SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K1A
AMENDMENT NO. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 1993
Commission File Number
0-10280
NORTH FORK BANCORPORATION, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3154608
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9025 MAIN ROAD, MATTITUCK, NEW YORK 11952
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (516) 298-5000
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par New York Stock Exchange
value $2.50
Securities registered pursuant to Section 12 (g) of the Act:
None
(Title of Class)
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. (X)Yes ( ) No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
As of March 10, 1994, there were 14,120,849 shares of the
Registrant's common stock outstanding. The aggregate market value
of the Registrant's common stock (based on closing price quoted on
March 10, 1994) held by non-affiliates was approximately
$171,435,290.
<PAGE>
The Registrant hereby amends Item 7. "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" of its Annual Report
on Form
10-K for the fiscal year ended December 31, 1993. The amendments
are as
follows:
The sixth paragraph in the Net Interest Income
Section of Item 7,
Management's Discussion and Analysis of Financial Condition and the
Results
of Operations has been amended to read:
Income earned on the Registrant's mortgage-backed securities
portfolio
increased to $30.6 million in 1993, as compared with $23.9 million
in 1992.
The average balance of mortgage backed securities, classified in
the
Registrant's Held for Sale and Investment portfolios, increased to
$580.0
million or $241.8 million from the prior year. These
mortgage-backed
securities at the year end totaled $665.5 million and included
$85.6 million
of collateral mortgage obligations with the remainder being
mortgage backed
securities issued by agencies of the U.S. Government. The CMO's
represented
securities collateralized by either U.S. Government Agencies
mortgage backed
securities or individual residential mortgage loans. The primary
source of
the increase in the average balance of mortgage backed securities
was the
Registrant's balance sheet leverage strategy. The balance sheet
leverage
strategy utilized funds generated from repurchase agreement
borrowings and
invested them in U.S. government agency mortgage backed securities
so as to
effectively utilize capital, take advantage of the steep yield
curve and
enhance operating results. Growth in the average balance of
mortgage backed
securities has increased interest income by $13.9 million. This
increase was
partially offset by $7.2 million due to the effects of declining
interest
rates and the short term nature of the securities in the
Registrant's
portfolio. The yield on the Registrant's mortgage backed
securities
portfolio declined to 5.27% in 1993, as compared with 7.07% in the
comparable
prior year period. The Registrant's strategy with regard to its
securities
portfolio is to maintain a short weighted average life, operating
under the
assumption that interest rates are near the bottom of the interest
rate
cycle, so as to reduce the risk of depreciation in value if
interest rates
were to increase, and to provide a source of cash flows that may be
reinvested as market interest rates begin to increase. The
weighted average
life of the Registrant's Investment and Held for Sale portfolios at
December
31, 1993, was 2.82 years and 3.02 years, respectively.
The second and third paragraph of the
Asset/Liability Management Section
of Item 7, Management's Discussion and Analysis of Financial
Condition and
the Results of Operations has been amended to read:
During 1993 ALCO determined that, based on the Registrant's
excess capital
level and liquidity position and the continuing impact of declining
interest
rates and lackluster loan demand on interest income, a balance
sheet leverage
strategy was appropriate. This strategy is described in more
detail in the
Net Interest Income section of this discussion. In summary, the
Registrant
obtained funds through short term repurchase agreement borrowings
and
reinvested those funds primarily in short duration 7 and 15 year
U.S.
government agency mortgage backed securities, realizing an almost
200 basis
points spread on the assets. These mortgage-backed securities were
principally fixed rate in nature and involved a degree of interest
rate risk.
Additionally mortgage backed securities, due to the borrowers right
to prepay
or call the underlying loan, are subject to a level of prepayment
risk, which
can cause a variation in their estimated weighted average lives.
This
potential variation either a shortening or an extension increases
the level
of interest rate risk inherent with these securities. During
periods of
rising interest rates the securities, due to declining in
prepayments, will
have an extension in average life, conversely during periods of
declining
interest rates the borrowers will repay the underlying mortgage and
the
securities will shorten in average life.
The Registrant in performing its balance management and in
selecting
investment securities considered all characteristics of securities
and chose
investments having performance characteristics that provided
adequate returns
under a variety of interest rate and prepayment scenarios. The
securities
purchased as part of the leverage strategy had shorter average
lives,
superior liquidity characteristics, and were priced at a premium
over their
par value. These premium securities provide enhancements to yields
as the
level of prepayments decreases and the average lives of the
securities
extend. Management in an attempt to identify value in these
securities did
extensive modeling of the potential performance under a variety of
interest
rate scenarios. Further, to mitigate the interest rate risk
associated with
the differences in these asset and liability maturities, and
maintain the
volatility of the margin within the ALCO guidelines, the Registrant
entered
into certain off balance sheet instruments.
<PAGE>
Item 7 is hereby amended and restated in its entirety as follows:
PART II
Management's Discussion and Analysis
This section presents management's discussion and analysis of the
consolidated financial condition and results of operations of North
Fork
Bancorporation, Inc. (the "Registrant"), a $1.9 billion commercial
bank holding
company whose primary subsidiary, North Fork Bank (the "Bank")
operates 35
retail banking facilities throughout Suffolk, Nassau, Westchester
and Rockland
Counties, New York. The Bank was created through the October 1992
merger of the
Registrant's banking subsidiaries, Southold Savings Bank and The
North Fork
Bank & Trust Company. This discussion and analysis should be read
in
conjunction with the financial statements and supplementary
financial data
contained elsewhere in this 1993 Annual Report to Shareholders.
GENERAL OVERVIEW
During 1993, the Registrant returned to a consistent quarterly
pattern of
core earnings, improved the quality of assets and strengthened it's
liquidity
and capital. Earnings improved to $15.1 million this year, from
$1.7 million
in the prior period, the result of a continued steady reduction in
non-
performing assets, an expansion of the net interest margin,
diversification of
revenue sources and exemplary cost savings initiatives. As asset
quality
concerns were diminished, the provision for loan losses declined
$15 million,
or 71%, to $6 million in 1993. Efforts to successfully integrate
the
businesses of the Registrant's merged banking subsidiaries into one
full
service commercial bank were illustrated by the expansion of the
demand deposit
base to 17.9% of total deposits, growth in other non-interest
income net of
security gains to $16.5 million, or 17.3% of total revenues while
the
Registrant's core efficiency ratio continued its decline to 55.0%.
Further
contributing to the improvement in the Registrant's operating
results was the
continued decline in funding costs which caused an expansion in the
margin to
4.70% in 1993, coupled with the additional earnings generated from
the
Registrant's balance sheet leverage strategy described below.
<PAGE>
EXHIBIT 13 ANNUAL REPORT TO SECURITY HOLDERS (continued)
RESULTS OF OPERATIONS
The Registrant recognized net income of $15.1 million, or $1.05
per share,
in 1993, as compared with $1.7 million, or $.16 per share, in 1992,
and a net
loss of $33.6 million, or ($3.36) per share, in 1991. The
Registrant's
operating results in 1992 included net security gains of $9.4
million and a
$1.2 million restructure charge associated with the October 1992
merger of the
Registrant's banking subsidiaries. The improvement in operating
results in 1993
is primarily attributable to the continued consistent decline in
non-performing
assets which resulted in a reduction in the provision for loan
losses to $6.0
million, as compared with $21.0 million in 1992 and $64.8 million
in 1991.
Other factors contributing to the positive progression in earnings
include a
$6.1 million increase in net interest income, a $1.9 million
increase in other
non-interest income net of security gains, a $3.6 million decline
in operating
costs, partially offset by a $5.3 million increase in the income
tax provision.
Each component of the improvement in the Registrant's 1993
operating results
is discussed in more detail below.
NET INTEREST INCOME
Net interest income, which represents the difference between
interest earned
on interest earning assets and interest paid on interest bearing
liabilities,
is the Registrant's primary source of earnings. It is affected by
the level and
composition of interest earning assets and interest bearing
liabilities, as
well as changes in market interest rates. The level of average
interest earning
assets and average interest bearing liabilities slightly fluctuated
from prior
years, with average interest earning assets increasing $69.6
million while
average interest bearing liabilities declined $49.0 million. In
addition to the
effects of this change in the level of average interest earning
assets and
average interest bearing liabilities, the following factors
contributed to the
increase in net interest income: (i) a continued reduction in
market interest
rates, (ii) the Registrant's balance sheet leverage strategy and
(iii) growth
in the demand deposit base. Together these factors, partially
offset by the
lack of strength in quality loan demand within the Registrant's
marketplace,
contributed to a $6.1 million increase in net interest income, on
a fully
taxable equivalent basis, to $78.8 million in 1993, from the $72.7
million
realized in 1992. The components of this increase include an $18.4
million
decline in interest expense, partially offset by a $12.3 million
decline in
interest income.
Interest expense declined to $41.1 million in 1993, equating to
an effective
cost of funds of 2.88%, as compared with $59.6 million, or an
effective cost
of funds of 4.03%, in 1992. Of the $18.4 million decline in
interest expense,
$14.7 million is the result of the short term interest rate
environment in
1993, while the remaining $3.7 million is due to the changing
composition of
the Registrant's funding cost and liability structure. As market
interest rates
continued their decline during 1993, the value of the Registrant's
low cost,
stable core deposit base became more evident. Declining deposit
funding costs
contributed $14.6 million to the reduction in interest expense, as
the rates
offered on savings deposits remain at historic lows, and maturing
certificates
of deposits were reinvested at current lower market rates. Further
contributing
to the decline in interest expense is the changing composition of
the
Registrant funding sources. As comparatively higher yielding mutual
funds and
annuities encouraged certain depositors to reinvest funds from
maturing
certificates of deposits into non-bank products, and the success of
the
conversion of the Registrant's former savings bank subsidiary into
a full
service commercial bank evolves, the average balance of time
deposits has
declined $120.4 million, or 25.9%, from prior period levels. The
average
balance of savings and money market accounts aggregating $885.7
million in
1993, declined $30.4 million or 3.3% from the prior period. This
decline may
also be attributable to the movement of depositor funds into higher
yielding
alternative investments. Conversely, however, the average balance
of demand
deposits has increased to $226.6 million in 1993, or $61.7 million,
from prior
period levels, further evidence of the success of the former
savings bank's
conversion to a full service commercial bank and efforts to expand
the
Registrant's small and medium sized commercial client base. Demand
deposits
comprise 17.9% of total deposits at December 31, 1993, as compared
to 12.0% in
1992.
Partially offsetting the decline in interest expense is the
interest
incurred on repurchase agreement borrowings, which increased to
$6.2 million
in 1993, or $3.8 million from the prior period. The average balance
of
repurchase agreement borrowings increased to $176.5 million, or
$119.0 million
from the prior year, the result of the Registrant's balance sheet
leverage
strategy. During 1993, the Registrant implemented a balance sheet
leverage
plan so as to stabilize net interest income, effectively utilize
capital and
benefit from the existing steepness in the yield curve. Utilizing
funds
obtained through short term repurchase agreements, the Registrant
invested in
agency guaranteed mortgage backed securities realizing a spread of
approximately 200 basis points on the assets. 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
an original weighted average life of approximately four years. To
mitigate
interest rate risk due to the different maturities of these assets
and
borrowings, the Registrant entered into an interest rate swap
agreement.
<PAGE>
EXHIBIT 13 ANNUAL REPORT TO SECURITY HOLDERS (continued)
Management's Discussion and Analysis (continued)
NET INTEREST INCOME (continued)
A final component of the decline in interest expense is the full
prepayment
of the Registrant's $20 million 9.30% Series B Senior Note during
the 1993
first quarter, which reduced interest expense $1.6 million from
1992. This note
carried an effective interest rate of 10.30% as supplemental
interest
aggregating 1.00% of the principal balance was required by the
amended note
agreement for the period from August 1992 until the note was fully
repaid.
Interest income, on a fully taxable equivalent basis, aggregated
$119.9
million in 1993, a $12.3 million decline from the $132.2 million
earned in
1992. The yield on interest earning assets, on a taxable equivalent
basis,
declined to 7.15% in 1993 from 8.22% in the comparable prior year
period.
Declining market interest rates and the lack of quality credit
demand within
the Registrant's marketplace, partially offset by the success of
the
Registrant's balance sheet leverage strategy, are the primary
factors
contributing to this reduction in interest income. Interest earned
on the
Registrant's loan portfolio declined $16.8 million when comparing
1993 and
1992, $11.7 million of the decline is attributable to a reduction
in loan
origination volume and increased levels of loan repayments and
satisfactions,
whereas $5.1 million of the decline is attributable to current
market interest
rates and their effects on the Registrant's adjustable earning
assets. The
average balance of loans has declined $135.6 million to $1,003.7
million in
1993 while the yield on the loan portfolio has also declined to
8.43% for the
year ended December 31, 1993, as compared with 8.90% in the
comparable prior
year period. Improving asset quality has partially mitigated the
decline in
loan yields as interest foregone, or that amount of income that
would have been
recognized had the Registrant's non-accrual loans and other real
estate
remained on an accrual basis declined to $5.0 million in 1993, as
compared to
$15.0 million and $16.0 million in 1992 and 1991, respectively.
Income earned on the Registrant's mortgage-backed securities
portfolio
increased to $30.6 million in 1993, as compared with $23.9 million
in 1992.
The average balance of mortgage backed securities, classified in
the
Registrant's Held for Sale and Investment portfolios, increased to
$580.0
million or $241.8 million from the prior year. These
mortgage-backed
securities at the year end totaled $665.5 million and included
$85.6 million
of collateral mortgage obligations with the remainder being
mortgage backed
securities issued by agencies of the U.S. Government. The CMO's
represented
securities collateralized by either U.S. Government Agencies
mortgage backed
securities or individual residential mortgage loans. The primary
source of the
increase in the average balance of mortgage backed securities was
the
Registrant's balance sheet leverage strategy. The balance sheet
leverage
strategy utilized funds generated from repurchase agreement
borrowings and
invested them in U.S. government agency mortgage backed securities
so as to
effectively utilize capital, take advantage of the steep yield
curve and
enhance operating results. Growth in the average balance of
mortgage backed
securities has increased interest income by $13.9 million. This
increase was
partially offset by $7.2 million due to the effects of declining
interest rates
and the short term nature of the securities in the Registrant's
portfolio. The
yield on the Registrant's mortgage backed securities portfolio
declined to
5.27% in 1993, as compared with 7.07% in the comparable prior year
period. The
Registrant's strategy with regard to its securities portfolio is to
maintain
a short weighted average life, operating under the assumption that
interest
rates are near the bottom of the interest rate cycle, so as to
reduce the risk
of depreciation in value if interest rates were to increase, and to
provide a
source of cash flows that may be reinvested as market interest
rates begin to
increase. The weighted average life of the Registrant's Investment
and Held
for Sale portfolios at December 31, 1993, was 2.82 years and 3.02
years,
respectively.
<PAGE>
EXHIBIT 13 ANNUAL REPORT TO SECURITY HOLDERS (continued)
Management's Discussion and Analysis (continued)
NET INTEREST INCOME (continued)
Net Interest income on a taxable equivalent basis for the year
ended
December 31, 1992 increased $6.4 million to $72.7 million, from the
$66.3
million realized in 1991. This growth in net interest income was
the result
of a $28.6 million reduction in interest expense, partially offset
by a $22.2
million reduction in interest income. Interest expense declined to
$59.6
million in 1992, or 32.5%, as compared with $88.2 million incurred
in 1991.
Lower market interest rates coupled with a significant change in
composition
of the Registrant's funding sources were the primary factors
contributing to
the reduction in interest expense. As lower market interest rates
allowed the
Registrant to reduce rates offered on deposit products with limited
risk of
significant deposit outflow during 1992, the Registrant's average
cost of funds
declined to 4.03% in 1992, or 204 basis points, from 6.07% incurred
in 1991.
Further contributing to this decline were the effects of the
restructuring of
the Registrant's deposit base. The average balance of savings
deposits, which
have proven to be historically lower cost deposits, increased
$245.0 million,
or 36.5% from the 1991 average balance. Simultaneously, the
average balance
of historically higher cost time deposits decreased $204.4 million,
or 30.6%
from the 1991 average balance. This apparent migration can be
attributed to
the movement of depositor's funds from maturing time deposits into
more liquid
savings accounts, as the current yield on time deposits did not
compensate the
depositor for the illiquidity associated with that deposit type.
Another
factor contributing to the growth in the Registrant's net interest
margin was
the $18.5 million, or 12.6%, growth in the average balance of
demand deposits.
A continued emphasis communicated throughout the Registrant's
branch network
to develop and build demand deposit account relationships and the
success of
efforts to convert the former savings bank branches to full-service
commercial
branches have contributed to this increase. Interest income, on a
taxable
equivalent basis, declined $22.2 million to $132.3 million for the
year ended
December 31, 1992, as compared with $154.5 million in 1991. This
decline was
attributable to lower market interest rates and their effect on the
yield of
the Registrant's adjustable rate interest earning assets, weak loan
demand
within the Registrant's marketplace resulting in the investment of
funds
generated from operations in securities at lower current market
rates and
income foregone on non-accrual loans and other real estate. The
average balance
of loans decreased to $1,139.3 million, or $120.9 million from 1991
levels
primarily due to weak loan demand, transfers to in-substance
foreclosure and
other real estate owned, and charge-offs. The yield on the
Registrant's loan
portfolio decreased to 8.90% from 9.85% due to lower market
interest rates and
approximately $15.0 million of income foregone on non-accrual loans
and other
real estate. Conversely, the average balance of securities, which
include
trading assets, securities held for sale and investment securities,
increased
to $398.9 million, or 32.3% from $301.5 million in 1991.
<PAGE>
EXHIBIT 13 ANNUAL REPORT TO SECURITY HOLDERS (continued)
Management's Discussion and Analysis (continued)
NET INTEREST INCOME (continued)
The following table sets forth, for periods presented, a summary
analysis of
changes in interest income and interest expense, and the resulting
net interest
income on a tax equivalent basis for the periods presented, each as
compared
with the preceding period. Because of the numerous simultaneous
volume and rate
changes during the period analyzed, it is not possible to precisely
allocate
changes between volumes and rates. For the purposes of this table,
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 rate as they compare to each other.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1993 over 1992 1992 over 1991
Changes due to Changes due to
Net Net
(in thousands) Volume Rate Change Volume Rate Change
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Interest Earning
Deposits $(324) (125) $ (449) $ 282 (65) 217
Trading Account
Securities (56) - (56) (185) (121) (306)
Taxable Securities* (216) (220) (436) 1,238 (305) 933
Non-Taxable State and
Municipal Obligations* 658 (759) (101) (1,521) 49 (1,472)
Mortgage-Backed
Securities 13,895 (7,228) 6,667 7,470 (5,410) 2,060
Taxable Loans, including
non-accrual loans (11,340) (5,207) (16,547) (10,817) (11,317) (22,134)
Non-Taxable Loans* (365) 118 (247) (644) 82 (562)
Federal Funds Sold (911) (241) (1,152) 145 (1,125) (980)
Total Interest-
Earning Assets* 1,341 (13,662) (12,321) (4,032) (18,212) (22,244)
INTEREST BEARING LIABILITIES:
Savings and Other Interest-
Bearing Deposits (6,004) (14,576) (20,580) (1,362) (24,882) (26,244)
Short Term Borrowings 4,215 (458) 3,757 (952) (1,663) (2,615)
Other borrowings (1,909) 290 (1,619) (1) 229 228
Total Interest-
Bearing Liabilities (3,698) (14,744) (18,442) (2,315) (26,316) (28,631)
Net Change in Net
Interest Income* $5,039 $1,082 $ 6,121 $(1,717) $ 8,104 $ 6,387
</TABLE>
* Taxable equivalent basis.
The Registrant's net interest margin improved to 4.70% for the
year ended
December 31, 1993, as compared with 4.52% in 1992, primarily the
result of lower
funding costs, an increase in the average balance of demand
deposits and
capital, partially offset by the decline in the yield on interest
earning
assets. Lower market interest rates and the changing composition
of interest
bearing liabilities had the positive effect of reducing funding
costs 115 basis
points to 2.88% in 1993. Current market interest rates have
provided the
Registrant with an opportunity to reduce rates offered on deposit
products and
enhance the net interest margin. Further, the average balance of
historically
higher cost time deposits has declined $120.4 million while
simultaneously the
average balance of lower cost repurchase agreement borrowings has
increased.
This change in funding composition is the result of two main
events, (i) the
movement of depositors' funds from maturing time deposits into
higher yielding
alternative investment products and (ii) the implementation of the
Registrant's
balance sheet leverage strategy. Further contributing to the
enhanced net
interest margin is the 37.4% increase in average demand deposit
accounts and the
prepayment of the Registrant's senior note obligation during 1993.
Capital
raised during the latter part of 1992 and in the 1993 first
quarter, as well as
available cash at the holding company, provided the Registrant with
the ability
to prepay its $20 million senior note obligation which carried an
effective
interest rate of 10.30% utilizing funds which, during 1993, had no
associated
cost.
As discussed previously, lower market interest rates and the lack
of quality
loan demand have had an adverse effect on the Registrant's yield on
interest
earning assets, reducing the proportion of higher yielding loans to
interest
earning assets. The Registrant's balance sheet leverage strategy,
while
increasing the level of interest income, further contributed to
this change in
interest earning asset composition and decline in asset yield. The
Registrant
invested the proceeds from repurchase agreement borrowings in short
duration,
and thus lower yielding, agency mortgage backed securities so as to
provide cash
flow and reduce the risk to capital in an increasing interest rate
<PAGE>
EXHIBIT 13 ANNUAL REPORT TO SECURITY HOLDERS (continued)
Management's Discussion and Analysis (continued)
NET INTEREST INCOME (continued)
environment. As the securities portfolio has increased in
proportion to level
of interest earning assets, the net yield on interest earning
assets has
declined.
The Registrant's net interest margin improved to 4.52% for the
year ended
December 31, 1992, as compared with 4.08% in 1991, as lower market
interest
rates and the change in the Registrant's deposit composition
significantly
reduced its cost of funds. The cost of funds associated with
funding sources,
excluding the Registrant's senior note obligations, declined 211
basis points
to 3.85% in 1992, as compared with 5.96% in 1991. Growth in the
Registrant's
core savings account deposits, coupled with the repayment of higher
cost
repurchase agreements throughout 1991 and lower market interest
rates were the
primary factors contributing to this decline. The effect of this
reduction in
funding costs on the Registrant's net interest margin was partially
offset by
a decline in the yield on average earning assets, the result of
lower market
interest rates and their effect on the Registrant's adjustable rate
earning
assets, the reinvestment of funds generated from operations in
securities at
current lower market interest rates as well as income foregone on
non-accrual
loans and other real estate.
The following table presents an analysis of net interest earnings
by each
major category of interest earning assets and interest bearing
liabilities:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993 1992 1991
(dollars in thousands)
Avg. Avg. Avg. Avg. Avg. Avg.
Balance Int. Rate Balance Int. Rate Balance Int. Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Interest Earning
Deposits 528 $14 2.65% $ 10,988 $ 463 4.21% 4,569 246 5.40%
Trading Account
Securities - - - 1,379 56 4.06% 4,755 362 7.61%
Taxable
Securities* 38,116 2,154 5.65% 41,759 2,590 6.20% 22,403 1,657 7.40%
Non-Taxable
Municipals* 25,616 1,695 6.62% 17,571 1,796 10.22% 32,464 3,268 10.07%
Mortgage-Backed
Securities 579,994 30,563 5.27% 338,212 23,896 7.07% 241,919 21,836 9.03%
Taxable
Loans 990,614 82,668 8.35% 1,123,670 99,215 8.83% 1,239,884 121,349 9.79%
Non-Taxable
Loans* 13,065 1,920 14.69% 15,595 2,167 13.90% 20,247 2,729 13.48%
Federal Funds Sold and Securities
Purchased Under Agreements
to Resell 30,136 910 3.02% 59,340 2,062 3.47% 56,538 3,042 5.38%
Total Interest-
Earning
Assets $1,678,069 119,924 7.15%$1,608,514$132,245 8.22%$1,622,779$154,489 9.52%
Allowance for Loan
Losses (56,075) (59,737) (39,912)
Cash and Due
from Banks 66,764 67,694 64,803
Other Non-Interest-
Earning
Assets 129,706 154,500 112,515
Total
Assets $1,818,464 $1,770,971 $1,760,185
INTEREST BEARING LIABILITIES:
Savings, N.O.W &
Money Market
Deposits $ 885,716 19,984 2.26%$ 916,124 $ 30,842 3.37%$ 671,093$ 34,281 5.11%
Time
Deposits 344,230 12,404 3.60% 464,580 22,126 4.76% 668,953 44,931 6.72%
Total Savings &
Time
Deposits $1,229,946 32,388 2.63% 1,380,704 52,968 3.84% 1,340,046 79,212 5.91%
Federal Funds Purchased and Securities
Sold Under Agreements to
Repurchase 176,519 6,166 3.49% 57,568 2,409 4.18% 73,881 5,024 6.80%
Other Borrowed
Funds 22,995 2,582 11.23% 40,181 4,201 10.46% 40,193 3,973 9.89%
Total Interest-Bearing
Liabilities 1,429,460 41,136 2.88%$1,478,453 $59,578 4.03%$1,454,120$88,209 6.07%
Rate Spread 4.27% 4.19% 3.45%
Non-Interest-Bearing
Deposits $ 226,616 164,920 146,459
Other Non-Interest-Bearing
Liabilities 19,784 17,723 22,136
Total
Liabilities $1,675,860 $1,661,096 $1,622,715
Stockholders'
Equity 142,604 109,875 137,470
Total Liabilities and
Stockholders'
Equity $1,818,464 $1,770,971 $1,760,185
Net Interest Income* and Net
Interest Margin* 78,788 4.70% 72,667 4.52% 66,280 4.08%
Less: Tax Equivalent Basis
Adjustment 1,435 1,505 2,121
Net Interest Income 77,353 $71,162 $64,159
</TABLE>
* Interest income on a tax equivalent basis includes the additional
amount of
interest and dividend income that would have been earned if the
Registrant's
investment in state and municipal obligations, non-taxable loans
and equity
securities had been made in securities and loans subject to New
York State and
Federal income taxes yielding the same after tax income. The tax
equivalent
amount for $1.00 of non-taxable investment income, non-taxable loan
income,
dividends and interest income from U.S. Obligations (included in
Taxable
Securities) was $1.54, $1.58, $1.43 and $1.03 in 1993, $1.56,
$1.54, $1.41 and
$1.03 in 1992, and $1.51, $1.50, $1.41 and $1.03 in 1991.
<PAGE>
EXHIBIT 13 ANNUAL REPORT TO SECURITY HOLDERS (continued)
Management's Discussion and Analysis (continued)
ASSET/LIABILITY MANAGEMENT
The Registrant's risk management policies are established by the
Asset/Liability Committee ("ALCO"). ALCO is comprised of members
of senior
management and the Board who meet on a monthly basis to, among
other things,
evaluate the sensitivity of the Registrant's assets and liabilities
to changes
in market interest rates and the resultant impact of those
anticipated changes
on net interest income and capital. The basic responsibilities of
ALCO include
the management of net interest income and the market value of the
securities
portfolio, as well as the Registrant's liquidity position, to
ensure minimal
capital risk and adequate funding.
Generally, where interest rate-sensitive assets exceed
rate-sensitive
liabilities, the net interest margin will be positively impacted
during periods
of rising interest rates and negatively affected in a declining
interest rate
environment. Conversely, when interest-rate sensitive liabilities
exceed rate-
sensitive assets, the net interest margin will be positively
impacted in a
declining interest rate environment and negatively impacted in an
increasing
rate environment. The difference between the maturities or
repricing
characteristics of interest earning assets and interest bearing
liabilities
during a given time period is commonly referred to as the "gap" for
that period.
While the gap analysis employed by ALCO is a useful management tool
as it
considers the quantity of assets and liabilities subject to
repricing in a given
time period, it does not consider the relative sensitivity to
market interest
rate changes characteristic of various interest rate sensitive
assets and
liabilities. To supplement this analysis, ALCO utilizes an income
simulation
model to assess and monitor interest rate risk. Income simulation
analysis
determines the effect of various interest rate scenarios and
changes therein on
the Registrant's net interest margin. It considers the maturity,
repricing
characteristics and relative sensitivities of each asset and
liability to
fluctuations in interest rates, as well as the probability of each
asset and
liability reacting to such fluctuations. Through this process,
management can
more clearly establish and monitor the interest rate risk in the
Registrant's
balance sheet. ALCO has established current limits for the
estimated volatility
of the net interest margin of +/-10% assuming a 300 basis point
increase in
market interest rates and a 100 basis point decrease in market
interest rates
in this current interest rate environment. The results of the most
recent
income simulation model show that the interest sensitivity of the
Registrant's
balance sheet is within guidelines established.
During 1993 ALCO determined that, based on the Registrant's
excess capital
level and liquidity position and the continuing impact of declining
interest
rates and lackluster loan demand on interest income, a balance
sheet leverage
strategy was appropriate. This strategy is described in more
detail in the Net
Interest Income section of this discussion. In summary, the
Registrant obtained
funds through short term repurchase agreement borrowings and
reinvested those
funds primarily in short duration 7 and 15 year U.S. government
agency mortgage
backed securities, realizing an almost 200 basis points spread on
the assets.
These mortgage-backed securities were principally fixed rate in
nature and
involved a degree of interest rate risk. Additionally mortgage
backed
securities, due to the borrowers right to prepay or call the
underlying loan,
are subject to a level of prepayment risk, which can cause a
variation in their
estimated weighted average lives. This potential variation either
a shortening
or an extension increases the level of interest rate risk inherent
with these
securities. During periods of rising interest rates the
securities, due to
declining in prepayments, will have an extension in average life,
conversely
during periods of declining interest rates the borrowers will repay
the
underlying mortgage and the securities will shorten in average
life.
The Registrant in performing its balance management and in
selecting
investment securities considered all characteristics of securities
and chose
investments having performance characteristics that provided
adequate returns
under a variety of interest rate and prepayment scenarios. The
securities
purchased as part of the leverage strategy had shorter average
lives, superior
liquidity characteristics, and were priced at a premium over their
par value.
These premium securities provide enhancements to yields as the
level of
prepayments decreases and the average lives of the securities
extend.
Management in an attempt to identify value in these securities did
extensive
modeling of the potential performance under a variety of interest
rate
scenarios. Further, to mitigate the interest rate risk associated
with the
differences in these asset and liability maturities, and maintain
the volatility
of the margin within the ALCO guidelines, the Registrant entered
into certain
off balance sheet instruments.
<PAGE>
EXHIBIT 13 ANNUAL REPORT TO SECURITY HOLDERS (continued)
Management's Discussion and Analysis (continued)
ASSET/LIABILITY MANAGEMENT (continued)
The following table reflects the sensitivity of the Registrant's
balance sheet,
or it's "gap" position at December 31, 1993 (dollars in thousands):
<TABLE>
<CAPTION>
0-90 91-180 181-365 1-5 Over
Days Days Days Years 5 Years Total
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Interest Earning
Deposits $ 290 $ - $ - $ - $ - $ 290
Securities:
Held for
Investment(1) 116,283 70,120 74,339 243,786 43,969 548,497
Held for
Sale(1) 19,723 17,737 39,515 102,187 21,057 200,219
Loans, net of
unearned
income (2)(3) 436,887 68,072 137,534 236,844 104,263 983,600
Total Interest-
Earning
Assets $573,183 $155,929 $251,388 $582,817 $169,289 $1,732,606
INTEREST BEARING LIABILITIES:
Savings, N.O.W. &
Money Market
Deposits (4) $ 79,305 $ 79,305 $158,609 $549,589 $ - $ 866,808
Time Deposits 100,824 83,309 72,840 60,505 537 318,015
Federal Funds Purchased and
Securities Sold Under
Agreements to
Repurchase 206,332 49,311 - - - 255,643
Senior Note
Obligation - - - 20,000 - 20,000
Total Interest-Bearing
Liabilities $386,461 $211,925 $231,449 $630,094 $ 537 $1,460,466
Gap $186,722 $(55,996) $ 19,939 $(47,277) $168,752
Effect of Off-Balance
Sheet Hedge
Agreements 24,000 - - (24,000)
Gap, Net of Effect of
Off-Balance Sheet
Hedge
Agreements $210,722 (55,996) 19,939 (71,277) 168,752
Cumulative Difference Between
Interest Earning Assets
and Interest Bearing
Liabilities $210,722 $154,726 $174,665 $103,388 $272,140
Cumulative Difference as
a Percentage of
Total Assets 11.19% 8.21% 9.27% 5.49% 14.45%
</TABLE>
Notes: (1) Based upon (a) contractual
maturity, (b) repricing date, if
applicable, and (c) projected repayments of
principal based upon
experience.
(2) Based upon (a) contractual
maturity, (b) repricing date, if
applicable, and (c) management's estimates of
prepayments of principal.
(3) Excludes non-accrual loans of $33.5
million.
(4) Savings, N.O.W. and Money Market
Deposits are allocated to specific
time bands in accordance with the proposed rule
Section 305 of the Federal
Deposit Insurance Corporation Improvement Act.
<PAGE>
EXHIBIT 13 ANNUAL REPORT TO SECURITY HOLDERS (continued)
Management's Discussion and Analysis (continued)
ASSET/LIABILITY MANAGEMENT (continued)
The following are approximate contractual maturities and
sensitivities to changes
in interest rates of certain loans, exclusive of non-commercial
real estate
mortgages and consumer loans, as of December 31, 1993:
<TABLE>
<CAPTION>
MATURITY
Due After
One But
Due Within Within Five Due After
(in thousands) One Year Years Five Years Total
<S> <C> <C> <C> <C>
TYPES OF LOANS:
Commercial, Financial
& Agricultural $201,123 $ 44,931 $11,097 $257,151
Mortgage Loans-
Commercial 148,921 108,368 34,868 292,157
Mortgage Loans-
Construction 16,138 3,486 204 19,828
Total $366,182 $156,785 $46,169 $569,136
RATE PROVISIONS:
Amounts with Fixed
Interest Rates $ 33,305 $114,839 $ 45,458 $193,602
Amounts with Adjustable
Interest Rates $332,877 $ 41,946 $ 711 $375,534
Total $366,182 $156,785 $ 46,169 $569,136
</TABLE>
The table which follows depicts the book value, contractual
maturities and
approximate weighted average yield of the Registrant's investment
security
portfolio at December 31, 1993 (dollars in thousands):
<TABLE>
<CAPTION>
U.S.
U.S.
Government State & Mortgage-
Treasury Agencies' Municipal Backed
Secur- Oblig- Oblig- Secur-
Maturity ities Yield ations Yield ations Yield ities Yield Other Yield Total Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Within
1 Year $ - .- % $ 5,570 3.67%$31,856 4.25%$ - .-%$ - .- %$ 37,426 4.16%
After 1 But
Within
5 Yrs 26,991 5.57% 5,362 6.16% 4,738 9.23% 73,777 5.10% - .- 110,868 5.44
After 5 But
Within
10 Years - .- - .- 7,475 8.87 155,310 4.43 - .- 162,785 4.63
After
10 Years - .- - .- - .- 236,215 5.10 - .- 236,215 5.10
Subtotal 26,991 5.57 10,932 4.89 44,069 5.57 465,302 4.88 - .- 547,294 4.96
Equity
Securities - .- - .- - .- - .- 1,203 .- 1,203 .-
Total
Securities$26,991 5.57%$10,932 4.89%$44,069 5.57%$465,302 4.88% $1,203.- %$548,497 4.96%
</TABLE>
The following table shows the classification of the average daily
deposits of
the Registrant for each of the periods indicated:
<TABLE>
<CAPTION>
(in thousands)
For the Year Ended December 31, 1993 1992 1991
<S> <C> <C> <C>
Demand Deposits $ 226,616 $ 164,920 $ 146,459
Savings Deposits 684,737 703,746 441,515
Time Deposits 344,230 464,580 668,953
Money Market Deposits 200,979 212,378 229,578
Total Deposits $1,456,562 $1,545,624 $1,486,505
</TABLE>
<PAGE>
EXHIBIT 13 ANNUAL REPORT TO SECURITY HOLDERS (continued)
Management's Discussion and Analysis (continued)
ASSET/LIABILITY MANAGEMENT (continued)
At December 31, 1993, the remaining maturities of the
Registrant's
Certificates of Deposit in amounts of $100,000 or greater were as
follows:
<TABLE>
<CAPTION>
<S> <C>
(in thousands)
3 months and less $18,821
3 to 6 months 6,415
6 to 12 months 4,255
One to five years 2,655
Greater than five years 151
$32,297
</TABLE>
LIQUIDITY
Liquidity is defined as the Registrant's ability to generate
sufficient cash
flow to fund growth in interest earning assets, depositor
withdrawals and the
repayment of borrowings. The Registrant's bank subsidiary has
numerous sources
of liquidity including loan principal repayments, 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. The
Registrant's liquidity position is monitored to ensure the
maintenance of an
optimum level and the most cost efficient use of the Registrant's
available
funds.
Cash flows are generated from operating, investing and financing
activities.
Cash flows from operating activities include earnings adjusted for
non-cash
items and funds obtained through and utilized in the management of
the
Registrant's Securities Held for Sale portfolio. During 1993, the
Registrant
acquired $199.2 million in securities classified as Held for Sale
using the
proceeds from sales, principal repayments and maturities of $121.5
million of
similarly classified securities. The remaining balance was acquired
through the
use of funds generated principally through repurchase agreement
borrowings. As
discussed in a previous paragraph, the Registrant implemented a
balance sheet
leverage strategy during 1993 to enhance operating results,
effectively utilize
capital and take advantage of the current steepness in the yield
curve. Funds
obtained through short term repurchase agreement borrowings were
reinvested
primarily in agency guaranteed mortgage-backed securities, some
classified as
Held for Sale, thereby impacting cash flow from operations, and
others
classified as Investment Securities thereby impacting the
Registrant's investing
activities.
Cash used in investing activities aggregated $198.4 million
during 1993, as
funds aggregating $193.7 million provided by maturities, calls and
principal
repayments of investment securities and the repurchase agreement
borrowings
discussed earlier were reinvested in $432.2 million of securities,
primarily
agency guaranteed mortgage-backed securities, classified as
Investment
Securities. Further contributing to cash provided by investing
activities was
the $26.9 million provided by the sale of other real estate during
1993.
The primary contributor of cash provided by financing activities
include
$227.4 million of repurchase agreement borrowings, obtained to
finance the
acquisition of agency guaranteed mortgage backed securities as part
of the
Registrant's balance sheet leverage strategy. Cash utilized in
financing
activities at the subsidiary bank level include the funding of the
net $57.7
million decrease in deposits.
The Registrant's sources of funds include dividends from the
bank subsidiary,
borrowings and funds available through the capital markets.
Dividends from the
bank subsidiary are limited by the regulations of the New York
State Banking
Department ("NYSBD") 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 $24.3 million of retained earnings
available
for dividends to the holding company as of January 1, 1994.
During the 1993 first quarter, the Registrant prepaid in full its
$20 million
9.30% Senior Note obligation utilizing the proceeds from capital
raised through
the revised Dividend Reinvestment Program in the latter part of
1992 and early
1993, as well as through available cash at the holding company, the
private placement of approximately 1 million shares of the Registrant's
common stock and the exercise of certain of the Registrant's outstanding
warrants. The
Registrant's remaining 10.08% Senior Note obligation matures March
28, 1995.
Possible sources of funds that may be used to repay this obligation
upon
maturity include the utilization of existing cash available at the
holding
company, proceeds from the exercise of outstanding warrants,
dividends from the
Registrant's bank subsidiary, or funds raised through the capital
markets. At
December 31, 1993, the holding company's available cash position
was $7.7
million.
<PAGE>
EXHIBIT 13 ANNUAL REPORT TO SECURITY HOLDERS (continued)
Management's Discussion and Analysis (continued)
ASSET QUALITY
Loans, net of unearned income, declined 2.7% to $1,017.1 million
at December
31, 1993, as compared with $1,045.2 million in the comparable prior
year period.
The Registrant experienced loan growth in the commercial and
residential
mortgage portfolios, which increased 7.9% and 2.8%, respectively,
whereas the
concentration of real estate development loans, classified as
construction and
land loans, continued their decline, aggregating $57.0 million,
28.9% less than
the $80.1 million outstanding at December 31, 1992. The loan
portfolio is
concentrated primarily in loans secured by real estate in Suffolk
and Nassau
Counties and to a lesser extent Westchester and Rockland Counties,
New York.
Real estate related loans, which include commercial and residential
mortgages,
construction and land development loans, aggregated 69.2% of the
total loan
portfolio at December 31, 1993. Residential mortgage loans comprise
the largest
real estate concentration within the Registrant's loan portfolio,
aggregating
$363.6 million and representing 51.0% of the real estate
concentration. During
1993, the Registrant changed its strategy with regard to its 15
year residential
mortgage loan product, deciding to maintain these loans within the
portfolio
instead of selling them in the secondary market. This change in
strategy,
coupled with the $14.3 million acquisition of residential mortgage
loans during
the year, contributed to the increase in the balance of residential
mortgages
when comparing 1993 and 1992. Commercial mortgages aggregated
$292.2 million at
December 31, 1993, a $21.5 million or 7.9% increase from the prior
year period.
This increase is primarily attributable to the Registrant's
financing of the
sales of other real estate during the year. Commercial, financial
and
agricultural loans, which are loans to small and medium sized
businesses to
finance working capital needs secured by accounts receivable,
inventory, UCC
filings and real estate in the form of side collateral, declined to
$257.2
million at December 31, 1993, a $31.0 million or 10.7% decline from
the prior
period. This decline is the result of charge offs during the year
and increased
levels of loan satisfactions, coupled with the lack of commercial
loan demand
within the Registrant's marketplace. Consumer loans declined to
$59.8 million
at December 31, 1993, a $9.8 million or 14.1% decline from the
prior period. The
decline in the consumer loan portfolio when comparing 1993 and 1992
is
significantly less than the decline demonstrated in prior years as
a plan to
purchase high quality car lease paper for retention in the
portfolio was
implemented during 1993.
The following table delineates the components of the
Registrant's loan
portfolio for the years ended December 31,
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Commercial,
Financial &
Agricultural $ 257,151 $ 288,114 $ 318,670 $ 316,582 $ 250,077
Mortgage Loans-
Commercial 292,157 270,666 277,737 276,138 268,993
Mortgage Loans-
Residential 363,644 353,725 448,347 371,615 513,528
Mortgage Loans-
Construction 19,828 30,080 55,235 60,716 64,987
Land Loans 37,160 50,059 48,100 89,400 99,400
Consumer Loans 59,823 69,632 95,285 112,082 135,344
Total $1,029,763 1,062,276 $1,243,374 $1,226,533 $1,332,329
</TABLE>
Non-performing assets, which include loans past due ninety days
and still
accruing interest, non-accrual loans and other real estate,
declined 54.8% to
$57.2 million at December 31, 1993, as compared with $126.5 million
in the
comparable prior year period. This decline began in the second
quarter of 1992
and each quarter thereafter a consistent pattern of improving asset
quality has
been demonstrated. Non-performing assets now comprise 3.04% of
total assets, as
compared with 7.44% at December 31, 1992 and 8.66% at December 31,
1991. The
primary components of the decline in non-performing assets when
comparing 1993
and 1992 include $42.7 million in other real estate dispositions
and cash
collections, $9.5 million in write downs of other real estate to
current fair
value and net loan charge offs of $17.9 million.
The components of the Registrant's non-performing assets are
detailed below:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Loans 90 Days or More
Past Due &
Still Accruing $ 1,811 $ 5,425 $ 6,660 $ 16,516 $ 7,148
Non-Accrual Loans 33,484 59,670 71,374 45,549 14,828
Total Non-
Performing Loans 35,295 65,095 78,034 62,065 21,976
Other Real Estate 21,899 61,383 75,887 23,187 2,949
Total Non-
Performing Assets $57,194 $126,478 $153,921 $ 85,252 $ 24,925
Restructured,
Accruing Loans $ 15,237 $ 13,332 $ 14,589 $ 6,518 $ -
</TABLE>
<PAGE>
EXHIBIT 13 ANNUAL REPORT TO SECURITY HOLDERS (continued)
Management's Discussion and Analysis (continued)
ASSET QUALITY (continued)
Loans are classified as restructured loans when the Company has
granted, for
economic or legal reasons related to the borrowers financial
difficulties, a
concession to the customer that the Company would not otherwise
consider.
Generally this occurs when the cash flow of the borrower is
insufficient to
service the loan under its original terms.
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 borrower to continue to comply with the present repayment
terms,
aggregated $24.9 million at December 31, 1993.
The following table sets forth the changes in the Registrant's
other real
estate for the periods presented:
<TABLE>
<CAPTION>
(in thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Balance at Beginning
of Year $ 61,383 $ 75,887 $ 23,187 $ 2,949 $ 460
Increases:
Foreclosures and
Deeds in Lieu
of Foreclosure 5,909 6,121 6,150 15,250 2,489
In-Substance
Foreclosure 6,867 28,901 64,265 13,200 -
Assumed in Acquisition - - 5,992 - -
Decreases:
Dispositions and
Cash Collections (42,725) (37,577) (16,048) ( 8,212) -
Gross Write-Downs (9,535) (11,949) (7,659) - -
Balance at
End of Year $ 21,899 $ 61,383 $ 75,887 $ 23,187 $ 2,949
</TABLE>
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 value influence the calculation
of the
required allowance at any point in time. The continued and
consistent decline
in the Registrant's non-performing assets during 1993 resulted in
a reduction
in the provision for loan losses when compared with prior years.
The provision
for loan losses declined to $6.0 million in 1993 from $21.0 million
in 1992 and
$64.8 million in 1991. Net charge offs increased to $17.9 million
in 1993, or
1.78% of average net loans, as compared with $16.7 million, or
1.46% of average
net loans, during 1992. This increase demonstrates the Registrant's
effective
utilization of reserves during a period of improving asset quality
and sluggish
loan demand. The allowance for loan losses as a ratio of
non-performing loans
increased to 132.10% at December 31, 1993, as compared with 89.86%
at December
31, 1992. 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 allowance for loan losses. Such agencies may require
the
Registrant to recognize additions to the allowance based on their
judgment of
information available to them at the time of their examinations.
Based on
current economic conditions, management considers the allowance at
December 31,
1993 adequate to cover the possible risk of loss in the loan
portfolio.
<PAGE>
EXHIBIT 13 ANNUAL REPORT TO SECURITY HOLDERS (continued)
Management's Discussion and Analysis (continued)
ASSET QUALITY (continued)
Transactions in the Allowance for Loan Losses are maintained by
six major
categories and are summarized as follows for the years ended
December 31,
<TABLE>
<CAPTION>
(dollars in thousands)
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Loans (net of unearned income):
Average Balance $1,003,679 $1,139,265 $1,260,131 $1,244,673 $1,228,589
End of Period 1,017,084 1,045,183 1,218,829 1,194,031 1,293,033
Analysis of Allowance for Loan Losses:
Balance at Beginning
of Period $ 58,497 $ 54,164 $ 28,501 $ 9,734 $ 8,238
Loans Charged-Off:
Commercial, Financial &
Agricultural $ 14,362 $ 13,029 $ 19,151 $ 4,439 $ 630
Mortgage Loans-
Commercial 2,310 2,717 15,776 - -
Mortgage Loans-
Residential 2,588 149 472 43 -
Mortgage Loans-
Construction 68 - 7,660 4,274 801
Land Loans 1,006 1,174 8,177 2,300 -
Consumer Loans 1,214 2,207 3,217 1,873 1,111
Total Charge-Offs $ 21,548 $ 19,276 $ 54,453 $ 12,929 $ 2,542
Recoveries of Loans Charged-Off:
Commercial, Financial
& Agricultural $ 2,557 $ 1,097 $ 212 $ 44 $ 201
Mortgage Loans-
Commercial 452 156 - - -
Mortgage Loans-
Residential 50 125 - - -
Mortgage Loans-
Construction 51 115 41 - -
Land Loans 60 562 185 - -
Consumer Loans 506 554 298 370 287
Total Recoveries $ 3,676 $ 2,609 $ 736 $ 414 $ 488
Net Loans
Charged-Off $ 17,872 $ 16,667 $ 53,717 $ 12,515 $ 2,054
Provision for
Loan Losses 6,000 21,000 64,800 31,282 3,550
Additional Allowance Resulting
from Acquisition - - 14,580 - -
Balance at
End of Period $ 46,625 $ 58,497 $ 54,164 $ 28,501 $ 9,734
Ratio of Net Charge-Offs
to Average Loans 1.78% 1.46% 4.26% 1.01% 0.17%
Ratio of Allowance for
Loan Losses to
Non-performing Loans 132.10% 89.86% 69.41% 45.92% 44.29%
</TABLE>
Pursuant to a regulatory requirement, the table below provides
the components
of the allowance for loan losses by loan classification at each
year end. As
such amounts reflect management's best estimate of possible losses
and may not
necessarily be indicative of actual future charge-offs by loan
classification.
It should be further emphasized that management believes that the
allowance must
be viewed in its entirety and is therefore available for loan
losses in any
classification.
<PAGE>
<TABLE>
<CAPTION>
(dollars in thousands)
Percentage Percentage Percentage Percentage Percentage
of of of of of
Loans to Loans to Loans to Loans to Loans to
1993 Total 1992 Total 1991 Total 1990 Total 1989 Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, Financial
& Agricultural$18,120 24.97%$25,030 27.12%$25,538 25.63%$14,666 25.81%$5,709 18.77%
Mortgage Loans-
Commercial 19,810 28.37 16,485 25.48 14,808 22.34 7,814 22.51 1,814 20.19%
Mortgage Loans-
Residential 2,254 35.31 1,537 33.30 1,084 36.06 209 30.30 109 38.54%
Mortgage Loans-
Construction 2,153 1.93 2,752 2.83 6,546 4.44 2,993 4.95 493 4.88%
Land Loans 2,516 3.61 4,406 4.71 4,861 3.87 1,710 7.29 500 7.46%
Consumer Loans 897 5.81 788 6.56 1,327 7.66 1,109 9.14 1,109 10.16%
Unallocated 875 - 7,499 - - - - - - -
Total $ 46,625 100.00%$58,497 100.00%$54,164 100.00%$28,501 100.00%$ 9,734 100.00%
</TABLE>
<PAGE>
EXHIBIT 13 ANNUAL REPORT TO SECURITY HOLD
Management's Discussion and Analysis (continued)
OTHER NON-INTEREST INCOME
Other income, net of security gains, increased to $16.5 million,
or 12.7% from
the $14.6 million realized in 1992. Net security gains in 1993 were
$1.5 million,
as compared with $9.4 million in the comparable prior year period.
Since the beginning of 1992, the Registrant has emphasized the
diversification
of revenue sources to enhance operating results and expand the
Registrant's
revenue base. Through the conversion of the former savings bank
branches into full
service commercial branches, growth in the demand deposit base,
increases in per
item fees, new products and services and internal analysis to
ensure the optimum
level of cost and benefit are attained, the Registrant has realized
improvements
in substantially all facets of non-interest revenue. Fees and
service charges on
deposit accounts improved 25.1% to $7.5 million in 1993; trust fees
and
commissions realized a 10.4% improvement to $1.7 million in 1993
and income from
mortgage banking operations demonstrated a 10.6% increase to $3.6
million in 1993.
Growth in income from mortgage banking operations, however, was
partially offset
in 1993 by the acceleration of the amortization of certain
servicing intangibles.
OTHER EXPENSES
Other expenses decreased to $66.7 million in 1993, or $3.6
million, from that
incurred in the prior year, primarily the result of a $1.7 million
decline in
other real estate related expenses, a $1.2 million restructure
charge recorded in
the prior year and a $1.6 million decline in other operating costs.
These
improvements were partially offset by minimal increases in other
expense
categories. The Registrant's core efficiency ratio, which
represents the ratio of
other expenses, net of other real estate related costs and other
non-recurring
charges, to net interest income on a tax equivalent basis and other
income net of
security gains, improved to 54.98% in 1993 from 60.82% in the
comparable prior
year period. This improvement was achieved as operating expense
levels declined
while the amount of net interest income and other fee based income
improved.
Other real estate related operating expenses declined to $14.3
million in 1993
as compared with $16.0 million in the prior year. Included in the
1993 balance was
$7.9 million in net write downs to current fair value, representing
a $2.2 million
decline from the prior year, and $6.4 million in other real estate
operating
expenses which include costs such as legal fees, taxes,
maintenance, title and
lien filing fees. As the level of other real estate continues to
decline, the
Registrant anticipates that related costs will also decrease.
PROVISION FOR INCOME TAXES
Effective January 1, 1993, the Registrant adopted the new
accounting standard
for income taxes, Statement of Financial Accounting Standards
("SFAS") No. 109.
Prior to 1993, the Registrant determined its income tax expense
under the
provisions of Accounting Principles Board Opinion No. 11. SFAS No.
109 requires
the use of the asset and liability method in determining the tax
effect of
temporary differences in the recognition of items of income and
expense. SFAS No.
109 allows the recognition of a tax benefit for net operating loss
carryforwards
if realization of that benefit is "more likely than not". A
valuation allowance
is to be established to reduce the deferred tax asset if, based on
the
Registrant's current valuation, it believes that it is "more likely
than not" that
all or some of that asset will not be realized. The adoption of
SFAS No. 109 did
not have a material effect on the Registrant's financial position
or results of
operations as a corresponding valuation allowance for the entire
amount of the
additional net tax benefit was established. The valuation
allowance for deferred
tax assets relates to both the establishment of a reserve upon the
adoption of
SFAS No. 109 which approximated previous unrealized potential tax
benefits and a
reserve equivalent to the potential New York State tax benefit. The
Registrant has
elected to fully reserve for the potential New York State benefit
due to the
uncertainties of realization since state law does not provide for
the utilization
of net operating loss carryforwards or carrybacks. The Registrant
has and will
continue to recognize these benefits on a when realized basis.
The Registrant recorded a $7.5 million provision for income taxes
in 1993,
equating to an effective income tax rate of 33.3%, as compared with
a provision
of $2.2 million, or an effective income tax rate of 55.9%, in 1992.
The primary
components of the decline in the effective tax rate include a
reduction in the
Registrant's state income taxes coupled with the realization of
state benefits.
CAPITAL
During the latter part of 1992 and early 1993, the Registrant
undertook a
capital raising plan to raise the funds necessary to repay the
Registrant's $20
million Series B Senior Note obligation ("Series B Notes") due
August 1, 1993. In
November 1992, the Registrant's Dividend Reinvestment Plan was
revised to (i)
increase the discount to market value at which participants could
purchase shares
of the Registrant's common stock, (ii) increase the maximum
optional cash
investment and (iii) permit cash investments in excess of the
maximum allowed with
prior written approval of the Registrant. As a result, the
Registrant raised
approximately $13 million in capital through the revised Dividend
Reinvestment
Plan. An additional source of capital was the exercise of the
Registrant's Series
A common stock warrants, which were issued in August 1992 to the
holders of the
Registrant's senior note obligations and which expired upon full
repayment of the
Series B Senior Notes. In anticipation of full prepayment of the
Series B Notes,
the holders of the warrants exercised them in February 1993,
receiving 536,975
shares of the Registrant's common stock in exchange for $3.5
million. The final
step in the Registrant's capital raising plan was the overseas
private placement
of approximately 1 million shares of common stock in March 1993,
raising
approximately $9.5 million in capital. These capital raising
endeavors, coupled
with the retention of earnings during 1993, increased stockholders
equity to
$154.5 million at December 31, 1993.
<PAGE>
EXHIBIT 13 ANNUAL REPORT TO SECURITY HOLDERS (continued)
Management's Discussion and Analysis (continued)
CAPITAL (continued)
The Federal Reserve Board has formal capital guidelines which
bank holding
companies are required to meet. These guidelines include the
"risk-based" capital
ratios and the leverage ratios, discussed below. The risk-based
capital
guidelines are designed to make regulatory capital requirements
more sensitive to
differences in risk profile 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 will 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 capital to
risk-weighted assets of
8.00%, including a minimum ratio of Tier 1 capital to risk-weighted
assets of
4.00%. The Federal Deposit Insurance Corporation has adopted
comparable capital
guidelines for state banks which are not members of the Federal
Reserve System.
Tier 1 capital consists of common equity, qualifying perpetual
preferred equity
and minority interests in the equity accounts of unconsolidated
subsidiaries, less
goodwill and other non-qualifying intangibles. After December 31,
1992, the
allowance for loan losses qualifys only as supplementary capital
and then only to
the extent of 1.25% of total risk-weighted assets. Other elements
of
supplementary capital, which is limited overall to 100% of Tier 1
capital, include
perpetual preferred equity not qualifying for Tier 1, mandatory
convertible debt
and subordinated and other qualifying securities.
The following table sets forth the Registrant's regulatory
capital as of
December 31, 1993 under the rules applicable at such date. The
Registrant was in
compliance with applicable regulatory requirements in effect as of
such date.
<TABLE>
<CAPTION>
As of December 31, 1993
(dollars in thousands)
Amount Ratio
<S> <C> <C>
Tier 1 Capital $ 145,095 13.59%
Regulatory Requirement 42,717 4.00%
Excess $ 102,378 9.59%
Total Risk Adjusted Capital $ 158,854 14.88%
Regulatory Requirement 85,434 8.00%
Excess $ 73,420 6.88%
Risk Weighted Assets $1,067,920
</TABLE>
The Registrant's leverage ratio at December 31, 1993 was 7.55%.
The Federal Deposit Insurance Corporation Improvement 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 in
respect of 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 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.
<PAGE>
EXHIBIT 13 ANNUAL REPORT TO SECURITY HOLDERS (continued)
Management's Discussion and Analysis (continued)
REGULATORY MATTERS
On February 17, 1994, the Federal Deposit Insurance Corporation
(the "FDIC")
notified the Bank that based on the improvement in it's financial
condition, the
FDIC was terminating the Memorandum of Understanding (the "MOU")
dated August 25,
1993 between the Bank, the FDIC and the New York State Banking
Department (the
"NYSBD"). The MOU required the Bank to, among other things, (i)
maintain a Tier
I leverage ratio of 5.50%; (ii) reduce the level of classified
assets as a ratio
of capital and reserves and (iii) charge off all assets classified
"Loss" and 50%
of those classified "Doubtful" in the FDIC and NYSBD Reports on
Examination. The
Bank received similar notification from the NYSBD on February 23,
1994.
On February 1, 1994, the Federal Reserve Bank of New York
notified the
Registrant that in light of the noticeable improvement in its
financial condition
the Memorandum of Understanding dated October 22, 1992 was
terminated. The Federal
Reserve Bank memorandum prohibited the Registrant from, among other
things, the
payment of dividends and the renewal or modification of the terms
of existing
indebtedness without prior regulatory approval.
EFFECTS OF INFLATION
Virtually all of the assets and liabilities of a financial
institution are
monetary in nature. As a result, interest rates have a more
significant impact on
a financial institution's performance than the general levels of
inflation.
Interest rates do not necessarily move in the same direction or in
the same
magnitude as the prices of goods and services.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of this
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NORTH FORK BANCORPORATION, INC.
Dated: September 27, 1994 BY: /s/ John A. Kanas
JOHN A. KANAS,
President
(Principal Executive
Officer)
BY:/s/ Daniel M. Healy
DANIEL M. HEALY,
Executive Vice
President &
Chief Financial
Officer
(Principal Accounting
Officer)
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date
indicated.
Signature Title Date
/s/ John A. Kanas President and 9/27/94
John A. Kanas Chairman of the Board
/s/ John Bohlsen Director 9/27/94
John Bohlsen
/s/Malcolm J. Delaney Director 9/27/94
Malcolm J. Delaney
/s/Allan C. Dickerson Director 9/27/94
Allan C. Dickerson
/s/Lloyd A. Gerard Director 9/27/94
Lloyd A. Gerard
/s/James F. Reeve Director 9/27/94
James F. Reeve
/s/James H. Rich, Jr. Director 9/27/94
James H. Rich, Jr.
/s/George H. Rowsom Director 9/27/94
George H. Rowsom
/s/Raymond W. Terry, Jr. Director 9/27/94
Raymond W. Terry, Jr.
