SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q1A
AMENDMENT NO. 1
Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the period ended:
June 30, 1994
NORTH FORK BANCORPORATION, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-315460
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9025 ROUTE 25, MATTITUCK, NEW YORK 11952
(Address of principal executive offices) (Zip Code)
(516) 298-5000
(Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days: Yes (X) No ( )
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
CLASSES OF COMMON STOCK NUMBER OF SHARES OUTSTANDING 7/26/94
$2.50 Par Value 14,277,038
<PAGE>
The Registrant hereby amends ITEM 2. "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of its
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.
The amendments are as follows:
The fourth paragraph in the Net Interest Income
Section of
Item 2, Management's Discussion and Analysis of Financial Condition
and Results of Operations has been amended to read:
The increase in average interest earning assets
and interest
bearing liabilities is attributable to the Registrant instituting
a balance sheet leverage strategy during the latter half of 1993 to
effectively utilize capital, benefit from the existing steepness in
the yield curve, and enhance operating results. Utilizing funds
obtained through short-term repurchase agreements, the Registrant
invests primarily in agency guaranteed mortgage-backed securities.
The repurchase agreement borrowings are usually for a period of
ninety days, whereas the funds are invested primarily in seven and
fifteen year mortgage-backed securities with original weighted
average lives of approximately three to four years. To mitigate
interest rate risk assumed in this strategy due to the differences
in the maturities of these assets and liabilities and maintain the
level of interest rate risk within management's
established guidelines, the Registrant entered into certain off-
balance sheet agreements. The estimated fair market value of these
off balance sheet instruments was $1.1 million or an excess over
the carrying value of $0.6 million at June 30, 1994. This compares
to a market value of $.8 million and $.7 million at March 31, 1994
and December 31, 1993, respectively. This increase in market value
reflects the impact of higher market interest rates on the value of
instruments which provides a hedge for the Registrant's short term
liability cost. The interest rate swap, cap, and floor agreements
outstanding as of June 30, 1994, mature in September and December
of 1995, respectively.
The fifth paragraph in the Securities Section of
Item 2,
Management's Discussion and Analysis of Financial Condition and
Results of Operations has been amended to read:
The Registrant's total mortgage backed security
holdings
included in both its available for sale and held to maturity
portfolios was $673.0 million at June 30, 1994 with an aggregate
fair market value of $649.3 million or a net pre-tax unrealized
loss of $23.7 million. This compares to holdings of $665.5 million
with a fair market value of $667.6 million at year end December 31,
1993. The declining value is the result of the previously
identified increases in market interest rates throughout the first
half of 1994. The securities holdings are principally fixed rate
and the value of these instruments moves in an inverse relationship
to interest rates.
The unrealized losses on these mortgage backed
securities,
exclusive of its impact on equity pursuant to SFAS 115, will affect
the results of operations to the extent that the below market
yields on these assets create a potential for compression of net
interest margin. The liquidity of securities with unrealized
losses will be limited, for pledging purposes, to the fair market
value of the instruments.
<PAGE>
ITEM 2 is hereby amended and restated in its entirety
as follows:
PART I
Earnings Summary
North Fork Bancorporation, Inc. (the "Registrant")
recognized net
income of $6.1 million, or $.41 per share, for the quarter ended
June
30, 1994, as compared with net income, of $3.5 million, or $.24 per
share, for the comparable prior year period. Per share results are
based on weighted average common and equivalent shares outstanding
of
14,960,262 and 14,686,678 for the quarters ended June 30, 1994 and
1993,
respectively.
The increase in the Registrant's 1994 second
quarter earnings, when
compared with the prior year period, is primarily attributable to
a $2.6
million increase in net interest income, a $1.3 million decrease in
the
provision for loan losses, and a $.9 million decrease in
non-interest
expense, partially offset by a $.3 million decrease in non-interest
income. Included in the Registrant's second quarter 1994 results,
was
a nonrecurring charge of $.9 million, or $.03 per share (after
taxes),
associated with the early retirement of the Registrant's $20
million,
10.08% Senior Note due March 1995.
Net Interest Income
Net interest income, which represents the
difference between
interest earned on interest earning assets and interest incurred on
interest bearing liabilities, is the Registrant's primary source of
earnings. Net interest income is affected by the level and
composition
of interest earning assets and interest bearing liabilities, as
well as
changes in market interest rates.
Net interest income, on a fully taxable equivalent
basis, increased
$2.7 million, or 13.8%, to $22.3 million for the 1994 second
quarter, as
compared to $19.6 million for the comparable prior year period.
The
components of this increase include a $3.3 million increase in
interest
income, on a fully taxable equivalent basis, partially offset by a
$.6
million increase in interest expense.
Average interest earning assets increased $217.4
million, or 13.2%,
to $1.87 billion for the second quarter of 1994, as compared to
$1.65
billion for the comparable prior year period. Average interest
bearing
liabilities increased $138.2 million, or 9.9%, to $1.54 billion for
the
second quarter of 1994, as compared to $1.4 billion for the
comparable
prior year period. Average Demand Deposit balances increased $42.9
million, or 19%, to $268.4 million for the second quarter of 1994,
as
compared to $225.5 million for the comparable prior year period.
The increase in average interest earning assets and
interest
bearing liabilities is attributable to the Registrant instituting
a
balance sheet leverage strategy during the latter half of 1993 to
effectively utilize capital, benefit from the existing steepness in
the
yield curve, and enhance operating results. Utilizing funds
obtained
through short-term repurchase agreements, the Registrant invests
primarily in agency guaranteed mortgage-backed securities. The
repurchase agreement borrowings are usually for a period of ninety
days,
whereas the funds are invested primarily in seven and fifteen year
mortgage-backed securities with original weighted average lives of
approximately three to four years. To mitigate interest rate risk
assumed in this strategy due to the differences in the maturities
of
these assets and liabilities and maintain the level of interest
rate
risk within management's
established guidelines, the Registrant entered into certain
off-balance
sheet agreements. The estimated fair market
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS
Net Interest Income (continued)
value of these off balance sheet instruments was $1.1 million or
an
excess over the carrying value of $0.6 million at June 30, 1994.
This
compares to a market value of $.8 million and $.7 million at March
31,
1994 and December 31, 1993, respectively. This increase in market
value
reflects the impact of higher market interest rates on the value of
instruments which provides a hedge for the Registrant's short term
liability cost. The interest rate swap, cap, and floor agreements
outstanding as of June 30, 1994, mature in September and December
of
1995, respectively.
Interest income, on a fully taxable equivalent
basis, increased
$3.3 million to $33.1 million for the 1994 second quarter, from
$29.8
million for the comparable prior year period, while the yield on
earning
assets, on a tax equivalent basis, declined to 7.12% for the 1994
second
quarter from 7.25% in the comparable prior year period. The
increase in
interest income, on a fully taxable equivalent basis, is
attributable to
(i) the Registrant's balance sheet leverage strategy, which has
resulted
in a higher level of interest earning assets, primarily agency
guaranteed mortgage-backed securities, (ii) increases in the prime
rate
of interest during the first six months of 1994, and (iii) the
resultant
impact of higher market interest rates on the Registrant's
securities
portfolio. The balance sheet leverage strategy while increasing
net
interest income has negatively impacted the yield on interest
earning
assets as proceeds are invested primarily in lower yielding
mortgage
backed and taxable securities. Interest earned on the Registrant's
mortgage-backed securities portfolio increased $1.7 million to $9.2
million for the second quarter of 1994 as compared to $7.5 million
for
the comparable prior year period. Of this increase, $1.3 million
is due
to an increase in average mortgage-backed securities of $92
million, or
16.2%, to $659.3 million in the second quarter of 1994 as compared
to
$567.3 million in the comparable prior year period, while $.4
million of
the increase is due to an increase in the yield on mortgage-backed
securities to 5.60% during the second quarter of 1994 as compared
to
5.33% during the comparable prior year period. The yield increase
is
the result of higher market interest rates and a corresponding
slowdown
of prepayments on premium securities contained in the portfolio.
Interest earned on the Registrant's taxable
securities increased
$1.2 million to $1.7 million in the second quarter of 1994 when
compared
to $.5 million in the comparable prior year period. Average
taxable
securities increased $86.6 million or 243.3% to $122.2 million for
the
second quarter of 1994 as compared to $35.6 million for the
comparable
prior year period. The growth in average taxable securities
consists
primarily of short-term U.S. Treasury and certain U.S. Government
Agency
Obligations. This growth increased interest income by $1.2
million, on
a fully taxable equivalent basis. Interest earned on the
Registrant's
loan portfolio, on a fully taxable equivalent basis, of $21.3
million
during the second quarter of 1994, remained virtually unchanged as
compared to $21.2 million during the comparable period of the prior
year.
Interest expense increased $0.7 million to $10.9
million for the
1994 second quarter, an effective cost of funds of 2.84%, as
compared
with $10.2 million, or an effective cost of funds of 2.93%, for the
comparable prior year period.
Interest incurred on short-term borrowings
increased $2.1 million
to $3.3 million in the second quarter of 1994 as compared to $1.2
million during the comparable prior year period. The average
balance
of short-term borrowings increased $172.7 million to $323.5 million
for
the second quarter of 1994, as compared to $150.8 million during
the
comparable prior year period. Of the $2.1 million increase in
interest
incurred on short-term borrowings, $1.7 million is attributable to
the
growth in average short-term borrowings, and $.4 million is due to
the
effects of higher market interest rates.
The increase in interest expense is attributable to
the impact the
Registrant's balance leverage strategy has had on the level of
short-
term borrowings, partially offset by a change in the composition of
the
Registrant's core
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF
OPERATIONS
Net Interest Income (continued)
deposits. Core deposits are defined as Demand Deposits, Savings,
N.O.W. and Money
Market Deposits, and other time deposits exclusive of Certificates
of Deposits
greater than $100,000.
Interest incurred on other time deposits declined $.6 million to
$2.6 million
in the second quarter of 1994 as compared to $3.2 million during
the comparable
prior year period. The average balance of time deposits has
declined $37.3
million, or 10.5%, from the comparable prior year period levels.
The average
balance of savings, N.O.W., and money market accounts during the
second quarter
of 1994 aggregated $873.7 million and remained virtually unchanged
as compared to
$874.8 million for the comparable prior year period. Conversely,
average demand
deposits increased $42.8 million for the second quarter of 1994, as
compared to
the comparable period of the prior year, further evidence of the
success of the
Registrant's conversion of its former savings bank subsidiary to a
full service
commercial bank and the Registrant's continued efforts to expand
its small and
medium sized commercial client base. Demand deposits comprised
18.7% of total
deposits at June 30, 1994, as compared to 16.4% for the comparable
period of the
prior year. The increase in interest expense was partially offset
by a $0.9
million decline in the Registrant's overall cost of funds. This
decline is
attributable to a $1.0 decrease in the Registrant's core deposit
funding cost and
a reduction in its other borrowing cost resulting from the
refinancing of its
Senior Note Payable, partially offset by the impact the rise in
market interest
rates have had on its short-term borrowings.
During the quarter the Registrant retired, prior to
maturity, its $20
million, 10.08% Senior Note due March 1995 through the proceeds
received from the
issuance of a $25 million, 7.56% Senior Note due April 1999,
positively impacting
the Registrant's cost of funds.
The following tables set forth a summary analysis of
the relative impact on
net interest income of changes in the volume of interest earning
assets and
interest bearing liabilities and changes in rates earned by the
Registrant on such
assets and liabilities. Because of numerous simultaneous volume
and rate changes
during the period analyzed, it is not possible to precisely
allocate changes
between volumes and rates. For presentation purposes, changes
which are not
solely due to volume changes or rate changes have been allocated to
these
categories based on the respective percentage changes in average
volume and
average rates as they compare to each other. In addition, average
interest
earning assets include non-performing loans.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30, 1994 OVER JUNE 30, 1993
(dollars in thousands)
Changes Due To Net
Volume Rate Change
<S> <C> <C> <C>
INTEREST EARNING ASSETS:
Interest Earning
Deposits $ 1 (7) (6)
Taxable Securities 1,231 ( 23) 1,208
Non-Taxable State and
Municipal Obligations* 634 (152) 482
Mortgage-Backed Securities 1,270 400 1,670
Taxable Loans including
Non-accrual Loans 445 (145) 300
Non-Taxable Loans* (164) ( 65) (229)
Federal Funds Sold (177) 69 (108)
Total Interest Earning Assets 3,240 77 3,317
INTEREST BEARING LIABILITIES:
Savings, NOW, & Money Market Deposits (6) (781) (787)
Other Time Deposits (322) (233) (555)
Short-Term Borrowings 1,723 359 2,082
Other Borrowings 97 (194) (97)
Total Interest Bearing Liabilities 1,493 (849) 644
Net Change in Net Interest Income* $ 1,747 $ 926 $ 2,673
</TABLE>
* Taxable equivalent basis.
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF
OPERATIONS
Net Interest Income (continued)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30, 1994 OVER JUNE 30, 1993
(dollars in thousands)
Changes Due To Net
Volume Rate Change
<S> <C> <C> <C>
INTEREST EARNING ASSETS:
Interest Earning Deposit $ 2 ( 8) (6)
Taxable Securities 1,544 (25) 1,518
Non-Taxable State and Municipal
Obligations* 1,092 (326) 766
Mortgage-Backed Securities 4,530 (682) 3,848
Taxable Loans including
Non-accrual Loans 310 (1,361) (1,051)
Non-Taxable Loans* (291) (58) (349)
Federal Funds Sold (337) 79 (258)
Total Interest Earning Assets 6,850 (2,381) 4,469
INTEREST BEARING LIABILITIES:
Savings, NOW, & Money
Market Deposits (220) (1,603) (1,823)
Other Time Deposits (620) (681) (1,301)
Short-Term Borrowings 3,828 159 3,987
Other Borrowings (209) (278) (487)
Total Interest Bearing Liabilities 2,779 (2,403) 376
Net Change in Net Interest Income* $ 4,071 $ ( 22) $ 4,093
</TABLE>
* Taxable equivalent basis.
The Registrant's net interest margin on a tax equivalent
basis, which measures
the rate of net interest income earned for each dollar of average
interest
earning asset, increased to 4.78% in the 1994 second quarter, as
compared with
4.76% for the comparable prior year period.
The Registrant's net interest margin on a tax equivalent
basis decreased to
4.68%, for the six months ended June 30, 1994, as compared with
4.88% for the
comparable prior year period.<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF
OPERATIONS
Net Interest Income (continued)
The following table presents and analysis of net interest
income by each major
category of interest earning assets and interest bearing
liabilities for the
three month and six month periods ended June 30, 1994 and 1993,
respectively:
<TABLE>
<CAPTION>
ANALYSIS OF NET INTEREST INCOME
THREE MONTHS ENDED
JUNE 30, 1994 JUNE 30, 1993
Average Average Average Average
Balance Rate Balance Rate
<S> <C> <C> <C> <C>
(dollars in thousands)
Interest Earning Assets:
Interest Earning Deposits $ 1,561 0.60% $ 1,191 2.64%
Taxable Securities 122,247 5.70% 35,612 5.94%
Non-Taxable Municipals 55,045 5.83% 13,988 9.13%
Mortgage-Backed Securities 659,270 5.60% 567,325 5.33%
Taxable Loans 1,007,802 8.33% 986,450 8.39%
Non-Taxable Loans 9,273 13.89% 13,807 15.97%
Federal Funds Sold and Securities
Purchased Under Agreements
to Resell 13,240 4.09% 32,593 3.00%
Total Interest
Earning Assets $ 1,868,438 7.12% $ 1,650,966 7.25%
Interest and Non-Interest Bearing Liabilities:
Savings, N.O.W and
Money Market Deposits $ 873,714 2.03% $ 874,784 2.38%
Time Deposits 316,659 3.34% 353,950 3.62%
Total Savings &
Time Deposits $ 1,190,373 2.38% $ 1,228,734 2.74%
Federal Funds Purchased
and Securities Sold
Under Agreements
to Repurchase 323,520 4.14% 150,784 3.34%
Other Borrowed Funds 23,956 8.16% 20,169 11.62%
Total Interest
Bearing Liabilities $ 1,537,849 2.84% $ 1,399,687 2.93%
Other Liabilities &
Stockholders' Equity
(Net of Non-Interest
Earning Assets) 330,589 251,279
Total Liabilities &
Stockholders' Equity
(Net of Non-Interest
Earning Assets) $ 1,868,438 $ 1,650,966
Rate Spread 4.28% 4.32%
Net Yield on Interest-
Earning Assets
(Tax Equivalent Basis) 4.78% 4.76%
</TABLE>
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF
OPERATIONS (continued)
Net Interest Income (continued)
<TABLE>
<CAPTION>
ANALYSIS OF NET INTEREST INCOME
(unaudited)
SIX MONTHS ENDED
JUNE 30, 1994 JUNE 30, 1993
Average Average Average Average
Balance Rate Balance Rate
<S> <C> <C> <C> <C>
(dollars in thousands)
Interest Earning Assets:
Interest Earning Deposits $ 1,012 0.78% $ 770 2.56%
Taxable Securities 91,114 5.69% 36,443 5.83%
Non-Taxable Municipals 50,594 5.74% 14,994 9.07%
Mortgage-Backed Securities 667,532 5.35% 497,874 5.62%
Taxable Loans 1,006,775 8.22% 999,361 8.49%
Non-Taxable Loans 9,880 14.07% 14,014 14.94%
Federal Funds Sold and Securities
Purchased Under
Agreements to Resell 14,771 3.58% 34,444 3.04%
Total Interest
Earning Assets $ 1,841,678 6.98% $ 1,597,899 7.48%
Interest and Non-Interest Bearing Liabilities:
Savings, N.O.W and
Money Market Deposits $ 874,157 2.04% $ 892,924 2.41%
Time Deposits 324,817 3.35% 359,972 3.75%
Total Savings &
Time Deposits $ 1,198,974 2.39% $ 1,252,896 2.79%
Federal Funds Purchased
and Securities Sold Under
Agreements to Repurchase 299,960 3.85% 98,986 3.55%
Other Borrowed Funds 21,989 9.31% 25,944 11.68%
Total Interest
Bearing Liabilities $ 1,520,923 2.78% $1,377,826 3.01%
Other Liabilities and
Stockholders' Equity
(Net of Non-Interest
Earning Assets) 320,755 220,073
Total Liabilities and
Stockholders' Equity
(Net of Non-Interest
Earning Assets) $ 1,841,678 $1,597,899
Rate Spread 4.20% 4.47%
Net Yield on Interest-Earning Assets
(Tax Equivalent Basis) 4.68% 4.88%
</TABLE>
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Non Interest Income
Non interest income declined $.3 million, or 6.3%, to
$4.0
million during the 1994 second quarter as compared to $4.3 million
during the comparable prior year period. The decline is primarily
attributable to a $.7 million decrease in income from mortgage
banking operations, due to higher mortgage interest rates and a
corresponding decrease in the level of refinancing activity, and a
$.1 million decrease in other operating income. These declines
were partially offset by a $.5 million increase in service charges
on deposit accounts resulting from the growth in the Registrant's
demand deposit base, increases in per item charges and the
introduction of new products and services.
Non Interest Expense
Non interest expense declined $.9 million, or 5.5%,
to $15.5
million during the 1994 second quarter when compared to $16.4
million during the comparable prior year period. The decline is
attributable to a $1.7 million decrease in other real estate
related expenses, a $.3 million decrease in occupancy and equipment
expense, and a $.2 million decrease in recurring other operating
expenses. These improvements were partially offset by a $0.9
million nonrecurring charge associated with the early retirement of
the Registrant's $20.0 million, 10.08%, Senior Note and an increase
of $0.4 million increase in salaries and benefits.
The Registrant's core efficiency ratio, which
represents the
ratio of non-interest expense, net of other real estate related
costs and other non-recurring charges, to net interest income on a
tax equivalent basis and non-interest income net of security gains
improved to 49.2% for the 1994 second quarter as compared to 54.7%
for the 1993 second quarter. This improvement in the Registrant's
core efficiency ratio reflects management's continued emphasis on
efficient deployment of its resources.
Income Taxes
The Registrant provides for income taxes under the
asset and
liability method. Under this method, the Registrant is required to
establish deferred tax assets and liabilities for the temporary
differences between the financial reporting basis and the tax basis
of the Registrant's assets and liabilities at the enacted tax rates
expected to be in effect when such amounts are realized or settled.
A valuation allowance is to be established to reduce the deferred
tax asset if it is "more likely than not" that some or all of the
deferred tax asset will not be realized.
The Registrant's effective tax rate was 36.56% for
the second
quarter of 1994, as compared to 31.34% for the comparable prior
year period. The increase in the effective tax rate for the second
quarter of 1994, when compared to the comparable prior year period,
is primarily attributable to the Registrant's recognizing a
decrease in its New York State deferred tax valuation allowance
during the second quarter of 1993, resulting from tax charge-offs
in excess of book. The Registrant's effective tax rate for the six
months ended June 30, 1994, was 35.88% as compared 35.04% for the
comparable prior year period.
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Asset Quality
The Registrant's loan portfolio, concentrated
primarily in loans
secured by real estate in Suffolk and Nassau Counties in New York
and to a lesser extent in Westchester and Rockland Counties in New
York, has been and will continue to be affected by market trends in
real estate values.
The following table delineates the composition of the
Registrant's loan portfolio for the period indicated:
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1994 1993 1993
<S> <C> <C> <C>
Commercial, Financial &
Agricultural $ 240,256 $ 257,151 $ 260,356
Commercial Mortgages 295,253 292,157 285,852
Residential Mortgages 362,043 363,644 337,582
Construction 19,817 19,828 23,789
Land 40,608 37,160 41,497
Consumer 64,248 59,823 58,601
TOTAL $ 1,022,225 $ 1,029,763 $ 1,007,677
</TABLE>
The Registrant's non-performing assets, which
include loans past
due ninety days and still accruing interest, non-accrual loans, and
other real estate owned and loans classified as insubstance
foreclosures, decreased to $46.6 million at June 30, 1994, as
compared with $57.2 million at December 31, 1993 and $97.1 million
at June 30, 1993. Non-performing assets now comprise 2.31% of
total assets, as compared with 3.04% at December 31, 1993 and 5.29%
at June 30, 1993. The components of non-performing assets are
delineated in the table below (in thousands):
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1994 1993 1993
<S> <C> <C> <C>
Loans 90 days past due
& still accruing $ 1,933 $ 1,811 $ 2,114
Non-accrual Loans 30,671 33,484 46,298
Non-performing Loans 32,604 35,295 48,412
Other Real Estate Owned 5,661 7,426 12,741
In-Substance Foreclosure 8,378 14,473 35,968
Non-performing assets 46,643 57,194 97,121
Restructured, accruing loans $ 10,727 $ 15,237 $ 16,090
</TABLE>
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Asset Quality (continued)
Loans are classified as restructured when the
Registrant has
granted, for economic or legal reasons related to the borrowers
financial difficulties, a concession to the customer that the
Registrant would not otherwise consider. Restructured, accruing
loans are defined as loans whose repayment terms and/or interest
rate have been modified by agreement with the respective borrowers.
Generally this occurs when the cash flow of the borrower is
insufficient to service the loan under its original terms.
As a result of the continued and consistent decline
in the
Registrant's non-performing loans, the provision for loan losses
declined to $.75 million for the 1994 second quarter, from $2.0
million in the comparable prior year period. Net charge offs
aggregated $2.0 million, or 0.8% of average net loans on an
annualized basis, for the 1994 second quarter, as compared with
$3.4 million, or 1.60% of average net loans on an annualized basis,
for the 1993 second quarter. The allowance for loan losses at June
30, 1994 was $44.4 million, or 136.04% of non-performing loans, and
4.39% of loans, net of unearned income. The allowance for loan
losses at December 31, 1993 was $46.6 million, or 132.1% of non-
performing loans, and 4.58% of loans, net of unearned income. The
allowance for loan losses at June 30, 1993 was $55.5 million, or
114.72% of non-performing loans and 5.59% of loans, net of unearned
income.
Management determines what it deems to be the
appropriate level
of the Registrant's allowance for loan losses on an ongoing basis
by reviewing individual loans within, as well as the composition,
of the loan portfolio. In reviewing the composition of the loan
portfolio, management considers, among other things, concentrations
therein, delinquency trends, as well as recent charge-off
experience and third party evidentiary matter (such as appraisals)
to assist in assessing the degree of credit risk in the portfolio.
Various appraisals and estimates of current market value influence
the calculation of the required allowance at any point in time.
While management uses available information to provide for possible
loan losses, future additions to the allowance may be necessary
based on future changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their
examination process, periodically review the Registrant's bank
subsidiary's allowance for loan losses. Such agencies may require
the Registrant to recognize additions to the allowance based on
their judgement of information available to them at the time of
their examinations which may not be available now. Based on
current economic conditions, management considers the allowance at
June 30, 1994 adequate to cover the possible risk of loss in the
loan portfolio.
Potential problem loans, which are loans
that are currently
performing under present loan repayment terms but where known
information about possible credit problems of borrowers cause
management to have serious doubts as to the ability of the
borrowers to continue to comply with the present repayment terms,
aggregated $24 million at June 30, 1994.
Other real estate owned, which includes other real
estate and
in-substance foreclosures, declined to $14.0 million at June 30,
1994 from $21.9 million at December 31, 1993, and $48.7 million at
June 30, 1993.<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS
Securities
The Registrant adopted SFAS 115, "Accounting for
Certain Investments
in Debt and Equity Securities", as of January 1, 1994.
Securities Held to Maturity are debt securities that
the Registrant
has the positive intend and ability to hold to maturity and are
stated
at amortized cost. At June 30, 1994, Securities Held to Maturity
consisted of the following:
<TABLE>
<CAPTION>
Securities Held to Maturity
Gross Gross
Carrying Unrealized Unrealized Fair
Value Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury 26,684 2 8 26,678
U.S. Government
Agency Obligations 55,151 0 3,085 52,066
State and Municipal
Obligations 50,698 361 664 50,395
Mortgage-backed
Securities 516,747 107 19,284 497,570
TOTAL $ 649,280 $ 470 $ 23,041 $ 626,709
</TABLE>
Securities Available for Sale are debt and equity securities
not
classified as either securities held to maturity or trading
securities
and are stated at fair value. At June 30, 1994, Securities
Available
for Sale consisted of the following:
<TABLE>
<CAPTION>
Securities Available for Sale
Gross Gross
Amortized Unrealized Unrealized Fair
Value Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury 39,889 - 495 39,394
Mortgage-backed
Securities 156,244 - 4,553 151,691
Equity Securities 14,916 394 85 15,225
TOTAL $ 211,049 $ 394 $ 5,133 $ 206,310
</TABLE>
Consistent with SFAS 115, the net unrealized loss of
$4.7 million
was reported as a $2.7 million separate component of stockholders'
equity, on a net of tax basis at June 30, 1994.
The Registrant's total mortgage backed security
holdings included in
both its available for sale and held to maturity portfolios was
$673.0
million at June 30, 1994 with an aggregate fair market value of
$649.3
million or a net pre-tax unrealized loss of $23.7 million. This
compares to holdings of $665.5 million with a fair market value of
$667.6 million at year end December 31, 1993. The declining value
is
the result of the previously identified increases in market
interest
rates throughout the first half of 1994. The securities holdings
are
principally fixed rate and the value of these instruments moves in
an
inverse relationship to interest rates.
The unrealized losses on these mortgage backed
securities, exclusive
of its impact on equity pursuant to SFAS 115, will affect the
results
of operations to the extent that the below market yields on these
assets create a potential for compression of net interest margin.
The
liquidity of securities with unrealized losses will be limited, for
pledging purposes, to the fair market value of the instruments.
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Capital
The Federal Reserve Board has formal capital
guidelines which
bank holding companies are required to meet. The risk based
capital guidelines are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among
banks and bank holding companies to account for off-balance sheet
exposure and to minimize disincentives for holding liquid assets.
Under these guidelines, assets and off-balance sheet items are
assigned to broad risk categories, each with appropriate weights.
The resulting capital ratios represent capital as a percentage of
total risk weighted assets and off balance sheet items. The
guidelines currently require all bank holding companies to maintain
a minimum ratio of total risk based capital to total risk weighted
assets of 8.00%, including a minimum ratio of Tier I capital to
risk weighted assets of 4.00%.
The following table sets forth the Registrant's
regulatory
capital as of June 30, 1994, under the rules applicable at such
date. At such date, the Registrant was in compliance with all
applicable regulatory requirements.
<TABLE>
<CAPTION>
(dollars in thousands) Amount Ratio
<S> <C> <C>
Tier I Capital 156,050 14.21%
Regulatory Requirement 43,928 4.00%
Excess 112,122 10.21%
Total Risk Adjusted Capital $ 170,156 15.49%
Regulatory Requirement 87,856 8.00%
Excess 82,300 7.49%
Risk weighted assets $1,098,203
</TABLE>
The Registrant's leverage ratio for the quarter ended
June 30,
1994 was 7.89%. The Tier I, total risk based and leverage capital
ratios of North Fork Bank, the Registrant's primary banking
subsidiary, were 15.35%, 16.64%, and 8.48%, respectively, at June
30, 1994.
The Federal Deposit Insurance Corporation Act
("FDICIA") became
effective December 19, 1991. FDICIA substantially revised the
depository institution regulatory and funding provisions of the
Federal Deposit Insurance Act and makes revisions to several other
banking statutes. Among other things, FDICIA requires the federal
banking regulators to take prompt corrective action on depository
institutions that do not meet minimum capital requirements. FDICIA
establishes five categories: "well capitalized", "adequately
capitalized", "undercapitalized", "significantly undercapitalized"
and "critically undercapitalized". Under the regulations, a "well
capitalized" institution has a minimum total risk based capital to
total risk weighted assets of at least 10%, a minimum Tier I
capital to total risk weighted assets of 6%, a minimum leverage
ratio of at least 5% and is not subject to any written order,
agreement or directive. The Registrant and its subsidiary are
considered well capitalized.
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity
Liquidity is defined as the Registrant's ability to
generate
sufficient cash flows to fund growth in interest earning assets,
depositor withdrawals and the repayment of borrowings.
The Registrant's sources of liquidity include
dividends from its
bank subsidiary, borrowings, and funds available through the
capital markets. Dividends from the Registrant's bank subsidiary
are limited by the regulations of the New York State Banking
Department to the current year's earnings plus the prior two years'
retained net profits. According to the parameters of this
regulation, the Registrant's bank subsidiary has $37 million of
retained earnings available for dividends to the holding company as
of June 30, 1994.
The Registrant's bank subsidiary has numerous sources
of
liquidity including loan and investment principal repayments and
maturities, lines of credit with other financial institutions, the
ability to borrow under repurchase agreements utilizing its
unpledged securities portfolio, the securitization of loans within
the portfolio, whole loan sales and growth in its core deposit
base.
During 1994, the Registrant's bank subsidiary further
enhanced
its borrowing capabilities by becoming a member of the Federal Home
Loan Bank ("FHLB") system. To become a member, the bank purchased
$9.5 million of FHLB stock; as a member the Bank has the ability to
borrow $190 million on a secured basis, utilizing mortgage related
loans and securities for a term ranging from one day to ten years
at both fixed and variable rates. As of June 30, 1994, the
Registrant's bank subsidiary has borrowed $30 million for ninety
days due August 4, 1994, at an interest rate of 4.56%.
On April 21, 1994, the Registrant issued in a private
placement
a $25 million 7.56% senior note maturing April 20, 1999 (the
"Note"). The proceeds were used to retire, prior to maturity, its
$20 million 10.08% senior note, which was due March 31, 1995. The
remainder of the proceeds, less expenses associated with the
retirement of the 10.08% senior note, will be used for general
corporate purposes. The Note contains certain covenants relating
to, among other things, the maintenance of certain tangible net
worth and total risk based capital levels, limitations on the
payment of dividends and the repurchase of common stock and the
maintenance of certain non-performing asset levels.
The Registrant's liquidity position is monitored to ensure the
maintenance of an optimum level and the most cost efficient use of
available funds. Management believes that the Registrant has
sufficient liquidity to meet its operating requirements.
Other Matters
On June 27, 1994, the Registrant entered into an
Agreement and
Plan of Merger with Metro Bancshares, Inc. ("Metro"), whereby the
Registrant would acquire Metro in a stock for stock exchange valued
at approximately $142 million.
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Other Matters (continued)
Under the agreement, each share of Metro common stock
will be
exchanged for a minimum of 1.645 shares (except as otherwise noted
below) or a maximum of 1.759 shares of the Registrant's. The
actual exchange ratio will, within this range, depend upon the
average closing share price of the Registrant in the 20 trading
days ending on the fifth business day prior to the date on which
the last of all required regulatory approvals for the transaction
are received. If the average closing price of the Registrant
during this period is between $14.50 and $15.50, each share of
Metro common stock will be converted into the number of the
Registrant's shares equal to $25.50 divided by such average closing
price. The agreement permits Metro to terminate the transaction if
the average closing price of the Registrant's shares during that
period falls below $12.50 unless the Registrant elects to increase
the exchange ratio so that the number of shares of the Registrant's
stock issued for each share of Metro common stock has a value (at
such average closing price) of $21.99. The Registrant also
received an option to acquire up to 9.9% of Metro's outstanding
shares at a price of $21 per share should certain events occur as
defined in the Stock Option Agreement.
Metro, the parent company of Bayside Federal Savings
Bank, has
total assets of $1 billion, deposits of $.9 billion and
stockholders' equity of $80.6 million. It operates thirteen
banking offices in Queens, Nassau and Suffolk counties of New York.
The purchase price is 171% of fully diluted book
value and 207%
of tangible book value. The transaction will be treated as a tax
free reorganization and a pooling of interests. It is subject to
approval by the regulatory agencies, shareholders of both
companies, certain other customary closing conditions, and a 30 day
period for Metro to finalize due diligence. Metro has completed
its due diligence and has determined to proceed with the merger.
Upon completion of the transaction, which is expected
in the
fourth quarter of 1994, Bayside Federal Savings Bank will be merged
into the Registrant's bank subsidiary, North Fork Bank.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and
Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Date: September 27, 1994 /s/Daniel M. Healy
Daniel M. Healy
Executive Vice President &
Chief Financial Officer
