A preliminary analysis of North Fork Bank (NFB) indicates that management is working hard, and with some success, to convert a savings bank into a conventional commercial bank. As such, it still has a large proportion of its assets and revenues connected directly to the real estate market. During the year, 2004 there was a sharp increase in the proportion of non-performing assets and a decrease in the ratio of reserves for loss to non-performing assets. This ratio improved slightly in the period ended June 30, 2005 and the trend appears to have continued into the third quarter.
The key question concerning a financial institution of this type is the outlook for the real estate market. If the real estate market remains strong, the company will do well almost regardless of other considerations. Its market position in a strong real estate market is good enough so that it will benefit. Even if it has problems, it will have the resources to solve them.
The risk factor is the outlook for real estate in a market that has been widely characterized in the financial press as a speculative bubble. If the market is a bubble that pops, institutions similar to NFB will be exposed to serious problems. The continued upward movement of the fed funds rate by the Federal Reserve open market committee has so far had little effect on long rates, and hence mortgages rates. There has even been discussion in the financial press of the possibility of an inverted yield curve. This would be an extreme situation that could result in NFB paying more for short-term funds than it earned on some long-term assets such as parts of its bond and mortgage portfolios. Such a negative spread situation would presumably be short term, but during the interim but it could be painful for NFB, and much of the banking industry.
The Formal Strategic Planning Process
Corporate mission and goals The corporate mission and major goal appears to be to establish...