8-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 19, 2006
CAPITAL ONE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction
of incorporation)
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1-13300
(Commission File Number)
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54-1719854
(IRS Employer
Identification No.) |
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1680 Capital One Drive,
McLean, Virginia
(Address of principal executive offices)
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22102
(Zip Code) |
Registrants telephone number, including area code: (703) 720-1000
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy
the filing obligation of the registrant under any of the following provisions (see General
Instruction A.2. below):
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
TABLE OF CONTENTS
Item 8.01 Other Events.
In connection with our recently filed Registration Statement on Form S-3 (No. 333-133943) and for
purposes of incorporation by reference therein, Capital One Financial Corporation has filed as
Exhibit 99.1 to this Form 8-K the consolidated financial statements of North Fork Bancorporation,
Inc. as of December 31, 2005 and 2004 and for each of the years in the three-year period ended
December 31, 2005, and has filed as Exhibit 99.2 to this Form 8-K the unaudited consolidated
financial statements of North Fork Bancorporation, Inc. as of March 31, 2006, December 31, 2005 and
March 31, 2005 and for the three-month periods ended March 31, 2006 and 2005.
Additional
Information About this Transaction
In connection with the proposed merger, Capital One filed with the
Securities and Exchange Commission (the SEC) on
May 1, 2006 a Registration Statement on Form S-4 that included a
preliminary joint proxy statement of Capital One and
North Fork that also constitutes a prospectus of Capital One. Capital
One and North Fork will mail the definitive joint proxy
statement/prospectus, when it becomes available, to their respective
stockholders. Investors and security holders are urged to
read the definitive joint proxy statement/prospectus regarding the
proposed merger when it becomes available because it will
contain important information. You may obtain a free copy of the
preliminary joint proxy statement/prospectus and the definitive joint
proxy statement/prospectus (when available) and other related
documents filed by Capital One and North Fork with the SEC at the
SECs website at www.sec.gov. The preliminary joint proxy
statement/prospectus and definitive
joint proxy statement/prospectus (when it is available) and the other
documents may also be obtained for free by accessing
Capital Ones website at www.capitalone.com under the heading
Investors and then under the heading SEC &
Regulatory Filings or by accessing North Forks website at
www.northforkbank.com under the tab Investor Relations
and then under the heading SEC Filings.
Participants in this Transaction
Capital One, North Fork and their respective directors, executive officers and certain other members of management and
employees may be soliciting proxies from stockholders in favor of the merger. Information regarding the persons who may,
under the rules of the SEC, be considered participants in the solicitation of the stockholders in connection with the proposed
merger will be set forth in the definitive joint proxy statement/prospectus when it is filed with the SEC. You can find
information about Capital Ones executive officers and directors in Capital Ones definitive proxy statement filed with the
SEC on March 23, 2006. You can find information about North Forks executive officers and directors in their Form 10-K/A
filed with the SEC of April 28, 2006. You can obtain free copies of these documents from Capital One of North Fork using the contact information above.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
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Exhibit |
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Description |
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23.1 |
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Consent of Independent Registered Public Accounting Firm |
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99.1 |
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Consolidated Financial Statements of North Fork
Bancorporation, Inc. as of December 31, 2005 and 2004 and
for each of the years in the three-year period ended
December 31, 2005. |
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99.2 |
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Unaudited consolidated financial statements of North Fork
Bancorporation, Inc. as of March 31, 2006, December 31, 2005
and March 31, 2005 and for the three-month periods ended
March 31, 2006 and 2005 |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly
caused this Current Report on Form 8-K to be signed on its behalf by the undersigned hereunto duly
authorized.
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CAPITAL ONE FINANCIAL CORPORATION |
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Dated: May 19, 2006
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By:
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/S/ Susan R. McFarland |
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Executive Vice President, Controller |
3
EXHIBIT INDEX
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Exhibit |
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Description |
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23.1 |
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Consent of Independent Registered Public Accounting Firm |
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99.1 |
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Consolidated Financial Statements of North Fork
Bancorporation, Inc. as of December 31, 2005 and 2004
and for each of the years in the three-year period
ended December 31, 2005. |
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99.2 |
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Unaudited consolidated financial statements of North
Fork Bancorporation, Inc. as of March 31, 2006,
December 31, 2005 and March 31, 2005 and for the
three-month periods ended March 31, 2006 and 2005 |
4
EX-23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
North Fork Bancorporation, Inc.:
We consent to the incorporation by reference in the registration statement (No. 333-133943) on Form
S-3 of Capital One Financial Corporation of our reports dated March 14, 2006, with respect to the
consolidated balance sheets of North Fork Bancorporation, Inc. as of December 31, 2005 and 2004,
and the related consolidated statements of income, stockholders equity, cash flows, and
comprehensive income for each of the years in the three-year period ended December 31, 2005, and
managements assessment of the effectiveness of internal control over financial reporting as of
December 31, 2005 and the effectiveness of internal control over financial reporting as of December
31, 2005, which reports appear in the December 31, 2005 annual report on Form 10-K/A of North Fork
Bancorporation, Inc. and will also be included in the Report on Form 8-K to be filed by Capital One Financial
Corporation on or about May 19, 2006.
KPMG LLP
New York, New York
May 18, 2006
EX-99.1
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
Exhibit
99.1
CONSOLIDATED
STATEMENTS OF INCOME
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For the Years Ended
December 31,
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2005
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2004
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2003
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(In thousands, except per share
amounts)
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Interest Income:
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Loans
Held-for-Investment
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$
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1,880,297
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$
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1,078,684
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$
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789,136
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Loans
Held-for-Sale
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285,221
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64,391
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Mortgage-Backed Securities
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493,718
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352,816
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258,338
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Other Securities
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116,887
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78,743
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62,789
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Money Market Investments
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2,358
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3,518
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640
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Total Interest Income
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2,778,481
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1,578,152
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1,110,903
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Interest Expense:
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Savings, NOW & Money
Market Deposits
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345,622
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113,082
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58,008
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Time Deposits
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179,630
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66,056
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54,127
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Federal Funds Purchased &
Collateralized Borrowings
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363,430
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187,008
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150,724
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Other Borrowings
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79,918
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36,785
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32,530
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Total Interest Expense
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968,600
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402,931
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295,389
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Net Interest Income
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1,809,881
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1,175,221
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815,514
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Provision for Loan Losses
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36,000
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27,189
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26,250
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Net Interest Income after
Provision for Loan Losses
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1,773,881
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1,148,032
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789,264
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Non-Interest Income:
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Mortgage Banking Income
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420,838
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60,842
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10,065
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Customer Related Fees &
Service Charges
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166,872
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114,481
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82,406
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Investment Management,
Commissions & Trust Fees
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38,962
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25,181
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13,712
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Other Operating Income
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53,592
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31,992
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33,866
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Securities Gains, net
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10,139
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12,656
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15,762
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Gain on Sale of Other Investments
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15,108
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3,351
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Total Non-Interest Income
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705,511
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248,503
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155,811
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Non-Interest Expense:
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Employee Compensation &
Benefits
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549,981
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306,781
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191,758
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Occupancy & Equipment, net
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192,079
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106,174
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66,929
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Amortization of Identifiable
Intangibles
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36,643
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15,109
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3,567
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Other Operating Expenses
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230,764
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127,738
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83,616
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Facility Closures Expense
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15,382
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Total Non-Interest Expense
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1,024,849
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555,802
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345,870
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Income Before Income Taxes
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1,454,543
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840,733
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599,205
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Provision for Income Taxes
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505,696
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287,737
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202,840
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Net Income
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$
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948,847
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$
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552,996
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$
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396,365
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Earnings Per
Share Basic
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$
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2.03
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$
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1.88
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$
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1.75
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Earnings Per
Share Diluted
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$
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2.01
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$
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1.85
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$
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1.73
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See accompanying notes to consolidated financial
statements.
1
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
CONSOLIDATED
BALANCE SHEETS
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At December 31,
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2005
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2004
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(In thousands, except per share
amounts)
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ASSETS
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Cash & Due from Banks
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$
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1,037,406
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$
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972,506
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Money Market Investments
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24,843
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90,394
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Securities:
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Available-for-Sale
($4,107,473 pledged in 2005; $7,219,173 pledged in 2004)
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11,295,977
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15,444,625
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Held-to-Maturity
($13,409 pledged in 2005; $24,114 pledged in 2004) (Fair Value
$105,128 in 2005; $145,991 in 2004)
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104,210
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142,573
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Total Securities
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11,400,187
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15,587,198
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Loans:
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Loans
Held-for-Sale
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4,359,267
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5,775,945
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Loans
Held-for-Investment
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33,232,236
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30,453,334
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Less: Allowance for Loan Losses
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217,939
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211,097
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Net Loans
Held-for-Investment
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33,014,297
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30,242,237
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Goodwill
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5,918,116
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5,878,277
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Identifiable Intangibles
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114,091
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150,734
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Premises & Equipment
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438,040
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416,003
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Mortgage Servicing Rights
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267,424
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254,857
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Accrued Income Receivable
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205,892
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205,189
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Other Assets
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837,308
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1,093,715
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Total Assets
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$
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57,616,871
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$
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60,667,055
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LIABILITIES AND
STOCKHOLDERS EQUITY
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Deposits:
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Demand
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$
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7,639,231
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$
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6,738,302
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Savings, NOW & Money
Market
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20,910,161
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20,598,994
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Time
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8,067,181
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7,475,132
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Total Deposits
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36,616,573
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34,812,428
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Federal Funds Purchased &
Collateralized Borrowings
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9,700,621
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14,593,027
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Other Borrowings
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1,477,364
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1,506,318
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Total Borrowings
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11,177,985
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16,099,345
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Accrued Interest Payable
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102,229
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70,029
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Dividends Payable
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116,754
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104,025
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Accrued Expenses & Other
Liabilities
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601,089
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700,149
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Total Liabilities
|
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$
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48,614,630
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$
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51,785,976
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Stockholders Equity
|
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Preferred Stock, par value $1.00;
authorized 10,000,000 shares, unissued
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$
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$
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Common Stock, par value $.01;
authorized 1,000,000,000 shares; issued
480,592,358 shares in 2005; 474,476,655 shares in 2004.
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4,806
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4,745
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Additional Paid in Capital
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|
7,035,314
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6,968,493
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Retained Earnings
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2,581,047
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2,064,148
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Accumulated Other Comprehensive
(Loss)/Income
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(108,898
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)
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|
240
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Deferred Compensation
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(154,772
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)
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(125,174
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)
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Treasury Stock at cost;
13,576,252 shares in 2005; 1,633,891 shares in 2004
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(355,256
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)
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(31,373
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)
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Total Stockholders Equity
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9,002,241
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8,881,079
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Total Liabilities and
Stockholders Equity
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$
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57,616,871
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$
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60,667,055
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See accompanying notes to consolidated financial
statements.
2
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
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Additional
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Accumulated Other
|
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Total
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Common
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Paid in
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Retained
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Comprehensive
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Deferred
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Treasury
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Stockholders
|
|
For the Years Ended
December 31;
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Stock
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Capital
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Earnings
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Income/(Loss)
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Compensation
|
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|
Stock
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Equity
|
|
(Dollars in thousands,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
except per share amounts)
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1,
2003
|
|
$
|
1,746
|
|
|
$
|
377,311
|
|
|
$
|
1,590,594
|
|
|
$
|
17,991
|
|
|
$
|
(70,562
|
)
|
|
$
|
(403,027
|
)
|
|
$
|
1,514,053
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
396,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
396,365
|
|
Cash Dividends ($.74 per share)
|
|
|
|
|
|
|
|
|
|
|
(170,501
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(170,501
|
)
|
Issuance of Stock
(231,977 shares)
|
|
|
|
|
|
|
1,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,636
|
|
|
|
5,752
|
|
Purchases of Treasury Stock
(11,664,600 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(264,193
|
)
|
|
|
(264,193
|
)
|
Restricted Stock Activity, net
|
|
|
|
|
|
|
8,435
|
|
|
|
|
|
|
|
|
|
|
|
(21,227
|
)
|
|
|
21,908
|
|
|
|
9,116
|
|
Stock Based Compensation Activity,
net
|
|
|
|
|
|
|
(8,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,001
|
|
|
|
7,932
|
|
Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,035
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2003
|
|
$
|
1,746
|
|
|
$
|
378,793
|
|
|
$
|
1,816,458
|
|
|
$
|
(2,044
|
)
|
|
$
|
(91,789
|
)
|
|
$
|
(624,675
|
)
|
|
$
|
1,478,489
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
552,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
552,996
|
|
Cash Dividends ($.84 per share)
|
|
|
|
|
|
|
|
|
|
|
(305,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(305,306
|
)
|
Issuance of Stock-Acquisitions
(212,605,489 shares)
|
|
|
1,417
|
|
|
|
6,074,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,075,635
|
|
Fair Value of Options-Acquisitions
|
|
|
|
|
|
|
251,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
251,928
|
|
Reissued from Treasury Acquisitions
(25,500,000 shares)
|
|
|
|
|
|
|
258,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
481,408
|
|
|
|
739,670
|
|
Issued
3-for-2
Stock Split (158,158,885 shares)
|
|
|
1,582
|
|
|
|
(1,764
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(182
|
)
|
Issuance of Stock
(181,758 shares)
|
|
|
|
|
|
|
2,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,501
|
|
|
|
6,571
|
|
Restricted Stock Activity, net
|
|
|
|
|
|
|
15,981
|
|
|
|
|
|
|
|
|
|
|
|
(33,385
|
)
|
|
|
30,447
|
|
|
|
13,043
|
|
Stock Based Compensation Activity,
net
|
|
|
|
|
|
|
(10,995
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,946
|
|
|
|
65,951
|
|
Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,284
|
|
|
|
|
|
|
|
|
|
|
|
2,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2004
|
|
$
|
4,745
|
|
|
$
|
6,968,493
|
|
|
$
|
2,064,148
|
|
|
$
|
240
|
|
|
$
|
(125,174
|
)
|
|
$
|
(31,373
|
)
|
|
$
|
8,881,079
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
948,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
948,847
|
|
Cash Dividends ($.91 per share)
|
|
|
|
|
|
|
|
|
|
|
(431,948
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(431,948
|
)
|
Issuance of Stock
(291,980 shares)
|
|
|
|
|
|
|
1,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,779
|
|
|
|
8,115
|
|
Restricted Stock Activity, net
|
|
|
|
|
|
|
3,887
|
|
|
|
|
|
|
|
|
|
|
|
(29,598
|
)
|
|
|
45,423
|
|
|
|
19,712
|
|
Stock Based Compensation Activity,
net
|
|
|
61
|
|
|
|
61,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,235
|
|
|
|
75,894
|
|
Purchases of Treasury Stock
(14,872,200 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(390,320
|
)
|
|
|
(390,320
|
)
|
Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(109,138
|
)
|
|
|
|
|
|
|
|
|
|
|
(109,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2005
|
|
$
|
4,806
|
|
|
$
|
7,035,314
|
|
|
$
|
2,581,047
|
|
|
$
|
(108,898
|
)
|
|
$
|
(154,772
|
)
|
|
$
|
(355,256
|
)
|
|
$
|
9,002,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements.
3
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
948,847
|
|
|
$
|
552,996
|
|
|
$
|
396,365
|
|
Adjustments to Reconcile Net
Income to Net Cash Provided by/(Used in) Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan Losses
|
|
|
36,000
|
|
|
|
27,189
|
|
|
|
26,250
|
|
Depreciation
|
|
|
43,059
|
|
|
|
24,781
|
|
|
|
15,391
|
|
Net Amortization/(Accretion):
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
26,692
|
|
|
|
24,169
|
|
|
|
78,946
|
|
Loans
|
|
|
26,338
|
|
|
|
(9,348
|
)
|
|
|
(19,937
|
)
|
Borrowings & Time Deposits
|
|
|
(138,931
|
)
|
|
|
(41,492
|
)
|
|
|
(1,325
|
)
|
Intangibles
|
|
|
36,643
|
|
|
|
15,109
|
|
|
|
3,567
|
|
Deferred Compensation
|
|
|
21,572
|
|
|
|
14,575
|
|
|
|
9,858
|
|
Gain on Sale of Loans
Held-for-Investment
|
|
|
(5,198
|
)
|
|
|
|
|
|
|
|
|
Securities Gains, net(1)
|
|
|
(10,139
|
)
|
|
|
(12,656
|
)
|
|
|
(15,762
|
)
|
Gain on Sale of Facilities, net
|
|
|
|
|
|
|
|
|
|
|
(10,980
|
)
|
Debt Restructuring Costs
|
|
|
|
|
|
|
|
|
|
|
11,955
|
|
Capitalization of Mortgage
Servicing Rights
|
|
|
(132,171
|
)
|
|
|
(50,444
|
)
|
|
|
|
|
Amortization of Mortgage Servicing
Rights
|
|
|
87,354
|
|
|
|
20,841
|
|
|
|
|
|
Temporary Impairment
Charge Mortgage Servicing Rights
|
|
|
23,126
|
|
|
|
|
|
|
|
|
|
Loans
Held-for-Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Originations
|
|
|
(36,960,981
|
)
|
|
|
(8,636,582
|
)
|
|
|
(372,656
|
)
|
Proceeds from Sales(2)
|
|
|
37,543,726
|
|
|
|
7,700,063
|
|
|
|
350,806
|
|
Gain on Sale
|
|
|
(431,145
|
)
|
|
|
(53,710
|
)
|
|
|
(4,822
|
)
|
Other
|
|
|
1,265,077
|
|
|
|
324,123
|
|
|
|
|
|
Purchases of Trading Assets
|
|
|
(50,000
|
)
|
|
|
(13,911
|
)
|
|
|
(148,314
|
)
|
Sales of Trading Assets
|
|
|
48,516
|
|
|
|
14,015
|
|
|
|
150,731
|
|
Other, net
|
|
|
105,836
|
|
|
|
(93,774
|
)
|
|
|
(108,536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by/(Used in)
Operating Activities
|
|
|
2,484,221
|
|
|
|
(194,056
|
)
|
|
|
361,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Originations of Loans
Held-for-Investment,
Net of Principal Repayments and Charge-offs
|
|
|
(3,961,526
|
)
|
|
|
(3,091,948
|
)
|
|
|
(948,034
|
)
|
Proceeds from Sales of Loans
Held-for-Investment
|
|
|
1,174,793
|
|
|
|
|
|
|
|
|
|
Purchases of Securities
Available-for-Sale
|
|
|
(2,079,010
|
)
|
|
|
(4,795,103
|
)
|
|
|
(6,260,244
|
)
|
Proceeds from Sales of Securities
Available-for-Sale
|
|
|
2,258,489
|
|
|
|
1,442,626
|
|
|
|
1,532,384
|
|
Maturities, Redemptions, Calls and
Principal Repayments on Securities
Available-for-Sale
|
|
|
3,789,232
|
|
|
|
3,174,137
|
|
|
|
6,035,159
|
|
Purchases of Securities
Held-to-Maturity
|
|
|
(3,010
|
)
|
|
|
(7,758
|
)
|
|
|
(51,248
|
)
|
Maturities, Redemptions, Calls and
Principal Repayments on Securities
Held-to-Maturity
|
|
|
40,632
|
|
|
|
57,274
|
|
|
|
167,351
|
|
Purchases of Premises and
Equipment, net
|
|
|
(74,582
|
)
|
|
|
(47,380
|
)
|
|
|
(35,585
|
)
|
Cash Acquired in Purchase
Acquisitions
|
|
|
|
|
|
|
835,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by/(Used in)
Investing Activities
|
|
|
1,145,018
|
|
|
|
(2,432,734
|
)
|
|
|
439,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements.
4
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Deposits
|
|
|
1,838,018
|
|
|
|
3,619,781
|
|
|
|
1,923,585
|
|
Net Decrease in Borrowings
|
|
|
(4,791,688
|
)
|
|
|
(278,661
|
)
|
|
|
(2,191,801
|
)
|
Purchases of Treasury Stock
|
|
|
(390,320
|
)
|
|
|
|
|
|
|
(264,193
|
)
|
Exercise of Stock Options and
Common Stock Sold for Cash
|
|
|
133,319
|
|
|
|
64,216
|
|
|
|
5,752
|
|
Cash Dividends Paid
|
|
|
(419,219
|
)
|
|
|
(247,037
|
)
|
|
|
(167,610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash (Used in)/Provided by
Financing Activities
|
|
|
(3,629,890
|
)
|
|
|
3,158,299
|
|
|
|
(694,267
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Decrease)/Increase in Cash and
Cash Equivalents
|
|
|
(651
|
)
|
|
|
531,509
|
|
|
|
107,053
|
|
Cash and Cash Equivalents at
Beginning of the Year
|
|
|
1,062,900
|
|
|
|
531,391
|
|
|
|
424,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at Year
End
|
|
$
|
1,062,249
|
|
|
$
|
1,062,900
|
|
|
$
|
531,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash
Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Paid During the Year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
$
|
1,075,331
|
|
|
$
|
441,663
|
|
|
$
|
309,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Taxes
|
|
$
|
283,898
|
|
|
$
|
139,497
|
|
|
$
|
214,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the Year, Certain Securities
Were Purchased Which Settled in the Subsequent Year
|
|
$
|
40,914
|
|
|
$
|
2,352
|
|
|
$
|
31,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Activity Related to the
GreenPoint and TCNJ Acquisitions not Reflected Above are as
Follows: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Assets Acquired
|
|
|
|
|
|
$
|
30,218,756
|
|
|
|
|
|
Liabilities Assumed
|
|
|
|
|
|
$
|
29,607,910
|
|
|
|
|
|
|
|
|
(1) |
|
Gain on sale of securities, net, includes a $6.0 million
permanent impairment charge in 2005. |
|
(2) |
|
Excludes loans retained in the
held-for-investment
portfolio totaling $5.3 billion and $1.9 billion in
2005 and 2004, respectively. |
|
(3) |
|
Excludes goodwill and identifiable intangibles established in
the acquisitions. See Notes to Consolidated Financial
Statements, Note 2 Business
Combinations for additional information. |
See accompanying notes to consolidated financial
statements.
5
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
948,847
|
|
|
$
|
552,996
|
|
|
$
|
396,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gains/(Losses) On
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized
(Losses)/Gains Arising During the Year
|
|
|
(194,898
|
)
|
|
|
18,900
|
|
|
|
(44,434
|
)
|
Less: Reclassification Adjustment
for Gains Included in Net Income
|
|
|
(10,139
|
)
|
|
|
(12,656
|
)
|
|
|
(15,762
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized
(Losses)/Gains Arising During the Year
|
|
|
(205,037
|
)
|
|
|
6,244
|
|
|
|
(60,196
|
)
|
Related Tax Effect on Unrealized
Gains/(Losses) Arising During the Year
|
|
|
88,166
|
|
|
|
(2,685
|
)
|
|
|
25,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Unrealized
(Losses)/Gains Arising During the Year
|
|
|
(116,871
|
)
|
|
|
3,559
|
|
|
|
(34,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gains/(Losses) On
Derivative Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized
Gains/(Losses) Arising During the Year
|
|
|
10,938
|
|
|
|
(10,207
|
)
|
|
|
(5,465
|
)
|
Add: Reclassification Adjustment
for Expenses/Losses Included in Net Income
|
|
|
2,628
|
|
|
|
7,970
|
|
|
|
30,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Unrealized
Gains/(Losses) Arising During the Year
|
|
|
13,566
|
|
|
|
(2,237
|
)
|
|
|
25,047
|
|
Related Tax Effect on Changes in
Unrealized Losses Arising During the Year
|
|
|
(5,833
|
)
|
|
|
962
|
|
|
|
(10,770
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Unrealized
Gains/(Losses) Arising During the Year
|
|
|
7,733
|
|
|
|
(1,275
|
)
|
|
|
14,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Other Comprehensive
(Loss)/Income
|
|
$
|
(109,138
|
)
|
|
$
|
2,284
|
|
|
$
|
(20,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
$
|
839,709
|
|
|
$
|
555,280
|
|
|
$
|
376,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial
statements.
6
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE 1
|
Business
and Summary of Significant Accounting Policies
|
North Fork Bancorporation, Inc. is a regional bank holding
company organized under the laws of the State of Delaware and
registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended. North Fork Bank, our
principal bank subsidiary, operates from 353 retail bank
branches in the New York Metropolitan area. We also operate a
nationwide mortgage business (GreenPoint Mortgage Funding Inc.).
GreenPoint Mortgage is in the business of originating, selling
and servicing a wide variety of mortgages secured by 1-4 family
residences and small commercial properties. Through our other
non-bank subsidiaries, we offer financial products and services
to our customers including asset management, securities
brokerage, and the sale of alternative investment products. We
operate a second subsidiary bank, Superior Savings of New
England, N.A., which focuses on telephonic and media-based
generation of deposits.
In May 2004, we acquired The Trust Company of New Jersey
(TCNJ). TCNJ was the fourth largest commercial bank
headquartered in New Jersey and operated in the northern and
central New Jersey market area. TCNJ represented our first
significant expansion into a state other than New York. At the
date of merger, TCNJ had $4.1 billion in total assets,
$1.4 billion in securities, $2.1 billion in net loans,
$3.2 billion in deposits and $.7 billion in borrowings.
In October 2004, we acquired GreenPoint Financial Corp.
(GreenPoint). GreenPoint operated two primary
businesses, a New York based retail bank (GreenPoint
Bank) and a separate mortgage banking business
(GreenPoint Mortgage or GPM) with
nationwide operations. GreenPoint Bank maintained 95 retail bank
branches in the New York Metropolitan area. At the date of
merger, GreenPoint had $27 billion in assets,
$6.8 billion in securities, $5.1 billion in loans
held-for-sale,
$12.8 billion in loans
held-for-investment,
$12.8 billion in deposits, and $11.4 billion in
borrowings.
Basis of
Presentation
The accounting and financial reporting policies of the Company
and its subsidiaries are in conformity with accounting
principles generally accepted in the United States of America.
The preparation of financial statements, in conformity with
accounting principles generally accepted in the United States of
America, requires that management make estimates and assumptions
that affect the reported amounts of assets and liabilities, the
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. Additionally,
where applicable, the policies conform to the accounting and
reporting guidelines prescribed by bank regulatory authorities.
All significant inter-company accounts and transactions have
been eliminated. Certain prior period amounts have been
reclassified to conform to current period presentation.
Significant
Accounting Policies
Securities
Securities that we have the positive intent and ability to hold
to maturity are classified as
held-to-maturity
and carried at amortized cost. Securities that may be sold in
response to, or in anticipation of, changes in interest rates
and resulting prepayment risk, or other factors, and marketable
equity securities, are classified as
available-for-sale
and carried at fair value. Unrealized gains and losses on these
securities are reported, net of applicable taxes, as a separate
component of accumulated other comprehensive income, a component
of stockholders equity. Equity securities that do not have
a readily determinable fair value are reported at cost. Debt and
equity securities that are purchased and held principally for
the purpose of selling them in the near term are classified as
trading securities and reported at fair value. Unrealized gains
and losses on trading securities are reported as a component of
other non-interest income. Management determines the appropriate
classification of securities at the time of purchase, and at
each reporting date, management reassesses the appropriateness
of the classification.
7
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Interest income on securities, including amortization of
premiums and accretion of discounts, is recognized using the
level yield method over the lives of the individual securities.
Realized gains and losses on sales of securities are computed
using the specific identification method. The cost basis of
individual
held-to-maturity
and
available-for-sale
securities are reduced through write-downs to reflect
other-than-temporary
impairments in value. These write-downs are reported as a
component of securities gains, net.
Accounting
for Derivative Financial Instruments
Derivative financial instruments are recorded at fair value as
either assets or liabilities on the balance sheet. The
accounting for changes in the fair value of a derivative
instrument is determined by whether it has been designated and
qualifies as part of a hedging relationship and based on the
type of hedging relationship. Transactions hedging changes in
the fair value of a recognized asset, liability, or firm
commitment are classified as fair value hedges. Derivative
instruments hedging exposure to variable cash flows of
recognized assets, liabilities or forecasted transactions are
classified as cash flow hedges.
Fair value hedges result in the immediate recognition through
earnings of gains or losses on the derivative instrument, as
well as corresponding losses or gains on the hedged financial
instrument to the extent they are attributable to the hedged
risk. The gain or loss on the effective portion of a derivative
instrument designated as a cash flow hedge is reported as a
component of other comprehensive income, and reclassified to
earnings in the same period that the hedged transaction affects
earnings. The gain or loss on the ineffective portion of the
derivative instrument, if any, is recognized in earnings for
both fair value and cash flow hedges. Changes in the fair value
of the derivative instruments are recorded as changes in both
the fair value of the swap and the hedged financial instrument.
Derivative instruments not qualifying for hedge accounting
treatment are recorded at fair value and classified as trading
assets or liabilities with the resultant changes in fair value
recognized in earnings during the period of change.
In the event of early termination of a derivative contract,
previously designated as part of a cash flow hedging
relationship, any resulting gain or loss is deferred as an
adjustment to the carrying value of the assets or liabilities,
against which the hedge had been designated with a corresponding
offset to other comprehensive income, and reclassified to
earnings over the shorter of the remaining life of the
designated assets or liabilities, or the derivative contract.
However, if the hedged item is no longer on balance sheet (i.e.
sold or canceled), the derivative gain or loss is immediately
reclassified to earnings.
As part of our mortgage banking business, we enter into
commitments to originate or purchase loans whereby the interest
rate on the loan is determined prior to funding (interest
rate lock commitment). Interest rate lock commitments
related to loans that we intend to sell in the secondary market
are considered free-standing derivatives. These derivatives are
required to be recorded at fair value, with changes in fair
value recorded in current period earnings. In accordance with
Staff Accounting Bulletin No. 105, Application
of Accounting Principles to Loan Commitments,
interest rate lock commitments are initially valued at zero.
Changes in fair value subsequent to inception are based on
changes in the fair value of loans with similar characteristics
and changes in the probability that the loan will fund within
the terms of the commitment, which is affected primarily by
changes in interest rates and passage of time. In general, the
probability that a loan will fund increases if mortgage rates
rise and decreases if mortgage rates fall. The initial value
inherent in the loan commitment at origination is recognized
through gain on sale of loans when the underlying loan is sold.
We are exposed to interest rate risk from the time an interest
rate lock commitment is made to a borrower to the time the
resulting mortgage loan is sold in the secondary market. To
manage this risk, we use derivatives, primarily forward sales
contracts on mortgage backed securities and forward delivery
commitments, in an amount equal to the portion of interest rate
contracts expected to close. The duration of these derivatives
is selected to have the changes in their fair value correlate
closely with the changes in fair value of the interest rate lock
commitments on loans to be sold. These derivatives are also
required to be recorded at fair value, with changes in fair
value recorded in current period earnings.
8
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Loans
Held-for-Sale
Loans
held-for-sale
consist primarily of residential mortgage loans, secured by
one-to-four
family residential properties located throughout the United
States. Loans originated with the intent of selling in the
secondary market are classified as
held-for-sale.
Loans
held-for-sale
are carried at the lower of aggregate cost, net of deferred
fees, deferred origination costs and effects of hedge
accounting, or fair value. The fair value of loans
held-for-sale
are determined using current secondary market prices for loans
with similar coupons, maturities and credit quality.
The fair value of loans
held-for-sale
is impacted by changes in market interest rates. The exposure to
changes in market interest rates is hedged primarily by selling
forward contracts on agency securities. These derivative
instruments, designated as fair value hedges, are recorded on
the balance sheet at fair value with changes in fair value being
recorded in gain on sale of loans in current earnings. Also
changes in the fair value of loans
held-for-sale
are recorded as an adjustment to the loans carrying basis
through gain on sale of loans in current earnings.
As part of our mortgage banking operations, commitments to
purchase or originate loans are entered into whereby the
interest rate on the loans is determined prior to funding
(interest rate lock commitments). Interest rate lock
commitments on loans we intend to sell are recorded as
derivative instruments as defined in Statement of Financial
Accounting Standards (SFAS)
No. 133 Accounting for Derivative
Instruments and Hedging Activities and the fair value of
interest rate lock commitments are determined using current
secondary market prices for underlying loans with similar
coupons, maturity and credit quality, subject to the anticipated
loan funding probability, or pull through rate.
Similar to loans
held-for-sale,
the fair value of interest rate lock commitments is subject to
change due to changes in market interest rates. In addition, the
value of interest rate lock commitments is affected by changes
in the anticipated loan funding probability or pull through
rate. These changes in fair value are also hedged primarily by
selling forward contracts on agency securities. Both the
interest rate lock commitments and the related forward contracts
are recorded at fair value with changes in fair value being
recorded in current earnings in gain on sale of loans.
Accounting
for Sales of Loans
Held-for-Sale
Loans originated for sale are primarily sold in the secondary
market as whole loans. Whole loan sales are executed with either
the servicing rights being retained or released to the buyer.
For sales where the loans are sold with the servicing released
to the buyer, the gain or loss on the sale is equal to the
difference between the proceeds received and the carrying value
of the loans sold. If the loans are sold with the servicing
rights retained, the gain or loss on the sale is also impacted
by the fair value attributed to the servicing rights.
Mortgage
Servicing Rights
The right to service mortgage loans for others, or Mortgage
Servicing Rights (MSRs), is recognized when mortgage
loans are sold in the secondary market and the right to service
these loans are retained for a fee. The MSRs initial carrying
value is determined by allocating the recorded investment in the
underlying mortgage loans between the assets sold and the
interest retained based on their relative fair values at the
date of transfer. Fair value of the MSRs is determined using the
present value of the estimated future cash flows of net
servicing income. MSRs are carried at the lower of the initial
carrying value, adjusted for amortization, or fair value. MSRs
are amortized in proportion to, and over the period of,
estimated net servicing income. The amortization of MSRs is
periodically analyzed and adjusted to reflect changes in
prepayment speeds.
To determine fair value, a valuation model that calculates the
present value of estimated future net servicing income is
utilized. We use assumptions in the valuation model that market
participants use when estimating future net servicing income,
including prepayment speeds, discount rates, default rates, cost
to service, escrow account earnings, contractual servicing fee
income, ancillary income and late fees.
MSRs are periodically evaluated for impairment based on the
difference between the carrying amount and current fair value.
To evaluate and measure impairment, the underlying loans are
stratified based on certain risk
9
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
characteristics, including loan type, note rate and investor
servicing requirements. If it is determined that temporary
impairment exists, a valuation allowance is established by risk
stratification through a charge to earnings for any excess of
amortized cost over the current fair value. If determined in
future periods that all or a portion of the temporary impairment
no longer exists for a particular risk stratification, the
valuation allowance is reduced by increasing earnings. However,
if impairment for a particular risk stratification is deemed
other-than-temporary
(recovery of a recorded valuation allowance is remote), a direct
write-down, permanently reducing the carrying value of the MSRs
is recorded. The periodic evaluation of MSRs for
other-than-temporary
impairment considers both historical and projected trends in
interest rates, payoff activity and whether impairment could be
recovered through increases in market interest rates.
Representation
and Warranty Reserve
The representation and warranty reserve is available to cover
probable losses inherent with the sale of loans in the secondary
market. In the normal course of business, certain
representations and warranties are made to investors at the time
of sale, which permit the investor to return the loan to the
seller or require the seller to indemnify the investor (make
whole) for any losses incurred by the investor while the loan
remains outstanding.
The evaluation process for determining the adequacy of the
representation and warranty reserve and the periodic
provisioning for estimated losses is performed for each product
type on a quarterly basis. Factors considered in the evaluation
process include historical sales volumes, aggregate repurchase
and indemnification activity and actual losses incurred.
Additions to the reserve are recorded as a reduction to the gain
on sale of loans. Losses incurred on loans we are required to
either repurchase or make payments to the investor under the
indemnification provisions are charged against the reserve. The
representation and warranty reserve is included in accrued
expenses and other liabilities in the consolidated balance sheet.
Loans
Held-for-Investment
Loans are stated at the principal amount outstanding, net of
unearned income and net deferred loan fees and costs. Interest
income is recognized using the interest method or a method that
approximates a level rate of return over the loan term. Net
deferred loan fees and origination costs are recognized in
interest income over the loan term as a yield adjustment.
Non-Accrual
and Restructured Loans
Loans are generally placed on non-accrual status when payments
become 90 days past due, unless they are well secured and
in the process of collection. Loans may also be placed on
non-accrual status if management has doubt as to the
collectibility of interest and principal prior to a loan
becoming 90 days past due. Interest and fees previously
accrued, but not collected, are generally reversed and charged
against interest income at the time a loan is placed on
non-accrual status. Interest payments received on non-accrual
loans are recorded as reductions of principal if, in
managements judgment, principal repayment is doubtful.
Loans may be reinstated to an accrual or performing status if
future payments of principal and interest are reasonably assured
and the loan has a demonstrated period of performance.
Loans are classified as restructured when management grants, for
economic or legal reasons related to the borrowers
financial condition, concessions to the borrower that we would
not otherwise consider. Generally, this occurs when the cash
flows of the borrower are insufficient to service the loan under
its original terms. Restructured loans are reported as such in
the year of restructuring. In subsequent reporting periods, the
loan is removed from restructured status if the loan yields a
market rate of interest, is performing in accordance with the
restructured terms, and such performance is expected to continue.
Provision
and Allowance for Loan Losses
The allowance for loan losses is available to cover probable
losses inherent in the loans
held-for-investment
portfolio. Loans
held-for-investment,
or portions thereof, deemed uncollectible are charged to the
allowance for
10
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
loan losses, while recoveries, if any, of amounts previously
charged-off are added to the allowance. Amounts are charged-off
after giving consideration to such factors as the
customers financial condition, underlying collateral
values and guarantees, and general economic conditions.
The evaluation process for determining the adequacy of the
allowance for loan losses and the periodic provisioning for
estimated losses is undertaken on a quarterly basis, but may
increase in frequency should conditions arise that would require
our prompt attention. Conditions giving rise to such action are
business combinations or other acquisitions or dispositions of
large quantities of loans, dispositions of non-performing and
marginally performing loans by bulk sale or any development
which may indicate an adverse trend. Recognition is also given
to the changing risk profile resulting from business
combinations, customer performance, results of ongoing
credit-quality monitoring processes and the cyclical nature of
economic and business conditions.
The loan portfolio is categorized according to collateral type,
loan purpose or borrower type (i.e. commercial, consumer). The
categories used include Multi-Family Mortgages, Residential 1-4
Family Mortgages, Commercial Mortgages, Commercial and
Industrial, Consumer, and Construction and Land. An important
consideration is our concentration of real estate related loans.
The methodology employed for assessing the adequacy of the
allowance consists of the following criteria:
|
|
|
|
|
Establishment of reserve amounts for specifically identified
criticized loans, including those arising from business
combinations and those designated as requiring special attention
by our internal loan review program, or bank regulatory
examinations (specific-allowance method).
|
|
|
|
An allocation to the remaining loans giving effect to historical
losses experienced in each loan category, cyclical trends and
current economic conditions which may impact future losses (loss
experience factor method).
|
The initial allocation or specific-allowance method commences
with loan officers and underwriters grading the quality of their
loans on a risk classification scale ranging from 1 - 8. Loans
identified as below investment grade are referred to our
independent Loan Review Department (LRD) for further
analysis and identification of those factors that may ultimately
affect the full recovery or collectibility of principal
and/or
interest. These loans are subject to continuous review and
monitoring while they remain in a criticized category.
Additionally, LRD is responsible for performing periodic reviews
of the loan portfolio independent from the identification
process employed by loan officers and underwriters. Loans that
fall into criticized categories are further evaluated for
impairment in accordance with the provisions of Statement of
Financial Accounting Standards (SFAS) No. 114,
Accounting by Creditors for Impairment of a Loan.
The portion of the allowance allocated to impaired loans is
based on the most appropriate of the following measures:
discounted cash flows from the loan using the loans
effective interest rate, the fair value of the collateral for
collateral dependent loans, or the observable market price of
the impaired loan.
The remaining allocation applies a category specific loss
experience factor to loans which have not been specifically
reviewed for impairment, including smaller balance homogeneous
loans that we have identified as residential and consumer, which
are not specifically reserved for impairment. These category
specific factors give recognition to our historical loss
experience, as well as that of acquired businesses, cyclical
trends, current economic conditions and our exposure to real
estate values. These factors are reviewed on a quarterly basis
with senior lenders to ensure that the factors applied to each
loan category are reflective of trends or changes in the current
business environment which may affect these categories.
Upon completion of both allocation processes, the specific and
loss experience factor method allocations are combined,
producing the allocation of the allowance for loan losses by
loan category. Other factors used to evaluate the adequacy of
the allowance for loan losses include the amount and trend of
criticized loans, results of regulatory examinations, peer group
comparisons and economic data associated with the relevant
markets, specifically the local real estate market. Because many
loans depend upon the sufficiency of collateral, any adverse
trend in the relevant real estate markets could have a
significant adverse effect on the quality of our loan portfolio.
This may lead
11
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
management to consider that the overall allowance level should
be greater than the amount determined by the allocation process
described above.
Premises
and Equipment
Premises and equipment, including leasehold improvements, are
stated at cost, net of accumulated depreciation and
amortization. Equipment, which includes furniture and fixtures,
are depreciated over the assets estimated useful lives
using the straight-line method (3 to 10 years). Bank
premises and leasehold improvements are amortized, using the
straight line method, over the estimated useful life of the
related asset or the lease term, whichever is shorter.
Maintenance, repairs and minor improvements are charged to non-
interest expense in the period incurred.
Impairment
Long-lived assets including goodwill and certain identifiable
intangibles are periodically evaluated for impairment in value.
Long-lived assets and deferred costs are typically measured
whenever events or circumstances indicate that the carrying
amount may not be recoverable. No such events have occurred
during the periods reported. Certain identifiable intangibles
and goodwill are evaluated for impairment at least annually
utilizing the market approach as prescribed by
SFAS No. 142, Goodwill and Other Intangible
Assets. Asset impairment is recorded when required.
Other
Real Estate
Other real estate consists of property acquired through
foreclosure or deed in lieu of foreclosure. Prior to
foreclosure, the recorded amount of the loan is written down, if
necessary, to the fair value of the property based on the
appraised value adjusted for estimated disposition costs, by a
charge to the allowance for loan losses.
Income
Taxes
Income taxes are provided for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred taxes of a change in tax rates is recognized in
income in the period the change occurs. Deferred tax assets are
reduced, through a valuation allowance, if necessary, by the
amount of such benefits that are not expected to be realized
based on current available evidence.
Earnings
Per Share (EPS)
Basic EPS is computed by dividing net income available to common
stockholders by the weighted average number of common
shares, as adjusted for restricted shares outstanding during the
period. Diluted EPS is computed by dividing net income available
to common stockholders by the weighted average number of
common shares outstanding as, adjusted for restricted shares,
and common stock equivalents (i.e. stock options) outstanding
during the period and accounted for under the treasury stock
method. The weighted average number of common shares outstanding
used in the computation of Basic EPS was 467,306,335,
294,490,840 and 226,304,234 for 2005, 2004, and 2003,
respectively. The weighted average number of common shares
outstanding used in the computation of Diluted EPS was
472,790,713, 299,219,291 and 228,774,213 for 2005, 2004 and
2003, respectively.
Accounting
for Stock-Based Compensation
Stock-based compensation plans are accounted for in accordance
with the requirements specified in SFAS No. 123
Accounting for Stock-Based Compensation
(SFAS 123), as amended by
SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure
(SFAS 148). As permitted under these
Statements, we have elected to apply the intrinsic value method
in accounting for option-based stock
12
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
compensation plans. Accordingly, compensation expense has not
been recognized in the accompanying consolidated financial
statements for stock-based compensation plans, other than
restricted stock awards. Restricted stock awards are recorded as
deferred compensation, a component of stockholders equity,
at fair value as of the date of grant and amortized to
compensation expense over the awards specified vesting
periods. Since the intrinsic value method is used, we are
required to disclose the pro-forma impact on net income and
earnings per share that the fair value-based method would have
had, if it was applied rather than the intrinsic value method.
See Note 16 Common Stock
Plans, for additional information.
Accordingly, the following table illustrates the effect on net
income and earnings per share as if the fair value-based method
had been applied to all outstanding awards in each period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
(Dollars in thousands, except per
share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income, as Reported
|
|
$
|
948,847
|
|
|
$
|
552,996
|
|
|
$
|
396,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Restricted Stock Expense
Included in Net Income, Net of Taxes
|
|
|
13,841
|
|
|
|
9,536
|
|
|
|
6,809
|
|
Less: Total Stock-based Employee
Compensation Expense Determined Under the Fair Value Method for
All Awards, Net of Taxes
|
|
|
(22,489
|
)
|
|
|
(16,377
|
)
|
|
|
(9,254
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro-Forma Net Income
|
|
$
|
940,199
|
|
|
$
|
546,155
|
|
|
$
|
393,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as Reported
|
|
$
|
2.03
|
|
|
$
|
1.88
|
|
|
$
|
1.75
|
|
Basic Pro-Forma
|
|
|
2.01
|
|
|
|
1.85
|
|
|
|
1.74
|
|
Diluted as
Reported
|
|
|
2.01
|
|
|
|
1.85
|
|
|
|
1.73
|
|
Diluted Pro-Forma
|
|
|
1.99
|
|
|
|
1.83
|
|
|
|
1.72
|
|
Goodwill
and Identifiable Intangible Assets
Goodwill and identifiable intangible assets (primarily core
deposit intangibles) reflected on the consolidated balance
sheets arose from previous acquisitions. At the date of
acquisition, we recorded the assets acquired and liabilities
assumed at fair value. The excess of cost over the fair value of
the net assets acquired is recorded on the balance sheet as
goodwill. The cost includes the consideration paid and all
direct costs associated with the acquisition. Indirect costs
relating to the acquisition are expensed when incurred based on
the nature of the item.
In accordance with the requirements specified in
SFAS No. 142 Goodwill and Other Intangible
Assets, goodwill and identifiable intangible assets having
an indefinite useful life are no longer amortized but are
periodically assessed for impairment. Identifiable intangible
assets having an estimated useful life are separately recognized
and amortized over their estimated useful lives. The required
assessment of goodwill impairment, was completed as of
December 31, 2005 and management determined that no
impairment exists.
Statement
of Cash Flows
For purposes of the accompanying consolidated statements of cash
flows, cash and cash equivalents are defined as the amounts
included in the consolidated balance sheets under the captions
Cash & Due from Banks and Money
Market Investments, with contractual maturities of less
than 90 days.
Cash flows associated with derivative financial instruments are
classified in the accompanying consolidated statements of cash
flows in the same category as the cash flows from the assets or
liabilities being hedged.
13
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 2
|
Business
Combinations
|
The Trust
Company of New Jersey
In May 2004, The Trust Company of New Jersey (TCNJ),
a New Jersey state-chartered bank was acquired, in a tax free
merger. TCNJ shareholders received one share of the
Companys common stock for each share of TCNJ common stock
held or 27.8 million shares, adjusted for the
three-for-two
stock split. At the merger date, TCNJ had $4.1 billion in
total assets, $1.4 billion in securities, $2.1 billion
in loans, $3.2 billion in deposits and $.7 billion in
borrowings.
GreenPoint
Financial Corp.
In October 2004, GreenPoint Financial Corp.
(GreenPoint) was acquired, in a tax free merger.
GreenPoints shareholders received 1.0514 shares of
the Companys common stock for each of share of GreenPoint
common stock held, for a total issuance of 210.3 million
shares (adjusted for the
three-for-two
stock split). GreenPoint operated two primary businesses, a
retail savings bank (GreenPoint Bank) and a national mortgage
company (GreenPoint Mortgage Funding, Inc.). At the merger date,
GreenPoint had $27 billion in assets, $6.8 billion in
securities, $5.1 billion in loans
held-for-sale,
$12.8 billion in loans
held-for-investment,
$12.8 billion in deposits and $11.4 billion in
borrowings. On February 21, 2005, the operations of
GreenPoint Bank were merged with and into North Fork Bank.
GreenPoint Mortgage continues to operate as a separate
subsidiary.
Identifiable
Intangibles
The following table represents a roll forward of identifiable
intangibles, which is comprised primarily of core deposits
intangibles from previous acquisitions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Value
|
|
$
|
188,243
|
|
|
$
|
35,165
|
|
|
$
|
35,165
|
|
Add: GreenPoint Acquisition(1)
|
|
|
|
|
|
|
113,726
|
|
|
|
|
|
Add: TCNJ Acquisition(2)
|
|
|
|
|
|
|
39,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Value
|
|
$
|
188,243
|
|
|
$
|
188,243
|
|
|
$
|
35,165
|
|
Less: Accumulated Amortization
|
|
|
(74,152
|
)
|
|
|
(37,509
|
)
|
|
|
(22,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Carrying Value
|
|
$
|
114,091
|
|
|
$
|
150,734
|
|
|
$
|
12,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The GreenPoint core deposit
intangible is being amortized over 11 years on an
accelerated basis. |
|
(2) |
|
The TCNJ core deposit intangible
is being amortized over 8 years on an accelerated
basis. |
Amortization expense of identifiable intangibles was
$36.6 million, $15.1 million and $3.6 million for
2005, 2004 and 2003, respectively. The aggregate amortization
expense is projected to be $33.6 million,
$25.6 million, $20.5 million, $16.1 million and
$6.6 million in 2006, 2007, 2008, 2009 and 2010,
respectively.
Goodwill
Goodwill was $5.9 billion for both 2005 and 2004,
respectively. Any changes in goodwill during 2005 were
insignificant and resulted from the final purchase accounting
adjustments for facility and compensation related matters that
were not available at the time we closed the acquisition of
GreenPoint. Goodwill is analyzed for impairment on an annually
basis. No impairment loss was recorded in 2005 or 2004.
14
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Available-for-Sale
Securities
The amortized cost, gross unrealized gains, gross unrealized
losses and estimated fair values of
available-for-sale
securities were as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMO Agency Issuances
|
|
$
|
3,604,117
|
|
|
$
|
54
|
|
|
$
|
(92,886
|
)
|
|
$
|
3,511,285
|
|
|
$
|
5,121,001
|
|
|
$
|
11,911
|
|
|
$
|
(34,669
|
)
|
|
$
|
5,098,243
|
|
CMO Private Issuances
|
|
|
3,484,016
|
|
|
|
299
|
|
|
|
(74,526
|
)
|
|
|
3,409,789
|
|
|
|
4,723,080
|
|
|
|
14,628
|
|
|
|
(15,895
|
)
|
|
|
4,721,813
|
|
Agency Pass-Through Certificates
|
|
|
1,986,388
|
|
|
|
3,554
|
|
|
|
(33,455
|
)
|
|
|
1,956,487
|
|
|
|
2,715,253
|
|
|
|
28,109
|
|
|
|
(6,295
|
)
|
|
|
2,737,067
|
|
State & Municipal
Obligations
|
|
|
884,742
|
|
|
|
2,339
|
|
|
|
(5,843
|
)
|
|
|
881,238
|
|
|
|
916,239
|
|
|
|
6,147
|
|
|
|
(2,274
|
)
|
|
|
920,112
|
|
Equity Securities(1)(2)
|
|
|
663,371
|
|
|
|
13,659
|
|
|
|
(1,505
|
)
|
|
|
675,525
|
|
|
|
790,042
|
|
|
|
5,377
|
|
|
|
(1,414
|
)
|
|
|
794,005
|
|
U.S. Treasury &
Agency Obligations
|
|
|
233,468
|
|
|
|
|
|
|
|
(2,316
|
)
|
|
|
231,152
|
|
|
|
361,987
|
|
|
|
2,737
|
|
|
|
(949
|
)
|
|
|
363,775
|
|
Other Securities
|
|
|
628,737
|
|
|
|
6,134
|
|
|
|
(4,370
|
)
|
|
|
630,501
|
|
|
|
800,848
|
|
|
|
12,075
|
|
|
|
(3,313
|
)
|
|
|
809,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,484,839
|
|
|
$
|
26,039
|
|
|
$
|
(214,901
|
)
|
|
$
|
11,295,977
|
|
|
$
|
15,428,450
|
|
|
$
|
80,984
|
|
|
$
|
(64,809
|
)
|
|
$
|
15,444,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amortized cost and fair value
includes $265.8 million and $351.7 million in Federal
Home Loan Bank stock at December 31, 2005 and 2004,
respectively. |
|
(2) |
|
Amortized cost and fair value
includes $332.3 million and $342.8 million at
December 31, 2005 and $369.6 million and
$371.2 million at December 31, 2004 in Freddie Mac and
Fannie Mae Preferred Stock, respectively. |
Held-to-Maturity
Securities
The amortized cost, gross unrealized gains, gross unrealized
losses and estimated fair values of
held-to-maturity
securities were as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency Pass-Through Certificates
|
|
$
|
46,155
|
|
|
$
|
525
|
|
|
$
|
(866
|
)
|
|
$
|
45,814
|
|
|
$
|
57,719
|
|
|
$
|
1,402
|
|
|
$
|
(345
|
)
|
|
$
|
58,776
|
|
CMO Private Issuances
|
|
|
9,430
|
|
|
|
|
|
|
|
(472
|
)
|
|
|
8,958
|
|
|
|
24,426
|
|
|
|
209
|
|
|
|
(484
|
)
|
|
|
24,151
|
|
State & Municipal
Obligations
|
|
|
38,301
|
|
|
|
1,815
|
|
|
|
|
|
|
|
40,116
|
|
|
|
45,303
|
|
|
|
2,688
|
|
|
|
|
|
|
|
47,991
|
|
Other Securities
|
|
|
10,324
|
|
|
|
|
|
|
|
(84
|
)
|
|
|
10,240
|
|
|
|
15,125
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
15,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
104,210
|
|
|
$
|
2,340
|
|
|
$
|
(1,422
|
)
|
|
$
|
105,128
|
|
|
$
|
142,573
|
|
|
$
|
4,299
|
|
|
$
|
(881
|
)
|
|
$
|
145,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities represented 78% of total securities
at December 31, 2005, and included pass-through
certificates guaranteed by GNMA, FHLMC or FNMA and
collateralized mortgage-backed obligations (CMOs)
backed by government agency pass-through certificates or whole
loans. The pass-through certificates included both fixed and
adjustable rate instruments. CMOs, by virtue of the underlying
collateral or structure, are AAA rated and are either fixed rate
current pay sequentials and planned amortization class (PAC)
structures or adjustable rate issues. The adjustable rate
pass-throughs and CMOs are principally Hybrid adjustable rate
mortgages (ARMs). Hybrid ARMs typically have a fixed initial
rate of interest from 3 through 7 years and at the end of
that term convert to a one year adjustable rate of interest
indexed to short term benchmarks (i.e. LIBOR or
15
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
one-year Treasuries). Hybrid ARMs included in Pass-throughs and
CMOs as of December 31, 2005 aggregated $2.6 billion.
At December 31, 2005, securities carried at
$7.3 billion were pledged to secure securities sold under
agreements to repurchase, other borrowings, and for other
purposes as required by law. Securities pledged under agreements
pursuant to which the collateral may be sold or re-pledged by
the secured parties approximated $4.1 billion, while
securities pledged under agreements pursuant to which the
secured parties may not sell or re-pledge the collateral
approximated $3.2 billion at December 31, 2005.
At December 31, 2005, the amortized cost and estimated fair
value of securities by contractual maturity are presented in the
table below. Expected maturities will differ from contractual
maturities since issuers may have the right to call or prepay
obligations without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
Held-to-Maturity
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in One Year or Less
|
|
$
|
478,204
|
|
|
$
|
477,790
|
|
|
$
|
4,050
|
|
|
$
|
4,060
|
|
Due After One Year Through Five
Years
|
|
|
370,916
|
|
|
|
367,467
|
|
|
|
19,771
|
|
|
|
19,854
|
|
Due After Five Years Through Ten
Years
|
|
|
168,607
|
|
|
|
167,621
|
|
|
|
10,962
|
|
|
|
11,530
|
|
Due After Ten Years
|
|
|
729,220
|
|
|
|
730,013
|
|
|
|
13,842
|
|
|
|
14,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total
|
|
$
|
1,746,947
|
|
|
$
|
1,742,891
|
|
|
$
|
48,625
|
|
|
$
|
50,356
|
|
CMOs
|
|
|
7,088,133
|
|
|
|
6,921,074
|
|
|
|
9,430
|
|
|
|
8,958
|
|
Agency Pass-Through Certificates
|
|
|
1,986,388
|
|
|
|
1,956,487
|
|
|
|
46,155
|
|
|
|
45,814
|
|
Equity Securities
|
|
|
663,371
|
|
|
|
675,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,484,839
|
|
|
$
|
11,295,977
|
|
|
$
|
104,210
|
|
|
$
|
105,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The proceeds from realized gains and losses on securities were
as follows at December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Sales
|
|
$
|
2,258,489
|
|
|
$
|
1,442,626
|
|
|
$
|
1,532,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Realized Gains
|
|
$
|
18,651
|
|
|
$
|
14,780
|
|
|
$
|
24,901
|
|
Gross Realized Losses
|
|
|
(8,512
|
)
|
|
|
(2,124
|
)
|
|
|
(9,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Realized Gains
|
|
$
|
10,139
|
|
|
$
|
12,656
|
|
|
$
|
15,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In December 2005, $577 million in securities were
identified as other than temporarily impaired resulting in a
realized loss of $6.0 million. Theses securities were sold
in January 2006. Gross realized gains and losses for 2005, 2004
and 2003 resulted from sales of mortgage backed securities,
corporate bonds and certain equity and capital securities.
16
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table provides the gross unrealized losses and
fair value, aggregated by investment category and length of time
the individual securities have been in a continuous unrealized
loss position, as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMO Agency Issuances
|
|
$
|
1,166,734
|
|
|
$
|
(20,888
|
)
|
|
$
|
2,136,310
|
|
|
$
|
(71,998
|
)
|
|
$
|
3,303,044
|
|
|
$
|
(92,886
|
)
|
CMO Private Issuances
|
|
|
1,954,853
|
|
|
|
(40,364
|
)
|
|
|
1,254,785
|
|
|
|
(34,634
|
)
|
|
|
3,209,638
|
|
|
|
(74,998
|
)
|
Agency Pass-Through Certificates
|
|
|
1,154,060
|
|
|
|
(16,974
|
)
|
|
|
521,106
|
|
|
|
(17,347
|
)
|
|
|
1,675,166
|
|
|
|
(34,321
|
)
|
State & Municipal
Obligations
|
|
|
581,355
|
|
|
|
(3,663
|
)
|
|
|
87,048
|
|
|
|
(2,180
|
)
|
|
|
668,403
|
|
|
|
(5,843
|
)
|
U.S. Treasury &
Agency Obligations
|
|
|
59,943
|
|
|
|
(1,488
|
)
|
|
|
24,538
|
|
|
|
(828
|
)
|
|
|
84,481
|
|
|
|
(2,316
|
)
|
Equity Securities
|
|
|
43,686
|
|
|
|
(397
|
)
|
|
|
99,268
|
|
|
|
(1,108
|
)
|
|
|
142,954
|
|
|
|
(1,505
|
)
|
Other Securities
|
|
|
78,561
|
|
|
|
(1,393
|
)
|
|
|
133,144
|
|
|
|
(3,061
|
)
|
|
|
211,705
|
|
|
|
(4,454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Temporarily Impaired
Securities
|
|
$
|
5,039,192
|
|
|
$
|
(85,167
|
)
|
|
$
|
4,256,199
|
|
|
$
|
(131,156
|
)
|
|
$
|
9,295,391
|
|
|
$
|
(216,323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005, approximately 93% of the
unrealized losses in the securities portfolio was comprised of
mortgage-backed securities. The remaining 7% of the unrealized
losses is concentrated in corporate bonds and state and
municipal obligations. Management reviews these securities at
least annually and there are no instances of credit or rating
agency downgrades. Management believes these price movements can
be attributed to the increase in current market credit spreads
on similar issuances.
When purchasing investment securities, the Companys
overall interest-rate risk profile is considered as well as the
adequacy of expected returns relative to risks assumed,
including prepayments. In continuously managing the investment
securities portfolio, management occasionally sells investment
securities as a result of changes in interest rates and spreads,
actual or anticipated prepayments, credit risk associated with a
particular security,
and/or
following the completion of a business combination.
The composition of loans designated as
held-for-sale
are summarized as follows at December 31,:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Held-for-Sale:
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
(Dollars in thousands)
|
|
2005
|
|
|
of Total
|
|
|
2004
|
|
|
of Total
|
|
|
Mortgages Loans
|
|
$
|
3,824,547
|
|
|
|
89
|
%
|
|
$
|
4,339,581
|
|
|
|
76
|
%
|
Home Equity
|
|
|
496,656
|
|
|
|
11
|
|
|
|
1,380,247
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,321,203
|
|
|
|
100
|
%
|
|
$
|
5,719,828
|
|
|
|
100
|
%
|
Deferred Origination Costs
|
|
|
38,064
|
|
|
|
|
|
|
|
56,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
Held-For-Sale
|
|
$
|
4,359,267
|
|
|
|
|
|
|
$
|
5,775,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The composition of loans designated as held-for investment are
summarized as follows at December 31,:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
Loans
Held-for-Investment:
|
|
2005
|
|
|
of Total
|
|
|
2004
|
|
|
of Total
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Mortgages
|
|
$
|
6,206,416
|
|
|
|
19
|
%
|
|
$
|
5,369,656
|
|
|
|
18
|
%
|
Commercial & Industrial
|
|
|
4,709,440
|
|
|
|
14
|
|
|
|
3,046,820
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial
|
|
|
10,915,856
|
|
|
|
33
|
|
|
|
8,416,476
|
|
|
|
28
|
|
Residential Mortgages
|
|
|
15,068,443
|
|
|
|
45
|
|
|
|
15,668,938
|
|
|
|
51
|
|
Multi-Family Mortgages
|
|
|
4,821,642
|
|
|
|
15
|
|
|
|
4,254,405
|
|
|
|
14
|
|
Consumer
|
|
|
1,558,782
|
|
|
|
5
|
|
|
|
1,604,863
|
|
|
|
5
|
|
Construction and Land
|
|
|
829,273
|
|
|
|
2
|
|
|
|
480,162
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33,193,996
|
|
|
|
100
|
%
|
|
$
|
30,424,844
|
|
|
|
100
|
%
|
Deferred Origination Costs, net
|
|
|
38,240
|
|
|
|
|
|
|
|
28,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
Held-for-Investment
|
|
$
|
33,232,236
|
|
|
|
|
|
|
$
|
30,453,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The loan portfolio is concentrated primarily in loans secured by
real estate. The segments of the real estate portfolio are
diversified in terms of risk and repayment sources. The
underlying collateral includes residential 1-4 family mortgages,
and multi-family apartment buildings, owner occupied/non-owner
occupied commercial properties and construction and land loans.
The risks inherent in the loan portfolio are dependent on both
regional and general economic stability, which affect property
values and the financial well being and creditworthiness of the
borrowers.
At December 31, 2005, loans secured by real estate of
$4.0 billion were pledged as collateral under borrowing
arrangements with the Federal Home Loan Bank of New York.
Related
Party Loans
Loans to related parties include loans to directors and their
related companies and executive officers of the Company and its
subsidiaries. Such loans are made in the ordinary course of
business on substantially the same terms as loans to other
individuals and businesses of comparable risks. We do not extend
loans to directors and executive officers for purposes of
financing the purchase of the companys common stock.
Related party loans, consisting principally of residential
mortgage loans, aggregated $4.9 million and
$4.8 million at December 31, 2005 and 2004,
respectively.
Non-Performing
Assets
Non-performing assets include loans ninety days past due and
still accruing, non-accrual loans and other real estate. Other
real estate consists of properties acquired through foreclosure
or deed in lieu of foreclosure. Other real estate is carried at
the lower of the recorded amount of the loan or the fair value
of the property based on the appraised value adjusted for
estimated disposition costs. Other real estate is reflected on
the accompanying balance sheet as a component of other assets.
18
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table represents the components of non-performing
assets at December 31,:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Non-Performing Loans
Held-for-Investment:
|
|
|
|
|
|
|
|
|
Commercial Mortgages
|
|
$
|
498
|
|
|
$
|
16,890
|
|
Commercial & Industrial
|
|
|
7,970
|
|
|
|
8,730
|
|
|
|
|
|
|
|
|
|
|
Total Commercial
|
|
|
8,468
|
|
|
|
25,620
|
|
Residential Mortgages
|
|
|
19,315
|
|
|
|
103,745
|
|
Multi-Family Mortgages
|
|
|
550
|
|
|
|
1,290
|
|
Consumer
|
|
|
2,684
|
|
|
|
3,178
|
|
Construction and Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Performing
Loans-Held-for-Investment
|
|
$
|
31,017
|
|
|
$
|
133,833
|
|
Total Non-Performing
Loans-Held-for-Sale
|
|
|
13,931
|
|
|
|
60,858
|
|
|
|
|
|
|
|
|
|
|
Total Non-Performing Loans
|
|
|
44,948
|
|
|
|
194,691
|
|
Other Real Estate
|
|
|
4,101
|
|
|
|
17,410
|
|
|
|
|
|
|
|
|
|
|
Total Non-Performing Assets
|
|
$
|
49,049
|
|
|
$
|
212,101
|
|
|
|
|
|
|
|
|
|
|
Interest foregone on non-accrual loans aggregated
$2.2 million in 2005, $2.9 million in 2004 and
$1.0 million in 2003 and 2002, respectively. As part of the
analysis for loan losses, certain loans are assessed for
impairment as specified by the criteria established in
SFAS No. 114 Accounting by Creditors for
Impairment of a Loan. The level of loans identified as
impaired and the related valuation was not significant at
December 31, 2005 and 2004.
At December 31, 2005, there were no commitments to lend
additional funds to borrowers whose loans were non-performing.
Additionally, there were no restructured, accruing loans
outstanding at December 31, 2005 and 2004.
|
|
NOTE 5
|
Allowance
for Loan Losses
|
A summary of changes in the allowance for loan losses is shown
below for the years ended December 31,:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Year
|
|
$
|
211,097
|
|
|
$
|
122,733
|
|
|
$
|
114,995
|
|
Provision for Loan Losses
|
|
|
36,000
|
|
|
|
27,189
|
|
|
|
26,250
|
|
Allowance From Purchase
Acquisitions
|
|
|
|
|
|
|
84,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
247,097
|
|
|
|
234,899
|
|
|
|
141,245
|
|
Recoveries Credited to the
Allowance
|
|
|
15,646
|
|
|
|
12,769
|
|
|
|
8,122
|
|
Losses Charged to the Allowance
|
|
|
(44,804
|
)
|
|
|
(36,571
|
)
|
|
|
(26,634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at End of Year
|
|
$
|
217,939
|
|
|
$
|
211,097
|
|
|
$
|
122,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 6
|
Premises
and Equipment
|
The following is a summary of premises and equipment at
December 31,:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
96,425
|
|
|
$
|
94,830
|
|
Premises
|
|
|
141,922
|
|
|
|
132,480
|
|
Leasehold Improvements
|
|
|
191,384
|
|
|
|
172,622
|
|
Equipment
|
|
|
236,527
|
|
|
|
242,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
666,258
|
|
|
|
642,325
|
|
Less: Accumulated Depreciation and
Amortization
|
|
|
(228,218
|
)
|
|
|
(226,322
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
438,040
|
|
|
$
|
416,003
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of premises and equipment, is
reflected as a component of occupancy and equipment, net in the
consolidated statements of income, was $43.1 million,
$24.8 million and $15.4 million for 2005, 2004 and
2003, respectively.
The following table represents the composition of customer
deposit liabilities at December 31,:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
Amount
|
|
|
of Total
|
|
|
Amount
|
|
|
of Total
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
|
|
$
|
7,639,231
|
|
|
|
20.9
|
%
|
|
$
|
6,738,302
|
|
|
|
19.3
|
%
|
Money Market Accounts
|
|
|
10,013,110
|
|
|
|
27.3
|
|
|
|
9,246,236
|
|
|
|
26.6
|
|
Now
|
|
|
5,593,121
|
|
|
|
15.3
|
|
|
|
5,019,159
|
|
|
|
14.4
|
|
Savings
|
|
|
5,303,930
|
|
|
|
14.5
|
|
|
|
6,333,599
|
|
|
|
18.2
|
|
Time
|
|
|
5,428,921
|
|
|
|
14.8
|
|
|
|
4,932,301
|
|
|
|
14.2
|
|
Certificate of Deposit, $100,000
and Over
|
|
|
2,638,260
|
|
|
|
7.2
|
|
|
|
2,542,831
|
|
|
|
7.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
$
|
36,616,573
|
|
|
|
100.0
|
%
|
|
$
|
34,812,428
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate amount of overdrawn deposit balances reclassified
as loans was $35.4 million and $24.0 million as of
December 31, 2005 and 2004, respectively.
The following is a summary of the remaining maturity of time
deposits including certificates of deposits, $100,000 and over
as of December 31, 2005:
|
|
|
|
|
|
|
Balance
|
|
|
(In thousands)
|
|
|
|
|
2006
|
|
$
|
6,647,496
|
|
2007
|
|
|
866,488
|
|
2008
|
|
|
213,711
|
|
2009
|
|
|
234,685
|
|
2010
|
|
|
72,882
|
|
Thereafter
|
|
|
2,784
|
|
|
|
|
|
|
Total Time and Certificates of
Deposits(1)
|
|
$
|
8,038,046
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes $29.1 million in
purchase accounting adjustments. |
20
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The remaining maturities of certificate of deposits in amounts
of $100,000 and over at December 31, 2005, were as follows:
|
|
|
|
|
|
|
Balance
|
|
|
(In thousands)
|
|
|
|
|
3 Months or Less
|
|
$
|
1,076,979
|
|
3 to 6 Months
|
|
|
672,127
|
|
6 to 12 Months
|
|
|
587,446
|
|
Greater Than One Year
|
|
|
301,708
|
|
|
|
|
|
|
|
|
$
|
2,638,260
|
|
|
|
|
|
|
|
|
NOTE 8
|
Federal
Funds Purchased and Collateralized Borrowings
|
The following table summarizes the components of federal funds
purchased & collateralized borrowings at
December 31,:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Federal Funds Purchased
|
|
$
|
2,634,000
|
|
|
$
|
2,311,000
|
|
Securities Sold Under Repurchase
Agreements
|
|
|
3,783,017
|
|
|
|
7,138,175
|
|
Federal Home Loan Bank
Advances
|
|
|
3,283,604
|
|
|
|
5,143,852
|
|
|
|
|
|
|
|
|
|
|
Total Federal Funds Purchased and
Collateralized Borrowings
|
|
$
|
9,700,621
|
|
|
$
|
14,593,027
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of federal funds purchased and
securities sold under agreements to repurchase
(Repos) at and for the years ended December 31,:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
(Dollars in thousand)
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Funds
Purchased:
|
|
|
|
|
|
|
|
|
|
|
|
|
Period End Balance
|
|
$
|
2,634,000
|
|
|
$
|
2,311,000
|
|
|
$
|
263,000
|
|
Maximum Amount Outstanding at Any
Month End
|
|
|
2,705,000
|
|
|
|
2,523,000
|
|
|
|
336,000
|
|
Average Outstanding Balance
|
|
|
1,642,185
|
|
|
|
643,436
|
|
|
|
105,748
|
|
Weighted Average Interest Rate Paid
|
|
|
3.27
|
%
|
|
|
1.93
|
%
|
|
|
1.18
|
%
|
Weighted Average Interest Rate at
Year End
|
|
|
4.17
|
|
|
|
2.54
|
|
|
|
0.99
|
|
Securities Sold Under
Agreements to Repurchase:
|
|
|
|
|
|
|
|
|
|
|
|
|
Period End Balance
|
|
$
|
3,783,017
|
|
|
$
|
7,138,175
|
|
|
$
|
1,908,154
|
|
Accrued Interest Payable at Period
End
|
|
|
14,903
|
|
|
|
20,381
|
|
|
|
7,607
|
|
Maximum Amount Outstanding at Any
Month End
|
|
|
7,964,087
|
|
|
|
7,307,012
|
|
|
|
4,550,000
|
|
Average Outstanding Balance
|
|
$
|
5,730,343
|
|
|
$
|
3,087,946
|
|
|
|
3,101,184
|
|
Weighted Average Interest Rate Paid
|
|
|
3.14
|
%
|
|
|
2.60
|
%
|
|
|
2.41
|
%
|
Weighted Average Interest Rate at
Year End
|
|
|
3.68
|
|
|
|
2.89
|
|
|
|
2.92
|
|
Interest swaps were used to convert certain Repos from variable
rates to fixed rates. (See
Note 10 Derivative Financial
Instruments for additional information). The impact of
these swaps was to change the weighted average interest rate
paid in the above table to 3.19%, 2.81% and 2.85%, at
December 31, 2005, 2004 and 2003, respectively.
Qualifying Repos are treated as financings and the obligations
to repurchase securities sold are reflected as liabilities on
the consolidated balance sheets. The dollar amount of securities
underlying the agreements remain in
21
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the asset accounts, although the securities underlying the
agreements are delivered to the brokers who arranged the
transactions. In certain instances, the brokers may have sold,
loaned, or disposed of the securities to other parties in the
normal course of their operations, and have agreed to resell
substantially similar securities at the maturity of the
agreements to the Company.
The following is a summary of the amortized cost and fair value
of securities collateralizing Repos, in addition to the amounts
of and the contractual interest rates on the related borrowings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Gov.t
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
MBS(1)
|
|
|
Agencies(1)
|
|
|
|
|
|
|
Average
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
Contractual Maturity
|
|
Repos (2) (3)
|
|
|
Rates(4)
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up to 30 days
|
|
$
|
10,608
|
|
|
|
4.31
|
%
|
|
$
|
14,366
|
|
|
$
|
14,033
|
|
|
$
|
14,367
|
|
|
$
|
14,032
|
|
|
$
|
|
|
|
$
|
|
|
30 to 90 Days
|
|
|
325,000
|
|
|
|
3.96
|
|
|
|
303,679
|
|
|
|
295,397
|
|
|
|
303,679
|
|
|
|
295,397
|
|
|
|
|
|
|
|
|
|
90 Days to 1 Year
|
|
|
450,000
|
|
|
|
3.47
|
|
|
|
695,045
|
|
|
|
676,871
|
|
|
|
695,045
|
|
|
|
676,871
|
|
|
|
|
|
|
|
|
|
In Excess of 1 Year
|
|
|
2,950,000
|
|
|
|
4.45
|
|
|
|
3,206,810
|
|
|
|
3,135,021
|
|
|
|
3,144,801
|
|
|
|
3,074,411
|
|
|
|
62,009
|
|
|
|
60,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,735,608
|
|
|
|
4.29
|
%
|
|
$
|
4,219,900
|
|
|
$
|
4,121,322
|
|
|
$
|
4,157,892
|
|
|
$
|
4,060,711
|
|
|
$
|
62,009
|
|
|
$
|
60,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes accrued interest
receivable of $16.4 million. |
|
(2) |
|
Excludes accrued interest
payable of $14.9 million. |
|
(3) |
|
Excludes $47.4 million in
purchase accounting discounts. |
|
(4) |
|
The weighted average interest
rate at year end 2005 with purchase accounting adjustments was
3.68%. |
The contractual maturity of Federal Home Loan Bank
(FHLB) Advances at December 31, 2005 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
FHLB
|
|
|
Average
|
|
Maturity
|
|
Advances(1)
|
|
|
Rates(1)(2)
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
2006
|
|
$
|
550,000
|
|
|
|
4.71
|
%
|
2007
|
|
|
725,015
|
|
|
|
4.66
|
|
2008
|
|
|
350,000
|
|
|
|
5.50
|
|
2009
|
|
|
|
|
|
|
|
|
2010
|
|
|
900,000
|
|
|
|
5.45
|
|
Thereafter
|
|
|
650,000
|
|
|
|
4.97
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,175,015
|
|
|
|
5.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes $108.6 million in
purchase accounting discounts. |
|
(2) |
|
The weighted average interest
rate at year end including purchase accounting adjustments was
3.57%. |
Our banking subsidiaries have the ability to borrow an
additional $11.9 billion on a secured basis, utilizing
mortgage related loans and securities as collateral. At
December 31, 2005, $4.1 billion in advances and
repurchase agreements were outstanding with the FHLB.
Arrangements with correspondent banks are maintained to provide
short-term credit for regulatory liquidity requirements. These
available lines of credit aggregated $1.3 billion at
December 31, 2005. We continually monitor our liquidity
position as well as the liquidity positions of our banking
subsidiaries and believe that sufficient liquidity exists to
meet all of our operating requirements.
22
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 9
|
Other
Borrowings
|
The following tables summarize other borrowings outstanding as
of December 31,:
Subordinated
Notes:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Parent Company:
|
|
|
|
|
|
|
|
|
5.875% Subordinated Notes due
August 2012
|
|
$
|
349,408
|
|
|
$
|
349,319
|
|
5.0% Subordinated Notes due
August 2012
|
|
|
150,000
|
|
|
|
150,000
|
|
Subsidiary Bank:
|
|
|
|
|
|
|
|
|
9.25% Subordinated Bank Notes
due October 2010
|
|
|
178,622
|
|
|
|
184,474
|
|
|
|
|
|
|
|
|
|
|
Total Subordinated Notes
|
|
|
678,030
|
|
|
|
683,793
|
|
Fair Value Hedge Adjustment
|
|
|
(31,040
|
)
|
|
|
(22,888
|
)
|
|
|
|
|
|
|
|
|
|
Total Subordinated
Notes Carrying Amount
|
|
$
|
646,990
|
|
|
$
|
660,905
|
|
|
|
|
|
|
|
|
|
|
$350 million of 5.875% Subordinated Notes and
$150 million of 5% Fixed Rate/Floating Rate Subordinated
Notes which mature in 2012, were issued in August 2002. These
issuances qualify as Tier II capital for regulatory
purposes. The 5.875% Subordinated Notes bear interest at a
fixed rate through maturity, pay interest semi-annually and are
not redeemable prior to maturity. The Fixed Rate/Floating Rate
Notes bear interest at a fixed rate of 5% per annum for the
first five years, and convert to a floating rate thereafter
until maturity based on three-month LIBOR plus 1.87%. Beginning
in the sixth year, we have the right to redeem the Fixed
Rate/Floating Rate Notes at par plus accrued interest. There are
$500 million in pay floating swaps, designated as fair
value hedges, that were used to convert the stated fixed rate on
these Notes to variable rates indexed to three-month LIBOR.
(See Note 10 Derivative Financial
Instruments for additional information).
$150 million of 9.25% Subordinated Bank Notes were
assumed from GreenPoint. The 9.25% Subordinated Bank Notes
mature in 2010, pay interest semi-annually and currently
$120 million qualifies as Tier II capital for
regulatory purposes. The 9.25% Subordinated Bank Notes were
recorded at fair value as of the acquisition date and includes
the remaining fair value discount of $28.6 million and
$34.6 million at December 31, 2005 and
December 31, 2004, respectively, which reduced the
effective cost of funds to 4.61%.
Junior
Subordinated Debt (Related to Trust Preferred
Securities):
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
8.70% Junior Subordinated
Debt due December 2026
|
|
$
|
102,839
|
|
|
$
|
102,827
|
|
8.00% Junior Subordinated
Debt due December 2027
|
|
|
102,811
|
|
|
|
102,798
|
|
8.17% Junior Subordinated
Debt due May 2028
|
|
|
46,547
|
|
|
|
46,547
|
|
9.10% Junior Subordinated
Debt due June 2027
|
|
|
235,867
|
|
|
|
237,251
|
|
|
|
|
|
|
|
|
|
|
Total Junior Subordinated
|
|
|
488,064
|
|
|
|
489,423
|
|
Fair Value Hedge Adjustment
|
|
|
7,427
|
|
|
|
15,165
|
|
|
|
|
|
|
|
|
|
|
Total Junior Subordinated Debt
Carrying Amount
|
|
$
|
495,491
|
|
|
$
|
504,588
|
|
|
|
|
|
|
|
|
|
|
Capital Securities (or Trust Preferred
Securities), which qualify as Tier I Capital for
regulatory purposes, were issued through Wholly-Owned Statutory
Business Trusts (the Trusts). The Trusts were
initially capitalized with common stock and the proceeds of both
the common stock and Capital Securities were used to acquire
Junior Subordinated Debt issued by the Company. The Capital
Securities are obligations of the Trusts. The Junior
Subordinated Debt and Capital Securities bear the same interest
rates, are due concurrently and are non-callable at
23
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
any time in whole or in part for ten years from the date of
issuance, except in certain limited circumstances. They may be
redeemed annually thereafter, in whole or in part, at declining
premiums to maturity. The costs associated with these issuances
have been capitalized and are being amortized to maturity using
the straight-line method.
$200 million of 9.10% Capital Securities were assumed from
GreenPoint. The corresponding Junior Subordinated Debt of
$206.2 million previously issued was recorded at fair value
as of the acquisition date and includes the remaining fair value
discount of $29.7 million and $31.1 million at
December 31, 2005 and December 31, 2004, respectively,
which reduced the effective cost of funds to 7.63%.
Pay floating swaps of $245 million, designated as fair
value hedges, were used to convert a corresponding amount in
Junior Subordinated Debt from their stated fixed rates to
variable rates indexed to three-month LIBOR. (See
Note 10 Derivative Financial
Instruments for additional information.)
Senior
Notes:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
3.20% Senior Notes due
June 6, 2008
|
|
$
|
344,945
|
|
|
$
|
342,869
|
|
Fair Value Hedge Adjustment
|
|
|
(10,062
|
)
|
|
|
(2,044
|
)
|
|
|
|
|
|
|
|
|
|
Total Senior Notes Carrying
Amount
|
|
$
|
334,883
|
|
|
$
|
340,825
|
|
|
|
|
|
|
|
|
|
|
$350 million of 3.20% Senior Notes were assumed from
GreenPoint. The 3.20% Senior Notes mature in 2008, and pay
interest semi-annually. These notes were recorded at fair value
as of the acquisition date and include the remaining fair value
premium of $5.1 million and $7.1 million at
December 31, 2005 and December 31, 2004, respectively,
which increased the effective cost of funds to 3.84%.
Pay floating swaps of $350 million, designated as fair
value hedges, were used to convert the stated fixed rate on
these notes to variable rates indexed to the three-month LIBOR.
(See Note 10 Derivative Financial
Instruments for additional information).
|
|
NOTE 10
|
Derivative
Financial Instruments
|
The use of derivative financial instruments creates exposure to
credit risk. This credit exposure relates to losses that would
be recognized if the counterparties fail to perform their
obligations under the contracts. To mitigate this exposure to
non-performance, we deal only with counterparties of good credit
standing and establish counterparty credit limits. In connection
with our interest rate risk management process, we periodically
enter into interest rate derivative contracts. These derivative
interest rate contracts may include interest rate swaps, caps,
and floors and are used to modify the repricing characteristics
of specific assets and liabilities.
24
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table details the interest rate swaps and the
associated hedged liabilities outstanding as of
December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
Variable
|
|
|
|
|
|
Notional
|
|
|
Interest
|
|
|
Interest
|
|
Maturity
|
|
Hedged Liability
|
|
Amounts
|
|
|
Rates
|
|
|
Rates
|
|
|
(Dollars in thousand)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay Fixed Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
Repurchase Agreement
|
|
$
|
75,000
|
|
|
|
6.14
|
%
|
|
|
4.29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay Floating Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
5.00% Subordinated Notes
|
|
$
|
150,000
|
|
|
|
5.00
|
%
|
|
|
6.64
|
%
|
2008
|
|
3.20% Senior Notes
|
|
|
350,000
|
|
|
|
3.20
|
%
|
|
|
4.10
|
%
|
2012
|
|
5.875% Subordinated Notes
|
|
|
350,000
|
|
|
|
5.88
|
%
|
|
|
6.64
|
%
|
2026
|
|
8.70% Junior Subordinated Debt
|
|
|
100,000
|
|
|
|
8.70
|
%
|
|
|
6.61
|
%
|
2027
|
|
8.00% Junior Subordinated Debt
|
|
|
100,000
|
|
|
|
8.00
|
%
|
|
|
5.98
|
%
|
2028
|
|
8.17% Junior Subordinated Debt
|
|
|
45,000
|
|
|
|
8.17
|
%
|
|
|
7.03
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,095,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005, $75 million in pay fixed swaps,
designated as cash flow hedges, were outstanding. These
agreements change the repricing characteristics of certain
repurchase agreements, requiring us to make periodic fixed rate
payments and receive periodic variable rate payments indexed to
three-month LIBOR, based on a common notional amount and
identical payment and maturity dates. As of December 31,
2005, these swaps had an unrealized loss of $2.2 million,
which is recorded as a component of other liabilities (the net
of tax amount of $1.2 million is reflected in
stockholders equity as a component of accumulated other
comprehensive loss). The use of pay fixed swaps outstanding
increased interest expense by $2.6 million,
$8.0 million and $23.9 million for the years ended
December 31, 2005, 2004 and 2003, respectively. The decline
in swap related interest expense was due primarily to the
maturity of $100 million in the second quarter of 2004.
Based upon the current interest rate environment, approximately
$.6 million of the $1.2 million after tax unrealized
loss is expected to be reclassified from accumulated other
comprehensive loss during the next twelve months.
At December 31, 2005, $1.1 billion of pay floating
swaps, designated as fair value hedges, was outstanding.
$350 million in pay floating swaps was used to convert the
stated fixed rate on the 5.88% subordinated notes to
variable rates indexed to three-month LIBOR. The swap term and
payment dates match the related terms of the subordinated notes.
$150 million in pay floating swaps were used to convert the
stated fixed rate on the 5% subordinated notes to variable
rates indexed to three-month LIBOR. The swap terms are for five
years, matching the period of time the subordinated notes pay a
fixed rate. Beginning in the sixth year, we have the right to
redeem the fixed rate/floating rate notes at par plus accrued
interest or the interest rate converts to a spread over three
month LIBOR. At December 31, 2005, the fair value
adjustment on these swaps resulted in a loss of
$31.0 million and is reflected as a component of other
liabilities. The carrying amount of the $500 million in
subordinated notes was decreased by an identical amount. These
swaps increased interest expense by approximately
$.3 million and reduced interest expense by
$9.0 million and $5.3 million for the years ended
December 31, 2005, 2004 and 2003, respectively. There was
no hedge ineffectiveness recorded in the Consolidated Statements
of Income on these transactions for all periods reported.
$350 million of pay floating swaps was used to convert the
stated fixed rate on the 3.20% senior notes to variable
rates indexed to three-month LIBOR. The swap term and payment
dates match the related terms of the senior notes. At
December 31, 2005, the fair value adjustment on the swaps
resulted in a loss of $10.1 million and is reflected as a
component of other liabilities. The carrying amount of the
$350 million in senior notes was decreased by an identical
amount. For the years ended December 31, 2005 and 2004,
these swaps reduced interest expense by $.9 million and
$1.3 million, respectively. There was no hedge
ineffectiveness recorded in the Consolidated Statements of
Income on these transactions for all periods reported.
25
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Interest rate swap agreements were also used to change the
repricing characteristics of $245 million in Junior
Subordinated Debt from their stated fixed rates to variable
rates indexed to three-month LIBOR. The swaps contain payment
dates, maturity dates and embedded call options held by the
counterparty (exercisable in approximately two years), which are
identical to the terms and call provisions contained in the
Junior Subordinated Debt. At December 31, 2005, the fair
value adjustment on these swaps resulted in a gain totaling
$7.4 million and is reflected as a component of other
assets. The carrying amount of the $245 million in Junior
Subordinated Debt was increased by an identical amount. For the
years ended December 31, 2005, 2004 and 2003 these swaps
reduced interest expense by $8.1 million,
$12.6 million and $12.3 million, respectively. There
was no hedge ineffectiveness recorded in the Consolidated
Statements of Income from these transactions for each period
reported.
As part of our mortgage banking operations, we enter into
commitments to originate or purchase loans whereby the interest
rate on the loan is determined prior to funding (interest
rate lock commitment). Interest rate lock commitments on
mortgage loans that we intend to sell in the secondary market
are considered free-standing derivatives. These derivatives are
carried at fair value with changes in fair value recorded as a
component of gain on sale of loans. In accordance with Staff
Accounting Bulletin No. 105, Application of
Accounting Principles to Loan Commitments, interest
rate lock commitments are initially valued at zero. Changes in
fair value subsequent to inception are determined based upon
current secondary market prices for underlying loans with
similar coupons, maturity and credit quality, subject to the
anticipated probability that the loan will fund within the terms
of the commitment. The initial value inherent in the loan
commitments at origination is recognized through gain on sale of
loans when the underlying loan is sold. Both the interest rate
lock commitments and the related hedging instruments are
recorded at fair value with changes in fair value recorded in
current earnings as a component of gain on sale of loans.
Generally, if interest rates increase, the value of our interest
rate lock commitments and funded loans decrease and loan sale
margins are adversely impacted. We hedge the risk of overall
changes in fair value of loans
held-for-sale
and interest rate lock commitments generally by entering into
mandatory commitments to deliver mortgage whole loans to various
investors, selling forward contracts on mortgage backed
securities of Fannie Mae and Freddie Mac and, to a lesser
extent, by using futures and options to economically hedge the
fair value of interest rate lock commitments. In accordance with
SFAS 133, certain of these positions qualify as fair value
hedges against a portion of the funded
held-for-sale
loan portfolio and result in adjustments to the carrying value
of designated loans through gain on sale based on fair value
changes attributable to the hedged risk. The forward contracts,
futures and options used to economically hedge the loan
commitments are accounted for as economic hedges and naturally
offset loan commitment
mark-to-market
gains and losses recognized as a component of gain on sale.
The notional amount of all forward contracts was
$1.9 billion at December 31, 2005. Forward contracts
designated as fair value hedges associated with mortgage loans
held-for-sale
had a notional value of $1.5 billion at December 31,
2005. The notional amount of forward contracts used to manage
the risk associated with interest rate lock commitments on
mortgage loans was $407 million at December 31, 2005.
The following table shows hedge ineffectiveness on fair value
hedges included in gain on sale of loans for the years ended
December 31,:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
(Loss)/Gain on Hedged Mortgage
Loans
|
|
$
|
(13,016
|
)
|
|
$
|
15,038
|
|
Gain/(Loss) on Derivatives
|
|
|
11,400
|
|
|
|
(14,418
|
)
|
|
|
|
|
|
|
|
|
|
Hedge Ineffectiveness
|
|
$
|
(1,616
|
)
|
|
$
|
620
|
|
|
|
|
|
|
|
|
|
|
26
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of the consolidated provision for income taxes
are shown below for the years ended December 31,:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Tax Expense
|
|
$
|
387,313
|
|
|
$
|
78,755
|
|
|
$
|
215,930
|
|
Deferred Tax Expense/(Benefit)
|
|
|
118,383
|
|
|
|
208,982
|
|
|
|
(13,090
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes
|
|
$
|
505,696
|
|
|
$
|
287,737
|
|
|
$
|
202,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles the statutory federal tax rate to
the effective tax rate on income before income taxes for the
years ended December 31,:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Federal Statutory Tax Rates
|
|
|
35.00
|
%
|
|
|
35.00
|
%
|
|
|
35.00
|
%
|
Increases/Reductions Resulting
from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State and Local Income Taxes, Net
of Federal Income Tax Benefit
|
|
|
1.44
|
|
|
|
2.17
|
|
|
|
.84
|
|
Tax Exempt Interest, net
|
|
|
(1.28
|
)
|
|
|
(1.59
|
)
|
|
|
(1.56
|
)
|
Dividends Received Deduction
|
|
|
(.34
|
)
|
|
|
(.24
|
)
|
|
|
(.32
|
)
|
Other, net
|
|
|
(.05
|
)
|
|
|
(1.12
|
)
|
|
|
(.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Adjustments
|
|
|
(.23
|
)
|
|
|
(.78
|
)
|
|
|
(1.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate
|
|
|
34.77
|
%
|
|
|
34.22
|
%
|
|
|
33.85
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of the net deferred tax asset or liability
included in Other Assets or Accrued
Expenses & Other Liabilities on the accompanying
consolidated balance sheets at December 31, are as follows:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses
|
|
$
|
92,280
|
|
|
$
|
80,117
|
|
Deferred Compensation and Other
Employee Benefit Plans
|
|
|
50,527
|
|
|
|
52,251
|
|
Deductible Merger Related Charges
|
|
|
15,859
|
|
|
|
38,674
|
|
Retained Liability, (Manufactured
Housing)
|
|
|
111,523
|
|
|
|
147,806
|
|
Valuation Differences Resulting
From Acquired Assets and Liabilities
|
|
|
66,624
|
|
|
|
106,960
|
|
Unrealized Loss on Securities
Available-for-Sale
|
|
|
77,584
|
|
|
|
|
|
Other
|
|
|
90,037
|
|
|
|
76,719
|
|
|
|
|
|
|
|
|
|
|
Gross Deferred Tax Asset
|
|
$
|
504,434
|
|
|
$
|
502,527
|
|
|
|
|
|
|
|
|
|
|
Valuation Allowance
|
|
|
(4,567
|
)
|
|
|
(4,567
|
)
|
|
|
|
|
|
|
|
|
|
Deferred Tax Asset
|
|
$
|
499,867
|
|
|
$
|
497,960
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax
Liabilities:
|
|
|
|
|
|
|
|
|
Unrealized Gain on Securities
Available-for-Sale
|
|
$
|
|
|
|
$
|
4,830
|
|
Excess Book Basis Over Tax
Basis Premises and Equipment
|
|
|
9,034
|
|
|
|
14,165
|
|
Income Not Realized for Tax
Purposes
|
|
|
31,444
|
|
|
|
68,338
|
|
Servicing Assets
|
|
|
105,361
|
|
|
|
94,604
|
|
Other
|
|
|
182,380
|
|
|
|
99,647
|
|
|
|
|
|
|
|
|
|
|
Gross Deferred Tax Liability
|
|
$
|
328,219
|
|
|
$
|
281,584
|
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Asset
|
|
$
|
171,648
|
|
|
$
|
216,376
|
|
|
|
|
|
|
|
|
|
|
During 2005, the valuation allowance remained at
$4.6 million. Management continues to reserve a portion of
the New York State and City deferred tax asset due to
uncertainties of realization. Additionally, as a result of
merging with and acquiring thrifts, retained earnings at
December 31, 2005 and 2004 includes approximately
$276 million, for which no Federal income tax liability has
been recognized. This amount represents the balance of acquired
thrift bad debt reserves created for tax purposes as of
December 31, 1987. These amounts are subject to recapture
in the unlikely event that the Bank makes distributions in
excess of earnings and profits, redeems its stock, or liquidates.
|
|
NOTE 12
|
Business
Segments
|
In October 2004, we assumed a national mortgage business with
the Green Point acquisition. As a result, we have divided our
operating activity into two primary business segments: Retail
Banking and Mortgage Banking.
The retail banking business provides a full range of banking
products and services principally through 355 branches
located throughout the New York Metropolitan area. The mortgage
banking segment is conducted through GreenPoint Mortgage, which
originates, sells and services a wide variety of mortgages
secured by 1-4 family residences and small commercial
properties, on a nationwide basis.
We changed our segment reporting structure in the fourth quarter
of 2004, to reclassify our financial services division into the
retail banking segment. The financial services division had
previously been reported as a separate operating segment. The
products offered by this segment included the sale of
alternative investment products (mutual funds and annuities),
trust services, discount brokerage and investment management.
The primary delivery channel for these products is the retail
banks branches. As a result of the previously mentioned
realignment, this
28
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
area reports directly to the head of retail banking and from a
budgeting and performance measurement perspective it is viewed
as a component of the retail bank.
The segment information presented in the table below is prepared
according to the following methodologies:
|
|
|
|
|
Revenues and expenses directly associated with each segment are
included in determining net income.
|
|
|
|
Transactions between segments are based on specific criteria or
appropriate third party rates.
|
|
|
|
Inter-company eliminations and the sale of our minority interest
in a non-public finance company are reflected in the
Other column.
|
The following table provides information necessary for a
reasonable representation of each segments contribution to
consolidated net income for the years ended December 31,
2005 and 2004, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
Mortgage
|
|
|
Segment
|
|
|
|
|
|
Consolidated
|
|
|
|
Banking
|
|
|
Banking
|
|
|
Totals
|
|
|
Other
|
|
|
Operations
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
$
|
1,700,077
|
|
|
$
|
109,143
|
|
|
$
|
1,809,220
|
|
|
$
|
661
|
|
|
$
|
1,809,881
|
|
Provision for Loan Losses
|
|
|
36,000
|
|
|
|
|
|
|
|
36,000
|
|
|
|
|
|
|
|
36,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income After
Provision for Loan Losses
|
|
|
1,664,077
|
|
|
|
109,143
|
|
|
|
1,773,220
|
|
|
|
661
|
|
|
|
1,773,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Banking Income(2)
|
|
|
|
|
|
|
512,936
|
|
|
|
512,936
|
|
|
|
(92,098
|
)
|
|
|
420,838
|
|
Customer Related Fees &
Service Charges
|
|
|
166,872
|
|
|
|
|
|
|
|
166,872
|
|
|
|
|
|
|
|
166,872
|
|
Investment Management,
Commissions & Trust Fees
|
|
|
38,962
|
|
|
|
|
|
|
|
38,962
|
|
|
|
|
|
|
|
38,962
|
|
Other Operating Income
|
|
|
46,801
|
|
|
|
6,791
|
|
|
|
53,592
|
|
|
|
|
|
|
|
53,592
|
|
Securities Gains, net
|
|
|
10,139
|
|
|
|
|
|
|
|
10,139
|
|
|
|
|
|
|
|
10,139
|
|
Gain on Sale of Other Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,108
|
|
|
|
15,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Income
|
|
|
262,774
|
|
|
|
519,727
|
|
|
|
782,501
|
|
|
|
(76,990
|
)
|
|
|
705,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Compensation and Benefits
|
|
|
361,413
|
|
|
|
188,568
|
|
|
|
549,981
|
|
|
|
|
|
|
|
549,981
|
|
Occupancy and Equipment, net
|
|
|
152,267
|
|
|
|
39,812
|
|
|
|
192,079
|
|
|
|
|
|
|
|
192,079
|
|
Other Operating Expenses
|
|
|
230,069
|
|
|
|
80,606
|
|
|
|
310,675
|
|
|
|
(43,268
|
)
|
|
|
267,407
|
|
Facility Closures Expense
|
|
|
15,382
|
|
|
|
|
|
|
|
15,382
|
|
|
|
|
|
|
|
15,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Expense
|
|
|
759,131
|
|
|
|
308,986
|
|
|
|
1,068,117
|
|
|
|
(43,268
|
)
|
|
|
1,024,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
1,167,720
|
|
|
|
319,884
|
|
|
|
1,487,604
|
|
|
|
(33,061
|
)
|
|
|
1,454,543
|
|
Provision for Income Taxes
|
|
|
385,244
|
|
|
|
134,337
|
|
|
|
519,581
|
|
|
|
(13,885
|
)
|
|
|
505,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
782,476
|
|
|
$
|
185,547
|
|
|
$
|
968,023
|
|
|
$
|
(19,176
|
)
|
|
$
|
948,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
52,905,745
|
|
|
$
|
4,711,126
|
|
|
$
|
57,616,871
|
|
|
$
|
|
|
|
$
|
57,616,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
|
Mortgage
|
|
|
Segment
|
|
|
|
|
|
Consolidated
|
|
|
|
Banking
|
|
|
Banking
|
|
|
Totals
|
|
|
Other
|
|
|
Operations
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
$
|
1,132,039
|
|
|
$
|
42,423
|
|
|
$
|
1,174,462
|
|
|
$
|
759
|
|
|
$
|
1,175,221
|
|
Provision for Loan Losses
|
|
|
27,189
|
|
|
|
|
|
|
|
27,189
|
|
|
|
|
|
|
|
27,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income After
Provision for Loan Losses
|
|
|
1,104,850
|
|
|
|
42,423
|
|
|
|
1,147,273
|
|
|
|
759
|
|
|
|
1,148,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Banking Income(2)
|
|
|
|
|
|
|
82,524
|
|
|
|
82,524
|
|
|
|
(21,682
|
)
|
|
|
60,842
|
|
Customer Related Fees &
Service Charges
|
|
|
114,481
|
|
|
|
|
|
|
|
114,481
|
|
|
|
|
|
|
|
114,481
|
|
Investment Management,
Commissions & Trust Fees
|
|
|
24,952
|
|
|
|
229
|
|
|
|
25,181
|
|
|
|
|
|
|
|
25,181
|
|
Other Operating Income
|
|
|
30,692
|
|
|
|
3,599
|
|
|
|
34,291
|
|
|
|
(2,299
|
)
|
|
|
31,992
|
|
Securities Gains, net
|
|
|
12,656
|
|
|
|
|
|
|
|
12,656
|
|
|
|
|
|
|
|
12,656
|
|
Gain on Sale of Other Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,351
|
|
|
|
3,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Income
|
|
|
182,781
|
|
|
|
86,352
|
|
|
|
269,133
|
|
|
|
(20,630
|
)
|
|
|
248,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Compensation and Benefits
|
|
|
263,124
|
|
|
|
43,657
|
|
|
|
306,781
|
|
|
|
|
|
|
|
306,781
|
|
Occupancy and Equipment, net
|
|
|
95,171
|
|
|
|
11,003
|
|
|
|
106,174
|
|
|
|
|
|
|
|
106,174
|
|
Other Operating Expenses
|
|
|
124,328
|
|
|
|
18,519
|
|
|
|
142,847
|
|
|
|
|
|
|
|
142,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Expense
|
|
|
482,623
|
|
|
|
73,179
|
|
|
|
555,802
|
|
|
|
|
|
|
|
555,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
805,008
|
|
|
|
55,596
|
|
|
|
860,604
|
|
|
|
(19,871
|
)
|
|
|
840,733
|
|
Provision for Income Taxes
|
|
|
275,510
|
|
|
|
19,027
|
|
|
|
294,537
|
|
|
|
(6,800
|
)
|
|
|
287,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
529,498
|
|
|
$
|
36,569
|
|
|
$
|
566,067
|
|
|
$
|
(13,071
|
)
|
|
$
|
552,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
54,178,528
|
|
|
$
|
6,488,527
|
|
|
$
|
60,667,055
|
|
|
$
|
|
|
|
$
|
60,667,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below represents the components of mortgage banking
income for the years ended December 31,:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004(1)
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Mortgage Banking
Income:
|
|
|
|
|
|
|
|
|
Gain on Sale of Loans
Held-for-Sale(2)
|
|
$
|
431,145
|
|
|
$
|
53,710
|
|
Mortgage Banking Fees, net
|
|
|
100,173
|
|
|
|
27,973
|
|
Amortization of Mortgage Servicing
Rights
|
|
|
(87,354
|
)
|
|
|
(20,841
|
)
|
Temporary
Impairment Mortgage Servicing Rights
|
|
|
(23,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mortgage Banking Income
|
|
$
|
420,838
|
|
|
$
|
60,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
GreenPoint Mortgage was acquired
on October 1, 2004. |
|
(2) |
|
In accordance with U.S
accounting principles, we were required to adjust the historical
carrying value of loans classified by GreenPoint as
held-for-sale
as of the acquisition date to fair value. As a result, the
economic gain from the sale of these mortgage loans that would
ordinarily be reflected as a component of non-interest income at
the date of sale was recorded as a fair value adjustment to the
loans, historical carrying vales and reflected as a reduction to
goodwill. This fair value adjustment was $(.5) million and
$56.4 million at December 31, 2005 and 2004,
respectively. |
30
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 13
|
Mortgage
Servicing Rights
|
Mortgage Servicing Rights (MSRs), are recognized
when mortgage loans are sold in the secondary market and the
right to service these loans are retained for a fee. MSRs are
carried at the lower of the initial carrying value, adjusted for
amortization or fair value. MSRs are amortized in proportion to,
and over the period of, estimated net servicing income. The
amortization of MSRs is periodically analyzed and adjusted to
reflect changes in prepayment speeds.
MSRs are periodically evaluated for impairment based on the
difference between the carrying amount and current fair value.
To evaluate and measure impairment, the underlying loans are
stratified based on certain risk characteristics, including loan
type, note rate and investor servicing requirements. If it is
determined that temporary impairment exists, a valuation
allowance is established by risk stratification through a charge
to earnings for any excess of amortized cost over the current
fair value. If determined in future periods that all or a
portion of the temporary impairment no longer exists for a
particular risk stratification, the valuation allowance is
reduced by increasing earnings.
The following table sets forth the changes in the carrying value
and fair value of mortgage servicing rights at December 31,:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Mortgage Servicing
Rights:
|
|
|
|
|
|
|
|
|
Balance at Beginning of Year
|
|
$
|
254,857
|
|
|
$
|
|
|
Acquired in Acquisitions
|
|
|
|
|
|
|
226,125
|
|
Originations
|
|
|
131,511
|
|
|
|
50,444
|
|
Purchases
|
|
|
660
|
|
|
|
|
|
Amortization
|
|
|
(87,354
|
)
|
|
|
(20,841
|
)
|
Sales
|
|
|
(9,124
|
)
|
|
|
(871
|
)
|
|
|
|
|
|
|
|
|
|
Balance at End of Year
|
|
$
|
290,550
|
|
|
$
|
254,857
|
|
|
|
|
|
|
|
|
|
|
Valuation Allowance:
|
|
|
|
|
|
|
|
|
Balance at Beginning of Year
|
|
$
|
|
|
|
$
|
|
|
Temporary Impairment Charge
|
|
|
(23,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at End of Year
|
|
$
|
(23,126
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Servicing Rights, net
|
|
$
|
267,424
|
|
|
$
|
254,857
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31
|
|
$
|
268,874
|
|
|
$
|
265,387
|
|
|
|
|
|
|
|
|
|
|
Ratio of Mortgage Servicing Rights
to Related Loans Serviced for Others
|
|
|
0.92
|
%
|
|
|
0.96
|
%
|
Weighted Average Service Fee
|
|
|
.29
|
|
|
|
.31
|
|
The significant assumptions used in estimating the fair value of
the servicing assets at December 31, 2005 and 2004 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Weighted average prepayment rate
(includes default rate)
|
|
|
28.1
|
%
|
|
|
26.1
|
%
|
Weighted average life (in years)
|
|
|
3.3
|
|
|
|
4.0
|
|
Cash flows discounted at
|
|
|
10.50
|
%
|
|
|
10.50
|
%
|
At December 31, 2005, the sensitivities to immediate 10%
and 20% increases in the weighted average prepayment rates would
decrease the fair value of mortgage servicing rights by
$12.9 million and $24.2 million, respectively.
31
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes our estimate of amortization of
MSRs for the five-year period ending December 31,
2010. This projection was developed using the assumptions made
by management in its December 31, 2005, valuation of
MSRs. The assumptions underlying the following estimate
will be affected as market conditions and portfolio composition
and behavior change, causing both actual and projected
amortization levels to change over time. Therefore, the
following estimates will change in a manner and amount not
presently determinable by management.
|
|
|
|
|
|
|
Estimated
|
|
|
|
Amortization
|
|
|
(In thousands)
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
|
2006
|
|
$
|
79,413
|
|
2007
|
|
|
53,632
|
|
2008
|
|
|
36,340
|
|
2009
|
|
|
26,019
|
|
2010
|
|
|
19,285
|
|
|
|
|
|
|
Five year total
|
|
|
214,689
|
|
Thereafter
|
|
|
75,861
|
|
|
|
|
|
|
Total
|
|
$
|
290,550
|
|
|
|
|
|
|
|
|
NOTE 14
|
Representation
and Warranty Reserve
|
The representation and warranty reserve is available to cover
probable losses inherent with the sale of loans in the secondary
market. In the normal course of business, certain
representations and warranties are made to investors at the time
of sale, which permit the investor to return the loan to us or
require us to indemnify the investor (make whole) for any losses
incurred by the investor while the loan remains outstanding. The
representation and warranty reserve is included in accrued
expenses and other liabilities on the consolidated balance sheet.
A summary of the changes in the representation and warranty
reserve is shown below for the years ended December 31,:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Balance at Beginning of Year
|
|
$
|
97,066
|
|
|
$
|
|
|
Amount Acquired through Acquisition
|
|
|
|
|
|
|
80,238
|
|
Provisions for Estimated Losses
|
|
|
80,434
|
|
|
|
23,896
|
|
Losses Incurred
|
|
|
(48,880
|
)
|
|
|
(7,068
|
)
|
|
|
|
|
|
|
|
|
|
Balance at End of Year
|
|
$
|
128,620
|
|
|
$
|
97,066
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 15
|
Retirement
and Other Employee Benefit Plans
|
We maintain a defined benefit pension plan (the Plan
or the North Fork Plan) covering substantially all
full-time employees. Pension expense is recognized over the
employees service life utilizing the projected unit cost
actuarial method. Participants accrue a benefit each year equal
to five percent of their annual compensation, as defined, plus a
rate of interest based on the one-year Treasury Bill rate,
credited quarterly. Plan assets are invested in a diversified
portfolio of mutual funds, fixed income securities, and equity
securities. Contributions are periodically made to the Plan so
as to comply with the Employee Retirement Income Security Act
(ERISA) funding standards and the Internal Revenue
Code of 1986, as amended.
32
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
TCNJ maintained two defined benefit retirement plans covering
substantially all employees who completed one year of continuous
service. Effective June 30, 2004, benefits under these
plans were frozen and participants in these plans became
eligible to participate in the North Fork Plan effective
July 1, 2004.
GreenPoint maintained a defined benefit retirement plan covering
substantially all employees who completed one year of service.
Effective October 1, 2004, the GreenPoint Cash Balance Plan
was merged into the North Fork Plan. The plan provisions for
former GreenPoint employees were unchanged after the merger.
Health care and life insurance benefits are also provided to
eligible retired employees. Health care benefits received range
up to 100% of coverage premiums based on an employees age,
years of service and retirement date.
The following table sets forth changes in the benefit
obligations, plan assets and a reconciliation of the funded
status and the assumptions used in determining the net periodic
cost included in the accompanying consolidated financial
statements at December 31 for the Companys retirement
and post-retirement plans. The Plans were valued using a
December 31 measurement date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Post-Retirement
Benefits
|
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Benefit
Obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Obligation at Beginning of
Year
|
|
$
|
194,468
|
|
|
$
|
95,451
|
|
|
$
|
47,721
|
|
|
$
|
22,746
|
|
Benefit Obligation
Assumed GPT
|
|
|
|
|
|
|
94,832
|
|
|
|
|
|
|
|
17,004
|
|
Benefit Obligation
Assumed TCNJ
|
|
|
|
|
|
|
26,712
|
|
|
|
|
|
|
|
5,800
|
|
Service Cost
|
|
|
9,353
|
|
|
|
6,139
|
|
|
|
1,755
|
|
|
|
997
|
|
Interest Cost
|
|
|
10,578
|
|
|
|
7,695
|
|
|
|
1,847
|
|
|
|
1,762
|
|
Amendments
|
|
|
7,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits Paid
|
|
|
(22,701
|
)
|
|
|
(43,477
|
)
|
|
|
(2,159
|
)
|
|
|
(1,446
|
)
|
Actuarial Loss/(Gain)
|
|
|
9,930
|
|
|
|
7,116
|
|
|
|
(13,222
|
)
|
|
|
858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Obligation at End of Year
|
|
$
|
209,199
|
|
|
$
|
194,468
|
|
|
$
|
35,942
|
|
|
$
|
47,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Plan Assets at
Beginning of Year
|
|
$
|
280,327
|
|
|
$
|
101,859
|
|
|
$
|
3,391
|
|
|
$
|
1,694
|
|
Fair Value of Plan Assets
Acquired GPT
|
|
|
|
|
|
|
50,622
|
|
|
|
|
|
|
|
|
|
Fair Value of Plan Assets
Acquired TCNJ
|
|
|
|
|
|
|
99,573
|
|
|
|
|
|
|
|
|
|
Actual Return on Plan Assets
|
|
|
11,816
|
|
|
|
15,192
|
|
|
|
285
|
|
|
|
97
|
|
Employer Contributions
|
|
|
18,998
|
|
|
|
56,558
|
|
|
|
5,459
|
|
|
|
3,046
|
|
Benefits Paid
|
|
|
(22,701
|
)
|
|
|
(43,477
|
)
|
|
|
(2,159
|
)
|
|
|
(1,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Plan Assets at End
of Year
|
|
$
|
288,440
|
|
|
$
|
280,327
|
|
|
$
|
6,976
|
|
|
$
|
3,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Benefit Obligation
at End of Year:
|
|
$
|
201,786
|
|
|
$
|
182,144
|
|
|
$
|
35,942
|
|
|
$
|
47,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Funded
Status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status
|
|
$
|
79,241
|
|
|
$
|
85,859
|
|
|
$
|
(28,966
|
)
|
|
$
|
(44,330
|
)
|
Unrecognized Actuarial Loss/(Gain)
|
|
|
46,173
|
|
|
|
28,479
|
|
|
|
(4,476
|
)
|
|
|
8,626
|
|
Unrecognized Prior Service
Cost/(Credit)
|
|
|
6,880
|
|
|
|
(902
|
)
|
|
|
(435
|
)
|
|
|
(516
|
)
|
Unrecognized Transition
(Asset)/Obligation
|
|
|
|
|
|
|
(131
|
)
|
|
|
1,575
|
|
|
|
1,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid/(Accrued) Benefit Cost
|
|
$
|
132,294
|
|
|
$
|
113,305
|
|
|
$
|
(32,302
|
)
|
|
$
|
(34,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Post-Retirement
Benefits
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Weighted Average Assumptions
Used to Determine Benefit Obligations at
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
5.50
|
%
|
|
|
5.75
|
%
|
|
|
6.00
|
%
|
|
|
5.50
|
%
|
|
|
5.75
|
%
|
|
|
6.00
|
%
|
Rate of Compensation Increase
|
|
|
4.50
|
|
|
|
4.50
|
|
|
|
4.50
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Weighted Average Assumptions
Used to Determine Net Periodic Benefit Cost for the Year
Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
5.75
|
%
|
|
|
6.00
|
%
|
|
|
6.50
|
%
|
|
|
5.75
|
%
|
|
|
6.00
|
%
|
|
|
6.50
|
%
|
Expected Rate of Return on Plan
Assets
|
|
|
7.50
|
|
|
|
7.50
|
|
|
|
7.50
|
|
|
|
7.50
|
|
|
|
7.50
|
|
|
|
7.50
|
|
Rate of Compensation Increase
|
|
|
4.50
|
|
|
|
4.50
|
|
|
|
4.50
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
To develop the expected long-term rate of return on plan assets
assumption, consideration was given to the current level of
expected returns on risk free investments (primarily government
bonds), the historical level of the risk premium associated with
the other asset classes in which the portfolio is invested and
the expectations for future returns of each asset class. The
expected return for each asset class was then weighted based on
the target asset allocation to develop the expected long-term
rate of return on assets assumption for the portfolio. This
resulted in the selection of the 7.50% assumption for the year
ended December 31, 2005.
The components of net periodic benefit cost follow for the years
ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-Retirement
|
|
|
|
Pension Benefits
|
|
|
Benefits
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Net Periodic
Benefit Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Cost
|
|
$
|
9,353
|
|
|
$
|
6,139
|
|
|
$
|
3,500
|
|
|
$
|
1,755
|
|
|
$
|
997
|
|
|
$
|
576
|
|
Interest Cost
|
|
|
10,578
|
|
|
|
7,695
|
|
|
|
5,545
|
|
|
|
1,847
|
|
|
|
1,762
|
|
|
|
1,247
|
|
Expected Return on Plan Assets
|
|
|
(20,561
|
)
|
|
|
(12,780
|
)
|
|
|
(6,805
|
)
|
|
|
(254
|
)
|
|
|
(127
|
)
|
|
|
|
|
Amortization of Prior Service Cost
|
|
|
(211
|
)
|
|
|
(263
|
)
|
|
|
(263
|
)
|
|
|
(81
|
)
|
|
|
(81
|
)
|
|
|
(81
|
)
|
Amortization of Transition
(Asset)/Obligation
|
|
|
(131
|
)
|
|
|
(427
|
)
|
|
|
(427
|
)
|
|
|
293
|
|
|
|
293
|
|
|
|
293
|
|
Recognized Actuarial Loss/(Gain)
|
|
|
981
|
|
|
|
1,025
|
|
|
|
848
|
|
|
|
(151
|
)
|
|
|
295
|
|
|
|
236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost
|
|
$
|
9
|
|
|
$
|
1,389
|
|
|
$
|
2,398
|
|
|
$
|
3,409
|
|
|
$
|
3,139
|
|
|
$
|
2,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the assumed health care costs
trend rates at December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Assumptions in Health Care
Costs Trend Rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Care Cost Trend Rate
Assumed for Next Year
|
|
|
9.5
|
%
|
|
|
9.8
|
%
|
|
|
10.8
|
%
|
Rate to Which the Cost Trend is
Assumed to Decline (the ultimate trend rate)
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
Year That the Rate Reaches the
Ultimate Trend Rate
|
|
|
2015
|
|
|
|
2010
|
|
|
|
2010
|
|
34
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Assumed health care cost trend rates have a significant effect
on the amounts reported for the health care plan. A
one-percentage point change in assumed health care cost trend
would have the following effects:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
1% Increase
|
|
|
1% Decrease
|
|
|
1% Increase
|
|
|
1% Decrease
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on Total of Service and
Interest Cost
|
|
$
|
236
|
|
|
$
|
(185
|
)
|
|
$
|
615
|
|
|
$
|
(430
|
)
|
Effect on Post-Retirement Benefit
Obligation
|
|
|
2,117
|
|
|
|
(1,799
|
)
|
|
|
5,993
|
|
|
|
(4,651
|
)
|
Cash
Flows
The following benefit payments, which reflect expected future
service are expected to be paid:
|
|
|
|
|
|
|
|
|
Estimated Future Benefit
Payments:
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
2006
|
|
$
|
14,251
|
|
|
$
|
1,935
|
|
2007
|
|
|
17,049
|
|
|
|
2,034
|
|
2008
|
|
|
15,476
|
|
|
|
2,070
|
|
2009
|
|
|
16,679
|
|
|
|
2,118
|
|
2010
|
|
|
16,559
|
|
|
|
2,150
|
|
2011 2015
|
|
|
99,694
|
|
|
|
11,141
|
|
Contributions
No contributions are expected to be made to the qualified
pension plan during 2006, while $.7 million and
$1.9 million are expected to be made to the non-qualified
pension plan and other post-retirement benefit plan,
respectively, in 2006.
Plan
Asset Allocation
The plans weighted-average asset allocations at
December 31, 2005 and 2004, by asset category are as
follows:
|
|
|
|
|
|
|
|
|
Asset Categories:
|
|
2005
|
|
|
2004
|
|
|
Equity Securities
|
|
|
60
|
%
|
|
|
59
|
%
|
Debt Securities
|
|
|
39
|
|
|
|
34
|
|
Other
|
|
|
1
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The investment guidelines adopted by the Retirement Committee
for the Plan provide the following asset allocation requirements
and limitations:
|
|
|
|
|
Equity Securities: Not more than 60% of assets
|
|
|
|
Debt Securities: Not more than 40% of assets
|
The guidelines specify equity allocations as follows:
1) Large Capitalization Value of 30% to 40%, 2) Large
Capitalization Growth of 20% to 30%, 3) Middle
Capitalization of 10% to 20%, 4) Smaller Capitalization of
5% to 15% and, 5) Diversified International of 10% to 20%.
Debt securities are limited by the investment guidelines to
United States Government obligations or corporate issues rated
Baa or higher by Standard & Poors or
Moodys. Cash equivalent securities may be viewed as
35
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
alternative investment vehicles and are limited by the
guidelines to mutual funds consisting of instruments issued by
the United States Government, United States Treasury, Federal
Reserve System or Federal Home Loan Bank, or mutual funds
consisting of commercial paper issued by a domestic corporation
rated prime by the National Credit Office, or of
individual fixed income instruments rated A or P1 or higher,
maturing in 180 days or less.
The guidelines require that the Plans performance be
reviewed periodically by comparing total rates of return to
specified market indices.
The Company maintains a Supplemental Executive Retirement Plan
(SERP), that restores to specified senior executives
the full level of retirement benefits they would have been
entitled to receive absent the ERISA provision limiting maximum
payouts under tax qualified plans. The projected benefit
obligation, which is unfunded, was $632 thousand at
December 31, 2005 and $585 thousand at December 31,
2004. Net periodic pension expense of $104 thousand was
recognized in 2005 and net periodic pension income of $41
thousand was recognized in 2004, while net periodic expense
incurred in 2003 for the SERP was $103 thousand. The weighted
average discount rate utilized in determining the projected
benefit obligation was 5.50%, 5.75% and 6.00% at
December 31, 2005, 2004 and 2003, respectively. The assumed
rate of future compensation increases was 4.50% at
December 31, 2005, 2004 and 2003. The Company expects to
make a contribution to this plan of $.7 million in 2006.
A savings plan is maintained under section 401(k) of the
Internal Revenue Code and covers substantially all current
full-time and certain part-time employees. Newly hired employees
can elect to participate in the savings plan after completing
three months of service. Under the provisions of the savings
plan, employee contributions are partially matched by the
Company with cash contributions. Participants can invest their
account balances into several investment alternatives, including
shares of the Companys common stock. 401(k) plan expense
was $9.7 million, $4.7 million and $3.4 million
for the years ended December 31, 2005, 2004, and 2003,
respectively.
Bank
Owned Life Insurance
At December 31, 2005 and 2004, we maintained three Bank
Owned Life Insurance Trusts (commonly referred to as BOLI) on
the consolidated balance sheet. The BOLI trusts were formed to
offset future employee benefit costs and to provide additional
benefits due to its tax exempt nature. Only officer level
employees, who have consented, have been insured under the
program.
The underlying structure of the initial BOLI trust formed
requires that the assets supporting the insurance policies be
reported on the consolidated balance sheets, principally as a
component of the
available-for-sale
securities portfolio and the related income to be characterized
as either interest income or gain/(loss) on sale of securities.
At December 31, 2005 and 2004, $216.8 million and
$215.1 million, respectively were held by the trust and are
principally included in the
available-for-sale
securities portfolio. Based on the underlying structures of the
other two BOLI trusts the cash surrender values
(CSV) of the life insurance policies held by the
trusts are required to be classified as other assets on the
consolidated balance sheet and the related income/(loss) be
characterized as other income. The cash surrender value of the
policies held by these trusts were $208.8 million and
$203.4 million at December 31, 2005 and 2004,
respectively.
|
|
NOTE 16
|
Common
Stock Plans
|
The Company maintains stock incentive plans for all eligible
employees providing for grants of stock options and restricted
stock awards. Options to purchase common stock are granted by
the Compensation Committee of the Board of Directors at the
average market price on the date of grant, generally vest within
six months from issuance and have a ten-year expiration period.
The Company has not, nor does it anticipate, repricing any stock
options.
Restricted stock awards granted by the Compensation Committee
are forfeitable and subject to certain restrictions on the part
of the recipient until ownership of the shares vest. The
Committee can, at its discretion, accelerate the removal of any
and all restrictions. If the Company is party to a merger,
consolidation, sale of substantially all assets, or similar
transaction, all restrictions will lapse.
36
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
New
Employee Stock Compensation Plan
The plan provides for non-qualified stock options and restricted
stock awards, to be granted either separately or in combination
to all eligible persons not previously employed by the Company
in connection with their entering into such an employment
relationship. The number of shares issuable thereunder, either
as restricted stock or non-qualified stock options is
1,500,000 shares. At December 31, 2005,
822,650 shares remain authorized and unissued.
2003
Stock Compensation Plan
The plan provides for non-qualified stock options and restricted
stock awards, to be granted either separately or in combination
to all eligible employees. The number of shares issuable
thereunder is 7,500,000, with no more than 4,950,000 authorized
for restricted stock awards. At December 31, 2005,
1,987,456 shares remained authorized and unissued.
GreenPoint
1999 Stock Incentive Plan
This plan was assumed and retained as part of the GreenPoint
acquisition. The plan provides for non-qualified stock options
and restricted stock awards, to be granted either separately or
in combination to all eligible employees. The number of shares
issuable thereunder is 1,228,193, with no more than 300,000
authorized for restricted stock awards. At December 31,
2005, 707,922 shares remained authorized and unissued.
1999
Stock Compensation Plan
The plan provides for non-qualified stock options and restricted
stock awards, to be granted either separately or in combination
to all eligible employees. The number of shares issuable
thereunder is 7,500,000, with no more than 4,950,000 authorized
for restricted stock awards. At December 31, 2005,
25,185 shares remained authorized and unissued.
1998
Stock Compensation Plan
The plan provides for non-qualified stock options and restricted
stock awards, to be granted either separately or in combination
to all eligible employees. The number of shares issuable
thereunder is 2,250,000 with no more than 1,500,000 authorized
for restricted stock awards. At December 31, 2005,
6,984 shares remain authorized and unissued.
Acquired
Stock Plans
Certain previously acquired companies maintained incentive and
non-qualified stock option plans for their officers, directors,
and other key employees. Options outstanding, under these plans
at the acquisition date were vested upon change in control. At
December 31, 2005, 7,817,392 stock options remained
outstanding under these plans at an average price of $17.52. No
further awards will be made under these assumed plans.
37
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a summary of the activity in the aforementioned
stock option plans for the three-year period ended
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Outstanding at Beginning of Year
|
|
|
22,780,195
|
|
|
$
|
17.88
|
|
|
|
4,762,101
|
|
|
$
|
18.09
|
|
|
|
5,044,182
|
|
|
$
|
15.55
|
|
Issued in the TCNJ Transaction
|
|
|
|
|
|
|
|
|
|
|
2,756,358
|
|
|
|
13.78
|
|
|
|
|
|
|
|
|
|
Issued in the GreenPoint
Transaction
|
|
|
|
|
|
|
|
|
|
|
17,466,503
|
|
|
|
16.50
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,216,338
|
|
|
|
28.19
|
|
|
|
1,898,755
|
|
|
|
28.09
|
|
|
|
648,300
|
|
|
|
25.59
|
|
Exercised
|
|
|
(10,846,539
|
)
|
|
|
16.14
|
|
|
|
(4,072,504
|
)
|
|
|
14.18
|
|
|
|
(911,631
|
)
|
|
|
9.37
|
|
Cancelled
|
|
|
(474,845
|
)
|
|
|
28.66
|
|
|
|
(31,018
|
)
|
|
|
18.69
|
|
|
|
(18,750
|
)
|
|
|
15.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at Year End
|
|
|
13,675,149
|
|
|
$
|
20.55
|
|
|
|
22,780,195
|
|
|
$
|
17.88
|
|
|
|
4,762,101
|
|
|
$
|
18.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at Year End
|
|
|
12,549,019
|
|
|
$
|
19.93
|
|
|
|
21,237,793
|
|
|
$
|
17.13
|
|
|
|
4,144,701
|
|
|
$
|
17.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the information concerning
outstanding and exercisable stock options as of
December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Range of
|
|
Options
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Options
|
|
|
Exercise
|
|
Exercise Prices
|
|
Outstanding
|
|
|
Life
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
$ 3.00 - $15.02
|
|
|
2,799,795
|
|
|
|
3.3
|
|
|
$
|
10.83
|
|
|
|
2,799,795
|
|
|
$
|
10.83
|
|
$15.03 - $24.02
|
|
|
4,919,649
|
|
|
|
4.7
|
|
|
|
18.74
|
|
|
|
4,897,899
|
|
|
|
18.72
|
|
$24.03 - $30.03
|
|
|
5,955,705
|
|
|
|
7.9
|
|
|
|
26.62
|
|
|
|
4,851,325
|
|
|
|
26.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 3.03 - $30.03
|
|
|
13,675,149
|
|
|
|
5.8
|
|
|
$
|
20.55
|
|
|
|
12,549,019
|
|
|
$
|
19.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of activity in restricted stock for
the years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant
|
|
|
|
|
|
Grant
|
|
|
|
|
|
Grant
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Outstanding at Beginning of Year
|
|
|
8,367,198
|
|
|
$
|
19.89
|
|
|
|
6,827,077
|
|
|
$
|
17.72
|
|
|
|
5,753,880
|
|
|
$
|
15.90
|
|
Granted
|
|
|
2,005,677
|
|
|
|
27.31
|
|
|
|
1,811,103
|
|
|
|
27.67
|
|
|
|
1,237,425
|
|
|
|
25.65
|
|
Vested
|
|
|
(332,895
|
)
|
|
|
15.16
|
|
|
|
(179,756
|
)
|
|
|
15.83
|
|
|
|
(149,978
|
)
|
|
|
13.54
|
|
Cancelled
|
|
|
(148,492
|
)
|
|
|
26.55
|
|
|
|
(91,226
|
)
|
|
|
20.06
|
|
|
|
(14,250
|
)
|
|
|
16.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at Year End
|
|
|
9,891,488
|
|
|
$
|
21.45
|
|
|
|
8,367,198
|
|
|
$
|
19.89
|
|
|
|
6,827,077
|
|
|
$
|
17.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards are recorded as deferred compensation, a
component of stockholders equity, at fair value at the
date of grant and amortized to compensation expense over the
specified vesting periods.
Compensation expense related to restricted stock awards included
in employee compensation and benefits was $21.2 million,
$14.7 million, and $10.3 million in 2005, 2004 and
2003, respectively.
As permitted under SFAS 123, as amended by SFAS 148,
management has elected to apply the intrinsic value method in
accounting for its stock-based compensation plans. Accordingly,
compensation expense has not been
38
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recognized in the accompanying statements of income for its
stock-based compensation plans, other than for restricted stock
awards. Had compensation expense been recognized for the fair
value of options awarded consistent with the methodology
prescribed, pro-forma net income and earnings per share would
have been as follows for the years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
(Dollars in thousands, except per
share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income, as Reported
|
|
$
|
948,847
|
|
|
$
|
552,996
|
|
|
$
|
396,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: Restricted Stock Expense
Included in Net Income, Net of Taxes
|
|
|
13,841
|
|
|
|
9,536
|
|
|
|
6,809
|
|
Less: Total Stock-based Employee
Compensation Expense Determined Under the Fair Value Method for
all Awards, Net of Taxes
|
|
|
(22,489
|
)
|
|
|
(16,377
|
)
|
|
|
(9,254
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro-Forma Net Income
|
|
$
|
940,199
|
|
|
$
|
546,155
|
|
|
$
|
393,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as Reported
|
|
$
|
2.03
|
|
|
$
|
1.88
|
|
|
$
|
1.75
|
|
Basic Pro-Forma
|
|
|
2.01
|
|
|
|
1.85
|
|
|
|
1.74
|
|
Diluted as
Reported
|
|
|
2.01
|
|
|
|
1.85
|
|
|
|
1.73
|
|
Diluted Pro-Forma
|
|
|
1.99
|
|
|
|
1.83
|
|
|
|
1.72
|
|
For purposes of the pro-forma amounts, the fair value of stock
options granted were estimated using the Black-Scholes
option-pricing model at the date of grants. The weighted average
assumptions used in the computations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Fair Value for Options Granted
|
|
$
|
5.55
|
|
|
$
|
5.93
|
|
|
$
|
5.75
|
|
Dividend Yield
|
|
|
3.08
|
%
|
|
|
2.83
|
%
|
|
|
2.82
|
%
|
Volatility
|
|
|
21.76
|
|
|
|
24.18
|
|
|
|
26.30
|
|
Risk-Free Interest Rate
|
|
|
4.13
|
|
|
|
3.60
|
|
|
|
3.43
|
|
Assumed Forfeitures
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
Expected Life
|
|
|
6 Years
|
|
|
|
6 Years
|
|
|
|
6 Years
|
|
Dividend
Reinvestment and Stock Purchase Plan
The Dividend Reinvestment and Stock Purchase Plan provides
stockholders with a method of purchasing additional common stock
through the reinvestment of cash dividends
and/or
making optional cash payments, within certain specified limits,
without brokerage commissions. At December 31, 2005,
2,350,780 shares remain authorized and unissued.
Change-in-Control
Arrangements
Certain key executive officers have arrangements that provide
for the payment of a multiple of base salary, should a change-in
control, as defined, occur. These payments are limited under
guidelines for deductibility pursuant to the Internal Revenue
Code. Also, in connection with a potential
change-in-control,
certain performance plans were adopted in which substantially
all employees could participate in a cash distribution. The
amount of the performance plan cash fund would be established
when a
change-in-control
transaction occurs that exceeds industry averages and achieves
an above average return for shareholders. A limitation is placed
on the amount of the fund and no performance pool is created if
the transaction does not exceed industry averages.
39
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 17
|
Other
Commitments and Contingent Liabilities
|
Credit
Related Commitments
We offer traditional off-balance sheet financial products to
meet the financing needs of our customers through both our
retail banking and mortgage banking segments. They include
commitments to extend credit, lines of credit and letters of
credit. Funded commitments are reflected in the consolidated
balance sheets as loans.
Retail
Banking
Our retail banking segment provides the following types of
off-balance sheet financial products to customers:
Commitments to extend credit are agreements to lend to customers
in accordance with contractual provisions. These commitments
usually have fixed expiration dates or other termination clauses
and may require the payment of a fee. Total commitments
outstanding do not necessarily represent future cash flow
requirements, since many commitments expire without being funded.
Each customers creditworthiness is evaluated prior to
issuing these commitments and may require the customer to pledge
certain collateral prior to the extension of credit. Collateral
varies but may include accounts receivable, inventory, property,
plant and equipment, and income-producing properties. Fixed rate
commitments are subject to interest rate risk based on changes
in prevailing rates during the commitment period. We are subject
to credit risk in the event that the commitments are drawn upon
and the customer is unable to repay the obligation.
Letters of credit are irrevocable commitments issued at the
request of customers. They authorize the beneficiary to draw
drafts for payment in accordance with the stated terms and
conditions. Letters of credit substitute a banks
creditworthiness for that of the customer and are issued for a
fee commensurate with the risk.
We typically issue two types of letters of credit: Commercial
(documentary) Letters of Credit and Standby Letters of Credit.
Commercial Letters of Credit are commonly issued to finance the
purchase of goods and are typically short term in nature.
Standby letters of credit are issued to back financial or
performance obligations of a bank customer, and are typically
issued for periods up to one year. Due to their long-term
nature, standby letters of credit require adequate collateral in
the form of cash or other liquid assets. In most instances,
standby letters of credit expire without being drawn upon. The
credit risk involved in issuing letters of credit is essentially
the same as extending credit facilities to comparable customers.
The following table presents total commitments and letters of
credit outstanding for the retail banking segment at
December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Commitments to Extend Credit on
Loans
Held-for-Investment(1)
|
|
$
|
4,127,619
|
|
|
$
|
2,926,271
|
|
Standby Letters of Credit(1)(2)
|
|
|
498,628
|
|
|
|
299,299
|
|
Commercial Letters of Credit
|
|
|
18,300
|
|
|
|
16,482
|
|
|
|
|
(1) |
|
At December 31, 2005,
commitments to extend credit on loans
held-for-investment
with maturities of less than one year totaled $2.3 billion,
while $1.9 billion mature between one to three
years. |
|
(2) |
|
Standby letters of credit are
considered guarantees and are reflected in other liabilities in
the accompanying Consolidated Balance Sheet at their estimated
fair value of $1.7 million as of December 31, 2005.
The fair value of these instruments is recognized as income over
the initial term of the guarantee. |
40
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Mortgage
Banking
At December 31, 2005, the pipeline of residential mortgage
loans (including Home Equity Lines of Credit) was
$5.3 billion and included $1.3 billion of fixed rate
loans and $4.0 billion of adjustable rate loans. The
pipeline represents total applications received but not yet
funded.
We are also contractually committed to fund the undrawn portion
of Home Equity Lines of Credit (HELOCs), which were previously
originated. This commitment extends to both HELOCs
held-for-sale
and those previously sold with servicing retained.
The following table presents the mortgage banking segments
commitments and home equity lines of credit outstanding at
December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Commitments to Originate Mortgage
Loans
Held-for-Sale
|
|
$
|
5,325,629
|
|
|
$
|
6,264,104
|
|
Commitments to Fund HELOCs
|
|
|
183,934
|
|
|
|
154,360
|
|
|
|
|
(1) |
|
At December 31, 2005 commitments to originate mortgage
loans
held-for-sale,
included $1.3 billion in fixed rate mortgages and
$4.0 billion of adjustable rate mortgage loans. |
Lease
Commitments
At December 31, 2005, we were obligated under a number of
non-cancelable leases for certain premises and equipment. The
minimum annual rental commitments, exclusive of taxes and other
charges, under non-cancelable lease agreements for premises at
December 31, 2005, are summarized as follows:
|
|
|
|
|
|
|
Minimum
|
|
|
|
Rentals
|
|
|
(In thousands)
|
|
|
|
|
2006
|
|
$
|
79,165
|
|
2007
|
|
|
78,345
|
|
2008
|
|
|
77,138
|
|
2009
|
|
|
71,319
|
|
2010
|
|
|
66,546
|
|
Thereafter
|
|
|
349,301
|
|
|
|
|
|
|
Total Lease Commitments
|
|
$
|
721,814
|
|
|
|
|
|
|
The majority of these leases contain periodic escalation clauses
and it is anticipated that expiring leases should be renewed or
replaced by leases on other properties.
Rent expense for the years ended December 31, 2005, 2004
and 2003 amounted to $71.6 million, $39.8 million and
$24.5 million, respectively.
Litigation
We are subject to certain pending and threatened legal actions
that arise out of the normal course of business. Management
believes that the resolution of any pending or threatened
litigation will not have a material adverse effect on the
Companys financial condition or results of operations.
|
|
NOTE 18
|
Disclosures
About Fair Value of Financial Instruments
|
Statement of Financial Accounting Standards No. 107
Disclosures About Fair Value of Financial
Instruments (SFAS 107) requires the
Company to disclose estimated fair values for its financial
instruments. Fair value
41
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
estimates are made at a specific point in time, based on
relevant market data and information about the financial
instrument. SFAS 107 has no effect on the financial
position or results of operations in the current year or any
future period. Furthermore, the fair values disclosed under
SFAS 107 are not representative of the total value of the
Company.
If quoted market prices are not available, SFAS 107 permits
using the present value of anticipated future cash flows to
estimate fair value. Accordingly, the estimated fair value will
be influenced by prepayment and discount rate assumptions. This
method may not provide the actual amount that would be realized
in the ultimate sale of the financial instrument.
Cash,
Cash Equivalents and Securities
The carrying amounts for cash and cash equivalents are
reasonable estimates of fair value. The fair value of securities
is estimated based on quoted market prices as published by
various quotation services, or if quoted market prices are not
available, on dealer quotes. The following table presents the
carrying value and estimated fair value of cash, cash
equivalents and securities at December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
$
|
1,062,249
|
|
|
$
|
1,062,249
|
|
|
$
|
1,062,900
|
|
|
$
|
1,062,900
|
|
Securities
Held-to-Maturity
|
|
|
104,210
|
|
|
|
105,128
|
|
|
|
142,573
|
|
|
|
145,991
|
|
Securities
Available-for-Sale
|
|
|
11,295,977
|
|
|
|
11,295,977
|
|
|
|
15,444,625
|
|
|
|
15,444,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash, Cash Equivalents and
Securities
|
|
$
|
12,462,436
|
|
|
$
|
12,463,354
|
|
|
$
|
16,650,098
|
|
|
$
|
16,653,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
Fair values are estimated for portfolios of loans with similar
financial characteristics. The fair value of performing loans is
calculated by discounting the estimated cash flows through
expected maturity or repricing using the current rates at which
similar loans would be made to borrowers with similar credit
risks. For non-performing loans, the present value is separately
discounted consistent with managements assumptions in
evaluating the adequacy of the allowance for loan losses. The
following table presents the carrying amount and the estimated
fair value of the loan portfolio as of December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
Held-for-Sale
|
|
$
|
4,359,267
|
|
|
$
|
4,408,424
|
|
|
$
|
5,775,945
|
|
|
$
|
5,837,373
|
|
Loans
Held-for-Investment
|
|
|
33,232,236
|
|
|
|
33,219,096
|
|
|
|
30,453,334
|
|
|
|
30,402,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
37,591,503
|
|
|
$
|
37,627,520
|
|
|
$
|
36,229,279
|
|
|
$
|
36,240,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
Servicing Rights
To determine fair value, a valuation model that calculates the
present value of estimated future net servicing income, is
utilized. We use assumptions in the valuation model that market
participants use when estimating future
42
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
net servicing income, including prepayment speeds, discount
rates, default rates, cost to service, escrow account earnings,
contractual servicing fee income, ancillary income and late fees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Servicing Rights
|
|
$
|
267,424
|
|
|
$
|
268,874
|
|
|
$
|
254,857
|
|
|
$
|
265,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit
Liabilities and Borrowings
The carrying amounts for demand deposits, savings, NOW, money
market accounts and borrowings with an interest sensitive period
of 90 days or less are reasonable estimates of their fair
values. Fair values for time deposits and borrowings are
estimated by discounting the future cash flows using the rates
currently offered for deposits and borrowings of similar
remaining maturities.
The following table presents the carrying amount and estimated
fair value of the deposits and borrowings as of December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand Deposits
|
|
$
|
7,639,231
|
|
|
$
|
7,639,231
|
|
|
$
|
6,738,302
|
|
|
$
|
6,738,302
|
|
NOW and Money Market
|
|
|
15,606,231
|
|
|
|
15,606,231
|
|
|
|
14,265,395
|
|
|
|
14,265,395
|
|
Savings
|
|
|
5,303,930
|
|
|
|
5,303,930
|
|
|
|
6,333,599
|
|
|
|
6,333,599
|
|
Time Deposits
|
|
|
8,067,181
|
|
|
|
8,100,053
|
|
|
|
7,475,132
|
|
|
|
7,487,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
$
|
36,616,573
|
|
|
$
|
36,649,445
|
|
|
$
|
34,812,428
|
|
|
$
|
34,825,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Funds Purchased and
Collateralized Borrowings
|
|
|
9,700,621
|
|
|
|
9,647,075
|
|
|
|
14,593,027
|
|
|
|
14,596,007
|
|
Other Borrowings
|
|
|
1,477,364
|
|
|
|
1,481,280
|
|
|
|
1,506,318
|
|
|
|
1,543,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Borrowings
|
|
$
|
11,177,985
|
|
|
$
|
11,128,355
|
|
|
$
|
16,099,345
|
|
|
$
|
16,139,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
to Extend Credit and Letters of Credit
These financial instruments generally are not sold or traded,
and estimated fair values are not readily available. However,
the fair value of commitments to extend credit and letters of
credit is based on fees currently charged to enter into similar
agreements with comparable credit risks and the current
creditworthiness of the counterparties. Commitments to extend
credit issued by the Company are generally short-term in nature
and, if drawn upon, are issued under current market terms and
conditions for credits with comparable risks. At
December 31, 2005 and 2004, there was no significant
unrealized appreciation or depreciation on these financial
instruments.
43
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 19
|
Parent
Company Only
|
Condensed
Balance Sheets at December 31,
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Deposits with North Fork Bank
|
|
$
|
17,776
|
|
|
$
|
27,057
|
|
Money Market Investments
|
|
|
331
|
|
|
|
426
|
|
Securities Purchased Under
Agreements to Resell with North Fork Bank
|
|
|
240,000
|
|
|
|
385,000
|
|
Securities
Available-for-Sale
|
|
|
81,935
|
|
|
|
96,702
|
|
Investment in Subsidiaries
|
|
|
10,045,612
|
|
|
|
9,656,718
|
|
Other Assets
|
|
|
150,549
|
|
|
|
188,811
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
10,536,203
|
|
|
$
|
10,354,714
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders Equity:
|
Junior Subordinated Debt
|
|
$
|
495,491
|
|
|
$
|
504,588
|
|
Subordinated Debt
|
|
|
468,368
|
|
|
|
476,431
|
|
Senior Notes
|
|
|
334,883
|
|
|
|
340,825
|
|
Dividends Payable
|
|
|
116,754
|
|
|
|
104,025
|
|
Accrued Expenses & Other
Liabilities
|
|
|
118,466
|
|
|
|
47,766
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
1,533,962
|
|
|
|
1,473,635
|
|
Stockholders Equity
|
|
|
9,002,241
|
|
|
|
8,881,079
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Stockholders Equity
|
|
$
|
10,536,203
|
|
|
$
|
10,354,714
|
|
|
|
|
|
|
|
|
|
|
44
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Statements of Income For the Years Ended
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends from Subsidiaries
|
|
$
|
500,000
|
|
|
$
|
300,000
|
|
|
$
|
250,000
|
|
Interest Income
|
|
|
14,804
|
|
|
|
10,463
|
|
|
|
11,486
|
|
Securities Gains, net
|
|
|
2,053
|
|
|
|
7,141
|
|
|
|
8,608
|
|
Other Income
|
|
|
5,932
|
|
|
|
4,860
|
|
|
|
4,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Income
|
|
|
522,789
|
|
|
|
322,464
|
|
|
|
274,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on Junior Subordinated
Debt
|
|
|
30,459
|
|
|
|
12,937
|
|
|
|
8,919
|
|
Interest on Subordinated Debt
|
|
|
29,181
|
|
|
|
19,876
|
|
|
|
23,611
|
|
Interest on Senior Notes
|
|
|
12,415
|
|
|
|
1,986
|
|
|
|
|
|
Employee Compensation &
Benefits
|
|
|
21,699
|
|
|
|
14,963
|
|
|
|
10,686
|
|
Other Expenses
|
|
|
4,464
|
|
|
|
2,771
|
|
|
|
2,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expenses
|
|
|
98,218
|
|
|
|
52,533
|
|
|
|
45,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes and
Equity in Undistributed Earnings of Subsidiaries
|
|
|
424,571
|
|
|
|
269,931
|
|
|
|
229,115
|
|
Income Tax Benefit
|
|
|
31,989
|
|
|
|
17,925
|
|
|
|
9,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Equity in
Undistributed Earnings of Subsidiaries
|
|
|
456,560
|
|
|
|
287,856
|
|
|
|
238,674
|
|
Equity in Undistributed Earnings
of Subsidiaries
|
|
|
492,287
|
|
|
|
265,140
|
|
|
|
157,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
948,847
|
|
|
$
|
552,996
|
|
|
$
|
396,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Statements of Cash Flows For the Years Ended
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
948,847
|
|
|
$
|
552,996
|
|
|
$
|
396,365
|
|
Adjustments to Reconcile Net
Income to Net Cash Provided by Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
23,248
|
|
|
|
15,684
|
|
|
|
9,850
|
|
Equity in Undistributed Earnings
of Subsidiaries
|
|
|
(492,287
|
)
|
|
|
(265,140
|
)
|
|
|
(157,691
|
)
|
Securities Gains, net
|
|
|
(2,053
|
)
|
|
|
(7,141
|
)
|
|
|
(8,608
|
)
|
Other, net
|
|
|
29,871
|
|
|
|
(17,478
|
)
|
|
|
(6,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating
Activities
|
|
|
507,626
|
|
|
|
278,921
|
|
|
|
233,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Cash Flows from Investing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Sales of Securities
Available-for-Sale
|
|
|
42,363
|
|
|
|
55,810
|
|
|
|
56,256
|
|
Purchases of Securities
Available-for-Sale
|
|
|
(24,370
|
)
|
|
|
(25,216
|
)
|
|
|
(102,473
|
)
|
Cash Acquired in Purchase
Acquisition
|
|
|
|
|
|
|
138,837
|
|
|
|
|
|
Proceeds from Maturities of
Securities
Held-to-Maturity
|
|
|
1,375
|
|
|
|
|
|
|
|
55,842
|
|
Investment in Subsidiaries
|
|
|
(5,150
|
)
|
|
|
|
|
|
|
(9,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Investing
Activities
|
|
|
14,218
|
|
|
|
169,431
|
|
|
|
185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of Treasury Stock
|
|
|
(390,320
|
)
|
|
|
|
|
|
|
(264,193
|
)
|
Cash Dividends Paid to Shareholders
|
|
|
(419,219
|
)
|
|
|
(247,037
|
)
|
|
|
(167,610
|
)
|
Exercise of Options and Common
Stock Sold for Cash
|
|
|
133,319
|
|
|
|
64,216
|
|
|
|
5,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Financing
Activities
|
|
|
(676,220
|
)
|
|
|
(182,821
|
)
|
|
|
(426,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Decrease) / Increase in Cash and Cash Equivalents
|
|
|
(154,376
|
)
|
|
|
265,531
|
|
|
|
(192,149
|
)
|
Cash and Cash Equivalents at
Beginning of Year
|
|
|
412,483
|
|
|
|
146,952
|
|
|
|
339,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End
of Year
|
|
$
|
258,107
|
|
|
$
|
412,483
|
|
|
$
|
146,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We are subject to the risk based capital guidelines administered
by bank regulatory agencies. The 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
certain 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 certain 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 (Total Risk Adjusted Capital Ratio) of 8%,
including Tier 1 capital to total risk weighted assets
(Tier 1 Capital Ratio) of 4% and a Tier 1
capital to average total assets (Leverage Ratio) of
at least 4%. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional
discretionary actions by regulators, that, if undertaken, could
have a direct material effect on us.
The regulatory agencies have amended the risk-based capital
guidelines to provide for interest rate risk consideration when
determining a banking institutions capital adequacy. The
amendments require institutions to effectively measure and
monitor their interest rate risk and to maintain capital
adequate for that risk.
As of December 31, 2005, the most recent notification from
the various regulators categorized the Company and its
subsidiary banks as well capitalized under the regulatory
framework for prompt corrective action. Under the capital
adequacy guidelines require a well capitalized institution to
maintain a Total Risk Adjusted Capital Ratio of at least 10%, a
Tier 1 Capital Ratio of at least 6%, a Leverage Ratio of at
least 5%, and not be subject to any written order, agreement or
directive. Since such notification, there are no conditions or
events that management believes would change this classification.
46
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the Companys risk-based
capital amounts and ratios as of December 31,:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Capital
|
|
$
|
3,497,957
|
|
|
|
10.26
|
%
|
|
$
|
3,281,054
|
|
|
|
9.90
|
%
|
Regulatory Requirement
|
|
|
1,364,306
|
|
|
|
4.00
|
|
|
|
1,325,837
|
|
|
|
4.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess
|
|
$
|
2,133,651
|
|
|
|
6.26
|
%
|
|
$
|
1,955,217
|
|
|
|
5.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk Adjusted Capital
|
|
$
|
4,340,773
|
|
|
|
12.73
|
%
|
|
$
|
4,142,993
|
|
|
|
12.50
|
%
|
Regulatory Requirement
|
|
|
2,728,613
|
|
|
|
8.00
|
|
|
|
2,651,675
|
|
|
|
8.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess
|
|
$
|
1,612,160
|
|
|
|
4.73
|
%
|
|
$
|
1,491,318
|
|
|
|
4.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Weighted Assets
|
|
$
|
34,107,661
|
|
|
|
|
|
|
$
|
33,145,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Leverage Ratio at December 31, 2005 and 2004 was 6.70%
and 6.22%, respectively.
The capital ratios of the subsidiary banks are as follows at
December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
North Fork Bank
|
|
|
Superior
|
|
|
Tier 1
|
|
|
11.99
|
%
|
|
|
18.90
|
%
|
Total Risk Adjusted
|
|
|
13.01
|
|
|
|
19.47
|
|
Leverage Ratio
|
|
|
7.85
|
|
|
|
7.17
|
|
Under the provisions of our share repurchase program previously
authorized by the Board of Directors, we repurchased
14.9 million shares at an average cost of $26.24 during
2005. As of December 31, 2005, 2.4 million shares were
available to be purchased under the program. On January 24,
2006, the Board of Directors authorized the repurchase of an
additional 12 million shares increasing the total remaining
authorized for repurchase to 14.4 million. As of
March 6, 2005, 5.1 million shares remain available to
be purchased under the program. The current program has no fixed
expiration date. Repurchases are made in the open market or
through privately negotiated transactions.
The primary funding source of the Company is dividends from
North Fork Bank. There are various federal and state banking
laws and guidelines limiting the extent to which a bank
subsidiary can finance or otherwise supply funds to its holding
company. At December 31, 2005, dividends from North Fork
Bank were limited under such guidelines to $1.3 billion.
From a regulatory standpoint, North Fork Bank with its current
balance sheet structure had the ability to dividend
approximately $1.1 billion while still meeting the criteria
for designation as a well-capitalized institution under existing
regulatory capital guidelines. Additional sources of liquidity
include borrowings, the sale of
available-for-sale
securities, mortgage loans
held-for-sale,
funds available through the capital markets and dividends from
other subsidiaries.
Federal Reserve Board policy provides that, as a prudent banking
practice, a bank holding company generally should not maintain a
rate of cash dividends unless its net income available to common
stockholders is sufficient to fund the dividends, and the
prospective rate of earnings retention appears to be consistent
with the holding companys capital needs, asset quality and
overall financial condition. In addition, among other things,
dividends from a New York-chartered bank, such as North Fork
Bank, are limited to the banks net profits for the current
year plus its prior two years retained net profits.
Under federal law, a depository institution is prohibited from
paying a dividend if the depository institution would thereafter
be undercapitalized as determined by the federal
bank regulatory agencies. The relevant federal regulatory
agencies and the state regulatory agency, the Banking
Department, also have the authority to prohibit a bank or bank
holding company from engaging in what, in the opinion of such
regulatory body, constitutes an unsafe or unsound practice in
conducting its business.
47
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
North Fork Bank and Superior Savings of New England were
required to maintain, in aggregate, required reserves, either in
cash or on deposit with the Federal Reserve Bank
$295 million and $225 million in 2005 and 2004,
respectively.
|
|
NOTE 21
|
Sale of
Manufactured Housing Operations
|
In the fourth quarter of 2004, we completed the sale of the
manufactured housing operating platform of GreenPoint Credit
LLC, (GPC), previously accounted for as discontinued
operations by GreenPoint. As a condition of the transaction, the
purchaser assumed the obligation to reimburse us, if necessary,
for the final $165 million of losses on $399 million
of corporate guarantees related to $2.5 billion of GPC
securitizations remaining as of December 31, 2005. Certain
corporate guarantees have been funded and the residual remains
unfunded letters of credit. The expected letter of credit draws
that remain unfunded are recorded as liabilities for recourse,
and included in accrued expenses and other liabilities, while
the expected net residual balances on funded corporate
guarantees are reflected in other assets in the consolidated
balance sheet. Additionally, the purchaser assumed all recourse
obligations related to former GPC sales of certain whole loans
to Freddie Mac and commitments to exercise the mandatory
clean-up
calls on certain of the securitizations.
North Fork retains the primary obligation for all of the
provisions of the corporate guarantees, recourse sales and
clean-up
calls. Management will continue to monitor the underlying assets
for trends in delinquencies and related losses. In addition, we
will review the purchasers financial strength and their
performance in servicing the loans. These factors will be
considered in assessing the appropriateness of the reserves
established against these obligations and the valuations of the
assets.
As of December 31, 2005, the principal balance outstanding
for these securitizations totaled $2.5 billion, the
recorded liabilities for expected unfunded draws were
$45 million and the funded net receivable balances amounted
to $100 million. These amounts were calculated utilizing
weighted average prepayment and default rates of 5.9% and 8.4%
respectively. These factors along with assumed loss severity and
weighted average loss rates of 93% and 7.9% respectively, result
in an estimated cumulative loss rate of 33%. The discount rate
used to establish these amounts was 10%.
|
|
NOTE 22
|
Quarterly
Financial Information (Unaudited)
|
Selected Quarterly Financial Information for the years ended
December 31, 2005 and 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
1st Qtr
|
|
|
2nd Qtr
|
|
|
3rd Qtr
|
|
|
4th Qtr
|
|
|
(In thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income
|
|
$
|
691,212
|
|
|
$
|
709,444
|
|
|
$
|
682,290
|
|
|
$
|
695,535
|
|
Interest Expense
|
|
|
219,893
|
|
|
|
247,371
|
|
|
|
247,740
|
|
|
|
253,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
471,319
|
|
|
|
462,073
|
|
|
|
434,550
|
|
|
|
441,939
|
|
Provision for Loan Losses
|
|
|
9,000
|
|
|
|
9,000
|
|
|
|
9,000
|
|
|
|
9,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income after
Provision for Loan Losses
|
|
|
462,319
|
|
|
|
453,073
|
|
|
|
425,550
|
|
|
|
432,939
|
|
Non-Interest Income
|
|
|
182,885
|
|
|
|
169,131
|
|
|
|
190,734
|
|
|
|
162,761
|
|
Non-Interest Expense
|
|
|
246,653
|
|
|
|
249,793
|
|
|
|
254,000
|
|
|
|
274,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
398,551
|
|
|
|
372,411
|
|
|
|
362,284
|
|
|
|
321,297
|
|
Provision for Income Taxes
|
|
|
139,516
|
|
|
|
130,345
|
|
|
|
124,988
|
|
|
|
110,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
259,035
|
|
|
$
|
242,066
|
|
|
$
|
237,296
|
|
|
$
|
210,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.56
|
|
|
$
|
.52
|
|
|
$
|
.50
|
|
|
$
|
.45
|
|
Diluted
|
|
|
.55
|
|
|
|
.51
|
|
|
|
.50
|
|
|
|
.45
|
|
Common Stock Price
Range:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
30.00
|
|
|
$
|
28.84
|
|
|
$
|
29.70
|
|
|
$
|
27.98
|
|
Low
|
|
|
27.02
|
|
|
|
26.32
|
|
|
|
24.71
|
|
|
|
23.68
|
|
48
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
|
|
|
|
1st Qtr
|
|
|
2nd Qtr
|
|
|
3rd Qtr
|
|
|
4th Qtr
|
|
|
(In thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income
|
|
$
|
267,663
|
|
|
$
|
303,374
|
|
|
$
|
337,329
|
|
|
$
|
669,786
|
|
Interest Expense
|
|
|
60,834
|
|
|
|
69,279
|
|
|
|
77,854
|
|
|
|
194,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
206,829
|
|
|
|
234,095
|
|
|
|
259,475
|
|
|
|
474,822
|
|
Provision for Loan Losses
|
|
|
6,500
|
|
|
|
6,500
|
|
|
|
6,500
|
|
|
|
7,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income after
Provision for Loan Losses
|
|
|
200,329
|
|
|
|
227,595
|
|
|
|
252,975
|
|
|
|
467,133
|
|
Non-Interest Income
|
|
|
41,729
|
|
|
|
35,176
|
|
|
|
42,072
|
|
|
|
129,526
|
|
Non-Interest Expense
|
|
|
87,429
|
|
|
|
98,368
|
|
|
|
114,463
|
|
|
|
255,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
154,629
|
|
|
|
164,403
|
|
|
|
180,584
|
|
|
|
341,117
|
|
Provision for Income Taxes
|
|
|
52,110
|
|
|
|
55,404
|
|
|
|
60,856
|
|
|
|
119,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
102,519
|
|
|
$
|
108,999
|
|
|
$
|
119,728
|
|
|
$
|
221,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.46
|
|
|
$
|
.46
|
|
|
$
|
.47
|
|
|
$
|
.48
|
|
Diluted
|
|
|
.45
|
|
|
|
.45
|
|
|
|
.47
|
|
|
|
.47
|
|
Common Stock Price
Range:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
29.27
|
|
|
$
|
28.28
|
|
|
$
|
29.63
|
|
|
$
|
30.54
|
|
Low
|
|
|
26.70
|
|
|
|
23.57
|
|
|
|
25.21
|
|
|
|
27.45
|
|
|
|
NOTE 23
|
Recent
Accounting Pronouncements
|
The
Meaning of
Other-Than-Temporary
Impairment and Its Application to Certain
Investments
In November 2005, the FASB issued Financial Staff Position
No. 115-1,
which addresses the determination of when an investment is
considered impaired, whether the impairment is
other-than-temporary
and how to measure an impairment loss. FSP
No. 115-1
also addresses accounting considerations subsequent to the
recognition of an
other-than-temporary
impairment on a debt security and requires certain disclosures
about unrealized losses that have not been recognized as
other-than-temporary
impairments. FSP
No. 115-1
replaces the impairment guidance in Emerging Issues Task Force
Issue
No. 03-1,
The Meaning of
Other-Than-Temporary
Impairment and Its Application to Certain Investments,
with references to existing authoritative literature concerning
other-than-temporary
impairment determinations (principally SFAS No. 115,
Accounting for Certain Investments in Debt and Equity
Securities, and SEC Staff Accounting
Bulletin No. 59, Accounting for Non-current
Marketable Securities). Under FSP
No. 115-1,
impairment losses must be recognized in earnings for the
difference between the securitys cost and its fair value
at the financial statement date, without considering partial
recoveries subsequent to that date. FSP
No. 115-1
also requires that an investor recognize an
other-than-temporary
impairment loss when a decision to sell a security has been made
and the investor does not expect the fair value of the security
to fully recover prior to the expected time of sale. FSP No
115-1 is effective for reporting periods beginning after
December 15, 2005. We do not expect our application of FSP
No. 115-1
to have a material impact on our financial condition or results
of operations.
Accounting
for Stock Based Compensation
In December 2004, FASB issued
SFAS No. 123R Accounting for
Stock Based Compensation, Share Based Payment,
(SFAS 123R) which replaces the guidance prescribed in
SFAS 123. SFAS 123R requires that compensation costs
relating to share-based payment transactions be recognized in
the financial statements. The associated costs will be measured
based on the fair value of the equity or liability instruments
issued. SFAS 123R covers wide range of share-based
compensation arrangements including share options, restricted
share plans, performance-based awards, share appreciation rights
and employee share purchase plans. SFAS 123R is effective
as of the first interim or annual reporting period beginning
after June 15, 2005. Adoption of this pronouncement is not
expected to have a material impact on our financial condition or
results of operations.
49
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 24
|
Subsequent
Event
|
On March 12, 2006, North Fork announced that it had entered
into an Agreement and Plan of Merger with Capital One Financial
Corporation (Capital One) pursuant to which North Fork would
merge with and into Capital One, with Capital One continuing as
the surviving corporation. Capital One, headquartered in McLean,
Virginia, is a financial holding company whose banking and
non-banking subsidiaries market a variety of financial products
and services. Its primary products and services offered through
its subsidiaries include credit card products, deposit products,
consumer and commercial lending, automobile and other motor
vehicle financing, and a variety of other financial products and
services to consumers, small business and commercial clients.
Subject to the terms and conditions of the merger agreement,
each holder of North Fork common stock will have the right,
subject to proration, to elect to receive, for each share of
North Fork common stock, cash or Capital One common stock, in
either case having a value equal to $11.25 plus the product of
0.2216 times the average closing sales price of Capital
Ones common stock for the five trading days immediately
preceding the merger date. Based on Capital Ones closing
NYSE stock price of $89.92 on March 10, 2006, the
transaction is valued at $31.18 per North Fork share, for a
total transaction value of approximately $14.6 billion.
North Fork stock options vest upon a change in control and will
be converted into options on shares of Capital Ones common
stock in connection with the closing, if not exercised before
that time. North Forks restricted shares outstanding also
vest upon a change in control. Each outstanding North Fork
restricted share will be converted into the right to receive the
per share merger consideration elected by the holder of the
North Fork restricted share, subject to proration.
The merger is subject to certain conditions, including approval
by North Fork stockholders and Capital One stockholders, receipt
of regulatory approvals and other customary closing conditions,
and is expected to close in the fourth quarter of 2006.
50
North
Fork Bancorporation, Inc.
Audited Consolidated Financial Statements
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
North Fork Bancorporation, Inc.:
We have audited the accompanying consolidated balance sheets of
North Fork Bancorporation, Inc. and subsidiaries (the
Company) as of December 31, 2005 and 2004, and
the related consolidated statements of income,
stockholders equity, cash flows, and comprehensive income
for each of the years in the three-year period ended
December 31, 2005. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of North Fork Bancorporation, Inc. and subsidiaries as
of December 31, 2005 and 2004, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2005, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Companys internal control over
financial reporting as of December 31, 2005, based on
criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated March 14, 2006 expressed an
unqualified opinion on managements assessment of, and the
effective operation of, internal control over financial
reporting.
New York, New York
March 14, 2006
51
The Board of Directors and Stockholders
North Fork Bancorporation, Inc.:
We have audited managements assessment, included in the accompanying Managements Report on
Internal Control over Financial Reporting, that North Fork Bancorporation, Inc. and subsidiaries
(the Company) maintained effective internal control over financial reporting as of December 31,
2005, based on criteria established in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management
is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility is
to express an opinion on managements assessment and an opinion on the effectiveness of the
Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that North Fork Bancorporation, Inc. maintained
effective internal control over financial reporting as of December 31, 2005, is fairly stated, in
all material respects, based on criteria established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our
opinion, North Fork Bancorporation, Inc. maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2005, based on criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of North Fork Bancorporation, Inc.
and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of
income, stockholders equity, cash flows, and comprehensive income for each of the years in the
three-year period ended December 31, 2005, and our report dated March 14, 2006 expressed an
unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
New York, New York
March 14, 2006
EX-99.2
Exhibit
99.2
North
Fork Bancorporation, Inc.
Unaudited Interim Condensed Consolidated Financial Statements
Consolidated Balance Sheets (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
(in thousands except share amounts) |
|
2006 |
|
|
2005 |
|
|
2005 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash & Due from Banks |
|
$ |
940,045 |
|
|
$ |
1,037,406 |
|
|
$ |
712,195 |
|
Money Market Investments |
|
|
146,962 |
|
|
|
24,843 |
|
|
|
40,809 |
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale ($4,976,569, $4,107,473 and $6,367,537 pledged at
March 31, 2006, December 31, 2005 and March 31, 2005, respectively) |
|
|
10,615,327 |
|
|
|
11,295,977 |
|
|
|
14,983,603 |
|
Held-to-Maturity ($12,462, $13,409 and $21,331 pledged at March 31,
2006, December 31, 2005 and March 31, 2005, respectively) |
|
|
101,486 |
|
|
|
104,210 |
|
|
|
133,745 |
|
|
|
|
|
|
|
|
|
|
|
Total Securities |
|
|
10,716,813 |
|
|
|
11,400,187 |
|
|
|
15,117,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans Held-for-Sale |
|
|
4,190,465 |
|
|
|
4,359,267 |
|
|
|
5,350,823 |
|
Loans Held-for-Investment |
|
|
34,202,653 |
|
|
|
33,232,236 |
|
|
|
31,857,021 |
|
Less: Allowance for Loan Losses |
|
|
221,256 |
|
|
|
217,939 |
|
|
|
215,307 |
|
|
|
|
|
|
|
|
|
|
|
Net Loans Held-for-Investment |
|
|
33,981,397 |
|
|
|
33,014,297 |
|
|
|
31,641,714 |
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
5,918,116 |
|
|
|
5,918,116 |
|
|
|
5,886,693 |
|
Identifiable Intangibles |
|
|
105,232 |
|
|
|
114,091 |
|
|
|
141,601 |
|
Premises & Equipment |
|
|
444,546 |
|
|
|
438,040 |
|
|
|
417,900 |
|
Mortgage Servicing Rights |
|
|
276,191 |
|
|
|
267,424 |
|
|
|
283,268 |
|
Accrued Income Receivable |
|
|
209,458 |
|
|
|
205,892 |
|
|
|
213,195 |
|
Other Assets |
|
|
776,155 |
|
|
|
837,308 |
|
|
|
974,854 |
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
57,705,380 |
|
|
$ |
57,616,871 |
|
|
$ |
60,780,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
Demand |
|
$ |
7,440,561 |
|
|
$ |
7,639,231 |
|
|
$ |
7,106,826 |
|
Savings, NOW & Money Market |
|
|
22,097,622 |
|
|
|
20,910,161 |
|
|
|
21,725,437 |
|
Time |
|
|
8,155,517 |
|
|
|
8,067,181 |
|
|
|
7,705,470 |
|
|
|
|
|
|
|
|
|
|
|
Total Deposits |
|
|
37,693,700 |
|
|
|
36,616,573 |
|
|
|
36,537,733 |
|
|
|
|
|
|
|
|
|
|
|
Federal Funds Purchased & Collateralized Borrowings |
|
|
8,820,804 |
|
|
|
9,700,621 |
|
|
|
12,931,678 |
|
Other Borrowings |
|
|
1,455,851 |
|
|
|
1,477,364 |
|
|
|
1,484,468 |
|
|
|
|
|
|
|
|
|
|
|
Total Borrowings |
|
|
10,276,655 |
|
|
|
11,177,985 |
|
|
|
14,416,146 |
|
|
|
|
|
|
|
|
|
|
|
Accrued Interest Payable |
|
|
128,822 |
|
|
|
102,229 |
|
|
|
81,387 |
|
Dividends Payable |
|
|
115,880 |
|
|
|
116,754 |
|
|
|
104,924 |
|
Accrued Expenses & Other Liabilities |
|
|
544,618 |
|
|
|
601,089 |
|
|
|
632,019 |
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
$ |
48,759,675 |
|
|
$ |
48,614,630 |
|
|
$ |
51,772,209 |
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock, par value $1.00; authorized 10,000,000 shares, unissued |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Common Stock, par value $0.01; authorized 1,000,000,000 shares; issued
480,682,118 Shares at March 31, 2006 |
|
|
4,807 |
|
|
|
4,806 |
|
|
|
4,775 |
|
Additional Paid in Capital |
|
|
7,027,189 |
|
|
|
7,035,314 |
|
|
|
7,004,048 |
|
Retained Earnings |
|
|
2,675,536 |
|
|
|
2,581,047 |
|
|
|
2,218,134 |
|
Accumulated Other Comprehensive Loss |
|
|
(167,116 |
) |
|
|
(108,898 |
) |
|
|
(87,300 |
) |
Deferred Compensation |
|
|
(146,800 |
) |
|
|
(154,772 |
) |
|
|
(121,011 |
) |
Treasury Stock at Cost; 17,161,919 Shares at March 31, 2006 |
|
|
(447,911 |
) |
|
|
(355,256 |
) |
|
|
(10,455 |
) |
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity |
|
|
8,945,705 |
|
|
|
9,002,241 |
|
|
|
9,008,191 |
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
57,705,380 |
|
|
$ |
57,616,871 |
|
|
$ |
60,780,400 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
1
North
Fork Bancorporation, Inc.
Unaudited Interim Condensed Consolidated Financial Statements
Consolidated Statements of Income (Unaudited)
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
2006 |
|
|
2005 |
|
(in thousands, except per share amounts) |
|
|
|
|
|
|
|
|
Interest Income: |
|
|
|
|
|
|
|
|
Loans Held-for-Investment |
|
$ |
505,736 |
|
|
$ |
452,217 |
|
Loans Held-for-Sale |
|
|
63,692 |
|
|
|
66,848 |
|
Mortgage-Backed Securities |
|
|
99,515 |
|
|
|
142,007 |
|
Other Securities |
|
|
28,645 |
|
|
|
29,407 |
|
Money Market Investments |
|
|
542 |
|
|
|
733 |
|
|
|
|
|
|
|
|
Total Interest Income |
|
|
698,130 |
|
|
|
691,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense: |
|
|
|
|
|
|
|
|
Savings, NOW & Money Market Deposits |
|
|
117,433 |
|
|
|
69,596 |
|
Time Deposits |
|
|
59,790 |
|
|
|
33,466 |
|
Federal Funds Purchased & Collateralized Borrowings |
|
|
83,474 |
|
|
|
99,007 |
|
Other Borrowings |
|
|
19,956 |
|
|
|
17,824 |
|
|
|
|
|
|
|
|
Total Interest Expense |
|
|
280,653 |
|
|
|
219,893 |
|
|
|
|
|
|
|
|
Net Interest Income |
|
|
417,477 |
|
|
|
471,319 |
|
Provision for Loan Losses |
|
|
9,000 |
|
|
|
9,000 |
|
|
|
|
|
|
|
|
Net Interest Income after Provision for Loan Losses |
|
|
408,477 |
|
|
|
462,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Income: |
|
|
|
|
|
|
|
|
Mortgage Banking Income |
|
|
96,072 |
|
|
|
111,096 |
|
Customer Related Fees & Service Charges |
|
|
41,103 |
|
|
|
42,006 |
|
Investment Management, Commissions & Trust Fees |
|
|
9,669 |
|
|
|
11,071 |
|
Other Operating Income |
|
|
14,510 |
|
|
|
14,077 |
|
Securities Gains, net |
|
|
6,722 |
|
|
|
4,635 |
|
|
|
|
|
|
|
|
Total Non-Interest Income |
|
|
168,076 |
|
|
|
182,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Expense: |
|
|
|
|
|
|
|
|
Employee Compensation & Benefits |
|
|
141,311 |
|
|
|
135,369 |
|
Occupancy & Equipment, net |
|
|
51,292 |
|
|
|
45,954 |
|
Amortization of Identifiable Intangibles |
|
|
8,859 |
|
|
|
9,133 |
|
Other Operating Expenses |
|
|
56,716 |
|
|
|
56,197 |
|
|
|
|
|
|
|
|
Total Non-Interest Expense |
|
|
258,178 |
|
|
|
246,653 |
|
|
|
|
|
|
|
|
Income Before Income Taxes |
|
|
318,375 |
|
|
|
398,551 |
|
Provision for Income Taxes |
|
|
108,247 |
|
|
|
139,516 |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
210,128 |
|
|
$ |
259,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.46 |
|
|
$ |
0.56 |
|
Diluted |
|
$ |
0.46 |
|
|
$ |
0.55 |
|
See accompanying notes to consolidated financial statements
2
North
Fork Bancorporation, Inc.
Unaudited Interim Condensed Consolidated Financial Statements
Consolidated Statements of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
2006 |
|
|
2005 |
|
(in thousands) |
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
210,128 |
|
|
$ |
259,035 |
|
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: |
|
|
|
|
|
|
|
|
Provision for Loan Losses |
|
|
9,000 |
|
|
|
9,000 |
|
Depreciation |
|
|
11,721 |
|
|
|
10,186 |
|
Net Amortization/(Accretion): |
|
|
|
|
|
|
|
|
Securities |
|
|
6,178 |
|
|
|
6,472 |
|
Loans |
|
|
3,683 |
|
|
|
3,026 |
|
Borrowings & Time Deposits |
|
|
(31,502 |
) |
|
|
(32,099 |
) |
Intangibles |
|
|
8,859 |
|
|
|
9,133 |
|
Deferred Compensation |
|
|
7,019 |
|
|
|
5,457 |
|
Securities Gains |
|
|
(6,722 |
) |
|
|
(4,635 |
) |
Capitalization of Mortgage Servicing Rights |
|
|
(17,060 |
) |
|
|
(50,055 |
) |
Amortization of Mortgage Servicing Rights |
|
|
23,598 |
|
|
|
19,989 |
|
Temporary Impairment Recovery of Mortgage Servicing Rights |
|
|
(15,691 |
) |
|
|
|
|
Loans Held-for-Sale: |
|
|
|
|
|
|
|
|
Originations |
|
|
(7,067,771 |
) |
|
|
(8,314,765 |
) |
Proceeds from Sale (1) |
|
|
7,218,546 |
|
|
|
8,459,438 |
|
Gains on Sale of Loans |
|
|
(81,749 |
) |
|
|
(105,369 |
) |
Other |
|
|
99,776 |
|
|
|
385,818 |
|
Other, Net |
|
|
37,506 |
|
|
|
72,694 |
|
|
|
|
|
|
|
|
Net Cash Provided by Operating Activities |
|
|
415,519 |
|
|
|
733,325 |
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Originations
of Loans Held-for-Investment, net of Principal Repayments and Net Charge Offs |
|
|
(975,455 |
) |
|
|
(1,410,327 |
) |
Purchases of Securities Available-for-Sale |
|
|
(484,172 |
) |
|
|
(704,280 |
) |
Proceeds from Sales of Securities Available-for-Sale |
|
|
631,108 |
|
|
|
195,499 |
|
Maturities, Redemptions, Calls and Principal Repayments on Securities Available-for-Sale |
|
|
446,192 |
|
|
|
831,918 |
|
Purchases of Securities Held-to-Maturity |
|
|
|
|
|
|
(500 |
) |
Maturities, Redemptions, Calls and Principal Repayments on Securities Held-to-Maturity |
|
|
2,670 |
|
|
|
9,223 |
|
Purchases of Premises and Equipment, net |
|
|
(18,227 |
) |
|
|
(12,084 |
) |
|
|
|
|
|
|
|
Net Cash Used in Investing Activities |
|
$ |
(397,884 |
) |
|
$ |
(1,090,551 |
) |
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
3
North
Fork Bancorporation, Inc.
Unaudited Interim Condensed Consolidated Financial Statements
Consolidated
Statements of Cash Flows (Unaudited) continued
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
2006 |
|
|
2005 |
|
(in thousands) |
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Net Increase in Customer Deposits |
|
$ |
1,083,263 |
|
|
$ |
1,734,749 |
|
Net Decrease in Borrowings |
|
|
(858,847 |
) |
|
|
(1,639,773 |
) |
Purchase of Treasury Stock |
|
|
(131,839 |
) |
|
|
|
|
Exercise of Options and Common Stock Sold for Cash |
|
|
31,060 |
|
|
|
56,503 |
|
Cash Dividends Paid |
|
|
(116,514 |
) |
|
|
(104,149 |
) |
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities |
|
|
7,123 |
|
|
|
47,330 |
|
|
|
|
|
|
|
|
Net Increase/(Decrease) in Cash and Cash Equivalents |
|
|
24,758 |
|
|
|
(309,896 |
) |
Cash and Cash Equivalents at Beginning of the Period |
|
|
1,062,249 |
|
|
|
1,062,900 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of the Period |
|
$ |
1,087,007 |
|
|
$ |
753,004 |
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash Paid During the Period for: |
|
|
|
|
|
|
|
|
Interest Expense |
|
$ |
285,563 |
|
|
$ |
240,635 |
|
|
|
|
|
|
|
|
Income Taxes |
|
$ |
2,511 |
|
|
$ |
4,725 |
|
|
|
|
|
|
|
|
During the Period the Company Purchased Various Securities which Settled in the Subsequent Period |
|
$ |
8,688 |
|
|
$ |
28,559 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes loans retained in the held-for-investment portfolio totaling $0.7 billion and
$1.7 billion during the three months ended March 31, 2006 and 2005, respectively. |
See accompanying notes to consolidated financial statements
4
North
Fork Bancorporation, Inc.
Unaudited Interim Condensed Consolidated Financial Statements
Consolidated Statements of Changes in Stockholders Equity
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Accum. Other |
|
|
|
|
|
|
|
|
|
|
Total |
|
(Dollars in thousands, except |
|
|
|
|
|
Paid In |
|
|
Retained |
|
|
Comp. |
|
|
Deferred |
|
|
|
|
|
|
Stockholders |
|
per share amounts) |
|
Common Stock |
|
|
Capital |
|
|
Earnings |
|
|
(Loss)/Income |
|
|
Compensation |
|
|
Treasury Stock |
|
|
Equity |
|
Balance, December 31, 2004 |
|
$ |
4,745 |
|
|
$ |
6,968,493 |
|
|
$ |
2,064,148 |
|
|
$ |
240 |
|
|
$ |
(125,174 |
) |
|
$ |
(31,373 |
) |
|
$ |
8,881,079 |
|
Net Income |
|
|
|
|
|
|
|
|
|
|
259,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259,035 |
|
Cash Dividends ($.22 per
share) |
|
|
|
|
|
|
|
|
|
|
(105,049 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(105,049 |
) |
Issuance of Stock (73,793
shares) |
|
|
30 |
|
|
|
723 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,454 |
|
|
|
2,207 |
|
Restricted Stock Activity, net |
|
|
|
|
|
|
512 |
|
|
|
|
|
|
|
|
|
|
|
4,163 |
|
|
|
833 |
|
|
|
5,508 |
|
Stock Based Compensation
Activity, net |
|
|
|
|
|
|
34,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,631 |
|
|
|
52,951 |
|
Other Comprehensive Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87,540 |
) |
|
|
|
|
|
|
|
|
|
|
(87,540 |
) |
|
|
|
Balance, March 31, 2005 |
|
$ |
4,775 |
|
|
$ |
7,004,048 |
|
|
$ |
2,218,134 |
|
|
$ |
(87,300 |
) |
|
$ |
(121,011 |
) |
|
$ |
(10,455 |
) |
|
$ |
9,008,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005 |
|
$ |
4,806 |
|
|
$ |
7,035,314 |
|
|
$ |
2,581,047 |
|
|
$ |
(108,898 |
) |
|
$ |
(154,772 |
) |
|
$ |
(355,256 |
) |
|
$ |
9,002,241 |
|
Net Income |
|
|
|
|
|
|
|
|
|
|
210,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210,128 |
|
Cash Dividends ($.25 per
share) |
|
|
|
|
|
|
|
|
|
|
(115,639 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(115,639 |
) |
Issuance of Stock (85,960
shares) |
|
|
1 |
|
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,249 |
|
|
|
2,216 |
|
Restricted Stock Activity, net |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
7,972 |
|
|
|
(871 |
) |
|
|
7,098 |
|
Stock Based Compensation
Activity, net |
|
|
|
|
|
|
(8,088 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,806 |
|
|
|
29,718 |
|
Purchases of Treasury Stock
(5,101,900 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(131,839 |
) |
|
|
(131,839 |
) |
Other Comprehensive Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,218 |
) |
|
|
|
|
|
|
|
|
|
|
(58,218 |
) |
|
|
|
Balance, March 31, 2006 |
|
$ |
4,807 |
|
|
$ |
7,027,189 |
|
|
$ |
2,675,536 |
|
|
$ |
(167,116 |
) |
|
$ |
(146,800 |
) |
|
$ |
(447,911 |
) |
|
$ |
8,945,705 |
|
|
|
|
See accompanying notes to consolidated financial statements
5
North
Fork Bancorporation, Inc.
Unaudited Interim Condensed Consolidated Financial Statements
Consolidated Statements of Comprehensive Income
(Unaudited)
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
2006 |
|
|
2005 |
|
(in thousands) |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
210,128 |
|
|
$ |
259,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income: |
|
|
|
|
|
|
|
|
Unrealized Losses On Securities: |
|
|
|
|
|
|
|
|
Changes in Unrealized Losses Arising During The Period |
|
$ |
(96,286 |
) |
|
$ |
(160,826 |
) |
Less: Reclassification Adjustment For Gains Included in Net Income |
|
|
(6,722 |
) |
|
|
(4,635 |
) |
|
|
|
|
|
|
|
Changes in Unrealized Losses Arising During the Period |
|
|
(103,008 |
) |
|
|
(165,461 |
) |
Related Tax Effect on Unrealized Losses During the Period |
|
|
44,294 |
|
|
|
71,113 |
|
|
|
|
|
|
|
|
Net Change in Unrealized Losses Arising During the Period |
|
|
(58,714 |
) |
|
|
(94,348 |
) |
|
|
|
|
|
|
|
Unrealized Losses On Derivative Instruments: |
|
|
|
|
|
|
|
|
Changes in Unrealized Losses Arising During the Period |
|
|
578 |
|
|
|
10,841 |
|
Add: Reclassification Adjustment for Expenses Included in Net Income |
|
|
293 |
|
|
|
1,100 |
|
|
|
|
|
|
|
|
Changes in Unrealized Losses Arising During the Period |
|
|
871 |
|
|
|
11,941 |
|
Related Tax Effect on Unrealized Losses During the Period |
|
|
(375 |
) |
|
|
(5,133 |
) |
|
|
|
|
|
|
|
Net Change in Unrealized Losses Arising During the Period |
|
|
496 |
|
|
|
6,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Other Comprehensive Loss |
|
$ |
(58,218 |
) |
|
$ |
(87,540 |
) |
|
|
|
|
|
|
|
Comprehensive Income |
|
$ |
151,910 |
|
|
$ |
171,495 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
6
North
Fork Bancorporation, Inc.
Unaudited Interim Condensed Consolidated Financial Statements
North Fork Bancorporation, Inc.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
March 31, 2006 and 2005
In this quarterly report on Form 10-Q, where the context requires, the Company, North Fork,
we, us, and our refer to North Fork Bancorporation, Inc. and its subsidiaries.
NOTE 1
BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
North Fork Bancorporation, Inc. is a regional bank holding company organized under the laws of
the State of Delaware and registered as a bank holding company under the Bank Holding Company Act
of 1956, as amended. We are not a financial holding company as defined under the federal law. We
are committed to providing superior customer service, while offering a full range of banking
products and financial services, to both our consumer and commercial customers. Our primary
subsidiary, North Fork Bank, operates from more than 350 retail bank branches in the New York
Metropolitan area. We also operate a nationwide mortgage business, GreenPoint Mortgage Funding Inc.
(GreenPoint Mortgage or GPM). Through our other non-bank subsidiaries, we offer financial
products and services to our customers including asset management, securities brokerage, and the
sale of alternative investment products. We also operate a second subsidiary bank, Superior Savings
of New England, N.A. (Superior), which focuses on telephonic and media-based generation of
deposits.
Proposed Plan of Merger with Capital One Financial Corporation
On March 12, 2006, North Fork announced that it had entered into an Agreement and Plan of
Merger with Capital One Financial Corporation (Capital One) pursuant to which North Fork would
merge with and into Capital One, with Capital One continuing as the surviving corporation. Capital
One, headquartered in McLean, Virginia, is a financial holding company whose banking and
non-banking subsidiaries market a variety of financial products and services. Its primary products
and services offered through its subsidiaries include credit card products, deposit products,
consumer and commercial lending, automobile and other motor vehicle financing, and a variety of
other financial products and services for consumers, small businesses and commercial clients.
Subject to the terms and conditions of the merger agreement, each holder of North Fork common
stock will have the right, subject to proration, to elect to receive, for each share of North Fork
common stock, cash or Capital One common stock, in either case having a value equal to $11.25 plus
the product of 0.2216 times the average closing sales price of Capital Ones common stock for the
five trading days immediately preceding the merger date. Based on Capital Ones closing NYSE stock
price of $89.92 on March 10, 2006, the transaction is valued at $31.18 per North Fork share, for a
total transaction value of approximately $14.6 billion.
The merger is subject to certain conditions, including approval by North Fork stockholders and
Capital One stockholders, receipt of regulatory approvals and other customary closing conditions,
and is expected to close in the fourth quarter of 2006. On May 1, 2006, Capital One filed with the
Securities and Exchange Commission (the SEC) a Registration Statement on Form S-4 that included a
preliminary joint proxy statement for Capital One and North Fork that also constitutes a prospectus
for Capital One.
Basis of Presentation
The accounting and financial reporting policies of the Company and its subsidiaries are in
conformity with accounting principles generally accepted in the United States of America. The
preparation of financial statements, in conformity with accounting principles generally accepted in
the United States of America, requires that management make estimates and assumptions that affect
the reported amounts of assets and liabilities, the 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. Additionally, where applicable, the policies conform to the accounting and
reporting guidelines prescribed by bank regulatory authorities. All significant inter-company
accounts and transactions have been eliminated. Certain prior period amounts have been reclassified
to conform to current period presentation.
These unaudited interim consolidated financial statements and related managements discussion
and analysis should be read together with the consolidated financial information in our 2005 Annual
Report on Form 10-K/A, previously filed with the United States Securities and Exchange Commission
(SEC). Results of operations for the three months ended March 31, 2006 are not necessarily
indicative of the results of operations which may be expected for the full year 2006 or any future
interim period.
7
North
Fork Bancorporation, Inc.
Unaudited Interim Condensed Consolidated Financial Statements
In reviewing and understanding the financial information contained herein, you are encouraged
to read the significant accounting policies contained in Note 1 Business and Summary of
Significant Accounting Policies of our 2005 Annual Report in Form 10-K/A. There have not been any
significant changes in the factors or methodology used in determining accounting estimates or
applied in our critical accounting policies since December 2005 that are material in relation to
our financial condition or results of operations.
Accounting for Stock-Based Compensation
On January 1, 2006, we adopted SFAS No. 123R Accounting for Stock Based Compensation, Share
Based Payment, (SFAS 123R) which replaced the guidance prescribed in SFAS 123. SFAS 123R requires
that compensation costs relating to share-based payment transactions be recognized in the financial
statements. The associated costs will be measured based on the fair value of the equity or
liability instruments issued. SFAS 123R covers a wide range of share-based compensation
arrangements including share options, restricted share plans, performance-based awards, share
appreciation rights and employee share purchase plans. Restricted stock awards are recorded as
deferred compensation, a component of stockholders equity, at the fair value of these awards at
the date of grant and are amortized to compensation expense in accordance with SFAS 123R. This
accounting practice is consistent with our prior accounting treatment
of restricted stock awards. Substantially, all
employee stock options are awarded at the end of the year as part of an employees overall
compensation, based on the individuals performance during that
year, and either vest immediately or over a nominal vesting period. Therefore, there is no effect on net income of expensing stock options
during the three months ended March 31, 2006.
Critical Accounting Policies
We have identified four accounting policies that are critical to our financial statement
presentation and require critical accounting estimates, involving significant valuation
adjustments, on the part of management. The following is a description of those policies:
Provision and Allowance for Loan Losses
The allowance for loan losses is available to cover probable losses inherent in the loans
held-for-investment portfolio. Loans held-for-investment, or portions thereof, deemed uncollectible
are charged to the allowance for loan losses, while recoveries, if any, of amounts previously
charged-off are added to the allowance. Amounts are charged-off after giving consideration to such
factors as the customers financial condition, underlying collateral values and guarantees, and
general economic conditions.
The evaluation process for determining the adequacy of the allowance for loan losses and the
periodic provisioning for estimated losses is undertaken on a quarterly basis, but may increase in
frequency should conditions arise that would require our prompt attention. Conditions giving rise
to such action are business combinations or other acquisitions or dispositions of large quantities
of loans, dispositions of non-performing and marginally performing loans by bulk sale or any
development which may indicate an adverse trend. Recognition is also given to the changing risk
profile resulting from business combinations, customer performance, results of ongoing
credit-quality monitoring processes and the cyclical nature of economic and business conditions.
The loan portfolio is categorized according to collateral type, loan purpose or borrower type
(i.e. commercial, consumer). The categories used include Multi-Family Mortgages, Residential 1-4
Family Mortgages, Commercial Mortgages, Commercial and Industrial, Consumer, and Construction and
Land, which are more fully described in the section entitled Managements Discussion and Analysis,
Loans Held-for-Investment. An important consideration is our concentration of real estate
related loans.
The methodology employed for assessing the adequacy of the allowance consists of the following
criteria:
|
|
|
Establishment of reserve amounts for specifically identified criticized loans,
including those arising from business combinations and those designated as requiring
special attention by our internal loan review program, or bank regulatory examinations
(specific-allowance method). |
|
|
|
|
An allocation to the remaining loans giving effect to historical losses experienced
in each loan category, cyclical trends and current economic conditions which may impact
future losses (loss experience factor method). |
The initial allocation or specific-allowance methodology commences with loan officers and
underwriters grading the quality of their loans on a risk classification scale ranging from 1-10.
Loans identified as below investment grade are referred to our independent Loan Review Department
(LRD) for further analysis and identification of those factors that may ultimately affect the
full recovery or collectibility of principal and/or interest. These loans are subject to continuous
review and monitoring while they remain in a criticized category. Additionally, LRD is responsible
for performing periodic reviews of the loan portfolio independent from the
8
North
Fork Bancorporation, Inc.
Unaudited Interim Condensed Consolidated Financial Statements
identification process employed by loan officers and underwriters. Loans that fall into
criticized categories are further evaluated for impairment in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for
Impairment of a Loan. The portion of the allowance allocated to impaired loans is based on the
most appropriate of the following measures: discounted cash flows from the loan using the loans
effective interest rate, the fair value of the collateral for collateral dependent loans, or the
observable market price of the impaired loan.
The remaining allocation applies a category specific loss experience factor to loans which
have not been specifically reviewed for impairment, including smaller balance homogeneous loans
that we have identified as residential and consumer, which are not specifically reserved for
impairment. These category specific factors give recognition to our historical loss experience, as
well as that of acquired businesses, cyclical trends, current economic conditions and our exposure
to real estate values. These factors are reviewed on a quarterly basis with senior lenders to
ensure that the factors applied to each loan category are reflective of trends or changes in the
current business environment which may affect these categories.
Upon completion of both allocation processes, the specific and loss experience factor method
allocations are combined, producing the allocation of the allowance for loan losses by loan
category. Other factors used to evaluate the adequacy of the allowance for loan losses include the
amount and trend of criticized loans, results of regulatory examinations, peer group comparisons
and economic data associated with the relevant markets, specifically the local real estate market.
Because many loans depend upon the sufficiency of collateral, any adverse trend in the relevant
real estate markets could have a significant adverse effect on the quality of our loan portfolio.
This may lead management to consider that the overall allowance level should be greater than the
amount determined by the allocation process described above.
Accounting for Derivative Financial Instruments
Derivative financial instruments are recorded at fair value as either assets or liabilities on
the balance sheet. The accounting for changes in the fair value of a derivative instrument is
determined by whether it has been designated and qualifies as part of a hedging relationship and on
the type of hedging relationship. Transactions hedging changes in the fair value of a recognized
asset, liability, or firm commitment are classified as fair value hedges. Derivative instruments
hedging exposure to variable cash flows of recognized assets, liabilities or forecasted
transactions are classified as cash flow hedges.
Fair value hedges result in the immediate recognition through earnings of gains or losses on
the derivative instrument, as well as corresponding losses or gains on the hedged financial
instrument to the extent they are attributable to the hedged risk. The gain or loss on the
effective portion of a derivative instrument designated as a cash flow hedge is reported as a
component of other comprehensive income, and reclassified to earnings in the same period that the
hedged transaction affects earnings. The gain or loss on the ineffective portion of the derivative
instrument, if any, is recognized in earnings for both fair value and cash flow hedges. Derivative
instruments not qualifying for hedge accounting treatment are recorded at fair value and classified
as trading assets or liabilities with the resultant changes in fair value recognized in earnings
during the period of change.
In the event of early termination of a derivative contract, previously designated as part of a
cash flow hedging relationship, any resulting gain or loss is deferred as an adjustment to the
carrying value of the assets or liabilities, against which the hedge had been designated with a
corresponding offset to other comprehensive income, and reclassified to earnings over the shorter
of the remaining life of the designated assets or liabilities, or the derivative contract. However,
if the hedged item is no longer on balance sheet (i.e. sold or canceled), the derivative gain or
loss is immediately reclassified to earnings.
As part of our mortgage banking operations, we enter into commitments to originate or purchase
loans whereby the interest rate on the loan is determined prior to funding (interest rate lock
commitment). Interest rate lock commitments related to loans that we intend to sell in the
secondary market are considered free-standing derivatives. These derivatives are required to be
recorded at fair value, with changes in fair value recorded in current period earnings. In
accordance with Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan
Commitments, interest rate lock commitments are initially valued at zero. Changes in fair value
subsequent to inception are based on changes in the fair value of loans with similar
characteristics and changes in the probability that the loan will fund within the terms of the
commitment, which is affected primarily by changes in interest rates and passage of time. In
general, the probability that a loan will fund increases if mortgage rates rise and decreases if
mortgage rates fall. The initial value inherent in the loan commitment at origination is recognized
through gain on sale of loans when the underlying loan is sold.
We are exposed to interest rate risk from the time an interest rate lock commitment is made to
a borrower to the time the resulting mortgage loan is sold in the secondary market. To manage this
risk, we use derivatives, primarily forward sales contracts on mortgage backed securities and
forward delivery commitments, in an amount equal to the portion of interest rate contracts expected
to close. The duration of these derivatives are selected to have the changes in their fair value
correlate closely with the changes in fair
9
North
Fork Bancorporation, Inc.
Unaudited Interim Condensed Consolidated Financial Statements
value of the interest rate lock commitments on loans to be sold. These derivatives are also
required to be recorded at fair value, with changes in fair value recorded in current period
earnings.
Representation and Warranty Reserve
The representation and warranty reserve is available to cover probable losses inherent with
the sale of loans in the secondary market. In the normal course of business, certain
representations and warranties are made to investors at the time of sale, which permit the investor
to return the loan to the seller or require the seller to indemnify the investor (make whole) for
any losses incurred by the investor while the loan remains outstanding.
The evaluation process for determining the adequacy of the representation and warranty reserve
and the periodic provisioning for estimated losses is performed for each product type on a
quarterly basis. Factors considered in the evaluation process include historical sales volumes,
aggregate repurchase and indemnification activity and actual losses incurred. Additions to the
reserve are recorded as a reduction to the gain on sale of loans. Losses incurred on loans where we
are required to either repurchase the loan or make payments to the investor under the
indemnification provisions are charged against the reserve. The representation and warranty reserve
is included in accrued expenses and other liabilities in the consolidated balance sheet.
Mortgage Servicing Rights
The right to service mortgage loans for others, or Mortgage Servicing Rights (MSRs), is
recognized when mortgage loans are sold in the secondary market and the right to service those
loans for a fee is retained. The MSRs initial carrying value is determined by allocating the
recorded investment in the underlying mortgage loans between the assets sold and the interest
retained based on their relative fair values at the date of transfer. Fair value of the MSRs is
determined using the present value of the estimated future cash flows of net servicing income. MSRs
are carried at the lower of the initial carrying value, adjusted for amortization, or fair value.
MSRs are amortized in proportion to, and over the period of, estimated net servicing income. The
amortization of MSRs is periodically analyzed and adjusted to reflect changes in prepayment speeds.
To determine fair value, a valuation model that calculates the present value of estimated
future net servicing income is utilized. We use assumptions in the valuation model that market
participants use when estimating future net servicing income, including prepayment speeds, discount
rates, default rates, cost to service, escrow account earnings, contractual servicing fee income,
ancillary income and late fees.
MSRs are periodically evaluated for impairment based on the difference between the carrying
amount and current fair value. To evaluate and measure impairment, the underlying loans are
stratified based on certain risk characteristics, including loan type, note rate and investor
servicing requirements. If it is determined that temporary impairment exists, a valuation allowance
is established through a charge to earnings for any excess of amortized cost over the current fair
value, by risk stratification. If determined in future periods that all or a portion of the
temporary impairment no longer exists for a particular risk stratification, the valuation allowance
is reduced by increasing earnings. However, if impairment for a particular risk stratification is
deemed other-than-temporary (recovery of a recorded valuation allowance is remote), a direct
write-down, permanently reducing the carrying value of the MSRs is recorded. The periodic
evaluation of MSRs for other-than-temporary impairment considers both historical and projected
trends in interest rates, payoff activity and whether impairment could be recovered through
increases in market interest rates.
10
North
Fork Bancorporation, Inc.
Unaudited Interim Condensed Consolidated Financial Statements
NOTE 2 SECURITIES
The amortized cost and estimated fair values of available-for-sale securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
|
December 31, 2005 |
|
|
March 31, 2005 |
|
Available-for-Sale |
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
(in thousands) |
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
CMO Agency Issuances |
|
$ |
3,343,498 |
|
|
$ |
3,212,233 |
|
|
$ |
3,604,117 |
|
|
$ |
3,511,285 |
|
|
$ |
4,826,934 |
|
|
$ |
4,746,558 |
|
CMO Private Issuances |
|
|
3,455,068 |
|
|
|
3,347,213 |
|
|
|
3,484,016 |
|
|
|
3,409,789 |
|
|
|
4,984,430 |
|
|
|
4,923,934 |
|
Agency Pass-Through Certificates |
|
|
1,822,026 |
|
|
|
1,773,735 |
|
|
|
1,986,388 |
|
|
|
1,956,487 |
|
|
|
2,506,448 |
|
|
|
2,491,331 |
|
State & Municipal Obligations |
|
|
864,743 |
|
|
|
858,651 |
|
|
|
884,742 |
|
|
|
881,238 |
|
|
|
980,352 |
|
|
|
979,304 |
|
Equity Securities (1) (2) |
|
|
605,785 |
|
|
|
612,219 |
|
|
|
663,371 |
|
|
|
675,525 |
|
|
|
769,594 |
|
|
|
776,108 |
|
U.S. Treasury & Agency Obligations |
|
|
189,803 |
|
|
|
185,872 |
|
|
|
233,468 |
|
|
|
231,152 |
|
|
|
360,920 |
|
|
|
357,407 |
|
Other Securities |
|
|
626,274 |
|
|
|
625,404 |
|
|
|
628,737 |
|
|
|
630,501 |
|
|
|
704,211 |
|
|
|
708,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Available for Sale Securities |
|
$ |
10,907,197 |
|
|
$ |
10,615,327 |
|
|
$ |
11,484,839 |
|
|
$ |
11,295,977 |
|
|
$ |
15,132,889 |
|
|
$ |
14,983,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amortized cost and fair value includes $245.5 million, $265.8 million and $336.8 million in
Federal Home Loan Bank Stock at March 31, 2006, December 31, 2005 and March 31, 2005,
respectively. |
|
(2) |
|
Amortized cost and fair value includes $297.2 million and $301.6 million at March 31, 2006,
respectively $332.3 million and $342.8 million at December 31, 2005, respectively and $369.6
million and $374.4 million at March 31, 2005, respectively of Freddie Mac and Fannie Mae
Preferred Stock, respectively. |
The amortized cost and estimated fair values of held-to-maturity securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
|
December 31, 2005 |
|
|
March 31, 2005 |
|
Held-to-Maturity |
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
(in thousands) |
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
Agency Pass-Through Certificates |
|
$ |
44,257 |
|
|
$ |
43,111 |
|
|
$ |
46,155 |
|
|
$ |
45,814 |
|
|
$ |
54,118 |
|
|
$ |
54,483 |
|
State & Municipal Obligations |
|
|
38,181 |
|
|
|
39,537 |
|
|
|
38,301 |
|
|
|
40,116 |
|
|
|
44,405 |
|
|
|
46,676 |
|
CMO Private Issuances |
|
|
9,042 |
|
|
|
8,589 |
|
|
|
9,430 |
|
|
|
8,958 |
|
|
|
23,202 |
|
|
|
22,737 |
|
Other Securities |
|
|
10,006 |
|
|
|
9,941 |
|
|
|
10,324 |
|
|
|
10,240 |
|
|
|
12,020 |
|
|
|
11,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Held-to-Maturity Securities |
|
$ |
101,486 |
|
|
$ |
101,178 |
|
|
$ |
104,210 |
|
|
$ |
105,128 |
|
|
$ |
133,745 |
|
|
$ |
135,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2006, securities carried at $8.5 billion were pledged to secure securities sold
under agreements to repurchase, other borrowings, and for other purposes as required by law.
Securities pledged under agreements pursuant to which the collateral may be sold or repledged by
the secured parties approximated $5.0 billion, while securities pledged under agreements pursuant
to which the secured parties may not sell or repledge approximated $3.5 billion at March 31, 2006.
NOTE 3 LOANS
Loans designated as held-for-sale are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Held-for-Sale |
|
March 31, |
|
|
% of |
|
|
December 31, |
|
|
% of |
|
|
March 31, |
|
|
% of |
|
(dollars in thousands) |
|
2006 |
|
|
Total |
|
|
2005 |
|
|
Total |
|
|
2005 |
|
|
Total |
|
Mortgage Loans |
|
$ |
3,505,357 |
|
|
|
84 |
% |
|
$ |
3,824,547 |
|
|
|
89 |
% |
|
$ |
4,239,366 |
|
|
|
80 |
% |
Home Equity |
|
|
647,542 |
|
|
|
16 |
|
|
|
496,656 |
|
|
|
11 |
|
|
|
1,061,352 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,152,899 |
|
|
|
100 |
% |
|
$ |
4,321,203 |
|
|
|
100 |
% |
|
$ |
5,300,718 |
|
|
|
100 |
% |
Deferred Origination Costs |
|
|
37,566 |
|
|
|
|
|
|
|
38,064 |
|
|
|
|
|
|
|
50,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans Held-for-Sale |
|
$ |
4,190,465 |
|
|
|
|
|
|
$ |
4,359,267 |
|
|
|
|
|
|
$ |
5,350,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
North
Fork Bancorporation, Inc.
Unaudited Interim Condensed Consolidated Financial Statements
The composition of loans held-for-investment are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Held-for-Investment |
|
March 31, |
|
|
% of |
|
|
December 31, |
|
|
% of |
|
|
March 31, |
|
|
% of |
|
(dollars in thousands) |
|
2006 |
|
|
Total |
|
|
2005 |
|
|
Total |
|
|
2005 |
|
|
Total |
|
Commercial Mortgages |
|
$ |
6,538,810 |
|
|
|
19 |
% |
|
$ |
6,206,416 |
|
|
|
19 |
% |
|
$ |
5,535,281 |
|
|
|
17 |
% |
Commercial & Industrial |
|
|
5,193,904 |
|
|
|
15 |
|
|
|
4,709,440 |
|
|
|
14 |
|
|
|
3,408,006 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial |
|
|
11,732,714 |
|
|
|
34 |
% |
|
|
10,915,856 |
|
|
|
33 |
% |
|
|
8,943,287 |
|
|
|
28 |
% |
Residential Mortgages |
|
|
14,861,680 |
|
|
|
44 |
|
|
|
15,068,443 |
|
|
|
45 |
|
|
|
16,445,902 |
|
|
|
51 |
|
Multi-Family Mortgages |
|
|
4,827,642 |
|
|
|
14 |
|
|
|
4,821,642 |
|
|
|
15 |
|
|
|
4,328,879 |
|
|
|
14 |
|
Consumer |
|
|
1,619,812 |
|
|
|
5 |
|
|
|
1,558,782 |
|
|
|
5 |
|
|
|
1,554,499 |
|
|
|
5 |
|
Construction & Land |
|
|
1,122,917 |
|
|
|
3 |
|
|
|
829,273 |
|
|
|
2 |
|
|
|
541,280 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
34,164,765 |
|
|
|
100 |
% |
|
$ |
33,193,996 |
|
|
|
100 |
% |
|
$ |
31,813,847 |
|
|
|
100 |
% |
Deferred Origination Costs, net |
|
|
37,888 |
|
|
|
|
|
|
|
38,240 |
|
|
|
|
|
|
|
43,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans Held-for-Investment |
|
$ |
34,202,653 |
|
|
|
|
|
|
$ |
33,232,236 |
|
|
|
|
|
|
$ |
31,857,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
March 31, 2006, loans held-for-investment of $3.5 billion were pledged as collateral under
borrowing arrangements with the Federal Home Loan Bank of New York.
Non-Performing Assets
Non-performing assets include loans ninety days past due and still accruing, non-accrual loans
and other real estate. Other real estate consists of properties acquired through foreclosure or
deed in lieu of foreclosure. Other real estate is carried at the lower of the recorded amount of
the loan or the fair value of the property based on the appraised value adjusted for estimated
disposition costs.
Other real estate is reflected on the accompanying balance sheet as a component of other assets.
The following table presents the components of non-performing assets as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
(dollars in thousands) |
|
2006 |
|
|
2005 |
|
|
2005 |
|
Commercial Mortgages |
|
$ |
3,664 |
|
|
$ |
498 |
|
|
$ |
11,459 |
|
Commercial & Industrial |
|
|
10,277 |
|
|
|
7,970 |
|
|
|
8,152 |
|
|
|
|
|
|
|
|
|
|
|
Total Commercial |
|
|
13,941 |
|
|
|
8,468 |
|
|
|
19,611 |
|
Residential Mortgages |
|
|
24,924 |
|
|
|
19,315 |
|
|
|
91,411 |
|
Multi-Family Mortgages |
|
|
135 |
|
|
|
550 |
|
|
|
1,293 |
|
Consumer |
|
|
1,771 |
|
|
|
2,684 |
|
|
|
2,527 |
|
Construction and Land |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Performing Loans Held-for-Investment |
|
$ |
40,771 |
|
|
$ |
31,017 |
|
|
$ |
114,842 |
|
Non-Performing Loans Held-for-Sale |
|
|
31,201 |
|
|
|
13,931 |
|
|
|
45,780 |
|
Other Real Estate |
|
|
5,455 |
|
|
|
4,101 |
|
|
|
14,243 |
|
|
|
|
|
|
|
|
|
|
|
Total Non-Performing Assets |
|
$ |
77,427 |
|
|
$ |
49,049 |
|
|
$ |
174,865 |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses to Non-Performing Loans Held-for-Investment |
|
|
543 |
% |
|
|
703 |
% |
|
|
187 |
% |
Allowance for Loan Losses to Total Loans Held-for-Investment |
|
|
.65 |
|
|
|
.66 |
|
|
|
.68 |
|
Non-Performing Loans to Total Loans Held-for-Investment |
|
|
.12 |
|
|
|
.09 |
|
|
|
.36 |
|
Non-Performing Assets to Total Assets |
|
|
.13 |
|
|
|
.09 |
|
|
|
.29 |
|
Non-performing loans held-for-investment includes loans ninety days past due and still
accruing totaling $6.0 million, $3.5 million and $4.0 million at March 31, 2006, December 31, 2005
and March 31, 2005, respectively. Non-performing assets increased from the historically low year
end levels, but remain notably lower than other quarters.
Future levels of non-performing assets will be influenced by prevailing economic conditions
and the impact of those conditions on our customers, changes in both interest and unemployment
rates, property values, and other internal and external factors, including potential sales of such
assets.
12
North
Fork Bancorporation, Inc.
Unaudited Interim Condensed Consolidated Financial Statements
NOTE 4 ALLOWANCE FOR LOAN LOSSES
A summary of changes in the allowance for loan losses is shown below for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
(in thousands) |
|
2006 |
|
|
2005 |
|
|
2005 |
|
Balance at Beginning of Period |
|
$ |
217,939 |
|
|
$ |
220,347 |
|
|
$ |
211,097 |
|
Provision for Loan Losses |
|
|
9,000 |
|
|
|
9,000 |
|
|
|
9,000 |
|
|
|
|
|
|
|
|
|
|
|
Sub-Total |
|
|
226,939 |
|
|
|
229,347 |
|
|
|
220,097 |
|
Recoveries Credited to the Allowance |
|
|
3,152 |
|
|
|
3,025 |
|
|
|
5,002 |
|
Losses Charged to the Allowance |
|
|
(8,835 |
) |
|
|
(14,433 |
) |
|
|
(9,792 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at End of Period |
|
$ |
221,256 |
|
|
$ |
217,939 |
|
|
$ |
215,307 |
|
|
|
|
|
|
|
|
|
|
|
NOTE 5 FEDERAL FUNDS PURCHASED AND COLLATERALIZED BORROWINGS
The
following table summarizes the components of federal funds purchased
and collateralized borrowings for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
(in thousands) |
|
2006 |
|
|
2005 |
|
|
2005 |
|
|
|
|
|
Federal
Funds Purchased |
|
$ |
1,478,000 |
|
|
$ |
2,634,000 |
|
|
$ |
2,239,000 |
|
Securities
Sold Under Repurchase Agreements |
|
|
4,472,344 |
|
|
|
3,783,017 |
|
|
|
6,361,849 |
|
Federal Home
Loan Bank Advances |
|
|
2,870,460 |
|
|
|
3,283,604 |
|
|
|
4,330,829 |
|
|
|
|
|
Total
Federal Funds Sold and Collateralized Borrowings |
|
$ |
8,820,804 |
|
|
$ |
9,700,621 |
|
|
$ |
12,931,678 |
|
|
|
|
|
The expected maturity or repricing of Federal Home Loan Bank (FHLB) Advances and Repurchase
Agreements (Repos) at March 31, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands) |
|
FHLB |
|
|
Average |
|
|
Repurchase |
|
|
Average |
|
|
|
|
|
|
Total Average |
|
Maturity |
|
Advances |
|
|
Rate (1) |
|
|
Agreements |
|
|
Rate (1) |
|
|
Total (2) |
|
|
Rate (1) |
|
2006 |
|
$ |
1,525,015 |
|
|
|
4.01 |
% |
|
$ |
2,457,761 |
|
|
|
4.08 |
% |
|
$ |
3,982,776 |
|
|
|
4.05 |
% |
2007 |
|
|
150,000 |
|
|
|
3.77 |
|
|
|
700,000 |
|
|
|
3.05 |
|
|
|
850,000 |
|
|
|
3.18 |
|
2008 |
|
|
800,000 |
|
|
|
2.59 |
|
|
|
800,000 |
|
|
|
4.13 |
|
|
|
1,600,000 |
|
|
|
3.36 |
|
2009 |
|
|
200,000 |
|
|
|
2.93 |
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
2.93 |
|
2010 |
|
|
100,000 |
|
|
|
5.90 |
|
|
|
275,000 |
|
|
|
3.90 |
|
|
|
375,000 |
|
|
|
4.44 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
4.82 |
|
|
|
200,000 |
|
|
|
4.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,775,015 |
|
|
|
3.58 |
% |
|
$ |
4,432,761 |
|
|
|
3.95 |
% |
|
$ |
7,207,776 |
|
|
|
3.81 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects the impact of purchase accounting adjustments and interest rate swaps. |
|
(2) |
|
Excludes $135.0 million in purchase accounting discounts. |
|
(3) |
|
Federal funds purchased were $1,478,000 at March 31, 2006. |
Interest rate swaps were used to convert $75 million in Repos from variable rates to fixed
rates. These swaps qualify as cash flow hedges and are explained in more detail in Note 9
Derivative Financial Instruments.
NOTE 6 OTHER BORROWINGS
The following tables summarize other borrowings outstanding as of the dates indicated:
SUBORDINATED NOTES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
(in thousands) |
|
2006 |
|
|
2005 |
|
|
2005 |
|
Parent Company: |
|
|
|
|
|
|
|
|
|
|
|
|
5.875% Subordinated Notes due August 2012 |
|
$ |
349,431 |
|
|
$ |
349,408 |
|
|
$ |
349,341 |
|
5.0% Subordinated Notes due August 2012 |
|
|
150,000 |
|
|
|
150,000 |
|
|
|
150,000 |
|
Subsidiary Bank: |
|
|
|
|
|
|
|
|
|
|
|
|
9.25% Subordinated Bank Notes due October 2010 |
|
|
177,118 |
|
|
|
178,622 |
|
|
|
183,137 |
|
|
|
|
|
|
|
|
|
|
|
Total Subordinated Debt |
|
|
676,549 |
|
|
|
678,030 |
|
|
|
682,478 |
|
Fair Value Hedge Adjustment |
|
|
(38,498 |
) |
|
|
(31,040 |
) |
|
|
(33,354 |
) |
|
|
|
|
|
|
|
|
|
|
Total Subordinated Notes Carrying Amount |
|
$ |
638,051 |
|
|
$ |
646,990 |
|
|
$ |
649,124 |
|
|
|
|
|
|
|
|
|
|
|
13
North
Fork Bancorporation, Inc.
Unaudited Interim Condensed Consolidated Financial Statements
$350 million of 5.875% Subordinated Notes and $150 million of 5% Fixed Rate/Floating Rate
Subordinated Notes which mature in 2012, were issued in August 2002. These issuances qualify as
Tier II capital for regulatory purposes. The 5.875% Subordinated Notes bear interest at a fixed
rate through maturity, pay interest semi-annually and are not redeemable prior to maturity. The
Fixed Rate/Floating Rate Notes bear interest at a fixed rate of 5% per annum for the first five
years, and convert to a floating rate thereafter until maturity based on three-month LIBOR plus
1.87%. Beginning in the sixth year, we have the right to redeem the Fixed Rate/Floating Rate Notes
at par plus accrued interest. There are $500 million in pay floating swaps, designated as fair
value hedges, that were used to convert the stated fixed rate on these Notes to variable rates
indexed to three-month LIBOR. (See Note 9 Derivative Financial Instruments for additional
information).
$150 million
of 9.25% Subordinated Bank Notes mature in 2010, pay interest
semi-annually of which $120 million qualify for regulatory purposes as Tier II capital. These Notes were
assumed through a prior acquisition and include a remaining fair value discount totaling $27.1
million, $28.6 million and $33.1 million at March 31, 2006, December 31, 2005 and March 31, 2005,
respectively, which reduced the effective cost of funds to 4.61%.
JUNIOR SUBORDINATED DEBT (related to Trust Preferred Securities):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
(in thousands) |
|
2006 |
|
|
2005 |
|
|
2005 |
|
8.70% Junior Subordinated Debt due December 2026 |
|
$ |
102,842 |
|
|
$ |
102,839 |
|
|
$ |
102,830 |
|
8.00% Junior Subordinated Debt due December 2027 |
|
|
102,814 |
|
|
|
102,811 |
|
|
|
102,801 |
|
8.17% Junior Subordinated Debt due May 2028 |
|
|
46,547 |
|
|
|
46,547 |
|
|
|
46,547 |
|
9.10% Junior Subordinated Debt due June 2027 |
|
|
232,210 |
|
|
|
235,867 |
|
|
|
236,906 |
|
|
|
|
|
|
|
|
|
|
|
Total Junior Subordinated Debt |
|
|
484,413 |
|
|
|
488,064 |
|
|
|
489,084 |
|
Fair Value Hedge Adjustment |
|
|
|
|
|
|
7,427 |
|
|
|
11,606 |
|
|
|
|
|
|
|
|
|
|
|
Total Junior Subordinated Debt Carrying Amount |
|
$ |
484,413 |
|
|
$ |
495,491 |
|
|
$ |
500,690 |
|
|
|
|
|
|
|
|
|
|
|
Capital Securities (or Trust Preferred Securities), which qualify as Tier I Capital for
regulatory purposes, were issued through Wholly-Owned Statutory Business Trusts (the Trusts). The
Trusts were initially capitalized with common stock and the proceeds of both the common stock and
Capital Securities were used to acquire Junior Subordinated Debt issued by the Company. The Capital
Securities are obligations of the Trusts. The Junior Subordinated Debt and Capital Securities bear
the same interest rates, are due concurrently and are non-callable at any time in whole or in part
for ten years from the date of issuance, except in certain limited circumstances. They may be
redeemed annually thereafter, in whole or in part, at declining premiums to maturity. The costs
associated with these issuances have been capitalized and are being amortized to maturity using the
straight-line method.
The
9.10% Junior Subordinated Debt due June 2027 was assumed through a prior
acquisition and includes a remaining fair value discount of $26.0 million, $29.7 million and
$30.7 million at March 31, 2006, December 31, 2005 and March 31, 2005, respectively, which reduced
the effective cost of funds to 7.63%.
Pay floating swaps with a $245 million notional value were previously designated as fair value
hedges of the 8.70%, 8.00% and 8.17% Junior Subordinated Debt
issuances. These swaps were used to convert a
corresponding amount of debt from their stated fixed rates to variable rates indexed to three-month
LIBOR. At March 31, 2006, these swaps were reclassified as
trading instruments and accordingly the
cumulative change in fair value on these swaps totaling $2.2 million was recorded in Other Income
with no corresponding offset to the former hedged item. (See Note 9 Derivative Financial
Instruments Trading Instruments for additional information)
SENIOR NOTES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
(in thousands) |
|
2006 |
|
|
2005 |
|
|
2005 |
|
3.20% Senior Notes due June 2008 (1) |
|
$ |
345,464 |
|
|
$ |
344,945 |
|
|
$ |
343,388 |
|
Fair Value Hedge Adjustment |
|
|
(12,077 |
) |
|
|
(10,062 |
) |
|
|
(8,734 |
) |
|
|
|
|
|
|
|
|
|
|
Total Senior Notes Carrying Amount |
|
$ |
333,387 |
|
|
$ |
334,883 |
|
|
$ |
334,654 |
|
|
|
|
|
|
|
|
|
|
|
$350 million of 3.20% Senior Notes mature in 2008, and pay interest semi-annually. These notes
include the remaining fair value premium from a prior acquisition of $4.5 million, $5.1 million and
$6.6 million at March 31, 2006, December 31, 2005 and March 31, 2005, respectively, which increased
the effective cost of funds to 3.84%.
14
North
Fork Bancorporation, Inc.
Unaudited Interim Condensed Consolidated Financial Statements
Pay floating swaps of $350 million, designated as fair value hedges, were used to convert the
stated fixed rate on these notes to variable rates indexed to the three-month LIBOR. (See Note 9
Derivative Financial Instruments for additional information).
NOTE 7
MORTGAGE SERVICING RIGHTS
The following table sets forth the change in the carrying value and fair value of mortgage
servicing rights for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
December 31, |
|
March 31, |
(dollars in thousands) |
|
2006 |
|
2005 |
|
2005 |
|
|
|
Mortgage Servicing Rights: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, Beginning of Period |
|
$ |
290,550 |
|
|
$ |
292,778 |
|
|
$ |
254,857 |
|
Originations |
|
|
17,060 |
|
|
|
22,741 |
|
|
|
50,055 |
|
Amortization |
|
|
(23,598 |
) |
|
|
(23,591 |
) |
|
|
(19,989 |
) |
Sales |
|
|
(386 |
) |
|
|
(1,378 |
) |
|
|
(1,655 |
) |
|
|
|
Balance, End of Period |
|
$ |
283,626 |
|
|
$ |
290,550 |
|
|
$ |
283,268 |
|
|
|
|
Valuation allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, Beginning of Period |
|
$ |
(23,126 |
) |
|
$ |
(25,431 |
) |
|
$ |
|
|
Temporary Recovery/(Impairment) |
|
|
15,691 |
|
|
|
2,305 |
|
|
|
|
|
|
|
|
Balance, End of Period |
|
$ |
(7,435 |
) |
|
$ |
(23,126 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Servicing Rights, net |
|
$ |
276,191 |
|
|
$ |
267,424 |
|
|
$ |
283,268 |
|
|
|
|
Fair Value of Mortgage Servicing Rights |
|
$ |
291,989 |
|
|
$ |
268,874 |
|
|
$ |
315,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of Mortgage Servicing Rights to Related
Loans Serviced for Others |
|
|
0.97 |
% |
|
|
0.92 |
% |
|
|
0.97 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Service Fee |
|
|
0.29 |
% |
|
|
0.29 |
% |
|
|
0.30 |
% |
|
|
|
The table below provides the significant assumptions used in estimating the fair value of the
servicing assets for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
March 31, |
|
|
2006 |
|
2005 |
|
2005 |
Weighted Avg. Prepayment Rate (includes default Rate) |
|
|
26.40 |
% |
|
|
28.10 |
% |
|
|
23.60 |
% |
Weighted Avg. Life (in years) |
|
|
3.8 |
|
|
|
3.3 |
|
|
|
4.5 |
|
Cash Flows, Discount Rate |
|
|
10.50 |
% |
|
|
10.50 |
% |
|
|
10.50 |
% |
At March 31, 2006, the sensitivities to immediate 10% and 20% increases in the weighted
average prepayment rates would decrease the fair value of mortgage servicing rights by $12.7
million and $24.0 million, respectively.
At March 31, 2006, the aggregate principal balance of mortgage loans serviced for others,
excluding interim servicing was $28.4 billion.
15
North
Fork Bancorporation, Inc.
Unaudited Interim Condensed Consolidated Financial Statements
NOTE 8
REPRESENTATION AND WARRANTY RESERVE
The representation and warranty reserve is available to cover probable losses inherent with
the sale of loans in the secondary market. In the normal course of business, certain
representations and warranties are made to investors at the time of sale, which permit the investor
to return the loan to us or require us to indemnify the investor (make whole) for any losses
incurred by the investor while the loan remains outstanding. The representation and warranty
reserve is included in accrued expenses and other liabilities on the consolidated balance sheet.
A summary of the changes in the representation and warranty reserve is shown below for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
(in thousands) |
|
2006 |
|
|
2005 |
|
|
2005 |
|
Balance, Beginning of Period |
|
$ |
128,620 |
|
|
$ |
135,068 |
|
|
$ |
97,066 |
|
Provisions for Estimated Losses (1) |
|
|
11,481 |
|
|
|
14,190 |
|
|
|
23,718 |
|
Losses Incurred |
|
|
(8,356 |
) |
|
|
(20,638 |
) |
|
|
(9,083 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, End of Period |
|
$ |
131,745 |
|
|
$ |
128,620 |
|
|
$ |
111,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The provision is reported as a reduction to gain on sale of loans. |
NOTE 9
DERIVATIVE AND TRADING FINANCIAL INSTRUMENTS
The use of derivative financial instruments creates exposure to credit risk. This credit
exposure relates to losses that would be recognized if the counterparties fail to perform their
obligations under the contracts. To mitigate this exposure to non-performance, we deal only with
counterparties of good credit standing and establish counterparty credit limits. In connection with
our interest rate risk management process, we periodically enter into interest rate derivative
contracts. These derivative interest rate contracts may include interest rate swaps, caps, and
floors and are used to modify the repricing characteristics of specific assets and liabilities.
The following table details the interest rate swaps and their associated hedged liabilities
outstanding as of March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands) |
|
Hedged |
|
|
Notional |
|
|
Fixed |
|
|
Variable |
|
Maturity |
|
Liability |
|
|
Amounts |
|
|
Interest Rates |
|
|
Interest Rates |
|
Pay Fixed Swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
Repurchase Agreements |
|
$ |
75,000 |
|
|
|
6.14 |
% |
|
|
4.71 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
75,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay Floating Swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
5.00% Subordinated Notes |
|
$ |
150,000 |
|
|
|
5.00 |
% |
|
|
7.05 |
% |
2008 |
|
3.20% Senior Notes |
|
|
350,000 |
|
|
|
3.20 |
|
|
|
4.98 |
|
2012 |
|
5.875% Subordinated Notes |
|
|
350,000 |
|
|
|
5.88 |
|
|
|
7.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
850,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2006, $75 million in pay fixed swaps, designated as cash flow hedges, were
outstanding. These agreements change the repricing characteristics of certain repurchase
agreements, requiring us to make periodic fixed rate payments and receive periodic variable rate
payments indexed to three-month LIBOR, based on a common notional amount and identical payment and
maturity dates. As of March 31, 2006, these swaps had an unrealized loss of $1.3 million, which is
recorded as a component of other liabilities (the net of tax amount of $0.7 million is reflected in
stockholders equity as a component of accumulated other comprehensive loss). The use of pay fixed
swaps increased interest expense by $0.3 million and $1.1 million for the three months ended March
31, 2006 and 2005, respectively. Based upon the current interest rate environment, approximately
$0.4 million of the $0.7 million after tax unrealized loss is expected to be reclassified from
accumulated other comprehensive loss during the next twelve months.
At March 31, 2006, $850 million of pay floating swaps, designated as fair value hedges, were
outstanding. $350 million in pay floating swaps was used to convert the stated fixed rate on the
5.88% subordinated notes to variable rates indexed to three-month LIBOR. The swap term and payment
dates match the related terms of the subordinated notes. $150 million in pay floating swaps were
used to convert the stated fixed rate on the 5% subordinated notes to variable rates indexed to
three-month LIBOR. The swap terms are for five years, matching the period of time, the subordinated
notes pay a fixed rate. Beginning in the sixth year, we have the right
16
North
Fork Bancorporation, Inc.
Unaudited Interim Condensed Consolidated Financial Statements
to redeem the fixed rate/floating rate notes at par plus accrued interest or the interest rate
converts to a spread over three month LIBOR. At March 31, 2006, the fair value adjustment on these
swaps resulted in a loss of $38.5 million and is reflected as a component of other liabilities. The
carrying amount of the $500 million in subordinated notes was decreased by an identical amount.
These swaps increased interest expense by approximately $1.5 million and reduced interest expense
by $0.9 million for the months ended March 31, 2006 and 2005, respectively. There was no hedge
ineffectiveness recorded in the Consolidated Statements of Income on these transactions for all
periods reported.
$350 million of pay floating swaps were used to convert the stated fixed rate on the 3.20%
senior notes to variable rates indexed to three-month LIBOR. The swap term and payment dates match
the related terms of the senior notes. At March 31, 2006, the fair value adjustment on these swaps
resulted in a loss of $12.1 million and is reflected as a component of other liabilities. The
carrying amount of the $350 million in senior notes was decreased by an identical amount. For the
three months ended March 31, 2006 and 2005, these swaps increased interest expense by $0.9 million
and reduced interest expense by $0.9 million, respectively. There was no hedge ineffectiveness
recorded in the Consolidated Statements of Income on these transactions for all periods reported.
As part of our mortgage banking operations, we enter into commitments to originate or purchase
loans whereby the interest rate on the loan is determined prior to funding (interest rate lock
commitment). Interest rate lock commitments on mortgage loans that we intend to sell in the
secondary market are considered free-standing derivatives. These derivatives are carried at fair
value with changes in fair value recorded as a component of gain on sale of loans. In accordance
with Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments,
interest rate lock commitments are initially valued at zero. Changes in fair value subsequent to
inception are determined based upon current secondary market prices for underlying loans with
similar coupons, maturity and credit quality, subject to the anticipated probability that the loan
will fund within the terms of the commitment. The initial value inherent in the loan commitments at
origination is recognized through gain on sale of loans when the underlying loan is sold. Both the
interest rate lock commitments and the related hedging instruments are recorded at fair value with
changes in fair value recorded in current earnings as a component of gain on sale of loans.
Generally, if interest rates increase, the value of our interest rate lock commitments and
funded loans decrease and loan sale margins are adversely impacted. We hedge the risk of overall
changes in fair value of loans held-for-sale and interest rate lock commitments generally by
entering into mandatory commitments to deliver mortgage whole loans to various investors, selling
forward contracts on mortgage backed securities of Fannie Mae and Freddie Mac and, to a lesser
extent, by using futures and options to economically hedge the fair value of interest rate lock
commitments. In accordance with SFAS 133, certain of these positions qualify as fair value hedges
against a portion of the funded held-for-sale loan portfolio and result in adjustments to the
carrying value of designated loans through gain on sale based on fair value changes attributable to
the hedged risk. The forward contracts, futures and options used to economically hedge the loan
commitments are accounted for as economic hedges and naturally offset loan commitment
mark-to-market gains and losses recognized as a component of gain on sale.
The notional amount of all forward contracts was $2.3 billion at March 31, 2006. Forward
contracts designated as fair value hedges associated with mortgage loans held-for-sale had a
notional value of $1.6 billion at March 31, 2006. The notional amount of forward contracts used to
manage the risk associated with interest rate lock commitments on mortgage loans was $736 million
at March 31, 2006.
The following table shows hedge ineffectiveness on fair value hedges included in gain on sale
of loans for the three months ended March 31,:
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2006 |
|
|
2005 |
|
Loss on Hedged Mortgage Loans |
|
$ |
(2,340 |
) |
|
$ |
(6,884 |
) |
Gain on Derivatives |
|
|
2,359 |
|
|
|
6,222 |
|
|
|
|
|
|
|
|
Hedge Ineffectiveness |
|
$ |
19 |
|
|
$ |
(662 |
) |
|
|
|
|
|
|
|
Trading Instruments
Interest rate swap agreements were used to change the repricing characteristics of $245
million in Junior Subordinated Debt from their stated fixed rates to variable rates indexed to
three-month LIBOR. The swaps contain payment dates, maturity dates and embedded call options held
by the counterparty (exercisable in approximately two years), which are identical to the terms and
call provisions contained in the Junior Subordinated Debt. Prior to March 31, 2006, we had applied
a method of fair value hedge accounting (the short-cut method) under SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities that assumed full effectiveness of the hedging
transactions. However, due to the interest deferral features of
the junior subordinated debt, we have concluded that the swap transactions do not qualify for the
short-cut method. As a result, the cumulative change in fair value of these swaps totaling $2.2
million was recorded in Other Income with no corresponding
17
North
Fork Bancorporation, Inc.
Unaudited Interim Condensed Consolidated Financial Statements
offset
to the former hedged items. We believe that the interest rate swaps have been, and
will continue to be, effective economic hedges. However,
since these swaps do not qualify for the
short-cut method of accounting, we have reclassified
them as trading instruments effective March
31, 2006. There was no impact nor will there be any
future impact on our cash flows resulting from this
change. For the three months ended March 31, 2006
and 2005 these swaps reduced interest expense by
$1.3 million and $2.5 million, respectively.
NOTE
10 OTHER COMMITMENTS AND CONTINGENT LIABILITIES
Credit Related Commitments
We offer traditional off-balance sheet financial products to meet the financing needs of our
customers through both our retail banking and mortgage banking segments. They include commitments
to extend credit, lines of credit and letters of credit. Funded commitments are reflected in the
consolidated balance sheets as loans.
Retail Banking
Our retail banking segment provides the following types of off-balance sheet financial
products to customers:
Commitments to extend credit are agreements to lend to customers in accordance with
contractual provisions. These commitments usually have fixed expiration dates or other termination
clauses and may require the payment of a fee. Total commitments outstanding do not necessarily
represent future cash flow requirements, since many commitments expire without being funded.
Each customers creditworthiness is evaluated prior to issuing these commitments and may
require the customer to pledge certain collateral prior to the extension of credit. Collateral
varies but may include accounts receivable, inventory, property, plant and equipment, and
income-producing properties. Fixed rate commitments are subject to interest rate risk based on
changes in prevailing rates during the commitment period. We are subject to credit risk in the
event that the commitments are drawn upon and the customer is unable to repay the obligation.
Letters of credit are irrevocable commitments issued at the request of customers. They
authorize the beneficiary to draw drafts for payment in accordance with the stated terms and
conditions. Letters of credit substitute a banks creditworthiness for that of the customer and are
issued for a fee commensurate with the risk.
We typically issue two types of letters of credit: Commercial (documentary) Letters of Credit
and Standby Letters of Credit. Commercial Letters of Credit are commonly issued to finance the
purchase of goods and are typically short term in nature. Standby letters of credit are issued to
back financial or performance obligations of a bank customer, and are typically issued for periods
up to one year. Due to their long-term nature, standby letters of credit require adequate
collateral in the form of cash or other liquid assets. In most instances, standby letters of credit
expire without being drawn upon. The credit risk involved in issuing letters of credit is
essentially the same as extending credit facilities to comparable customers.
The following table presents total commitments and letters of credit outstanding at March 31 ,
2006:
|
|
|
|
|
(in thousands) |
|
2006 |
Commitments to Extend Credit on Loans Held-for-Investment (1) |
|
|
4,645,364 |
|
Standby Letters of Credit (2) |
|
|
512,942 |
|
Commercial Letters of Credit |
|
|
20,934 |
|
(1) At March 31, 2006, commitments to extend credit on loans held-for-investment with
maturities of less than one year totaled $2.3 billion, while $2.3 billion mature between one and
three years.
(2) Standby letters of credit are considered guarantees and are reflected in other liabilities in
the accompanying Consolidated Balance Sheet at their estimated fair value of $1.9 million as of
March 31, 2006. The fair value of these instruments is recognized as income over the initial term
of the guarantee.
18
North
Fork Bancorporation, Inc.
Unaudited Interim Condensed Consolidated Financial Statements
Mortgage Banking
At March 31, 2006, the pipeline of residential mortgage loans (including Home Equity Lines of
Credit) was $5.7 billion and included $1.4 billion of fixed rate loans and $4.3 billion of
adjustable rate loans. The pipeline represents total applications
approved but not yet funded.
We are also contractually committed to fund the undrawn portion of Home Equity Lines of Credit
(HELOCs), which were previously originated. This commitment extends to both HELOCs held-for-sale
and those previously sold with servicing retained.
The following table presents the mortgage banking segments commitments and home equity lines
of credit outstanding at March 31, 2006:
|
|
|
|
|
(In thousands) |
|
2006 |
Commitments to Originate Mortgage Loans Held-for-Sale |
|
$ |
5,722,902 |
|
Commitments to Fund HELOCs |
|
|
162,394 |
|
NOTE
11 RETIREMENT AND OTHER EMPLOYEE BENEFIT PLANS
The components of net periodic benefit costs for pension and post-retirement benefits for the three
months ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Post-Retirement Benefits |
|
(in thousands) |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Components of Net Periodic Benefit Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Cost |
|
$ |
3,134 |
|
|
$ |
2,563 |
|
|
$ |
492 |
|
|
$ |
513 |
|
Interest Cost |
|
|
2,716 |
|
|
|
2,600 |
|
|
|
480 |
|
|
|
704 |
|
Expected Return on Plan Assets |
|
|
(5,192 |
) |
|
|
(4,974 |
) |
|
|
(131 |
) |
|
|
(64 |
) |
Amortization of Prior Service Cost |
|
|
67 |
|
|
|
(66 |
) |
|
|
(20 |
) |
|
|
(20 |
) |
Amortization of Transition (Asset)/Obligation |
|
|
|
|
|
|
(107 |
) |
|
|
73 |
|
|
|
73 |
|
Recognized Actuarial Loss/(Gain) |
|
|
437 |
|
|
|
273 |
|
|
|
(14 |
) |
|
|
94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost |
|
$ |
1,162 |
|
|
$ |
289 |
|
|
$ |
880 |
|
|
$ |
1,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We do not
anticipate making a contribution to either our pension plan or
post-retirement benefit plan in 2006.
Bank Owned Life Insurance
At March 31, 2006 and 2005, we maintained three Bank Owned Life Insurance Trusts (commonly
referred to as BOLI) on the consolidated balance sheet. The BOLI trusts were formed to offset
future employee benefit costs and to provide additional benefits due to their tax exempt nature.
Only officer level employees, who have consented, have been insured under the program.
The underlying structure of the initial BOLI trust formed, requires that the assets supporting
the insurance policies be reported on the consolidated balance sheet, principally as a component of
the available-for-sale securities portfolio and the related income to be characterized as either
interest income or gain/(loss) on sale of securities. At March 31, 2006 and 2005, $224.8 million
and $219.2 million, respectively were held by the trust and are principally included in the
available-for-sale securities portfolio. Based on the underlying structures of the other two BOLI
trusts, the cash surrender values (CSV) of the life insurance policies held by the trusts are
required to be classified as other assets on the consolidated balance sheet and the related
income/(loss) be characterized as other income. The cash surrender value of the policies held by
these trusts were $211.5 million and $205.3 million at March 31, 2006 and 2005, respectively.
19
North
Fork Bancorporation, Inc.
Unaudited Interim Condensed Consolidated Financial Statements
NOTE
12 BUSINESS SEGMENTS
The retail banking business provides a full range of banking products and services through
more than 350 branches located throughout the New York Metropolitan area. The mortgage banking
segment is conducted through GreenPoint Mortgage, which originates, sells and services a wide
variety of mortgages secured by 1-4 family residences and small commercial properties, on a
nationwide basis.
The segment information presented in the table below is prepared according to the following
methodologies:
|
|
|
Revenues and expenses directly associated with each segment are included in determining net income. |
|
|
|
|
Transactions between segments are based on specific criteria or appropriate third party interest rates. |
|
|
|
|
Inter-company eliminations are reflected in the Other column. |
The following tables provide information necessary for a reasonable representation of each
segments contribution to consolidated net income for the three months ended March 31, 2006 and
2005, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
Mortgage |
|
Segment |
|
|
|
|
|
Consolidated |
For the Three Months Ended March 31, 2006 |
|
Banking |
|
Banking |
|
Totals |
|
Other |
|
Operations |
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income |
|
$ |
399,230 |
|
|
$ |
18,120 |
|
|
$ |
417,350 |
|
|
$ |
127 |
|
|
$ |
417,477 |
|
Provision for Loan Losses |
|
|
9,000 |
|
|
|
|
|
|
|
9,000 |
|
|
|
|
|
|
|
9,000 |
|
|
|
|
Net Interest Income After Provision for Loan Losses |
|
|
390,230 |
|
|
|
18,120 |
|
|
|
408,350 |
|
|
|
127 |
|
|
|
408,477 |
|
|
|
|
Non-Interest Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Banking Income |
|
|
|
|
|
|
116,240 |
|
|
|
116,240 |
|
|
|
(20,168 |
) |
|
|
96,072 |
|
Customer Related Fees & Service Charges |
|
|
41,103 |
|
|
|
|
|
|
|
41,103 |
|
|
|
|
|
|
|
41,103 |
|
Investment Management, Commissions & Trust Fees |
|
|
9,669 |
|
|
|
|
|
|
|
9,669 |
|
|
|
|
|
|
|
9,669 |
|
Other Operating Income |
|
|
13,802 |
|
|
|
708 |
|
|
|
14,510 |
|
|
|
|
|
|
|
14,510 |
|
Securities Gains, net |
|
|
6,722 |
|
|
|
|
|
|
|
6,722 |
|
|
|
|
|
|
|
6,722 |
|
|
|
|
Total Non-Interest Income |
|
|
71,296 |
|
|
|
116,948 |
|
|
|
188,244 |
|
|
|
(20,168 |
) |
|
|
168,076 |
|
|
|
|
Non-Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Compensation & Benefits |
|
|
94,032 |
|
|
|
47,279 |
|
|
|
141,311 |
|
|
|
|
|
|
|
141,311 |
|
Occupancy & Equipment Expense, net |
|
|
40,649 |
|
|
|
10,643 |
|
|
|
51,292 |
|
|
|
|
|
|
|
51,292 |
|
Other Operating Expense |
|
|
61,686 |
|
|
|
16,579 |
|
|
|
78,265 |
|
|
|
(12,690 |
) |
|
|
65,575 |
|
|
|
|
Total Non-Interest Expense |
|
|
196,367 |
|
|
|
74,501 |
|
|
|
270,868 |
|
|
|
(12,690 |
) |
|
|
258,178 |
|
|
|
|
Income Before Income Taxes |
|
|
265,159 |
|
|
|
60,567 |
|
|
|
325,726 |
|
|
|
(7,351 |
) |
|
|
318,375 |
|
Provision for Income Taxes |
|
|
87,600 |
|
|
|
23,735 |
|
|
|
111,335 |
|
|
|
(3,088 |
) |
|
|
108,247 |
|
|
|
|
Net Income |
|
$ |
177,559 |
|
|
$ |
36,832 |
|
|
$ |
214,391 |
|
|
$ |
(4,263 |
) |
|
$ |
210,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
52,345,773 |
|
|
$ |
5,359,607 |
|
|
$ |
57,705,380 |
|
|
|
|
|
|
$ |
57,705,380 |
|
|
|
|
20
North
Fork Bancorporation, Inc.
Unaudited Interim Condensed Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
|
Mortgage |
|
|
Segment |
|
|
|
|
|
|
Consolidated |
|
Three Months Ended March 31, 2005 |
|
Banking |
|
|
Banking |
|
|
Totals |
|
|
Other |
|
|
Operations |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income |
|
$ |
438,054 |
|
|
$ |
33,072 |
|
|
$ |
471,126 |
|
|
$ |
193 |
|
|
$ |
471,319 |
|
Provision for Loan Losses |
|
|
9,000 |
|
|
|
|
|
|
|
9,000 |
|
|
|
|
|
|
|
9,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income After Provision for Loan Losses |
|
|
429,054 |
|
|
|
33,072 |
|
|
|
462,126 |
|
|
|
193 |
|
|
|
462,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Banking Income |
|
|
|
|
|
|
132,756 |
|
|
|
132,756 |
|
|
|
(21,660 |
) |
|
|
111,096 |
|
Customer Related Fees & Service Charges |
|
|
42,006 |
|
|
|
|
|
|
|
42,006 |
|
|
|
|
|
|
|
42,006 |
|
Investment Management, Commissions & Trust Fees |
|
|
11,071 |
|
|
|
|
|
|
|
11,071 |
|
|
|
|
|
|
|
11,071 |
|
Other Operating Income |
|
|
12,392 |
|
|
|
1,685 |
|
|
|
14,077 |
|
|
|
|
|
|
|
14,077 |
|
Securities Gains, net |
|
|
4,635 |
|
|
|
|
|
|
|
4,635 |
|
|
|
|
|
|
|
4,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Income |
|
|
70,104 |
|
|
|
134,441 |
|
|
|
204,545 |
|
|
|
(21,660 |
) |
|
|
182,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Compensation and Benefits |
|
|
90,912 |
|
|
|
44,457 |
|
|
|
135,369 |
|
|
|
|
|
|
|
135,369 |
|
Occupancy and Equipment Expense, net |
|
|
36,319 |
|
|
|
9,635 |
|
|
|
45,954 |
|
|
|
|
|
|
|
45,954 |
|
Other Operating Expenses |
|
|
53,396 |
|
|
|
18,804 |
|
|
|
72,200 |
|
|
|
(6,870 |
) |
|
|
65,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Expense |
|
|
180,627 |
|
|
|
72,896 |
|
|
|
253,523 |
|
|
|
(6,870 |
) |
|
|
246,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes |
|
|
318,531 |
|
|
|
94,617 |
|
|
|
413,148 |
|
|
|
(14,597 |
) |
|
|
398,551 |
|
Provision for Income Taxes |
|
|
105,907 |
|
|
|
39,739 |
|
|
|
145,646 |
|
|
|
(6,130 |
) |
|
|
139,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
212,624 |
|
|
$ |
54,878 |
|
|
$ |
267,502 |
|
|
$ |
(8,467 |
) |
|
$ |
259,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
54,789,612 |
|
|
$ |
5,990,788 |
|
|
$ |
60,780,400 |
|
|
$ |
|
|
|
$ |
60,780,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below presents the components of mortgage banking income for the three months ended
March 31,:
|
|
|
|
|
|
|
|
|
(In thousands) |
|
2006 |
|
|
2005 |
|
Mortgage Banking Income: |
|
|
|
|
|
|
|
|
Gain on Sale of Loans Held-for-Sale(1) |
|
$ |
81,749 |
|
|
$ |
105,369 |
|
Mortgage Banking Fees, net |
|
|
22,230 |
|
|
|
25,716 |
|
Amortization of Mortgage Servicing Rights |
|
|
(23,598 |
) |
|
|
(19,989 |
) |
Recovery of Temporary Impairment on Mortgage Servicing Rights |
|
|
15,691 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Mortgage Banking Income |
|
$ |
96,072 |
|
|
$ |
111,096 |
|
|
|
|
|
|
|
|
(1) The gain on sale of loans for the three months ended March 31, 2005, differs from the
amounts reported under U.S. generally accepted
accounting principles due to the fair value
adjustment of loans held-for-sale at October 1, 2004 and sold
during the first quarter of
2005,
totaling $0.8 million.
NOTE
13 RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for Servicing of Financial Assets
In March 2006, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 156 (SFAS No. 156), Accounting for Servicing of Financial Assets, an
amendment of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. SFAS No. 156 requires all separately recognized servicing assets
and servicing liabilities be initially measured at fair value, if practicable, and permits for
subsequent measurement using either fair value measurement with changes in fair value reflected in
earnings or the amortization and impairment requirements of Statement No. 140. The subsequent
measurement of separately recognized servicing assets and servicing liabilities at fair value
eliminates the necessity for entities that manage the risks inherent in servicing assets and
servicing liabilities with derivatives to qualify for hedge accounting treatment and eliminates the
characterization of declines in fair value as impairments or direct write-downs. SFAS 156 is
effective for an entitys first fiscal year beginning after September 15, 2006. The Company is
currently assessing the financial statement impact of implementing this pronouncement.
21