciplined approach to monitoring its operating structure and
controlling related costs.
INCOME TAXES
The effective tax rate for the six months ended June 30, 2000,
exclusive of the merger and related restructuring costs and other special items,
was 35%, as compared to 36% for the second quarter of 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>
----------------------------------------------------------------------------
JUNE 30, % OF DECEMBER 31, % OF JUNE 30, % OF
(dollars in thousands) 2000 TOTAL 1999 TOTAL 1999 TOTAL
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loans-Multi-Family $3,283,083 36% $2,827,272 36% $2,715,201 37%
Mortgage Loans-Residential 2,640,017 29% 2,221,779 28% 2,059,705 28%
Mortgage Loans-Commercial 1,456,321 16% 1,327,001 17% 1,280,225 18%
Commercial and Industrial 885,486 10% 697,763 8% 553,760 8%
Consumer Loans and Leases 722,029 8% 752,256 10% 601,308 8%
Construction and Land Loans 113,606 1% 87,257 1% 61,820 1%
----------------------------------------------------------------------------
$9,100,542 100% $7,913,328 100% $7,272,019 100%
============================================================================
</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 is
dependent not only upon regional and general economic stability, which affects
property values, but also the financial well being and creditworthiness of the
borrowers.
18
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
LOAN PORTFOLIO (CONTINUED)
Loans outstanding at June 30, 2000 increased $1.8 billion, or 25.1%, to
$9.1 billion, as compared to $7.3 billion at June 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
the level of prepayment activity experienced during most of 1999 and
management's decision to periodically sell certain loans, which it believes
would not have performed as well in a weak economy.
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 June 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 represented 58% of the portfolio at December 31,
1999.
The Company continues to experience strong internally generated loan
growth. Core loan growth was approximately $214.3 million, or 9.6%, on an
annualized basis during the most recent quarter. 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 seven months of operations,
has originated $135.4 million in loans.
Prepayment activity during most of 1999 was due in large measure to the
interest rate environment and aggressive pricing levels offered by competitors,
principally thrift companies and Wall Street conduits. Prepayment activity over
the last several months has slowed dramatically due to increases in market
interest rates.
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>
---------------------------------
JUNE 30, DECEMBER 31, JUNE 30,
(in thousands) 2000 1999 1999
---------------------------------
<S> <C> <C> <C>
Loans Ninety Days Past Due and Still Accruing $ 4,692 $ 6,131 $ 4,798
Non-Accrual Loans 9,189 8,997 9,563
---------------------------------
Non-Performing Loans 13,881 15,128 14,361
Other Real Estate 913 787 835
---------------------------------
Non-Performing Assets $14,794 $15,915 $15,196
---------------------------------
Restructured, Accruing Loans -- -- $ 557
=================================
</TABLE>
19
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
ASSET QUALITY (CONTINUED)
At June 30, 2000, non-performing assets declined by $1.1 million, or
7.0%, when compared to $15.9 million at December 31, 1999. Non-performing assets
at June 30, 2000 declined by $.4 million, when compared to $15.2 million at June
30, 1999. The declining trend in non-performing assets over the past five years
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 June 30, 2000
consisted of $4.6 million in consumer loans and leases, $5.3 million in
residential mortgages, $1.8 million in commercial mortgages, and $2.2 million in
commercial loans.
The following table represents a summary of the changes in the
allowance for loan losses for the six months ended June 30:
<TABLE>
<CAPTION>
------------------------
2000 1999
------------------------
(dollars in thousands)
<S> <C> <C>
Balance at Beginning of Year .............................. $ 74,525 $ 77,683
Provision for Loan Losses ................................. 11,250 2,512
Recoveries ................................................ 3,463 2,166
------------------------
89,238 82,361
Charge-offs ............................................... (10,297) (7,028)
Additional Allowance Acquired ............................. 9,069 --
------------------------
Balance at End of Period .................................. $ 88,010 $ 75,333
========================
Ratio of Net Charge-offs to Average Loans ................. 0.16% 0.14%
Ratio of Allowance for Loan Losses to Period End Loans, net 0.97% 1.04%
Ratio of Allowance for Loan Losses to Non-performing Loans 634% 525%
</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 six 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 that 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, customer knowledge, the results of the
ongoing credit-quality monitoring processes and the cyclical nature of economic
and business conditions. An important consideration in applying these
methodologies is the concentration of real estate related loans located in the
New York metropolitan area.
Since many of the loans depend upon the sufficiency of collateral, any
adverse trend in the real estate markets could seriously affect underlying
values available to protect the Company from loss. This condition existed in the
early 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
Based upon the process employed and giving recognition to all
attendant factors associated with the loan portfolio, management considers the
allowance for loan losses to be adequate at June 30, 2000.
20
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
SECURITIES PORTFOLIO
The composition of and the amortized cost and estimated fair values of
available-for-sale and held-to-maturity securities portfolios were as follows:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999 JUNE 30, 1999
--------------------------------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
(in thousands) COST VALUE COST VALUE COST VALUE
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury Securities ............ $ 20,038 $ 19,947 $ 20,046 $ 19,978 $ 19,948 $ 20,047
U.S. Government Agencies' Obligations 131,348 129,731 88,709 86,210 118,109 118,356
Mortgage-Backed Securities .......... 656,018 638,613 895,855 869,882 831,069 816,474
CMO's Agency Issuance ............... 506,035 491,969 489,151 463,087 462,655 445,928
CMO's Private Issuance .............. 1,611,360 1,586,993 1,781,288 1,724,183 1,752,151 1,715,758
Equity Securities ................... 269,372 278,485 273,701 336,554 231,173 307,707
Other Securities .................... 327,796 303,535 198,861 182,316 193,635 188,540
--------------------------------------------------------------------------------
$3,521,967 $3,449,273 $3,747,611 $3,682,210 $3,608,740 $3,612,810
================================================================================
HELD-TO-MATURITY
U.S. Government Agencies' Obligations $ 38 $ 38 $ 20,051 $ 20,047 $ 100,000 $ 99,963
State & Municipal Obligations ....... 78,659 76,788 76,173 74,171 68,921 68,466
Mortgage-Backed Securities .......... 405,381 388,533 447,209 427,895 494,178 482,611
CMO's Agency Issuance ............... 86,817 85,781 115,027 113,470 139,206 138,542
CMO's Private Issuance .............. 631,000 600,987 674,072 645,700 737,821 719,546
Other Securities .................... 17,549 17,294 18,972 18,313 21,891 21,470
--------------------------------------------------------------------------------
$1,219,444 $1,169,421 $1,351,504 $1,299,596 $1,562,017 $1,530,598
================================================================================
</TABLE>
(1) Amortized cost and fair value includes $197.4 million, $170.7 million, and
$138.3 million in Federal Home Loan Bank stock at June 30, 2000, December
31, 1999, and June 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") that provide stable cash
flows, which may be reinvested at current market interest rates. The combined
weighted average life of the held-to-maturity and available-for-sale securities
portfolios at June 30, 2000 was 5.8 years.
Collateralized mortgage obligations ("CMO") are collateralized by
either U.S. Government Agency MBS's or whole loans, which are principally AAA
rated conservative current pay sequentials or planned amortization class ("PAC")
structures, with a current weighted average life of approximately 4.4 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 June 30, 2000, securities carried at $3.4 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 June 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 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.
21
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
CAPITAL (CONTINUED)
The following table sets forth the Company's regulatory capital at June
30, 2000 and 1999, under the rules applicable at such date. Management believes
that the Company meets all capital adequacy requirements to which it is subject.
<TABLE>
<CAPTION>
JUNE 30, 2000 JUNE 30, 1999
----------------------------------------------------------
(dollars in thousands ) AMOUNT RATIO AMOUNT RATIO
----------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 Capital ............ $1,275,716 14.71% $1,294,670 16.43%
Regulatory Requirement .... 346,862 4.00% 315,156 4.00%
----------------------------------------------------------
Excess .................... $ 928,854 10.71% $ 979,514 12.43%
==========================================================
Total Risk Adjusted Capital $1,367,827 15.77% $1,404,444 17.83%
Regulatory Requirement .... 693,725 8.00% 630,311 8.00%
----------------------------------------------------------
Excess .................... $ 674,102 7.77% $ 774,133 9.83%
==========================================================
Risk Weighted Assets ...... $8,671,559 $7,878,893
========== ==========
</TABLE>
The Company's Leverage Ratio at June 30, 2000 was 8.87%. The Tier 1,
Total Risk-Based and Leverage Capital Ratios of North Fork were 11.99%, 13.09%,
and 7.22%, respectively, at June 30, 2000.
On June 27, 2000, the Board of Directors declared a regular quarterly
cash dividend of $.18 per common share. The dividend is payable August 15, 2000
to shareholders of record at the close of business July 27, 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 scenarios. Management may choose to extend the maturity of its
funding source and/or reduce the repricing mismatches of its assets or
liabilities by using interest rate swaps. Additionally, management may use
interest rate collars, interest rate floors, and interest rate cap agreements to
assist in insulating it from volatile interest rate changes.
Based upon the aforementioned factors regarding the simulation
model, projected net interest income for the next twelve months was modeled
based on both an immediate rise and fall in interest rates as well as gradual
movements in interest rates over the twelve-month period. Based on the
information and assumptions in effect at June 30, 2000, management believes that
a 100 basis point gradual increase in interest rates over the next twelve months
would decrease net interest income by $15.6 million, or 2.60%, while a gradual
decrease in interest rates would increase net interest income by $16.0 million,
or 2.65%.
22
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
ASSET/LIABILITY MANAGEMENT (CONTINUED)
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
The objective of liquidity management is to ensure the availability of
sufficient resources to meet all financial commitments and to capitalize on
opportunities for business expansion. Liquidity management addresses the ability
to meet deposit withdrawals either on demand or at contractual maturity, to
repay other borrowings as they mature and to make new loans and investments as
opportunities arise.
Sources of liquidity include dividends from its subsidiaries,
borrowings, the sale of securities from the available-for-sale portfolio, and
funds available through the capital markets. Dividends from the Company's
primary subsidiary, North Fork, are limited by New York State Banking Department
regulations to the current year's earnings plus the prior two years' retained
net profits. Pursuant to this regulation, North Fork had $92.5 million of
retained earnings available for dividends as of July 1, 2000.
The bank subsidiaries have numerous sources of liquidity including loan
and security principal repayments and maturities, lines-of-credit with other
financial institutions, the ability to borrow under repurchase agreements and
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 June 30, 2000, the Company had $3.1 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.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 2000 /s/ Daniel M. Healy
------------------------
Daniel M. Healy
Executive Vice President &
Chief Financial Officer
24
