SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
December 20, 1994
(Date of earliest event reported)
NORTH FORK BANCORPORATION, INC.
(Exact name of Registrant as specified in its charter)
Delaware 0-10280 36-3154608
(State of (Commission (IRS Employer
Incorporation) File No.) Identification No.)
9025 Route 25, Mattituck, New York 11952
(Address of principal executive offices, including zip code)
(516) 298-5000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On November 30, 1994, Metro Bancshares Inc., a Delaware
corporation ("Metro"), was merged (the "Merger") with and into
North Fork Bancorporation, Inc., a Delaware corporation ("North
Fork"), pursuant to the Agreement and Plan of Merger, dated as of
June 27, 1994, by and between North Fork and Metro (the "Merger
Agreement"). Immediately following the Merger, North Fork merged
Bayside Federal Savings Bank, a federally-chartered stock savings
bank and a former wholly owned subsidiary of Metro, with and into
North Fork Bank, a New York chartered stock commercial bank and a
wholly owned subsidiary of North Fork.
Pursuant to the Merger Agreement, each share of the common
stock, par value $0.01 per share of Metro, outstanding immediately
prior to consummation of the Merger was converted into 1.645 shares
of the common stock, par value $2.50 per share, of North Fork (the
"Common Stock") and a like-number of associated rights (the
"Rights") to purchase shares of North Fork's Series A Junior
Participating Preferred Stock. The Rights are not currently
separate from the shares of the Common Stock and are not currently
exercisable. North Fork expects to issue approximately 9,200,000
shares of Common Stock in connection with the Merger.
Item 5. Other Matters
The Registrant will reflect a one-time merger expense and
restructuring charge in its fourth quarter results of operations
which is currently estimated to be $13.6 million, after taxes. The
components of the merger and restructuring charge are as follows:
Type of Cost $ in millions
<TABLE>
<S> <C>
Merger expense $ 3.0
Restructuring charges:
Severance and Other Employee Expenses 5.8
Facility and System Costs 5.6
Total pre-tax merger and
restructuring charges 14.4
Less: Tax effect ( 5.0)
Tax Bad Debt Recapture 4.2
Total after tax merger and
restructuring charges $13.6
</TABLE>
In response to recent changes in the interest rate environment
the Registrant and Metro disposed of selected securities in the
fourth quarter of 1994 incurring pre-tax losses of approximately
$6.7 million. Approximately $2.8 million was incurred by North
Fork and $3.9 million by Metro. These dispositions were from the
available for sale portfolios. Also, in the fourth quarter, it was
determined that there were adverse developments relating to the
ultimate recovery on a certain mortgage-backed investment held by
Metro resulting in an additional write-down of $1.3 million that
will be reflected in the fourth quarter results of operations.
Metro had recognized a write-down of $1.9 million in the quarter
ended September 30, 1994.
Item 7. Financial Statements and Exhibits
A. Metro Bancshares Inc. Financial Statements
B. North Fork Bancorporation, Inc. - Metro Bancshares Inc.
Unaudited Pro Forma Condensed Combined Financial
Statement.
<PAGE>
Item 7
A. Metro Bancshares Inc. Financial Statements
Metro Bancshares Inc.
Consolidated Statements of Financial Condition
(Dollars In Thousands)
<TABLE>
September 30,
<S> <C> <C>
1994 1993
Assets
Cash and due from banks $ 11,212 $ 13,386
Money market investments (note 4) 8,275 29,175
Total cash and cash equivalents 19,487 42,561
Investment securities, net (estimated market value of
$65,342 and $130,086 at September 30, 1994 and
1993, respectively) 67,591 129,520
Mortgage-backed securities (estimated market value
of $64,943 and $97,496 at September 30, 1994 and
1993, respectively) 66,561 93,631
Loans (note 7):
Mortgage loans 792,450 707,347
Other loans 1,349 1,458
793,799 708,805
Less allowance for possible
loan losses (note 8) 9,467 9,931
Loans, net 784,332 698,874
Premises and equipment, net (note 10) 7,299 7,380
Real estate owned held for sale, net 1,033 4,316
Accrued interest receivable:
Loans 5,603 5,017
Investments 838 1,209
Mortgage-backed securities 482 682
Deferred income taxes receivable,net 6,389 -
Other assets 2,081 1,679
Excess of cost over fair value
of net assets acquired
(notes 1 and 19) 13,812 16,948
Total assets $ 975,508 $1,001,817
Liabilities and Stockholders' Equity
Liabilities:
Deposits (note 11) $ 849,031 $ 888,766
Borrowed funds (note 12) 10,257 13,462
Bank drafts outstanding 1,397 1,900
Mortgagors' escrow payments 19,010 17,509
Accrued income taxes (note 13) 1,560 1,323
Accrued expenses and other liabilities 9,506 7,019
Total liabilities 890,761 929,979
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized at September 30, 1994 and 1993,
respectively; none issued - -
Common stock, $.01 par value, 8,900,000 and
7,500,000 shares authorized at
September 30, 1994 and 1993, respectively;
5,312,978 shares issued; and 5,080,504 and
5,067,553 outstanding at September 30, 1994
and 1993, respectively 53 53
Additional paid-in capital 18,911 18,661
Unallocated common stock held by Employee Stock
Ownership Plan (ESOP) (note 15) (257) (462)
Unearned common stock held by Management
Recognition Plan (MRP) (note 15) - (9)
Treasury stock, at cost, 232,474 and
245,425 shares September 30, 1994 and
1993, respectively (841) (887)
Retained income, partially restricted
(notes 3, 13 and 18) 66,881 54,482
Total stockholders' equity 84,747 71,838
Commitments and contingencies (notes 5, 7, 16 and 17)
Total liabilities and
stockholders' equity $ 975,508 $1,001,817
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Metro Bancshares Inc.
Consolidated Statements of Income
(Dollars In Thousands Except Per Share Amounts)
<TABLE>
Year ended September 30,
1994 1993 1992
<S> <C> <C> <C>
Interest income:
Interest on loans:
Mortgage loans (note 19) $ 60,903 $ 58,401 $ 64,399
Other loans 95 202 207
Total interest on loans 60,998 58,603 64,606
Money market investments 1,471 1,078 5,034
Investment securities:
Equity securities 705 707 599
Taxable debt securities 4,385 4,914 3,610
Nontaxable debt securities 116 116 116
Mortgage-backed securities 5,409 7,300 5,819
Total interest income 73,084 72,718 79,784
Interest expense:
Deposits (notes 11 and 19) 27,424 30,743 44,762
Borrowed funds (note 12) 1,097 1,290 1,374
Total interest expense 28,521 32,033 46,136
Net interest income 44,563 40,685 33,648
Provision for possible
loan losses (note 8) 525 4,300 2,775
Net interest income after
provision for
possible loan losses 44,038 36,385 30,873
Other income:
Banking fees and service charges 1,963 1,756 1,471
Loan fees and service charges 463 423 256
Net gain on sales of
investment securities - - 139
Net gain (loss) on sales
of real estate owned, loans,
other assets and loss
on valuation of
investments (note 5) (2,208) 943 (85)
Loss on real estate
owned operations (152) (52) (1)
Provision for possible losses on REO
(note 8) (250) (520) (275)
Servicing fee income 382 495 655
Other 402 260 199
Total other income 600 3,305 2,359
Other expenses:
Compensation and benefits 10,813 9,495 8,930
Occupancy, net 3,532 3,525 3,416
Advertising and promotion 233 209 215
Federal deposit insurance
premiums 2,071 1,984 1,938
Amortization of excess of cost
over fair value of net assets
acquired (note 19) 767 892 892
Service bureau fees 844 899 956
Other 2,945 2,680 2,769
Total other expenses 21,205 19,684 19,116
Income before provision
for income taxes and
cumulative effect of
accounting change 23,433 20,006 14,116
Provision for income
taxes (note 13) 10,670 9,456 6,419
Income before cumulative effect of
accounting change 12,763 10,550 7,697
Cumulative effect of change in
accounting for income taxes 3,700 - -
Net income $ 16,463 $ 10,550 $ 7,697
Earnings per common and common equivalent share:
Income before cumulative effect
of accounting change $2.35 $1.96 $1.46(1)
Cumulative effect of change in
accounting for income taxes .68 - -
Net income $3.03 $1.96 $1.46(1)
Weighted average number of
shares of common
stock outstanding 5,436,333 5,386,121 5,266,720(1)
Earnings per common share assuming full
dilution:
Income before cumulative effect of
accounting change $2.33 $1.95 $1.44(1)
Cumulative effect of change
in accounting for income taxes .68 - -
Net income $3.01 $1.95 $1.44(1)
Weighted average number of shares
of common stock outstanding
assuming full dilution 5,472,165 5,420,568 5,343,859(1)
See accompanying notes to consolidated financial statements.
(1) Restated to reflect the 3 for 2 stock split in September 1993.
</TABLE>
<PAGE>
Metro Bancshares Inc.
Consolidated Statements of Stockholders' Equity
(Dollars In Thousands)
<TABLE>
Unallocated Unallocated
Common Common
Additional Stock Stock
Common Paid-in Held Held Treasury Retained
Stock Capital By ESOP by MRP Stock Income Total
<C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1991 $24 $18,668 $(874) $(225) $(956) $40,047 $56,684
Allocation of ESOP
and earned portion
of MRP stock, net of
tax benefit - - 206 108 - 75 389
Net income for the
year ended September
30, 1992 - - - - - 7,697 7,697
Dividends declared on
common stock - - - - - (1,518) (1,518)
Exercise of stock options for
14,608(1) shares - 22 - - 52 - 74
Three for two stock
split 11 (11) - - - - -
Fractional share payout
with stock split - - - - - (2) (2)
Balance at September 30,
1992 35 18,679 (668) (117) (904) 46,299 63,324
Allocation of ESOP
and earned portion
of MRP stock - - 206 108 - - 314
Net income for the
year ended September
30, 1993 - - - - - 10,550 10,550
Dividends declared on
common stock - - - - - (2,365) (2,365)
Exercise of stock
options for 4,500(1)
shares - - - - 17 - 17
Three for two stock
split 18 (18) - - - - -
Fractional share
payout with
stock split - - - - - (2) (2)
Balance at September 30,
1993 53 18,661 (462) (9) (887) 54,482 71,838
Allocation of ESOP
and earned portion
of MRP stock, net of
tax benefit - 246 205 9 - 62 522
Net income for the
year ended September 30,
1994 - - - - - 16,463 16,463
Dividends declared on
common stock - - - - - (4,126)(4,126)
Exercise of options for
12,951 shares - 4 - - 46 - 50
Balance at September 30,
1994 $53 $18,911 $(257) $- $(841) $66,881 $84,747
See accompanying notes to consolidated financial statements.
(1) Restated to reflect the 3 for 2 stock split in September 1993.
</TABLE>
<PAGE>
Metro Bancshares Inc.
Consolidated Statements of Cash Flows
(Dollars In Thousands)
<TABLE>
Year ended September 30,
<S> <C> <C> <C>
1994 1993 1992
Operating activities:
Net income $ 16,463 $ 10,550 $ 7,697
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for possible
loan losses 525 4,300 2,775
Provision for
possible real estate
owned losses 250 520 275
Depreciation and amortization of
premises and equipment 1,104 1,125 1,110
Amortization of deferred loan fees
and accretion of
discounts, net 731 727 (1,303)
Amortization of excess of cost over
fair value of net
assets acquired 767 892 892
Increase in deferred
income taxes (25) (600) (574)
Cumulative effect of change in
accounting for
income taxes (3,700) - -
Net loss (gain) on sales of fixed
assets and other assets - (71) 85
Net (gain) on sales of and loss on
valuation of investments 1,958 - (139)
(Gain) loss on sale of real estate
owned and recoveries, net 240 (842) 14
(Increase) decrease in accrued
interest receivable (15) (372) 998
(Increase) decrease in real estate owned
and other assets (865) (315) 502
Increase in mortgagors' escrow
payments 1,501 1,540 1,622
Increase (decrease) in accrued expenses,
other liabilities and accrued income
taxes 1,785 419 (1,391)
Earned portion of MRP stock 317 108 108
Allocation of ESOP stock 137 206 206
Decrease in due from RTC - - 76,095
Decrease in due
to depositors - - (69,279)
Net cash provided
by operating activities 21,173 18,187 19,693
Investing activities:
Proceeds from maturing
and principal payments
on investment securities 114,186 196,948 50,638
Proceeds from sale of
investment securities - - 14,304
Purchases of
investment securities (55,030) (198,418) (124,106)
Principal payments on
mortgage-backed
securities 27,095 22,736 11,096
Purchases of mortgage-backed
securities - (29,482) (39,529)
Proceeds from principal payments on
mortgage loans 69,473 93,665 84,926
Proceeds from sales of
mortgage loans 3,814 3,209 4,058
Mortgage loans originated
or acquired (159,915) (105,814) (91,528)
Net other loan activities 109 2,261 (1,184)
Purchases of premises and equipment,
net of disposals (1,023) (1,381) (1,685)
Proceeds from sales of real
estate owned 3,581 1,106 2,146
Other - 209 193
Net cash provided (used) by
investing activities 2,290 (14,961) (90,671)
Financing activities:
Net increase (decrease)
in deposits (39,735) 1,333 (3,876)
Decrease in bank drafts
outstanding (503) (741) (5,384)
Cash dividends paid on common stock and
fractional share payout (3,212) (2,367) (1,520)
Repayment of long
term borrowings (3,137) (206) (14,206)
Proceeds from stock
options exercised 50 17 57
Net cash used by
financing activities (46,537) (1,964) (24,929)
Increase (decrease) in cash
and cash equivalents (23,074) 1,262 (95,907)
Cash and cash equivalents
at beginning of period 42,561 41,299 137,206
Cash and cash equivalents
at end of period $ 19,487 $ 42,561 $ 41,299
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 28,589 $ 32,083 $ 46,859
Income taxes 10,446 10,676 6,054
Noncash investing and
financing activities:
Additions to real
estate owned $ 676 $ 3,127 $ 1,352
Dividends declared not
paid on common stock 914 - -
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements Metro Bancshares Inc. and
Subsidiary
September 30, 1994, 1993 and 1992
(1) Summary of Significant Accounting Policies
In November 1988, Metro Bancshares Inc. ("Metro" or the "Holding
Company") completed the issuance of 2,350,000 shares (5,287,500
shares on a post split basis) of common stock in connection with
the conversion of Bayside Federal Savings Bank ("Bayside", "Bayside
Federal" or the "Bank") from a mutual savings bank to a stock
savings bank (the "Conversion"). Concurrent with the Conversion,
Metro acquired all the capital stock of the Bank and became a
unitary savings and loan holding company (see note 3). Metro's
business currently consists of the business of the Bank.
(a) Principles of Consolidation. The accompanying consolidated
financial statements are prepared on the accrual basis of
accounting and include the accounts of Metro and its wholly owned
subsidiary, Bayside Federal Savings Bank and subsidiaries
(collectively the "Company"). All material intercompany
transactions and balances have been eliminated.
(b) Cash and Cash Equivalents. For purposes of reporting cash
flows, cash and cash equivalents include cash on hand, amounts due
from banks and money market investments with an original term to
maturity of three months or less.
Money market investments represent short term instruments, which
are held to maturity (ninety days or less). These investments are
carried at cost or, if applicable, at cost adjusted for accretion
of discount or amortization of premium using a method which
approximates the level yield method over the period to maturity.
Carrying value of these investments approximate current market
values.
(c) Investment Securities. Investment securities are carried at
cost or, if applicable, at cost adjusted for amortization of
premium and accretion of discount, since the Company has the
ability and management has the intention to hold these securities
to maturity. Premiums and discounts are recognized as adjustments
to income over the term of the security using a method which
approximates the level yield method. Gains or losses on the sale
of securities are determined using the specific identification
method. Valuation adjustments are charged to income when it is
determined that the carrying value of a security has been impaired.
(d) Mortgage-Backed Securities. Mortgage-backed securities
represent participating interests in pools of long term first
mortgage loans originated and serviced by the issuers of the
securities. These securities are accounted for using the same
method as presented above for investment securities, since the
Company has the ability and management has the intention to hold
these securities to maturity. Premiums are amortized and discounts
are accreted to income over the estimated life of the respective
securities using a method which approximates the level yield
method. Gains and losses on the sale of mortgage-backed securities
are determined using the specific identification method.
(e) Loans. Loans are carried at amortized cost. Interest on loans
is recognized on the accrual basis. The Company provides an
allowance for uncollectible interest on conventional mortgage loans
contractually delinquent over ninety days when ultimate collection
of such interest is not reasonably certain. This allowance is
netted against accrued interest receivable for financial statement
purposes. Such interest ultimately collected is credited to income
in the period of recovery.
Fees are charged for originating mortgage loans at the time the
loan is granted. Loan origination fees, partially offset by
certain expenses associated with loans originated, are deferred and
amortized to interest on loans over the life of the loan using the
level yield method. Adjustable rate mortgages (ARMs) with a lower
rate during the introductory period (usually one year) will reflect
the amortization of a substantial portion of the net deferred fee
as a yield adjustment during the introductory period.
Nonrefundable fees received for commitments to make or purchase
loans in the future are deferred to the extent that they exceed the
direct costs of underwriting the commitments. Excess fees are
amortized over the combined commitment (on the straight-line
method) and loan (on the level yield method) period.
The discounts on loans purchased in connection with the merger with
Union Federal Savings and Loan Association (note 19) are amortized
to income over the contractual maturity of the loans, estimated to
be 23 years, using the level yield method.
In preparing the financial statements, management is required to
make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of each consolidated
statement of financial condition and related consolidated statement
of income for the year then ended. Actual results could differ
from those estimates. Currently, material estimates that are
particularly susceptible to change relate to the determination of
the allowance for possible loan losses. Management believes that
the allowance for possible losses is adequate.
Management's evaluation of the adequacy of the allowance for
possible loan losses is based upon current and anticipated future
economic conditions, collection experience, detailed analysis of
individual loans for which full collectibility may not be assured,
and the determination of the existence and value of the collateral
and guarantees securing such loans. In addition, various
regulatory agencies, as an integral part of the examination
process, periodically review the Bank's allowance for possible loan
losses. Such agencies may require the Bank to recognize additions
to the allowance based on their judgments about information
available to them at the time of their examination.
Provision for possible losses on loans are charged to income when
it is determined that the investment in such assets is greater than
the estimated value.
Loans are charged off against the allowance for possible loan
losses when collectibility of loan principal is unlikely.
Recoveries of loans previously charged off are credited to the
allowance.
(f) Real Estate Owned. Real estate owned consists of property
acquired through foreclosure and outstanding loans that are "in-
substance" foreclosures. These assets are recorded at the lower
of cost or fair value less costs to sell. If the fair value of the
asset less estimated costs to sell an individual property declines
below the cost of such property, a provision for losses is charged
to operations. Routine holding costs, primarily real estate taxes
and property insurance, are charged to operations as incurred.
(g) Premises and Equipment. Land is carried at original cost.
Buildings, leasehold improvements, furniture, fixtures and
equipment, and automobiles, other than that acquired as part of the
Eastern Federal transaction (see note 19), are carried at original
cost, less accumulated depreciation and amortization.
Depreciation of premises and equipment is accumulated on a
straight-line method over the estimated useful lives of the related
assets. Estimated lives are 40 to 50 years for buildings, 3 to 10
years for furniture, fixtures and equipment, and 3 years for
automobiles. Leasehold improvements are amortized on a straight-
line method over the terms of the related leases.
(h) Excess of Cost Over Fair Value of Net Assets Acquired. The
excess of cost over fair value of net assets acquired arises from
the 1982 merger of Union Federal Savings and Loan Association (note
19) which was accounted for as a purchase. The excess cost was
amortized over 40 years from the date of purchase through September
30, 1987 utilizing the straight-line method. During 1988,
management reevaluated the period over which the remaining excess
cost should be amortized. As a result of this reevaluation, it was
determined that commencing October 1, 1987, the remaining excess
cost should be amortized over 25 years utilizing the straight-line
method.
(i) Income Taxes. The Company files consolidated federal income
tax returns with its subsidiaries and files a combined return with
subsidiaries for state and local income taxes.
Deferred income taxes are provided for all significant items of
income and expense that are recognized in different periods for
financial reporting purposes than for income tax purposes.
In February 1992, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 109
which relates to the method of accounting for income taxes. Under
SFAS No. 109, a deferred tax liability is to be recognized on all
taxable temporary differences and a deferred tax asset would be
recognized on all deductible temporary differences and operating
loss and tax credit carryforwards. A valuation allowance is to be
recognized to reduce the potential deferred tax asset if it is
"more likely than not" that all or some portion of that potential
deferred tax asset will not be realized. This Statement also
requires companies to take into account changes in tax laws or
rates when valuing the deferred income tax amounts they carry on
their balance sheet. This Statement is effective for fiscal years
beginning after December 15, 1992. The Company implemented the
Statement on a prospective basis effective October 1, 1993. The
adoption of SFAS No. 109 resulted in an additional $6.1 million
deferred tax asset (net of a $531,000 valuation allowance). This
was recorded as a $2.4 million reduction in the excess of cost over
fair value of net assets acquired through the Union Federal
acquisition reflected in the consolidated statement of financial
condition and a $3.7 million credit to income reflected as the
cumulative effect of an accounting change in the consolidated
statement of income.
(j) Earnings Per Common Share. Earnings per common and common
equivalent share is calculated by dividing net income by the
weighted average number of common stock and common stock
equivalents. Stock options are regarded as common stock
equivalents and are therefore considered in earnings per share
calculations if dilutive. Common stock equivalents are computed
using the treasury stock method.
(k) Financial Instruments Fair Value Disclosure. In December 1991,
the FASB issued SFAS No. 107 entitled "Disclosures About Fair Value
of Financial Instruments" which is effective for years ended after
December 15, 1992. SFAS No. 107 requires the Company to disclose,
if practicable, estimated fair values for substantially all of its
financial instruments.
SFAS No. 107 excludes certain financial instruments as well as all
nonfinancial instruments from fair value disclosure. Accordingly,
the fair values presented do not represent the Company's fair value
as a going concern. In addition, the differences between the
carrying amounts and the fair values presented may not be realized
since the Company generally intends to hold these financial
instruments to maturity and realize their recorded value.
SFAS No. 107 provides minimal guidance and no limitations with
regard to assumptions and estimates to be used. Therefore, while
disclosure of estimated fair values is required, the fair value
amounts presented in the financial statements do not represent the
underlying value of the Company, nor do they provide any basis for
comparison of the value of this Company with similar companies.
The following methods and assumptions were used to estimate fair
value of each class of financial instruments for which it is
practicable to estimate that value:
Cash and cash equivalents. The carrying amount approximates fair
value because of the short maturity of those instruments.
Investment and mortgage-backed securities. Estimated fair values
are based principally on market prices or dealer quotes. Certain
fair values were estimated using market prices of similar
securities.
Loans. The loan portfolio was segregated into various components
for valuation purposes in order to group loans based on their
significant financial characteristics, such as type of interest
rate (adjustable or fixed) and payment status (performing or
nonperforming). Fair values were estimated for each component
using a valuation method selected by management.
The fair values of performing mortgage loans were estimated by
using quoted market prices for securities collateralized by similar
loans.
The fair values of nonperforming mortgage loans were based on
management's analysis of collateral appraisals and experience with
the respective property/borrower.
Estimating fair value is extremely sensitive to the assumptions and
estimates used. While management has attempted to use assumptions
and estimates which are the most reflective of the loan portfolio
and the current market, a greater degree of subjectivity is
inherent in these values than those determined in formal trading
marketplaces. As such, readers are again cautioned in using this
information for purposes of evaluating the financial condition
and/or value of the Company in and of itself or in comparison with
any other company.
Deposits. In accordance with SFAS No. 107, the fair values of
deposit liabilities with no stated maturity (NOW, money market,
savings accounts and noninterest bearing accounts) are equal to the
carrying amounts payable on demand. The fair values of
certificates of deposit represent contractual cash flows discounted
using interest rates currently offered on deposits with similar
characteristics and remaining maturities.
As required by SFAS No. 107, these estimated fair values do not
include the intangible value of core deposit relationships which
comprise a significant portion of the Bank's deposit base.
Management believes that the Bank's core deposit relationships
provide a relatively stable, low cost funding source which has a
substantial intangible value separate from the deposit balances.
Borrowed funds. Fair value estimates are based on discounting
contractual cash flows using rates which approximate the rates
offered for borrowings of similar remaining maturities.
Off-balance-sheet financial instruments. The fair values of
commitments to extend credit and unadvanced lines of credit as well
as commitments to purchase investments were estimated based on an
analysis of the applicable interest rates and/or fees currently
charged to enter into similar transactions, considering the
remaining terms of the commitments and if applicable, the
creditworthiness of the potential borrowers. These carrying
amounts were not significantly different from the estimated fair
values.
(l) Postretirement Benefits Other Than Pensions. In December 1990,
the FASB issued SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" which is effective for
fiscal years beginning after December 15, 1992. SFAS No. 106
changed the Company's practice of accounting for postretirement
benefits on a cash basis by requiring accrual, during the years
that the employee renders the necessary service, of the cost of
providing those benefits to an employee and the employee's
beneficiaries and covered dependents. The Company adopted SFAS No.
106 effective October 1, 1993. The $941,000 accumulated
postretirement benefit obligation (the discounted value of expected
future benefits attributed to employees' service rendered prior to
October 1, 1993) is being amortized on a straight-line basis over
a twenty year period. The incremental pretax expense for fiscal
1994 associated with the implementation of SFAS No. 106 was
approximately $177,000.
(m) Loan Impairment. In May 1993, the FASB issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" ("SFAS No. 114"). SFAS No. 114 is
effective for fiscal years beginning after December 15, 1994. This
Statement addresses the accounting by creditors for impairment of
certain loans which include loans that are restructured in a
troubled debt restructuring involving a modification of terms. It
requires that impaired loans that are within the scope of this
Statement be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as
a practical expedient, at the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent.
In October 1994, the FASB issued SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan--Income Recognition and
Disclosures". SFAS No. 118 amends SFAS No. 114, to allow a
creditor to use existing methods of recognizing interest income on
an impaired loan. SFAS No. 118 eliminated the provisions in SFAS
No. 114 that described how a creditor should report income on an
impaired loan. SFAS No. 118 amends the disclosure requirements in
SFAS No. 114 to require information about the recorded investment
in certain impaired loans and how a creditor recognizes interest
income related to those impaired loans. SFAS No. 118 is effective
concurrent with the effective date of SFAS No. 114. Based upon a
preliminary review of these Statements, management does not believe
that the adoption of SFAS No. 114 and SFAS No. 118 will have a
materially adverse effect on the Company.
(n) Investments in Debt and Equity Securities. In May 1993, the
FASB issued Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities"
("SFAS No. 115"). SFAS No. 115 is effective for fiscal years
beginning after December 15, 1993. SFAS No. 115 addresses the
accounting and reporting for investments in equity securities that
have readily determinable fair values and for all investments in
debt securities. This Statement establishes three categories for
reporting securities. Debt securities that the Company has the
positive intent and ability to hold to maturity are classified as
held-to-maturity securities and reported at amortized cost. Debt
and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and
losses included in earnings. Debt and equity securities not
classified as either held-to-maturity securities or trading
securities are classified as available-for-sale securities and
reported at fair value, with unrealized gains and losses excluded
from earnings and reported (net of tax) as a separate component of
stockholders' equity. Management does not anticipate that the
implementation of SFAS No. 115, effective October 1, 1994, will
have a material impact on its consolidated statement of income, but
does anticipate that fluctuations in its stockholders' equity and
the Bank's regulatory capital could result, due to the changes in
the fair value of available-for-sale securities.
(2) Merger
On June 27, 1994, North Fork Bancorporation Inc., ("North Fork")
and Metro entered into an Agreement and Plan of Merger (the "Merger
Agreement") providing, among other things, for the merger (the
"Merger") of Metro with and into North Fork, with North Fork
surviving the Merger. Immediately after the Merger, Bayside will
merge into North Fork Bank, North Fork's New York chartered
commercial bank subsidiary.
Pursuant to the Merger Agreement, each share of Metro common stock
outstanding on the date of the Merger will be converted into North
Fork Common Stock at an exchange ratio of 1.645.
The merger is expected to be accounted for under the pooling of
interests method.
All required regulatory approvals have been received subsequent to
September 30, 1994. On November 10, 1994, the shareholders of
Metro and of North Fork voted to approve the Merger Agreement. The
closing date of the Merger is scheduled for November 30, 1994.
Subsequent to November 10, 1994, Metro in consultation with North
Fork, began to restructure its security portfolios in anticipation
of the closing of the Merger. Investment securities and mortgage-
backed securities with a book value of approximately $76.9 million
were sold. A loss of $3.9 million was recognized on these sales
in November 1994.
(3) Conversion to Stock Form of Ownership
On July 25, 1988, the Board of Directors of the Bank unanimously
adopted a Plan of Conversion to convert the Bank from a federally
charted mutual savings bank to a federally chartered capital stock
savings bank. In connection with the Conversion, a holding
company, Metro Bancshares Inc. was organized under Delaware law for
the purpose of acquiring all of the capital stock of the Bank. On
November 10, 1988, the Holding Company became a public company and
issued in its initial offering 2,350,000 shares (5,287,500 shares
on a post split basis) of common stock (par value $.01 per share)
at a price of $8.75 per share for net proceeds of approximately
$18.6 million. Simultaneous with the issuance of common stock, 99%
of the net proceeds were used to purchase all of the outstanding
capital stock of the Bank.
Prior to the initial public offering and as part of the
subscription and community offering, in order to grant priority to
eligible depositors, the Bank established a liquidation account at
the time of conversion, in an amount equal to the surplus and
reserves of the Bank at June 30, 1988. In the unlikely event of
a complete liquidation of the Bank (and only in such an event),
eligible depositors who continue to maintain accounts shall be
entitled to receive a distribution from the liquidation account.
The total amount of the liquidation account will be decreased as
the balance of eligible deposits are reduced on annual
determination dates subsequent to the Conversion. The balance of
the liquidation account was approximately $3,711,000 at September
30, 1994.
After Conversion (November 10, 1988), the Bank may not declare or
pay a cash dividend on, or repurchase any of its conversion stock
if the effect thereof would cause its net worth to be reduced below
either (i) the amount required for the liquidation account or (ii)
the amount of applicable regulatory capital requirements. In
connection with its approval of the formation of the Holding
Company, the Office of Thrift Supervision ("OTS") and the Holding
Company have entered into an agreement for a period of ten years
which, in the pertinent part, limits the Bank from paying cash
dividends in excess of 50% of the Bank's cumulative net income for
the prior eight quarters less dividends for the same period without
the prior approval of the OTS. As of September 30, 1994, Metro has
over $1.993 million in cash and due from banks and money market
investments. Management feels that this amount will provide Metro
with sufficient funds to maintain operations and pay declared
dividends for the foreseeable future.
<PAGE>
(4) Money Market Investments
Money market investments consists of:
September 30, 1994 1993
(In Thousands)
Loans on Federal Funds $ 8,275 $29,175
(5) Investment Securities
Investment securities are summarized as follows:
<TABLE>
September 30, 1994 1993
Gross Gross Estimated Gross Gross Estimated
AmortizedUnrealizedUnrealizedMarketAmortizedUnrealizedUnrealizedMarket
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In Thousands)
U.S. Treasury
securities and
obligations of
U.S. government
corporations and
agencies $55,178 $28 $2,151 $53,055 $115,308 $552 $69 $115,791
Obligations of states
and political sub-
divisions 2,230 - 89 2,141 2,196 20 - 2,216
Collateralized
mortgage obligation
(CMO) 3,540 - 1,940 1,600 3,540 - - 3,540
Stock in Federal
Home Loan Bank
of New York 7,559 - - 7,559 7,434 - - 7,434
Other equity
securities 1,024 25 62 987 1,042 63 - 1,105
Allowance for possible losses
on CMO (1,940) - (1,940) - - - - -
Total $67,591 $53 $2,302 $65,342 $129,520 $635 $69 $130,086
</TABLE>
During 1994 management established a $1.94 million allowance for
possible losses on a troubled collateralized mortgage obligation.
The amortized cost and estimated market value of investment
securities at September 30, 1994 and 1993 by contractual maturity,
except for callable securities at September 30, 1993 which are
listed on the first call date, are summarized below.
<PAGE>
<TABLE>
September 30, 1994 1993
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
(In Thousands)
Due in one year or less $ 10,167 $ 10,152 $ 99,839 $100,077
Due after one year
through five years 48,092 45,945 19,009 19,254
Due after five years
through ten years 749 699 2,196 2,216
Equities 8,583 8,546 8,476 8,539
Total $ 67,591 $ 65,342 $129,520 $130,086
</TABLE>
Proceeds from sale of investment in taxable debt securities
during fiscal 1992 were $14,304,000. A gross gain of $139,000
was realized on this sale. These securities were acquired with
the Eastern Federal transaction and had maturities inconsistently
longer than Bayside's portfolio. There were no sales of
investments in fiscal 1993 and 1994.
Federal law requires a member institution of the FHLB System to
hold common stock of its district FHLB according to a
predetermined formula. This stock is pledged as additional
collateral to secure FHLB advances.
At September 30, 1993, the Bank had a commitment to purchase an
investment for approximately $5,021,000. There were no
commitments outstanding as of September 30, 1994.
(6) Mortgage-Backed Securities
Mortgage-backed securities consist of:
<TABLE>
September 30, 1994 1993
Gross Gross Estimated Gross Gross Estimated
AmortizedUnrealizedUnrealizedMarketAmortizedUnrealizedUnrealizedMarket
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In Thousands)
GNMA $11,103 $140 $ 249 $10,994 $16,298 $1,106 $ - $17,404
FHLMC 50,445 144 1,583 49,006 68,547 2,391 - 70,938
FNMA 5,013 26 96 4,943 8,786 368 - 9,154
Total $66,561 $310 $1,928 $64,943 $93,631 $3,865 $ - $ 97,496
</TABLE>
The amortized cost and estimated market value of mortgage-backed securities
at September 30, 1994 and 1993 by contractual maturity (which does not
reflect scheduled periodic amortization) are summarized below:
<TABLE>
September 30, 1994 1993
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
(In Thousands)
Due after one year
through five years $ 31,885 $ 30,750 $ 29,863 $ 30,542
Due after five years
through ten years 3,033 3,006 11,995 12,442
Due after ten years 31,643 31,187 51,773 54,512
Total $ 66,561 64,943 $ 93,631 $ 97,496
</TABLE>
<PAGE>
(7) Loans
<TABLE>
Loans are summarized as follows:
September 30, 1994 1993
<S> <C> <C>
(In Thousands)
Loans secured by mortgages on real estate:
Conventional mortgages:
Adjustable rate $634,754 $535,547
Fixed rate 144,205 154,492
Partially guaranteed by VA
or insured by FHA 21,071 24,946
800,030 714,985
Purchase accounting discount (4,857) (5,933)
Deferred loan fees and discounts (2,723) (1,705)
Mortgage loans 792,450 707,347
Other loans:
Secured by deposit accounts 1,166 1,238
Guaranteed by the Agency for
International Development 183 218
Consumer and Home Improvement 41 43
1,390 1,499
Unearned discounts (41) (41)
Other loans 1,349 1,458
Allowance for possible
loan losses (note 8) (9,467) (9,931)
Loans, net $784,332 $698,874
</TABLE>
The estimated fair value of loans as of September 30, 1994 and
1993 amounted to $759,160,000 and $741,184,000, respectively.
The following table sets forth the composition of the Bank's loan
portfolio by type of security in dollar amount (gross) and
percentages.
<TABLE>
September 30, 1994 1993
Percent Percent
Amount of Total Amount of Total
<S> <C> <C> <C> <C>
(Dollars In Thousands)
One-to four-family $258,721 32.28% $296,225 41.34%
Multifamily 363,504 45.36 234,446 32.72
Co-op underlying(1) 124,772 15.57 128,355 17.92
Commercial real estate 42,762 5.33 44,164 6.16
Co-op share 10,004 1.25 11,470 1.60
Other 1,657 .21 1,824 .26
Total $801,420 100.00% $716,484 100.00%
(1)Co-op underlying loans are first mortgage liens on
multifamily cooperative properties and are senior to
the loans on the individual apartment units, commonly
called "co-op share loans."
</TABLE>
Lending Risk. The principal business of the Bank is lending
primarily in adjustable rate mortgage ("ARM") loans on one-to
four-family homes, apartment buildings, cooperative residential
buildings and commercial real estate loans. The Bank considers
its primary lending area to include New York City, and Nassau,
Suffolk and Westchester counties.
Multifamily, co-op underlying and commercial real estate lending
is generally viewed as exposing the lender to a greater risk of
loss than single family residential lending.
Most of the Bank's mortgage loans secured by multifamily
residential properties are located in the New York Metropolitan
Area, and may be affected by general economic conditions in New
York City and by government regulation, such as rent control
laws, which could impact the future cash flow of the affected
properties. Such loans typically involve higher loan principal
amounts and repayment of the loan generally is dependent in large
part, on sufficient income to cover operating expenses.
Most of the co-op underlying, multifamily and commercial loans
are "balloon" loans, which are amortized over significantly
longer periods than their term to maturity. These loans involve
a greater risk to the Bank because the principal amount may not
be significantly reduced prior to maturity.
A portion of the co-op underlying and multifamily adjustable rate
loans have fixed payment schedules that allow for some negative
amortization. The negative amortization is capped at 25% of the
original loan amount for co-op underlying loans and 15% for
multifamily loans. Negative amortization does involve a greater
risk to the Bank because during a period of high interest rates
the loan principal may increase above the amount originally
advanced. However, all recent loan originations, which are
mostly five year adjustable loans, do not allow for negative
amortization.
The Bank has attempted to minimize the risks discussed above by
carefully considering among other things, the creditworthiness of
the borrower, the location of the real estate, the condition and
value of the security property and the quality of the
organization managing the property. All properties securing
these loans are inspected by the Bank's loan underwriters. All
outside appraisers must meet strict education and experience
criteria and must requalify annually. All appraisals on the
properties securing these loans are reviewed by two officers of
the Bank. After these loans are closed, the Bank's loan review
procedures require periodic inspections of the properties and an
annual review of current operating statements.
Restructured loans. The Bank has agreed to modifications of
certain existing loans where appropriate. The modifications have
taken the form of interest rate and payment concessions,
extensions of maturities, forgiveness of some accrued interest
and on one loan, reduction of principal. The Bank has no
commitment to lend additional funds on these loans. At September
30, 1994, the Bank had nine loans totaling $27.0 million that
have been restructured.
The following is a discussion of the two largest restructured
loans at September 30, 1994:
The first is a restructured loan in the amount of $14.1 million
at September 30, 1994 on a 438 unit cooperative building. The
Bank restructured the loan due to cash flow problems from owner
occupant defaults and sponsor cash flow problems due to secondary
financing and increased operating expenses. The restructured
loan provides for a below market interest rate for five years and
an additional four year term to the original maturity date at a
market rate. The loan is current and an appraisal dated May 1993
values the property at $19.3 million.
The second is a restructured multifamily loan on a 324 unit
garden apartment complex in Middlesex County, New Jersey with an
outstanding balance of $6.4 million at September 30, 1994. The
Bank has obtained a final judgement of foreclosure. However,
just before sale of the property in April 1991, the borrowers
filed for bankruptcy under Chapter 11. The plan of
reorganization has been confirmed by the bankruptcy court and
became effective on August 27, 1992. The plan provided, among
other things, for an equity input by the borrowers of $500,000
and that the borrowers execute a new mortgage note for $8.0
million with a maturity of five years. The loan is structured to
have an accrual of interest in the first two years with partial
payments and then full payments of interest for the remaining
three years. The Bank began accruing interest on the new
mortgage note September 1992. The loan is current and an
appraisal of the property as of March 1993 indicated the value to
be $8.7 million.
In addition to the above discussed loans, restructured loans at
September 30, 1994 include seven loans totaling $6.5 million that
are current under their modified terms.
For the years ended September 30, 1994, 1993 and 1992, the
interest income on restructured loans that would have been
recorded had the loans performed at their original terms was
approximately $2,482,000, $2,590,000 and $3,794,000,
respectively, and the interest income that was recorded for the
same periods amounted to $1,853,000, $1,877,000 and $1,818,000,
respectively.
Mortgage loans in arrears three months or more or in process of
foreclosure were as follows (dollars in thousands):
<PAGE>
% of
Number total
of loans Amount loans
September 30, 1994 50 $ 5,485 .69%
September 30, 1993 46 $ 8,705 1.23%
At September 30, 1994, 1993 and 1992, nonaccrual loans totaled
approximately $4,588,000, $8,251,000 and $10,725,000,
respectively. Nonaccrual loans reduced interest income by
approximately $557,000, $580,000 and $372,000 for the years ended
September 30, 1994, 1993 and 1992, respectively. At September
30, 1994, there were no outstanding commitments to lend
additional funds on such loans.
At September 30, 1994 and 1993, the Bank had commitments to
originate mortgage loans of approximately $20,704,000 and
$23,543,000, respectively.
(8) Allowances for Possible Loan and Real Estate Owned Losses
Activity in the allowance for possible loan losses is summarized
as follows:
<TABLE>
Year ended September 30, 1994 1993 1992
<S> <C> <C> <C>
(In Thousands)
Balance at beginning of period $ 9,931 $11,086 $ 9,558
Provision for possible loan losses 525 4,300 2,775
Loans charged off (1,018) (5,457) (1,250)
Recoveries of loans charged off 29 2 3
Balance at end of period $ 9,467 $ 9,931 $11,086
</TABLE>
Activity in the allowance for possible REO losses is summarized
as follows:
<TABLE>
Year ended September 30, 1994 1993 1992
<S> <C> <C> <C>
(In Thousands)
Balance at beginning of period $ 593 $108 $ -
Provision for REO losses 250 520 275
REO charged off (612) (35) (167)
Recoveries of REO charged off 10 - -
Balance at end of period $ 241 $ 593 $ 108
</TABLE>
(9) Mortgage Loan Servicing
A summary of the number of loans and principal balance of loans
serviced for others by the Bank is as follows:
<TABLE>
September 30, 1994 1993
<S> <C> <C>
(Dollars In Thousands)
Number of loans 1,887 2,162
Principal balances $106,019 $129,160
</TABLE>
(10) Premises and Equipment, Net
Premises and equipment consist of:
<TABLE>
September 30, 1994 1993
<S> <C> <C>
(In Thousands)
Land $1,719 $1,748
Buildings 4,410 3,986
Leasehold improvements 1,342 1,739
Furniture, fixtures and equipment 4,945 5,363
Automobiles 137 164
12,553 13,000
Accumulated depreciation and
amortization 5,254 5,620
Premises and equipment, net $7,299 $7,380
</TABLE>
Depreciation and amortization expense was approximately
$1,104,000, $1,125,000 and $1,110,000 for the years ended
September 30, 1994, 1993 and 1992, respectively.
<PAGE>
(11) Deposits
Deposit balances consist of (Dollars In Thousands):
<TABLE>
September 30, 1994 1993
Weighted Weighted
average average
% of nominal % of nominal
Amount total rate Amount total rate
<S> <C> <C> <C> <C> <C> <C>
Checking and
NOW accounts $ 79,599 9.37% 1.95% $ 77,077 8.67% 1.95%
Savings
deposits 399,199 47.02 2.57 424,284 47.74 2.66
Money market
accounts 22,826 2.69 2.66 23,284 2.62 2.66
501,624 59.08 524,645 59.03
Certificate accounts by contractual maturity:
Less than
12 months 76,842 9.05 3.24 91,628 10.31 2.97
12 to
24 months 181,663 21.40 3.87 190,174 21.40 3.78
25 to
36 months 5,874 .69 4.85 6,735 .76 6.14
Over 36
months 82,994 9.78 5.94 75,515 8.49 6.24
347,373 40.92 364,052 40.96
Purchase accounting
premium 34 .00 69 .01
Total
deposits $849,031 100.00% $888,766 100.00%
</TABLE>
Certificates of deposit accounts with denominations of $100,000 or more
totaled approximately $18,316,000 and $19,360,000 as of September 30,
1994 and 1993, respectively.
The estimated fair value of certificates of deposit as of September 30,
1994 and 1993 amounted to $346,935,000 and $368,961,000, respectively.
The FDIC, an agency of the U.S. Government, administers the insurance of
each depositor's savings up to $100,000 in accordance with the rules and
regulations of the FDIC.
Interest expense on deposit balances is summarized as follows for the
year ended:
<TABLE>
Year ended September 30, 1994 1993 1992
<S> <C> <C> <C>
(In Thousands)
Checking and
NOW accounts $ 1,586 $ 1,641 $ 2,170
Savings deposits
and club accounts 10,920 12,635 14,994
Money market accounts 634 700 1,373
Certificate accounts 14,284 15,767 26,225
Total $27,424 $30,743 $44,762
</TABLE>
<PAGE>
(12) Borrowed Funds
Borrowed funds consist of:
<TABLE>
September 30, 1994 1993
<S> <C> <C>
(In Thousands)
Notes payable-fixed rate advances
from the Federal Home Loan Bank
of New York
9.50% due 1994 $ - $ 3,000
10.00% due 1999 10,000 10,000
10,000 13,000
ESOP loan payable (note 15) 257 462
Total $10,257 $13,462
</TABLE>
The estimated fair value of borrowed funds as of September 30, 1994 and
1993 amounted to $11,352,000 and $16,617,000, respectively.
Advances from the Federal Home Loan Bank of New York (FHLB-NY) are
secured by stock of the FHLB-NY and mortgage loans at least equal to
110% of the amount of advances outstanding.
Interest expenses on borrowed funds is summarized as follows:
<TABLE>
<S> <C> <C> <C>
Year ended September 30, 1994 1993 1992
(In Thousands)
Notes payable $ 1,097 $ 1,287 $ 1,378
Securities sold under
agreements to repurchase - - (4)
ESOP loan payable (note 15) - 3 -
Total $ 1,097 $ 1,290 $ 1,374
</TABLE>
(13) Income Taxes
As discussed in Note 1, the Company implemented SFAS No. 109 on a
prospective basis, effective October 1, 1993. The adoption of SFAS No.
109 resulted in an additional $6.1 million deferred tax asset (net of a
$531,000 valuation allowance). This was recorded as a $2.4 million
reduction in the excess of cost over fair value of net assets acquired
through the Union Federal acquisition reflected in the consolidated
statement of financial condition, and a $3.7 million credit to income
reflected as the cumulative effect of an accounting change in the
consolidated statement of income.
The income tax provision attributable to income before net cumulative
effect of accounting change for the years ended September 30, 1994, 1993
and 1992 was at an effective rate higher than the statutory United
States Federal income tax rate. The reasons for the differences are as
follows:
<PAGE>
<TABLE>
Year ended September 30, 1994 1993 1992
<S> <C> <C> <C>
Tax expenses at statutory rate 35.0% 34.8% 34.0%
Increases (reduction) in taxes resulting from:
Amortization of excess cost over fair
value of net assets acquired 1.1 1.6 2.1
Accretion/amortization of purchase
accounting discount - (2.0) (3.0)
State and local income taxes, net of
federal tax benefit 9.4 7.8 8.1
Federal bad debt deduction less than
financial statement provision - 5.3 4.5
Other - (.2) (.2)
Actual tax provision 45.5% 47.3% 45.5%
</TABLE>
Under the Internal Revenue Code, the Bank is allowed a special bad debt
deduction for additions to tax bad debt reserves established for the
purpose of absorbing losses. For tax years beginning after January 1,
1987, the allowable deduction is calculated utilizing either an
experience method or by applying the statutory rate of 8% of taxable
income.
The Bank files state and local tax returns on a fiscal year basis.
Effective January 1, 1985, the basis for the determination of tax
liability was changed to the greater of a tax based on entire net
income, as defined, taxable assets or a minimum tax. Further, the Bank
is subject to a temporary surcharge based upon New York State tax
liability. The Bank's provision for New York State and New York City
taxes for the years ended September 30, 1994, 1993 and 1992 is based on
"entire net income".
For the years ended September 30, 1994, 1993 and 1992, provisions for
income tax expense attributable to income before net cumulative effect
of accounting change are comprised of the following amounts:
<TABLE>
Year ended September 30, 1994 1993 1992
<S> <C> <C> <C>
(In Thousands)
Current:
Federal $ 7,287 $ 7,502 $ 5,127
State and local 3,408 2,554 1,866
10,695 10,056 6,993
Deferred:
Federal (17) (443) (444)
State and local (8) (157) (130)
(25) (600) (574)
$ 10,670 $ 9,456 $ 6,419
</TABLE>
The significant components of the change in the net deferred tax asset
from October 1, 1993 to September 30, 1994 are as follows (In
Thousands):
Deferred tax provision (exclusive of the effects of other components
listed below) $ (678)
Deferred tax asset attributable to recognition of discounts for tax
purposes 1,157
Deferred tax liability attributable to the reduction of excess tax
basis in acquired assets (454)
$ 25
For the years ended September 30, 1993 and 1992, deferred tax expense
results from timing differences in the recognition of income and expense
for tax and financial reporting purposes. The sources and tax effects
of these timing differences are as follows:
<TABLE>
September 30, 1993 1992
<S> <C> <C>
(In Thousands)
Restructured loan-original
issue discount $ - $ (394)
Tax depreciation in excess of book (141) (57)
Reserve for uncollected interest (132) (15)
Deferred compensation (132) 7
Deferred loan fees (288) (230)
Other 93 115
$ (600) $ (574)
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at October 1, 1993
and September 30, 1994 are presented below.
<TABLE>
October 1, 1993 September 30, 1994
(In Thousands)
Deferred tax assets:
<S> <C> <C>
Deferred loan loss provision,
principally due to different
methods of income recognition
for financial reporting
purposes $4,898 $4,821
Excess tax basis in acquired assets
from previous tax free business
combinations 2,369 1,915
Bad debts charged off in excess of
percentage of taxable income bad
debt deduction for which no current
tax deduction has been taken 466 57
Deferred compensation and various
employee benefits, principally due
to accrual for financial reporting
purposes 317 557
Deferred loan fees, principally due
to different methods of income tax
recognition for financial reporting
purposes 745 755
Premises and equipment, principally due
to different methods of income recognition
for financial reporting purposes - 45
Other 1 -
Total gross deferred tax assets 8,796 8,150
Valuation allowance (531) (531)
Deferred tax asset after valuation
allowance $8,265 $7,619
Deferred tax liability:
Plant and equipment, principally due to
different methods of income recognition
for financial reporting purposes (98) -
Discount accretion, principally due to
different methods of income recognition
for financial reporting purposes (1,678) (521)
Other (125) (709)
Total gross deferred tax liabilities (1,901) (1,230)
Net deferred tax assets $6,364 $6,389
</TABLE>
The valuation allowance for deferred tax assets relates primarily to
uncertainties of realization under the New York State and New York City
tax codes which do not allow for net operating loss carryforwards or
carrybacks.
Retained income at September 30, 1994, 1993 and 1992 includes
approximately $10,641,000, $10,641,000 and $10,736,000, respectively,
for which no provision for federal income tax has been made. These
amounts represent allocations of income to bad debt reductions for tax
purposes only. Reduction of amounts so allocated for purposes other
than tax bad debt losses will create income for tax purposes only, which
will be subject to the then current corporate income tax rate.
(14) 401(k) Plan
Effective August 1, 1984, the Bank established a 401(k) thrift savings
plan (the "401(k) Plan") for all employees who have attained the age of
twenty-one and have completed twelve months of credited service which
includes one thousand hours of service. The terms of the 401(k) Plan
provide for employee contributions on a pretax basis up to a maximum of
10% of their base salary. The 401(k) Plan also provides that the Bank
match 50% of each employee's contribution on a monthly basis, however,
employee contribution in excess of 6% of base compensation will not be
taken into account in the determination of the Bank's contribution. In
addition to the monthly contributions, the Bank may, at the discretion
of the Board of Directors, make an additional contribution to the 401(k)
Plan. The amount of these contributions is also subject to the 6%
limitation described above. The 401(k) Plan expense, which is included
in other operating expenses - compensation and benefits, amounted to
approximately $246,000, $222,000 and $222,000 for the years ended
September 30, 1994, 1993 and 1992, respectively.
Upon the closing date of the Merger, all participants become fully
vested in their account balances. North Fork has a qualifying 401(k)
savings plan which, subject to approval by various agencies, is intended
to be the successor plan.
(15) Stock Plans
Stock Option Plans. Effective upon the Conversion, the Board of
Directors of the Company adopted an Incentive Stock Option Plan (the
"Incentive Plan") which was approved by the shareholders of the Company
on February 15, 1989. Under the Incentive Plan, 429,871 stock options
(adjusted for stock splits and which expire ten years from the date of
grant) have been granted to executive officers of the Company and its
affiliates, including the Bank. Each option entitles the holder to
purchase one share of common stock at an exercise price equal to $3.90
per share (the initial public offering price adjusted for stock splits).
Simultaneously with the grant of any option, the Personnel Committee of
the Board of Directors granted a "limited right" with respect to the
shares covered by the option. Upon exercise of a limited right, the
optionee would receive cash equal to the difference between the fair
market value of the underlying shares of common stock subject to the
option on the date of exercise and the exercise price. A limited right
may be exercised only in the event of a change in control of the Holding
Company (as defined in the Incentive Plan).
During November 1993, the Board of Directors of the Company adopted a
new Incentive Stock Option Plan (the "1993 Incentive Plan") which was
approved by the shareholders of the Company on January 26, 1994. Under
the 1993 Incentive Plan, 51,022 stock options (which expire ten years
from the date of grant) have been granted to one executive officer of
the Company and its affiliates, including the Bank. Each option
entitles the holder to purchase one share of common stock at an exercise
price equal to $17.38 per share. Simultaneously with the grant of any
option, the Personnel Committee of the Board of Directors granted a
"limited right" with respect to the shares covered by the option. Upon
exercise of a limited right, the optionee would receive cash equal to
the difference between the fair market value of the underlying shares of
common stock subject to the option on the date of exercise and the
exercise price. A limited right may be exercised only in the event of
a change in control of the Holding Company (as defined in the 1993
Incentive Plan).
Effective upon the Conversion, the Board of Directors of the Company
also adopted an Option Plan for Outside Directors (the "Directors'
Option Plan"), which was approved by the shareholders of the Company on
February 15, 1989. Each member of the Board of Directors who is not an
officer or employee of the Company was granted a single nonstatutory
option to purchase 12,358 shares of the Company at an exercise price
equal to $3.90 per share (the initial public offering price adjusted for
stock splits). Each of the 98,864 total options granted under the
Directors' Option Plan expire upon the earlier of ten years following
the date of the option or thirty days following the date the optionee
ceases to be a director.
In November 1993, the Board of Directors of the Company adopted a new
Option Plan for Outside Directors (the "Directors' 1993 Option Plan"),
which was approved by the shareholders of the Company on January 26,
1994. Each member of the Board of Directors who becomes a member of the
Board after the Conversion and who is not an officer or employee of the
Company is granted a single nonstatutory option to purchase 12,358
shares of the Company at an exercise price equal to the closing price of
the Metro stock on the day prior to the date of grant. In November
1993, 12,358 options were granted under the Directors' 1993 Option Plan
at an exercise price equal to $17.38 per share which expire upon the
earlier of ten years following the date of the option or one year
following the date the optionee ceases to be a director.
During fiscal 1991, the Board of Directors of the Company adopted an
Incentive Stock Appreciation Rights ("SARs") Plan for the benefit of
officers and other key employees. Stock appreciation rights entitle the
grantee to receive cash equal to the excess of the market value of the
shares at the date the right is exercised over the exercise price and
the equivalent of any dividends declared on common stock during the
period the SARs are outstanding. An expense is accrued and adjusted
quarterly for the earned portion of the amount by which the market value
of the stock exceeds the exercise price for each stock appreciation
right outstanding along with the equivalent of dividends declared on
common stock. The expense related to the SARs granted in fiscal 1994,
1993 and 1992 accrued at September 30, 1994, 1993 and 1992 was
approximately $1,724,000, $957,000 and $541,000, respectively.
Participants become fully vested in their SARs upon the closing of the
Merger.
A summary of stock option and stock appreciation rights activity
(adjusted for the stock splits) for the three years ended September 30,
1994 is as follows:
<TABLE>
Stock Options Option/SARs Price
Incentive Directors SARs Per Share
<S> <C> <C> <C> <C>
Balance at
September 30, 1991 378,849 97,739 - $ 3.90
81,000 3.34
Granted - - 103,500 5.12
Vested - - 40,500 3.34
Exercised - 14,608 - 3.90
Balance at
September 30, 1992 378,849 83,131 - 3.90
- 40,500 3.34
103,500 5.12
Granted - - 156,000 10.34
Vested - - 92,250 3.34/5.12
Exercised - 4,500 - 3.90
Balance at
September 30, 1993 378,849 78,631 - 3.90
51,750 5.12
156,000 10.34
Granted 51,022 12,358 - 17.38
Granted - - 79,500 18.50
Vested - - 51,750 5.12
Exercised 7,500 5,451 - 3.90
Balance at
September 30, 1994 371,349 73,180 - 3.90
51,022 12,358 - 17.38
156,000 10.34
79,500 18.50
</TABLE>
Employee Stock Ownership Plan and Trust. Effective upon the Conversion,
the Company established an ESOP for employees age 21 or older who have
at least one year of credited service.
The ESOP is funded by the Company's contributions made in cash (which
are primarily invested in the common stock) or common stock. Benefits
may be paid in shares of common stock or in cash. As part of the
Conversion, the ESOP borrowed funds from an unrelated third party lender
and used the funds to purchase 370,125 shares (adjusted for the stock
splits) of the common stock issued in the Conversion. The loan will be
repaid principally from the Company's discretionary contributions to the
ESOP over a period not to exceed 7 years. The interest rate for the
loan is based upon the lender's prime rate. At September 30, 1994, the
loan had an outstanding balance of $257,000 for an interest rate of
7.75%. Shares purchased with such proceeds will be held in a suspense
account for allocation among participants as the loan is paid.
Contributions to the ESOP and shares released from the suspense account
are allocated among participants on the basis of compensation in the
year of allocation. Benefits generally become 20% vested after three
years of credited service, increasing to 100% after seven years.
However, for any year in which more than 60% of the total contributions
are allocated to key employees, the vesting schedule is accelerated with
benefits becoming vested after two years of credited service increasing
to 100% after six years. Forfeitures will be reallocated among
remaining participating employees, in the same proportion as
contributions.
Benefits may be payable upon death, retirement, early retirement,
disability or separation from service. The Bank's contributions to the
ESOP are not fixed, therefore benefits payable under the ESOP cannot be
estimated. The Company recorded approximately $137,000, $206,000 and
$206,000 for this expense during the years ended September 30, 1994,
1993 and 1992, respectively, which included a prorata portion of the
next loan payment due. At September 30, 1994, there were 105,750 shares
(adjusted for stock splits) remaining for future allocation.
The ESOP Trustee must vote all allocated shares held in the ESOP in
accordance with the instructions of the participating employees.
Unallocated shares will be voted by the Trustee in a manner consistent
with the instructions received for voting the allocated shares.
The Merger Agreement provides that the ESOP shall be terminated in a
manner which qualifies under applicable sections of the IRC and that the
unallocated stock, after satisfaction of the Plan's liabilities, will be
allocated to active participants' accounts.
Management Recognition Plan and Trust. Effective upon the Conversion,
the Company established the MRP as a method of providing key management
employees with a proprietary interest in the Company in a manner
designed to encourage such key employees to remain with the Company.
The Company contributed $616,875 to the MRP to enable it to acquire
158,625 shares (adjusted for the stock splits) of common stock in the
conversion, all of which were awarded. Such amount represents deferred
compensation and has been accounted for as a reduction of stockholders'
equity. Awards will be 100% vested after five years, upon termination
of employment by death, disability, retirement or following a change in
control of the Company. The Company recorded approximately $9,000,
$108,000 and $108,000 for this expense during the years ended September
30, 1994, 1993 and 1992, respectively. During the year ended September
30, 1994, 27,774 shares were distributed under this plan.
(16) Rental Expense and Lease Commitments
The Bank is obligated under several noncancellable leases on property
used for its administrative office and branch purposes. These leases
contain renewal options and rent escalation clauses. Rental expense
under these leases for the years ended September 30, 1994, 1993 and 1992
approximated $710,000, $737,000 and $700,000, respectively.
The projected minimum rentals under existing leases at September 30,
1994 are as follows:
<PAGE>
Year ending September 30,
<TABLE>
<S> <C>
(In Thousands)
1995 $ 713
1996 730
1997 729
1998 662
1999 666
Thereafter 1,628
Total $5,128
</TABLE>
(17) Contingencies
The Company is a defendant in certain claims and legal actions arising
in the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these
matters will not have a material adverse effect on the consolidated
financial condition of the Company.
(18) Regulatory Capital Compliance
As a condition of deposit account insurance, OTS regulations require
that the Bank calculate three minimum regulatory net worth requirements
on a quarterly basis, and satisfy each requirement at the calculation
date and throughout the ensuing quarter. The three requirements are a
1.50% tangible capital ratio; a 3.00% leverage ratio; and an 8.00% risk-
based assets capital ratio. The capital standards are also required to
be no less stringent than standards applicable to national banks. As of
September 30, 1994, the Bank was in compliance with the regulatory
capital requirements.
On December 19, 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") became law. FDICIA, among other
things, establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. The regulators have adopted
rules, effective December 19, 1992, which require them to take action
against undercapitalized institutions, based upon the five categories of
capitalization which the FDICIA created: "well capitalized", "adequately
capitalized", "undercapitalized", "significantly undercapitalized" and
"critically under-capitalized".
The rules adopted generally provide that an insured institution whose
risk-based capital ratio is 10% or greater, Tier 1 risk-based capital is
6% or greater, and leverage ratio is 5% or greater is considered a "well
capitalized" institution. As of September 30, 1994, the Bank is
considered a "well capitalized" institution.
(19) Business Combination
The Company, through Bayside, acquired certain assets and assumed
certain liabilities of Eastern Federal Savings and Loan Association
("Eastern") from the RTC effective with the close of business on
September 27, 1991. This transaction has been accounted for as a
purchase.
Bayside acquired and retained $190.5 million in deposits held by Eastern
at four of its branch locations in Suffolk County. Bayside Federal also
assumed approximately $4.4 million in other liabilities of Eastern which
were paid with cash received from the RTC. In consideration for the
liabilities assumed, Bayside acquired approximately $108.7 million in
loans, $82.1 million in cash and cash equivalents and investment
securities, and $4.1 million in other assets.
The excess of the fair value of assets acquired over liabilities assumed
amounted to approximately $4.0 million. This excess offsets the $3.1
million in deposit purchase premiums and acquisition costs, and the
remaining $905,000 was used to reduce the carrying value of acquired
fixed assets. The transaction resulted in no additional goodwill to
Bayside.
Purchase accounting discounts and deposit premiums related to the
transaction which are accreted/amortized to income over the related
estimated lives using the level yield method are as follows:
Estimated
Amount Life
(Dollars In Thousands)
Purchase discount on loans $729 17 years
Purchase premium on deposits $703 4 years
On September 10, 1982, the Bank purchased Union Federal Savings and Loan
Association. At September 30, 1994, the remaining excess of cost over
fair value of net assets acquired and unaccreted discount associated
with this acquisition amounted to approximately $13,812,000 and
$4,324,000, respectively. The net effect on income before provision for
income taxes of the amortization of excess of cost over fair value of
net assets acquired and the accretion of acquisition discounts during
the years ended September 30, 1994, 1993 and 1992 were as follows:
<TABLE>
Year ended September 30, 1994 1993 1992
(In Thousands)
<S> <C> <C> <C>
Accretion of discounts
on loans $ 1,011 $ 1,125 $ 1,235
Amortization of excess
cost over fair value of
net assets acquired (767) (892) (892)
Net increase in income before provision
for income taxes $ 244 $ 233 $ 343
</TABLE>
<PAGE>
Item 7
B. North Fork Bancorporation, Inc.-Metro Bancshare Inc. Unaudited Pro Forma
Condensed Combined Financial Statement.
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
The following tables set forth certain selected condensed
financial data for North Fork and Metro on an unaudited pro forma
combined basis giving effect to the Merger as if the Merger had
become effective on September 30, 1994, in the case of the balance
sheet data presented, and as if the Merger had become effective at the
beginning of the periods indicated, in the case of the income
statement data presented. The pro forma data in the tables
accounts for the Merger using the pooling of interests method of
accounting. Financial data for the nine months ended September 30,
1994 combine North Fork and Metro with Metro's interim
results presented to coincide with the reporting period for North
Fork. These tables should be read in conjunction with, and are
qualified in their entirety by, the historical financial
statements, including the notes thereto, of North Fork and Metro.
The pro forma data set forth in the following tables do
not reflect merger expenses and restructuring charges anticipated
to be incurred by North Fork, the expected costs savings and
revenue enhancement opportunities that could result from the Merger
or any other items of income or expense which may result from the
Merger. The unaudited pro forma combined selected financial data
is presented for informational purposes only and is not necessarily
indicative of the combined financial position or results of
operations that would have occurred if the Merger had been
consummated on September 30, 1994 or at the beginning of the
periods indicated or which may be obtained in the future.
<PAGE>
NORTH FORK BANCORPORATION, INC. - METRO BANCSHARES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
<TABLE>
September 30, 1994
(Dollars in thousands)
Pro Forma North Fork
North Fork Metro Adjustments Pro Forma
<S> <C> <C> <C> <C>
ASSETS
Cash and Due
from Banks $64,290 $11,212 $ 75,502
Money market
investments 585 8,275 8,860
Investment Securities 639,812 134,152 (128,051) (5) 645,913
Securities Available
for Sale 202,772 0 124,134 (5) 326,906
Loans, net of unearned
discounts 988,764 793,799 1,782,563
Allowance for Loan
Losses (41,176) (9,467) (50,643)
Net Loans 947,588 784,332 1,731,920
Premises and Equipment 31,784 7,299 39,083
Other Real Estate Owned 14,449 1,033 15,482
Excess of cost over fair
value of assets
acquired 8,764 13,812 22,576
Other Assets 30,352 13,833 1,673 (5) 45,858
Total Assets $1,940,396 $973,948 $2,912,100
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $1,479,132 $868,041 $2,347,173
Federal Funds Purchased
and Securities Sold
with Agreements to
Repurchase 250,217 0 250,217
Borrowed Funds 25,000 10,257 (257) (2) 35,000
Other Liabilities 16,514 10,903 27,417
Total Liabilities 1,770,863 889,201 2,659,807
Stockholders' Equity:
Preferred Stock 0 0 0
Common Stock 35,874 53 20,841 (2) 56,768
Additional Paid-in
Capital 96,040 18,911 (21,682) (2) 93,269
Retained Earnings 40,640 66,881 107,521
Less: Unrealized depreciation
on certain marketable
securities (2,649) 0 (2,244) (5) (4,893)
Less: Restricted Stock
Awards (354) 0 (354)
Less: Unallocated common
stock held by ESOP 0 (257) 257 (2) 0
Less: Treasury Stock (18) (841) 841 (2) (18)
Total Stockholders'
Equity 169,533 84,747 252,293
Total Liabilities and
Stockholders' Equity $1,940,396 $973,948 $2,912,100
</TABLE>
<PAGE>
NORTH FORK BANCORPORATION, INC. - METRO BANCSHARES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of December 31, 1993 for North Fork and September 30, 1993 for Metro
(Dollars in thousands)
<TABLE>
Pro Forma North Fork
North Fork Metro Adjustments Pro Forma
<S> <C> <C> <C> <C>
ASSETS
Cash and Due
from Banks $ 75,070 $ 13,386 $ 88,456
Money market
investments 290 29,175 29,465
Investment Securities 548,497 223,151 771,648
Securities Available
for Sale 200,219 0 200,219
Loans, net of unearned
discounts 1,017,084 708,805 1,725,889
Allowance for
Loan Losses (46,625) (9,931) (56,556)
Net Loans 970,459 698,874 1,669,333
Premises and Equipment 33,277 7,380 40,657
Other Real Estate Owned 21,899 4,316 26,215
Excess of cost over
fair value of assets
acquired 9,291 16,948 26,239
Other Assets 24,879 7,264 32,143
Total Assets $1,883,881 $1,000,494 $2,884,375
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $1,442,270 $ 906,275 $2,348,545
Federal Funds Purchased
and Securities Sold
with Agreements to
Repurchase 255,643 0 255,643
Borrowed Funds 20,000 13,462 33,462
Other Liabilities 11,496 8,919 20,415
Total Liabilities 1,729,409 928,656 2,658,065
Stockholders' Equity:
Preferred Stock 0 0 0
Common Stock 35,274 53 20,787 (2) 56,114
Additional Paid-in
Capital 94,487 18,661 (21,674) (2) 91,474
Retained Earnings 25,140 54,482 79,622
Less: Unrealized depreciation
on certain marketable
securities 0 0 0
Less: Restricted Stock
Awards (428) 0 (428)
Less: Unallocated common
stock held by
ESOP and MRP 0 (471) (471)
Less: Treasury
Stock (1) (887) 887 (2) (1)
Total Stockholders'
Equity 154,472 71,838 226,310
Total Liabilities and
Stockholders' Equity $1,883,881 $1,000,494 $2,884,375
</TABLE>
<PAGE>
<TABLE>
NORTH FORK BANCORPORATION, INC. - METRO BANCSHARES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the nine months ended September 30, 1994
(Dollars in thousands, except for per share data)
North Fork
North Fork Metro Pro Forma
<S> <C> <C> <C>
Interest Income $ 96,261 $ 55,458 $151,719
Interest Expense 32,220 21,233 53,453
Net Interest Income 64,041 34,225 98,266
Provision for
Loan Losses 2,500 25 2,525
Net Interest Income
after Provision for
Loan Losses 61,541 34,200 95,741
Non Interest Income 12,388 1,918 14,306
Net Securities
Gains (Losses) (54) (1,940) (1,994)
Other Real Estate
Owned Related
Expense 4,283 512 4,795
Non Interest Expense 39,754 15,976 55,730
Income before
Income Taxes 29,838 17,690 47,528
Provision for
Income Taxes 10,766 8,064 18,830
Net Income $ 19,072 $ 9,626 $ 28,698
Weighted average common shares outstanding:
Pro Forma at the
Exchange Ratio 14,937 5,441 23,887
Net Income per share:
Pro Forma at the
Exchange Ratio $ 1.28 $ 1.77 $ 1.20
</TABLE>
<PAGE>
NORTH FORK BANCORPORATION, INC. - METRO BANCSHARES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the years ended December 31, 1993 for North Fork
and September 30, 1993 for Metro
(Dollars in thousands, except for per share data)
<TABLE>
North Fork
North Fork Metro Pro Forma
<S> <C> <C> <C>
Total Interest Income $ 118,489 $72,718 $191,207
Total Interest Expense 41,136 32,033 73,169
Net Interest Income 77,353 40,685 118,038
Provision for Loan Losses 6,000 4,300 10,300
Net Interest Income
after Provision for
Loan Losses 71,353 36,385 107,738
Non-interest Income 16,510 2,969 19,479
Net Securities Gains 1,457 0 1,457
Other Real Estate Owned
Related Expense 14,307 (336) 13,971
Non-interest Expense 52,396 19,684 72,080
Income before Income Taxes 22,617 20,006 42,623
Provision for Income
Taxes 7,520 9,456 16,976
Net Income $ 15,097 $10,550 $ 25,647
Weighted average common shares outstanding:
Pro Forma at the
Exchange Ratio 14,382 5,421 23,300
Net Income per share:
Pro Forma at the
Exchange Ratio $ 1.05 $ 1.95 $ 1.10
</TABLE>
<PAGE>
NORTH FORK BANCORPORATION, INC. - METRO BANCSHARES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the years ended December 31, 1992 for North Fork
and September 30, 1992 for Metro
(Dollars in thousands, except for per share data)
<TABLE>
North Fork
North Fork Metro Pro Forma
<S> <C> <C> <C>
Total Interest Income $ 130,740 $ 79,784 $ 210,524
Total Interest Expense 59,578 46,136 105,714
Net Interest Income 71,162 33,648 104,810
Provision for Loan Losses 21,000 2,775 23,775
Net Interest Income
after Provision for
Loan Losses 50,162 30,873 81,035
Non-interest Income 14,647 2,496 17,143
Net Securities Gains 9,408 139 9,547
Other Real Estate Owned
Related Expense 15,998 276 16,274
Non-interest Expense 54,299 19,116 73,415
Income before
Income Taxes 3,920 14,116 18,036
Provision for
Income Taxes 2,190 6,419 8,609
Net Income $ 1,730 $ 7,697 $ 9,427
Weighted average common shares outstanding:
Pro Forma at the
Exchange Ratio 11,025 5,344 19,816
Net Income per share:
Pro Forma at the
Exchange Ratio $ 0.16 $ 1.44 $ 0.48
</TABLE>
<PAGE>
NORTH FORK BANCORPORATION, INC. - METRO BANCSHARES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the years ended December 31, 1991 for North Fork
and September 30, 1991 for Metro
(Dollars in thousands, except for per share data)
<TABLE>
North Fork
North Fork Metro Pro Forma
<S> <C> <C> <C>
Total Interest Income $152,368 $73,487 $225,855
Total Interest Expense 88,209 48,255 136,464
Net Interest Income 64,159 25,232 89,391
Provision for Loan Losses 64,800 1,825 66,625
Net Interest Income
after Provision for
Loan Losses (641) 23,407 22,766
Non-interest Income 11,305 2,094 13,399
Net Securities Gains 8,942 110 9,052
Other Real Estate Owned
Related Expense 10,340 323 10,663
Non-interest Expense 47,833 14,830 62,663
Income before
Income Taxes (38,567) 10,458 (28,109)
Provision for (recovery)
Income Taxes (4,941) 4,777 (164)
Net Income (loss) ($33,626) $ 5,681 ($27,945)
Weighted average common shares outstanding:
Pro Forma at the
Exchange Ratio 9,999 5,162 18,490
Net Income (loss) per share:
Pro Forma at the
Exchange Ratio ($3.36) $1.10 ($1.51)
</TABLE>
<PAGE>
NORTH FORK BANCORPORATION AND SUBSIDIARIES AND
METRO BANCSHARES AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
(1) The unaudited pro forma condensed combined balance sheet
at September 30, 1994 represents the historical book values for
North Fork Bancorporation, Inc. ("North Fork") and Metro Bancshares
Inc. ("Metro") and account for the Merger using the pooling of
interests method of accounting. Under generally accepted
accounting principals ("GAAP")the assets and liabilities of Metro
will be combined with those of North Fork.
Additionally, the statements of income for Metro will
be combined with North Fork on a retroactive basis. North Fork
utilizes a fiscal year which ends on December 31 for reporting
purposes, whereas Metro uses a fiscal year which ends on September
30 for such purposes. The unaudited condensed combined statements
of income for 1993, 1992, and 1991 combine North Fork and Metro at
their respective year end periods. The unaudited condensed
combined statement of income for the nine month period ended
September 30, 1994 includes Metro for the nine months then ended to
conform with the reporting period of North Fork. Summary
unaudited operating results for Metro in the three month period
ended December 31, 1993 not included in the unaudited pro
forma condensed combined financial statements, is as follows:
<TABLE>
Three months ended December 31, 1993:
(unaudited)
<S> <C>
Net interest income $10,745
Income before cumulative effect
for accounting for income taxes 3,137
Income per share before
cumulative effect $ 0.58
Cumulative effect of adoption of
SFAS #109 accounting for
income taxes 3,700
Net Income 6,837
Net Income per share $ 1.26
</TABLE>
(2) Pro forma adjustments to common shares and capital
surplus, at September 30, 1994, reflect the Merger accounted for as
a pooling of interest, through: (a) the exchange of 8,357,429
shares of $2.50 par value North Fork Common Stock for 5,080,504
actual outstanding shares actual of Metro at an Exchange Ratio of
1.645.
(3) The pro forma weighted average shares outstanding for the
nine month ended September 30, 1994 and for each of the combined
three year periods, reflect exchange ratios of 1.645 shares of
North Fork Common Stock for each share of Metro Common Stock.
(4) The pro forma condensed combined financial statements do
not reflect one-time merger expenses and restructuring charges
which currently are estimated to be $13.6 million after taxes. The
components of the merger and restructuring costs that will be
recorded in the fourth quarter of 1994 are as follows:
<TABLE>
Type of Cost $ in millions
<S> <C>
Merger expense $ 3.0
Restructuring charges:
Severance and Other Employee Expenses 5.8
Facility and System Costs 5.6
Total pre-tax merger and
restructuring charges 14.4
Less: Tax effect ( 5.0)
Tax Bad Debt Recapture 4.2
Total after tax merger and
restructuring charges $13.6
</TABLE>
In response to recent changes in the interest rate environment
the Registrant and Metro disposed of selected securities in the
fourth quarter of 1994 incurring pre-tax losses of approximately
$6.7 million. Approximately $2.8 million was incurred by North
Fork and $3.9 million by Metro. These dispositions were from the
available for sale portfolios. Also in the fourth quarter, it was
determined that there were adverse developments relating to the
ultimate recovery on a certain mortgage-backed investment held by
Metro resulting in an additional write-down of $1.3 million that
will be reflected in the fourth quarter results of operations.
Metro had recognized a write-down of $1.9 million in the quarter
ended September 30, 1994.
(5) North Fork adopted Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS #115) as of January 1, 1994. Metro was
not required and had not yet adopted SFAS #115 for its recently
completed fiscal year end. The foregoing pro forma combined
balance sheet at September 30, 1994 reclassifies Metro's investment
portfolio to conform with the criteria established by North Fork.
(6) Certain Metro financial information has been reclassified
to conform with North Fork.
(7) Share data for Metro has been restated to reflect Metro's
3 for 2 stock splits declared on July 8, 1992 and August 5, 1993.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
Dated: December 15, 1994
NORTH FORK BANCORPORATION, INC.
By: /s/ Daniel M. Healy
Name: Daniel M. Healy
Title: Executive Vice President &
Chief Financial Officer
