Aid to a newly bought company and a summer hiring spree combined to make North Fork Bancorp miss Wall Street's target for third-quarter earnings by a penny.
During the period the Melville, N.Y., company lent $560 million at a rate of 1.5% to GreenPoint Financial Corp., a company it bought on Oct. 1, to help GreenPoint finance mortgage originations.
That pressured North Fork's profit margin and sliced 2 cents off earnings per share, which were 70 cents. North Fork had 2 cents a share in securities gains, and that helped offset the loan expense. Analysts said North Fork would have taken the securities gains anyway, and most accounted for that in their models of third-quarter earnings.
It appears that the costs of hiring at least 50 commercial bankers in the quarter, including some from the former FleetBoston Financial Corp., pushed earnings below the consensus. Profits of $120 million were up 27% from last year.
Noninterest expenses rose 35.1%, to $114.5 million, more than some analysts had expected.
The commercial loan book, excluding construction, was up 36.8%, to $6.3 billion, and total loans increased 32.1%, to $15.9 billion. John Adam Kanas, North Fork's chief executive, said in an interview last week that the loan pipeline is stronger than ever. The company reiterated that sentiment in a release Wednesday, saying, "Commercial loan growth kept pace with anticipated volume and should continue as the company grows its market share."
Hiring bankers away from Bank of America Corp., which bought Fleet on April 1, was part of an effort to capitalize on displacement in the market for commercial banking services.
Goldman Sachs & Co. analyst Lori B. Appelbaum wrote in research note Wednesday that North Fork might not have gotten all it hoped for. Bank of America is working hard to hold on to their customers and loans, she wrote. "Only $65 million in loans from the team were moved in the quarter but management indicates that $175 million is in the pipeline and will be moved in coming months."
The loan to GreenPoint was a smart move, said Gerard Cassidy, analyst with Royal Bank of Canada's RBC Capital Markets.
Despite the damage to North Fork's quarterly earnings, the cost of funds will be lower than if GreenPoint had borrowed the money from the open market, Mr. Cassidy said.
There were some dark spots in the quarter. Deposits in New Jersey slipped 1.7% from the second quarter, just as North Fork was integrating Trust Co. of New Jersey. But deposits at North Fork's 28 Manhattan branches rose 37.6% from a year ago, to $4.3 billion, and on Long Island deposits rose 11.2%, to $13 billion.
On Oct. 8, North Fork announced that Green Tree Servicing LLC would buy GreenPoint's $8.6 billion servicing portfolio of manufactured housing loans and related business assets. Excluding earnings from that portfolio, GreenPoint's third-quarter profit was $50.7 million. It originated $10 billion of loans and had a pipeline of $7.6 billion.
North Fork shares rose 0.8%
