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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
COMMISSION FILE NUMBER 1-10458
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 20, 1995, there were 23,890,869 shares of the Registrant's
common stock outstanding. The aggregate market value of the Registrant's
common stock (based on the average stock price on March 20, 1995) held by
non-affiliates was approximately $374,756,383.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated herein by reference in the
following parts of this Annual Report:
North Fork Bancorporation, Inc. 1994 Annual Report to Shareholders -
Parts I, II and IV.
North Fork Bancorporation, Inc. 1995 Definitive Proxy Statement for
the Annual Meeting of Stockholders to be held April 25, 1995 - Part III
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PART I
ITEM 1 BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
North Fork Bancorporation, Inc. (the "Registrant") located in Mattituck, New
York, is a bank holding company organized under the laws of the State of
Delaware in 1980 and registered under the Bank Holding Company Act of 1956, as
amended. On November 30, 1994, Metro Bancshares Inc. ("Metro"), the parent
company of Bayside Federal Savings Bank ("BFS"), a federally chartered Stock
Savings Bank, was merged with and into the Registrant. Simultaneously, BFS
(with approximately $1.0 billion in assets, $.9 billion in deposits and $83.5
million in stockholders equity, operating through thirteen branch locations in
Queens, Nassau and Suffolk Counties, New York) was merged with and into the
Registrant's bank subsidiary, North Fork Bank (the "Bank"). The merger, which
was accounted for as a pooling-of-interests, increased the Registrant's total
assets, total deposits and stockholder's equity to $2.7 billion, $2.3 billion
and $254.9 million, respectively, at December 31, 1994. A more detailed
discussion concerning the Registrant's financial condition and results of
operations is contained in Part II of this Annual Report. The Registrant's
primary subsidiary, the Bank, is the result of the October 1, 1992 merger of
the Registrant's banking subsidiaries, The North Fork Bank & Trust Company
("Bank & Trust") and Southold Savings Bank ("Southold"). Bank & Trust was
merged into Southold; Southold then converted its charter from that of a state
savings bank to a state commercial bank and changed its name to North Fork
Bank. The Bank provides a wide range of commercial banking services through 47
branch locations throughout Suffolk, Nassau, Queens, Westchester and Rockland
Counties, New York.
Prior to 1988, the Registrant's principal asset was Bank & Trust and its
business consisted primarily of the ownership and operation of Bank & Trust.
On August 1, 1988, the Registrant completed the acquisition of Southold, a New
York State chartered savings bank. Southold, established in 1858, was Suffolk
County's oldest savings institution. Its focus had traditionally been to
develop a stable core deposit base and invest those funds in residential real
estate loans. Southold expanded its branch network through the June 28, 1991
acquisition of Eastchester Financial Corporation, ("Eastchester").
Eastchester's primary asset was Eastchester Savings Bank, a $500.8 million
savings bank which operated through seven branch locations in Westchester and
Rockland Counties, New York. Immediately upon consummation of the acquisition,
Eastchester was dissolved and its operations consolidated into those of
Southold.
Additionally, the Registrant and its bank subsidiary have seven active non-bank
subsidiaries, none of which accounted for a significant portion of the
Registrant's consolidated assets, nor contributed significantly to the
Registrant's consolidated results of operations, at and for the year ended
December 31, 1994.
NARRATIVE DESCRIPTION OF BUSINESS
The Bank's major competitors across the entire line of its products and
services are local branches of large money-center banks headquartered in New
York City and other banks headquartered in New York State. Additionally, the
Bank competes for loans and deposits with other independent commercial banks in
its marketplace; for deposits and mortgage loans with local savings and loan
associations and savings banks; for deposits and consumer loans with credit
unions; for deposits with insurance companies and money market funds; and for
consumer loans with local consumer finance organizations and the financing
affiliates of consumer goods manufacturers, especially automobile
manufacturers. In setting rate structures for the Bank's loan and deposit
products, management refers to a wide variety of financial information and
indices, including the rates charged or paid by the major money-center banks,
both
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locally and in the commercial centers, and the rates fixed periodically by
smaller, local competitors.
The Registrant and the Bank, in their normal course of business, are subject
to various regulatory statutes and guidelines. Additional information is set
forth under the caption "Capital" in Management's Discussion and Analysis
(pages 19 - 20) of the Registrant's Annual Report to Shareholders for the year
ended December 31, 1994 included as Exhibit 13 herewith and incorporated herein
by reference.
As of December 31, 1994, the Registrant and its consolidated subsidiaries
had approximately 910 full-time equivalent employees.
ITEM 2 PROPERTIES
The Registrant maintains its corporate offices in a 28,300 square foot
facility, owned by the Bank, located at 9025 Main Road, Mattituck, New York.
The Bank owns twenty-seven (27) buildings and occupies twenty-six (26) other
facilities under various lease arrangements (see Note 13 - (page 41) of the
Registrant's Annual Report to Shareholders for the year ended December 31, 1994
included as Exhibit 13 herewith and incorporated herein by reference). All but
five of these facilities are utilized by the Bank for branch banking offices.
Of the five, two are owned facilities used by the data processing, loan
servicing and operations departments of the Bank. The remaining space is
leased to accommodate additional office space and warehouse needs. The
premises occupied or leased by the Registrant and its subsidiaries are
considered to be well located and suitably equipped to serve as banking
facilities.
ITEM 3 LEGAL PROCEEDINGS
Information required by this item is set forth under the caption "Note 13 -
Other Commitments and Contingent Liabilities - (c) Other Matters", in the
Registrant's Annual Report to Shareholders for the year ended December 31, 1994
(page 41), included herein as Exhibit 13 and incorporated herein by reference.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant held a special meeting of its stockholders on November 10,
1994 to approve the merger with Metro Bancshares Inc. The Registrant's
stockholders approved the merger with 10,140,487 affirmative votes cast,
135,345 negative votes cast and 80,800 votes abstaining.
*******************************************************************************
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, positions and business experience during the past five years
of the executive officers of the Registrant as of March 20, 1995, are presented
in the following table. The officers are elected annually by the Board of
Directors.
<TABLE>
<CAPTION>
Name Age Positions Held in Most Recent 5 Years
<S> <C> <C>
John Adam Kanas 48 Chairman, President and Chief Executive Officer of
the Registrant and the Bank, throughout the past 5 years
(except that Mr. Kanas did not serve as Chairman of the
Board of the Registrant during 1989).
</TABLE>
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<TABLE>
<S> <C>
John Bohlsen 52 Vice Chairman of the Registrant (since 10/1/92) and of
the Bank (12/21/89). Mr. Bohlsen has been President of
The Helm Development Corp., a real estate company, throughout
the past 5 years.
Daniel M. Healy 52 Executive Vice President and Chief Financial Officer of the
Registrant (since 3/92). Before that, Mr. Healy was a partner
with the accounting firm of KPMG Peat Marwick LLP.
Mindy G. Butler 42 Executive Vice President and Chief Lending Officer of North
Fork Bank (since 4/94). Before that, Ms. Butler served as a
Group Senior Vice President and Division Executive (from 8/92
through 4/94) with Fleet Bank - Long Island Corporate Banking
Division and Regional Vice President - Lending Division with
National Westminster Bank USA (from 1988 - 1992).
</TABLE>
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS'
MATTERS
The Registrant's common stock is traded on the New York Stock Exchange under
the symbol NFB. As of March 20, 1995, there were 5,463 shareholders of record
of the Registrant's common stock.
During 1994, the Registrant declared dividends of $.075 per share for the
first and second quarters, respectively, and $.10 per share for the third and
fourth quarters, respectively (dividends declared are exclusive of dividends
declared by Metro prior to merger). The Registrant did not declare dividends
during 1993 (exclusive of dividends declared by Metro prior to merger).
For additional information regarding dividends and restrictions thereon, and
market price information, refer to the "Selected Financial Data" (page 9), the
"Liquidity" section of Management's Discussion and Analysis (page 16), the
"Selected Statistical Data" (page 21), the last paragraph of "Note 8 - Long
Term Borrowings" (page 33) and the two paragraphs following the Condensed
Financial Statements of "Note 12 - Parent Company Only" (page 41) of the
Registrant's Annual Report to Shareholders for the year ended December 31, 1994
included herein as Exhibit 13 herewith and incorporated by reference.
ITEM 6 SELECTED FINANCIAL DATA
The information required by this item is set forth in "Selected Financial
Data" (page 9) and item (a) of "Note 2 - Business Combinations" (page 29) of the
Registrant's Annual Report to Shareholders for the year ended December 31, 1994
included herewith as Exhibit 13 and incorporated herein by reference.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is set forth in Management's
Discussion and Analysis, (pages 10 - 20) of the Registrant's Annual Report to
Shareholders for the year ended December 31, 1994, included herewith as Exhibit
13 and incorporated herein by reference.
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ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information is set forth in the Registrant's Annual Report to
Shareholders for the year ended December 31, 1994 included herewith as Exhibit
13 and incorporated herein by reference:
Unaudited Consolidated Quarterly Financial Information (page 21); the
Consolidated Financial Statements (pages 22-26); the Notes to the Consolidated
Financial Statements (pages 27-43); the Independent Auditors' Report (page 44);
and the Report of Management (page 45).
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
There were no changes in or disagreements with accountants on accounting
and financial disclosure as defined by Item 304 of Regulation S-K.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth under the caption
"Election of Directors and Information with Respect to Directors and Officers"
(pages 2-5) in the Registrant's Definitive Proxy Statement for its Annual
Meeting of Stockholders to be held April 25, 1995, which is incorporated herein
by reference.
ITEM 11 EXECUTIVE COMPENSATION
The information required by this item is set forth under the captions
"Compensation of Directors" (page 6), "Executive Compensation" (pages 7-17),
and "Retirement Plans" (page 18) in the Registrant's Definitive Proxy Statement
for its Annual Meeting of Stockholder's to be held April 25, 1995, which is
incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under the caption
"Certain Beneficial Ownership" and "Nominees for Director and Directors
Continuing in Office" (pages 2-6) in the Registrant's Definitive Proxy
Statement for its Annual Meeting of Stockholder's to be held April 25, 1995,
which is incorporated herein by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth under the caption
"Transactions with Directors, Executive Officers and Associated Persons" (page
18) in the Registrant's Definitive Proxy Statement for its Annual Meeting of
Stockholders to be held April 25, 1995, which is incorporated herein by
reference.
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PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. The consolidated financial statements, including notes thereto, of the
Registrant, required in response to this item is set forth in response
to Item 8 of this annual report are incorporated herein by reference in
the Registrant's Annual Report to Shareholders filed herewith as
Exhibit 13.
(a)2. Schedules to the consolidated financial statements required by Article
9 of Regulation S-X and all other schedules to the consolidated
financial statements of the Registrant have been omitted because they
are either not required, are not applicable or are included in the
consolidated financial statements or notes thereto, which is
incorporated herein by reference.
(b) Reports on Form 8-K filed during the fourth quarter of 1994 are as
follows:
On October 17, 1994, the Registrant filed a current report stating
that it had issued a press release regarding third quarter and
year-to-date 1994 financial results.
On October 28, 1994, the Registrant filed a current report stating
that it had issued a press release announcing that it had received all
regulatory approvals required for its acquisition of Metro Bancshares
Inc.
On December 20, 1994, the Registrant filed a current report
containing a brief description of the merger with Metro Bancshares
Inc. and all required financial and proforma financial statement
disclosures.
(c) The following table contains those exhibits as required by Item 601 of
Regulation S-K.
1. The following exhibits are incorporated herein by reference:
<TABLE>
<CAPTION>
EXHIBIT PRIOR
NUMBER DESCRIPTION FILING
<S> <C> <C>
3.1 Articles of Incorporation Previously filed on Form S-3 dated 8/16/91 as
of North Fork Bancorporation, Inc. Exhibit 4(b) (Registration No.33-42294) and
incorporated herein by reference.
3.2 By-Laws of North Fork Bancorpor- Previously filed on Form 10K for the year ended
ation, as amended, effective December 31, 1993 dated 3/9/94, as Exhibit 3(b)
7/28/92 and incorporated herein by reference.
4.1 Rights Agreement dated Incorporated by reference to Form 8-A
2/28/89, between North Fork Registration Statement dated 3/21/89.
Bancorporation, Inc. and
North Fork Bank, as rights agent.
4.2 Warrant Agreement Previously filed on Form S-3 as Exhibit 4(e) to
Amendment No. 3 filed 7/14/92 (Registration
No. 33-42294) and incorporated herein by
reference.
</TABLE>
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<TABLE>
<S> <C> <C>
4.3 Warrant Agreement Previously filed on Form S-3 dated 10/7/92
(Registration No. 33-53058) and incorporated
herein by reference.
10.1 North Fork Bancorporation, Inc. Previously filed on Form S-3 dated 11/3/82
Dividend Reinvestment and Stock (Registration No.2-80166) and incorporated
Purchase Plan herein by reference.
10.2 North Fork Bancorporation, Inc. Previously filed on Form S-8 dated 12/1/82
1982 Employee Stock Option Plan (Registration No. 2-80676) and incorporated
herein by reference.
10.3 North Fork Bancorporation, Inc. Previously filed on Form S-8 dated 8/29/85
1985 Incentive Stock Option Plan. (Registration No. 2-99984) and incorporated
herein by reference.
10.4 North Fork Bancorporation, Inc. Previously filed on Form S-8 dated 6/12/87
1987 Long Term Incentive Plan (Registration No. 33-14903) and incorporated
herein by reference.
10.5 North Fork Bancorporation, Inc. Previously filed on Form S-8 dated 4/17/90
1989 Executive Management (Registration No. 33-34372) and incorporated
Compensation Plan herein by reference.
10.6 North Fork Bancorporation, Inc. Previously filed on Form S-8 dated 9/28/92
401(k) Retirement Savings Plan (Registration No. 33-52504) and incorporated
herein by reference.
10.7 North Fork Bancorporation, Inc. Previously filed on Form S-8 dated 5/4/94
1994 Key Employee Stock Plan (Registration No. 33-53467) and incorporated
herein by reference.
10.8 North Fork Bancorporation, Inc. Previously filed on Form S-8 dated 12/5/94
The Secondary Stock Option Plan, (Registration No. 33-56743) and incorporated
the Secondary Incentive Stock Option herein by reference.
Plan. The Secondary 1994 Option Plan,
and the Secondary 1993 Incentive Stock
Option Plan resulting from the merger
with Metro Bancshares Inc.
22 Registrant's Definitive Proxy Previously filed on 3/22/95 Pursuant to
Statement for its Annual Meeting Section 14(a) of the Securities Exchange
of Stockholders Act of 1934 and incorporated herein by
reference.
</TABLE>
2. The following exhibits are submitted herewith:
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
10.9 North Fork Bancorporation, Inc. Performance Plan
11 Statement re: Computation of earnings per share.
13 Portions of the Annual Report to Shareholders for the year ended
December 31, 1994.
21 Subsidiaries of Registrant
23 Accountants' Consent
27 Financial Data Schedule
</TABLE>
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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: March 28, 1995 BY: /s/ John A. Kanas
-------------------------------
JOHN A. KANAS
President and Chief Executive Officer
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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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ John A. Kanas Director, President, March 28, 1995
------------------------------- Chief Executive Officer,
John A. Kanas and Chairman of the Board
(Principal Executive Officer)
/s/ Daniel M. Healy Executive Vice President and March 28, 1995
------------------------------- Chief Financial Officer
Daniel M. Healy (Principal Accounting Officer)
/s/ John Bohlsen Director March 28, 1995
------------------------------- Vice Chairman of the Board
John Bohlsen
/s/ Malcolm J. Delaney Director March 28, 1995
-------------------------------
Malcolm J. Delaney
/s/ Allan C. Dickerson Director March 28, 1995
-------------------------------
Allan C. Dickerson
/s/ Lloyd A. Gerard Director March 28, 1995
-------------------------------
Lloyd A. Gerard
/s/ James F. Reeve Director March 28, 1995
-------------------------------
James F. Reeve
/s/ James H. Rich, Jr. Director March 28, 1995
-------------------------------
James H. Rich, Jr.
/s/ George H. Rowsom Director March 28, 1995
-------------------------------
George H. Rowsom
/s/ Raymond W. Terry, Jr. Director March 28, 1995
-------------------------------
Raymond W. Terry, Jr.
/s/ Dr. Kurt R. Schmeller Director March 28, 1995
-------------------------------
Dr. Kurt R. Schmeller
</TABLE>
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EXHIBIT INDEX
-------------
Exhibit
Number Description
------- -----------
10.9 North Fork Bancorporation, Inc. Performance Plan
11 Statement re: Computation of earnings per share.
13 Portions of the Annual Report to Shareholders for the year ended
December 31, 1994.
21 Subsidiaries of Registrant
23 Accountants' Consent
27 Financial Data Schedule
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NORTH FORK BANCORPORATION, INC.
PERFORMANCE PLAN
1. Purpose. The purpose of the North Fork Bancorporation, Inc.
Performance Plan (the "Plan") is to provide officers and employees of North Fork
Bancorporation, Inc. (the "Company") and its subsidiaries with additional
incentive to work for the long-term financial success and progress of the
Company and to encourage the officers and employees to continue to render best
efforts on the Company's behalf in the event a change in control of the Company
should be proposed or become likely during the term of the Plan.
2. Basic Operation. Under the Plan, upon the occurrence of a
change in control of the Company, a performance pool may be simultaneously
funded and amounts thereof allocated and distributed to officers and employees
of the Company and its subsidiaries, depending upon the Company's achievement of
certain pre-established objective financial performance targets as a result of
or in the period preceding the transaction involving the change in control. The
particular financial performance targets, the size of the performance pool and
the allocation of any such pool among officers and employees will be established
in advance by the Compensation Committee of the Board of Directors of the
Company (the "Committee"), subject to the general limitations established in
this Plan. It is intended that no performance pool will be funded or distributed
except in the event that the Company achieves above-average financial results
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for stockholders as a result of or in the period preceding a change in control
of the Company.
3. Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Change in Control" means the occurrence of any of the
following:
(i) a consolidation, merger or stock-for-stock exchange involving
either the Company or the securities of the Company, in which the
persons holding all voting securities of the Company immediately prior
to such consummation own, as a group, immediately after such
consummation, voting securities of the Company (or, if the Company
does not survive such transaction, voting securities of the
corporation surviving such transaction which issued securities to such
group in such transaction) having less than fifty percent (50%) of the
total voting power in an election of directors of the Company (or such
other surviving corporation), excluding securities received by any
members of such group which represent disproportionate percentage
increases in their shareholdings vis-a-vis the other members of such
group;
(ii) a sale, lease, exchange or other transfer (in one
transaction or a series or related transactions) of all or
substantially all of the assets of the Company and its subsidiaries,
on a consolidated basis, to a party which is
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not controlled by or under common control with the Company; or
(iii) an acquisition of securities of the Company by any person,
including a reacquisition by the Company of its own securities, as a result
of which any individual, corporation (other than the Company), partnership,
trust, association, pool, syndicate or any other entity or any group of
persons acting in concert becomes the beneficial owner, as that concept is
defined in Rule 13d-3 promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, of securities of the Company
possessing fifty percent (50%) or more of the voting power for the election
of directors of the Company.
(c) "Committee" means the Compensation Committee of the Board, or any
successor to such Committee designated by the Board.
(d) "Company" means North Fork Bancorporation, Inc.
(e) "Effective Date" means the first day of the first calendar year
following Board adoption of this Plan.
(f) "Employee Participants" means those employees entitled to
participate in Tranche 3 of a Performance Pool as provided in Section 3(e)
hereof.
(g) "Executive Participants" means the Mandatory Participants and other
executive officers, if any, designated by the Committee to participate in
Tranche 1 of a Performance Pool, as provided in Section 3(c) hereof.
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(h) "Final Allocation" means a determination by the Committee under Section
6(a) of the Plan, in which the Committee makes certain final decisions regarding
a Performance Pool or anticipated Performance Pool.
(i) "Initial Performance Period" means the first full calendar year
following the Effective Date.
(j) "Mandatory Participants" means those senior executives entitled to
participate in Tranche 1 of a Performance Pool, as defined in Section 3(c)
hereof.
(k) "Officer Participants" means those officers of the Company or its
subsidiaries designated to participate in Tranche 2 of a Performance Pool, as
provided in Section 3(d) hereof.
(l) "Participant" means an Executive Participant, Officer Participant or
Employee Participant.
(m) "Performance Period" means the Initial Performance Period or any
Subsequent Performance Period.
(n) "Performance Pool" means a performance pool established by the Committee
under Section 5(c) of the Plan, consisting of one or more cash amounts,
expressed in absolute amounts or as percentages of other amounts.
(o) "Performance Schedule" means an annual schedule of Performance Targets
and a Performance Pool, as adopted or reconfirmed by the Committee under Section
5(a) of the Plan.
(p) "Performance Target" means any target of corporate performance
established by the Committee under Section 5(b) of the Plan.
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(q) "Stock" means the common stock, par value $2.50 per share, of the
Company.
(r) "Subsequent Performance Period" means any calendar year following the
Initial Performance Period prior to termination of the Plan.
3. Division of Performance Pool; Participants.
(a) Any Performance Pool distributable under the Plan shall consist of three
tranches as follows:
(i) Tranche 1, which shall be distributable exclusively among certain
executive officers of the Company, including the Mandatory Participants as
defined in Section 3(c), below;
(ii) Tranche 2, which shall be distributable among the Officer
Participants as defined in Section 3(d), below; and
(iii) Tranche 3, which shall be distributable among the Employee
Participants as defined in Section 3(e), below.
(b) As part of its annual approval of a Performance Schedule for each
calendar year under Section 5(a), below, the Committee shall determine the
precise percentages of any Performance Pool distributable under that Performance
Schedule to be received by each of the three Tranches and the names or specific
offices of the executive officers, if any, in addition to Mandatory Participants
entitled to participate in Tranche 1 of any Performance Pool under that
Performance Schedule, provided that Tranche 3 will always be entitled to receive
at least ten percent (10%) of the total dollar amount of any Performance Pool.
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The precise percentages of Tranche 1 of any Performance Pool to be received by
the Mandatory Participants and other executive officers, if any, entitled to
participate therein, as well as the identity of Officer Participants entitled to
participate in Tranche 2 of any Performance Plan and the precise percentage of
such Tranche to be received by each will be determined by the Committee as part
of a Final Allocation of a Performance Pool under Section 6(a) of the Plan and
not in connection with approval by the Committee of a Performance Schedule under
Section 5(a) of the Plan, provided that in all cases and notwithstanding any
other provision of this Plan or any Performance Schedule approved hereunder, the
Chief Executive Officer of the Company shall be entitled to receive not less
than thirty percent (30%) of Tranche 1 of any Performance Pool distributable
under the Plan.
(c) The following senior executives (the "Mandatory Participants")
shall be entitled to participate in Tranche 1 of any Performance Pool: (i) the
Chief Executive Officer of the Company, (ii) the President of the Company (if
different from the Chief Executive Officer) and (iii) the Chairman of the Board
of the Company (if different from the Chief Executive Officer and President). In
addition, in connection with its approval of an annual Performance Schedule, the
Committee may designate any other executive officer of the Company or any
subsidiary, by name or specific position, as a person entitled to participate in
Tranche 1 of any Performance Pool distributable under such
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Performance Schedule (such Mandatory Participants and such other designated
executive officer participants to be referred to collectively as the "Executive
Participants"), provided that the designation of any such other executive
officer as an Executive Participant under the Performance Schedule for a
particular year shall not mean that such other executive officer must be
designated as an Executive Participant under the Performance Schedule for any
subsequent year.
(d) Any officers of the Company or any subsidiary other than the
Executive Participants may be designated by the Committee as persons entitled to
participate in Tranche 2 of a Performance Pool (such persons to be referred to
collectively as "Officer Participants").
(e) The employees of the Company and its subsidiaries who shall be
entitled to participate in Tranche 3 of a Performance Pool shall be those
employees, other than Executive Participants and Officer Participants, who are
participating or qualify to participate as of a Change in Control in a
particular retirement plan of the Company as previously designated by the
Committee in a Performance Schedule or Final Allocation (such employees to be
referred to as "Employee Participants").
4. Administration. The Plan shall be administered by the
Compensation Committee of the Board of Directors, or any successor committee
thereof as the Board may designate (the "Committee"). Subject to the specific
provisions of this Plan, the Committee shall approve or reconfirm Performance
Schedules
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<PAGE> 8
under Section 5(a) hereof, determine Performance Targets under Section
5(b) hereof and the amounts of Performance Pools under Section 5(c) hereof, make
all determinations in connection with any Final Allocation under Section 6(a)
hereof, be responsible for any funding of a Performance Pool in connection with
a Change in Control under Section 6(b) hereof, and make all other appropriate
determinations and all interpretations of the Plan. All determinations and
interpretations of the Plan by the Committee shall be conclusive and binding
upon all persons affected thereby.
5. Performance Schedules, Targets and Pools.
(a) On or about the commencement of each Performance Period, the
Committee shall approve a Performance Schedule applicable to such Performance
Period. The Performance Schedule shall specify one or more Performance Targets,
as further described in Section 5(b) below, that will apply for the duration of
the Performance Period and shall set forth the parameters of any Performance
Pool, as further described in Section 5(c) below, which may be distributable
upon a Change in Control if the Performance Targets for the Period have been
met. The Performance Schedule applicable to any particular Performance Period
shall apply to any Change in Control that is first announced in such Performance
Period. If a Change in Control transaction has been announced prior to, but not
consummated or formally terminated or abandoned as of the end of, a particular
Performance Period, no additional or revised Performance Schedule
8
<PAGE> 9
shall be considered or approved by the Committee at such time for the ensuing
Performance Period, and the Performance Schedule then in effect shall carry over
to and remain effective during such ensuing Performance Period. The Committee
shall, at the end of a Performance Period, be required to leave the existing
Performance Schedule in place for the ensuing Performance Period, if significant
negotiations are then taking place between the Company and any other party
concerning a possible future Change in Control transaction, but if such
negotiations are discontinued during the ensuing Performance Period the
Committee may then approve a new Performance Schedule for the remainder of such
ensuing Performance Period. Any Performance Schedule for a Performance Period,
once established, may not be subsequently amended or modified for such
Performance Period, by the Committee or otherwise, and shall remain in effect
for the duration of the Performance Period.
(b) A Performance Schedule shall set forth one or more specific,
objectively-determinable criteria of financial performance of the Company (the
"Performance Targets") the attainment of which, prior to or in connection with a
Change in Control, will result in distribution to eligible Participants on or
after the Change in Control of cash amounts from a Performance Pool. The
Performance Targets which may be utilized in a Performance Schedule are the
following: (i) the market value of the Stock, as of one or more designated dates
within the Performance Period (including the date of a Change in Control or
9
<PAGE> 10
the announcement thereof), adjusted, if and as appropriate, for stock splits and
stock dividends (and, if the Committee so determines, assuming reinvestment of
cash dividends), and/or any change therein as of some period preceding any such
date, if the Committee so determines; (ii) the book value per share of Stock,
determined in accordance with generally accepted accounting principles, as of
one or more such dates within the Performance Period, adjusted, if and as
appropriate, for stock splits and stock dividends, and/or any change therein as
of some period preceding any such date, if the Committee so determines; (iii)
earnings per share of Stock during one or more periods ending as of any such
date, determined in accordance with generally accepted accounting principles
(but excluding or including gains or losses from extraordinary items, at the
discretion of the Committee); or (iv) any combination of (i), (ii) and (iii),
above, in the conjunctive or disjunctive, at the discretion of the Committee. A
Performance Target may be established as one or a series of absolute market
prices or dollar amounts or as a comparative amount, percentage or ratio, or as
a ratio of ratios. If a Change in Control transaction involves the issuance by a
party other than the Company of consideration in exchange for some or all of the
outstanding Stock, the market value of the Stock may be established by reference
to the market or fair value of such other consideration, determined in a
reasonable manner as established by the Committee. The Performance Target or
Targets established shall be sufficiently objective so as to be capable
10
<PAGE> 11
of reasonably exact ascertainment or measurement by any disinterested third
party, given actual corporate developments over the related Performance Period.
For purposes of determining the availability or size of a Performance Pool, the
Performance Target or Targets may be measured, in whole or in part, as of a date
relating to but preceding the consummation date of a Change in Control, such as
the announcement date of a proposed Change in Control, although actual
distribution of a Performance Pool may only be made upon completion of a Change
in Control. In establishing Performance Targets for a particular Performance
Period, the Committee, using its informed judgment and reasonable good faith,
shall follow the general precept that consistently below-average financial
performance by the Company in any Performance Period, including the effect of
any Change in Control occurring during such Performance Period, should result in
no Performance Pool for any Change in Control occurring therein, and, if a
tiered Performance Pool is to be established for a Performance Period under
Section 5(c) hereof, achievement of the highest level of funding for the
Performance Pool upon a Change in Control occurring in the Performance Period
should take place only if the Company has achieved significantly above-average
financial results in the Performance Period, again including the effect of any
such Change in Control.
(c) A Performance Schedule shall include, in addition to the specific
Performance Target or Targets applicable to the Performance Period, the
parameters of any Performance Pool to be
11
<PAGE> 12
funded and distributed upon attainment of such Performance Target or Targets in
connection with any Change in Control occurring within the Performance Period.
The amount of the Performance Pool may be expressed as an absolute dollar amount
or as a percentage of some other readily-ascertainable dollar amount, such as
the aggregate market value of the Stock or the book value of the stockholders'
equity of the Company on or as of a particular date (which may be the effective
date of a Change in Control) or the market or fair value of the consideration
received by stockholders of the Company upon such Change in Control. The
Committee may establish a tiered Performance Pool, with different amounts to be
funded depending upon the attainment of different levels of the Performance
Target or Targets during the Performance Period or portions of the Performance
Period. In no event shall the amount of any Performance Pool or the highest
level of any tiered Performance Pool thus established by the Committee exceed
three percent (3.0%) of the market value of the outstanding Stock of the Company
as of the measurement date of the Performance Pool, and if the Performance
Schedule establishes the parameters of the Performance Pool other than by
references to the market value of the Stock, best efforts shall be taken to keep
the estimated maximum amount of any such Performance Pool within such limit.
(d) In reviewing and approving any Performance Schedule, the Committee
is authorized and directed to retain such
12
<PAGE> 13
consultants and experts as may be necessary or appropriate in assisting the
Committee to make reasonably informed decisions.
6. Final Allocation of Performance Pool.
(a) In the event the Committee concludes that a Change in Control has
occurred or is substantially likely to occur in the foreseeable future,
including as a result of the execution of a definitive agreement providing for a
Change in Control, the Committee, as soon as practicable thereafter, shall make
a Final Allocation of the Performance Pool, if any, which may then be
distributable or may become distributable upon consummation of the anticipated
Change in Control. As part of such Final Allocation, the Committee shall (i)
determine the precise percentage of Tranche 1 of the Performance Pool to be
received by each Executive Participant, subject to any limitations in Section 3
of the Plan; (ii) identify each of the Officer Participants who will be entitled
to participate in Tranche 2 of the Performance Pool and the precise percentage
of Tranche 2 to be received by each such Officer Participant; (iii) identify, to
the extent not previously identified, the general class of employees who will be
entitled to participate as Employee Participants in Tranche 3 of the Performance
Pool, by reference to a specified retirement plan or plans of the Company, and
determine or establish a mechanism or formula for determining the relative
proportion or exact amount of Tranche 3 to be received by each such Employee
Participant, which proportion or amount should bear some (but not necessarily an
exact) relationship to the relative employer
13
<PAGE> 14
contribution most recently made on behalf of each such Employee Participant
under such retirement plan or plans; and (iv) make any other determinations
necessary to ensure that the ultimate allocation of any Performance Pool
incident to the Change in Control is certain, clear, and in conformity with the
principles and purposes of this Plan. In no event may the Committee determine
not to allocate the Performance Pool or any portion thereof, nor may any Final
Allocation for a specific Change in Control, once determined, be canceled or
modified other than as provided in Section 6(c) below, unless the express
consent of any and all Participants adversely affected thereby shall be
received. In making discretionary determinations in connection with a Final
Allocation, the Committee shall take into account such objective and subjective
considerations as it deems appropriate and reasonable.
(b) As soon as practicable following a Final Allocation, the Committee
shall deliver to each Participant entitled to receive an allocation of the
Performance Pool or anticipated Performance Pool written notice of such
allocation, identifying the specific amount or percentage of such Pool that the
Participant will be entitled to receive upon the Change in Control, or the
formula by which such amount will be calculated.
(c) After the Committee has determined the Final Allocation for an
anticipated Change in Control, each of the Executive Participants shall be
entitled to receive distribution from the Performance Pool of the allocation
thus determined for each,
14
<PAGE> 15
regardless of subsequent continuation of employment of each Executive
Participant with the Company, unless such Executive Participant voluntarily
elects to terminate such employment or is terminated "for cause" (as defined
below) prior to the Change in Control, in which case the Executive Participant
will be removed from the Final Allocation. If, after a Final Allocation but
before the Change in Control to which the Final Allocation relates, any
Participant other than an Executive Participant ceases to be employed by the
Company for any reason, the Committee may, at its discretion, permit such
Participant (or his successors or heirs) to continue as a Participant in the
allocation of the Performance Pool (unless such Participant is terminated "for
cause"), or in the alternative the Committee may remove such Participant from
the Final Allocation. In the event any Executive Participant or Officer
Participant is removed from the Final Allocation before the Change in Control,
the Committee may make suitable adjustments to Tranche 1 or Tranche 2, as
appropriate, including by adding one or more replacement Participants to such
Tranches or by reducing or adjusting the aggregate percentages of such Tranches
in the Performance Pool, provided no such adjustment shall reduce the share in
the Final Allocation of any Participant not thus removed. For purposes of this
provision, termination for cause shall mean: (i) willful misconduct by the
Participant that is materially injurious to the Company, monetarily or
otherwise; or (ii) conviction of the Participant with no further possibility of
appeal of a felony
15
<PAGE> 16
under applicable state or federal banking or financial institution laws, or the
agreement of the Participant to plead guilty to any such felony.
7. Distribution of Performance Pool.
(a) If during the term of the Plan there shall have occurred both a
Change in Control and a Final Allocation of the Performance Pool payable with
respect thereto, the Company (or its successor) immediately shall determine the
precise dollar amount of, and shall fund, the Performance Pool, if any,
depending upon attainment of the applicable Performance Target or Targets for
the relevant Performance Period measured as of the appropriate date or dates,
subject to the following provisions of this Section 7(a) and to Section 7(b). As
soon as practicable thereafter, the Company (or its successor) shall distribute
to each Participant his/her appropriate portion of the Performance Pool, if any,
allocable to such Participant, based upon the Final Allocation, in cash or
same-day funds. Notwithstanding the foregoing, if a Participant entitled to
participate in a Performance Pool in connection with an anticipated Change in
Control, shall advise the Committee, prior to such Change in Control, that the
Participant elects not to receive some or all of such Participant's allocable
share of the Performance Pool hereunder until some date or dates after the
normal distribution date or until the occurrence of one or more specified future
events (e.g., such Participant's termination of employment or retirement), then
the distribution to such Participant of such
16
<PAGE> 17
amount shall not occur on the normal distribution date but only on such future
date or dates or on or after such future occurrence or occurrences, provided
that any amounts the receipt of which is thus deferred but the ultimate receipt
of which is not uncertain shall bear interest pending distribution thereof at a
rate set from time to time at the 6-month certificate of deposit rate of a major
money center bank designated by the Company. If the Participant elects that the
distribution of such amount shall be contingent upon one or more future
occurrences or events the occurrence of which is not certain, such amount shall
not bear interest pending such distribution. Any election by a Participant to
defer receipt of a distribution amount under the preceding sentence shall become
irrevocable upon the occurrence of a Change in Control.
(b) Notwithstanding any other provision of this Plan, in the event the
Performance Pool distributable upon any Change in Control exceeds the percentage
amount specified in Section 5(c) hereof, based upon the market value of the
outstanding Stock as of the Change in Control, the total amount of the
Performance Pool to be funded and distributed to Participants upon such Change
in Control under this Section 7 shall be reduced to such amount.
(c) In no event shall the Company (or any successor) be entitled to
offset against or deduct from the amount otherwise distributable to any
Participant under Section 7 of this Plan (i) the amount of any other payment,
distribution or benefit
17
<PAGE> 18
payable to the Participant on or after such Change in Control by the Company or
its successor or any affiliate of either, under any other contract, plan or
arrangement, or (ii) any amount then due and payable by the Participant to the
Company or its successor or any affiliate of either, nor shall the Participant
be required to terminate his/her employment with the Company or perform any
service, accept any arrangement or satisfy any other condition in order to
receive such distribution.
(d) In the event that any Executive Participant receives a distribution
under Section 7(a) of the Plan, the Company will pay on behalf of such Executive
Participant any and all taxes, federal, state or local, payable by such
Executive Participant on or as a result of such distribution, including any
taxes payable by such Executive Participant on or as a result of amounts
received under any other agreement, contract, plan or arrangement which would
not have been payable absent such distribution to the Executive Participant
under Section 7(a) hereof. Taxes payable hereunder on behalf of an Executive
Participant shall include, without limitation, all income and excise taxes,
including excise taxes under Section 4999(a) of the Internal Revenue Code of
1986, as amended (the "Code"), and income and excise taxes payable as a result
of payments of taxes under this Section 7(d).
(e) Notwithstanding any other provision of this Plan to the contrary,
in the event that the Committee from time to time should conclude, before or
after any proposed Change in
18
<PAGE> 19
Control is announced or in the absence of any anticipated Change in Control,
that the rights that would be awarded to Participants upon a Final Allocation
under the Performance Schedule then proposed or in effect may constitute
"derivative securities" for purposes of Section 16 of the Securities Exchange
Act of 1934 (the "Act") or any rules or regulations promulgated thereunder, the
Committee shall take all appropriate and necessary actions and implement all
appropriate measures to ensure that any Participants who qualify or may qualify
at the time of any Final Allocation as "reporting persons" under Section 16 will
be entitled to receive and will receive their respective shares of any
Distribution under the Plan on or as soon as practicable after the anticipated
Change in Control without thereby violating Section 16(b) of the Act. In
furtherance of the foregoing provision, if the Committee reaches such a
conclusion, the Committee shall ensure that any Final Allocation for a proposed
Change in Control occurs as soon as possible after such Change in Control is
publicly disclosed, and shall provide a procedure, if necessary or appropriate,
to ensure that any possible required deferral of any Distribution to such
Participants after a Change in Control shall be as brief as possible in duration
and shall not materially impair the value of the share of the Performance Pool
distributable to each such Participant as a result of such Change in Control.
8. Termination or Amendment of the Plan. This Plan shall
terminate as of the earliest of (i) the date of any termination of the Plan by
the Board (subject to Section 9 hereof), (ii) the
19
<PAGE> 20
date of any liquidation of the Company and its principal subsidiaries, (iii) the
date of any Change in Control of the Company not involving funding and/or
distribution of a Performance Pool, or (iv) if any Change in Control does
involve funding and/or distribution of a Performance Pool, then the date of the
last act necessary to complete such distribution or any other task required to
be performed under the Plan as a result thereof. In the event of a proposed
merger, consolidation or reorganization involving the Company that does not
constitute a Change in Control but in which the Company is not to be the
surviving corporation, the Board shall ensure that this Plan is assumed by and
continues as a plan of such surviving corporation and the Committee shall take
appropriate steps to ensure that this Plan is modified in such reorganization in
an equitable fashion so as to provide similar incentives for similar executives
of the surviving corporation and, to the extent possible, shall provide for the
continuation of any then existing Performance Schedule for pending Performance
Periods, with appropriate adjustments. Prior to termination of the Plan, the
Plan may be amended by the Board, provided that any such amendment shall not
change any Performance Schedule previously established under Section 5(a) and
then in effect, the definition of Mandatory Participants under Section 3(c), the
provisions of Section 3(b) governing minimum percentages for certain Tranches or
officers, or the provisions of any Final Allocation previously determined by the
Committee.
20
<PAGE> 21
9. Binding Contract. While any Performance Schedule approved
hereunder for any Performance Period is in place, the provisions of this Plan
shall constitute a binding agreement between the Company and each of the
Executive Participants under such Performance Schedule as identified in
accordance with Section 3(c). During any such Performance Period, termination or
material amendment of the Plan with respect to such Performance Period in a
manner adverse to such Participants shall constitute a material breach by the
Company of such agreement with each such Participant, and such Participants and
each of them shall be entitled to seek appropriate remedies at law or in equity,
including recovery from the Company (or any successor) of appropriate damages.
10. Withholding. The Company will deduct or cause to be deducted from
any distribution under the Plan the amount of tax, if any, required by any
governmental authority to be withheld upon such distribution.
11. Effectiveness of the Plan. The Plan shall become effective as of
the first day of the first calendar year following its adoption by the Board.
12. Applicable Law. The Plan will be construed and administered in
accordance with the laws of the State of Delaware.
21
<PAGE> 1
EXHIBIT 11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE.
(dollars in thousands, except per share amounts)
<TABLE>
<S> <C>
Net Income $ 29,672
Weighted Average Equivalent
Shares Outstanding:
Average Outstanding Shares 22,629,703
Common Stock Equivalents (1) 1,133,019
Wtd Avg Shares 23,762,722
Earnings Per Share $ 1.25
</TABLE>
(1) Represents warrants and options.
Page 1
<PAGE> 1
North Fork Bancorporation, Inc. and Subsidiaries
SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA FOR EACH OF THE YEARS IN THE FIVE YEAR PERIOD ENDED
DECEMBER 31, 1994 ARE SET FORTH BELOW. SEE NOTE (1). THE COMPANY'S CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO AS OF DECEMBER 31, 1994 AND 1993 AND FOR
EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 1994 ARE INCLUDED
ELSEWHERE HEREIN. (IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(in thousands, except ratios and per share amounts) 1994 1993 1992 1991 (2) 1990
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Interest Income (tax equivalent basis) (3) $ 205,595 $ 193,119 $ 212,337 $ 228,028 $ 256,394
Interest Expense 71,227 73,169 105,714 136,464 166,814
-----------------------------------------------------------------
Net Interest Income (tax equivalent basis) (3) 134,368 119,950 106,623 91,564 89,580
Less: Tax Equivalent Basis Adjustment 1,862 1,489 1,557 2,173 3,273
-----------------------------------------------------------------
Net Interest Income 132,506 118,461 105,066 89,391 86,307
Provision for Loan Losses 3,275 10,300 23,775 66,625 35,924
Non-Interest Income, Net of Net Securities (Losses)/Gains 19,020 18,938 16,860 13,399 10,372
Net Securities (Losses)/Gains (9,211) 1,457 9,547 9,052 3,080
Non-Interest Expense, Net of Other Real Estate
Expense and Merger & Related Restructure Charges 74,453 71,962 72,104 62,663 59,858
Other Real Estate Expense 3,651 13,971 16,358 10,663 5,220
Merger & Related Restructure Charges 14,338 - 1,200 - -
-----------------------------------------------------------------
Income/(Loss) Before Income Taxes 46,598 42,623 18,036 (28,109) (1,243)
Provision/(Benefit) for Income Taxes 16,926 16,976 8,609 (164) (1,320)
-----------------------------------------------------------------
Net Income/(Loss) $ 29,672 $ 25,647 $ 9,427 $ (27,945) $ 77
=================================================================
AVERAGE BALANCE SHEET DATA:
Securities $ 966,059 $ 869,792 $ 544,966 $ 450,831 $ 528,162
Loans, net of unearned income & fees 1,761,462 1,704,815 1,848,110 1,860,161 1,882,240
Total Assets 2,933,943 2,820,491 2,782,480 2,542,179 2,617,498
Total Deposits 2,363,965 2,363,652 2,467,494 2,172,622 2,089,855
Federal Funds Purchased & Securities Sold Under
Agreements to Repurchase 244,688 176,519 57,568 73,881 167,020
Other Borrowings 25,537 13,696 15,190 32,916 79,401
Senior Notes Payable 23,507 22,863 40,000 40,000 36,822
Stockholders' Equity 244,759 210,345 169,155 191,749 196,723
BALANCE SHEET DATA AT DECEMBER 31:
Securities $ 773,297 $ 971,867 $ 658,127 $ 440,990 $ 389,295
Loans, net of unearned income & fees 1,805,845 1,725,889 1,753,832 1,929,175 1,803,740
Total Assets 2,717,776 2,884,375 2,691,011 2,854,876 2,455,924
Total Deposits 2,342,887 2,348,545 2,387,368 2,503,661 1,988,323
Federal Funds Purchased & Securities Sold Under
Agreements to Repurchase 20,000 255,643 28,200 366 132,705
Other Borrowings 50,000 13,000 13,000 27,000 72,000
Senior Notes Payable 25,000 20,000 40,000 40,000 40,000
Stockholders' Equity 254,923 226,310 183,147 166,475 184,210
PER SHARE:
Net Income/(Loss) $1.25 $1.10 $0.48 $ (1.51) -
Cash Dividends (4) 0.35 - - 0.34 0.64
Book Value at December 31 11.06 10.08 9.08 8.71 10.59
Market Value of the Company at December 31 13.75 12.88 8.13 4.75 5.75
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
SELECTED RATIOS:
Return on Average Total Assets 1.01% 0.91% 0.34% (1.10)% -%
Return on Average Stockholders' Equity 12.12 12.19 5.57 (14.57) 0.04
Core Efficiency Ratio (5) 47.97 51.81 58.39 59.7 59.89
Net Interest Margin 4.83 4.53 4.12 3.86 3.65
Average Stockholders' Equity to Average Assets 8.34 7.46 6.08 7.54 7.52
Tier I Capital Ratio 14.94 12.06 9.28 7.34 8.9
Risk Adjusted Capital Ratio 16.22 13.34 10.65 8.84 10.32
Leverage Ratio 8.4 6.88 5.83 4.85 6.29
Allowance for Loan Losses/Non-Performing Loans 147.6 128.54 91.03 74.38 48.15
Non-Performing Assets to Total Assets 1.73 2.43 5.19 5.76 3.89
AVERAGE EQUIVALENT SHARES OUTSTANDING 23,763 23,242 19,689 18,490 17,760
NUMBER OF BRANCH OFFICES OF THE COMPANY 47 35 35 41 36
</TABLE>
(1) On November 30, 1994, Metro Bancshares Inc. ("Metro") was merged with and
into the Company. The merger has been accounted for as a pooling-of-interests
and, as a result, the financial results for all current and prior periods
reported have been retroactively restated to include Metro. (See Note 1(a) of
notes to consolidated financial statements.)
(2) The results of operations for the Company include the results of operations
for Eastchester Savings Bank from July 1, 1991.
(3) Interest income on a tax equivalent basis includes the additional amount of
interest income that would have been earned if the Company's investment in state
and municipal obligations and tax-exempt loans had been made in investment
securities and loans subject to New York State and Federal income taxes yielding
the same after tax income.
(4) Cash dividends do not reflect dividends declared by Metro prior to merger.
(5) The core efficiency ratio is defined as the ratio of other expenses, net of
other real estate related costs and other non-recurring charges, to net
interest income on a taxable equivalent basis and other non-interest income net
of net securities (losses)/gains.
9
<PAGE> 2
North Fork Bancorporation, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This section presents management's discussion and analysis of the
consolidated results of operations and financial condition of North Fork
Bancorporation, Inc. (the "Company"), a $2.7 billion commercial bank holding
company. The Company's primary subsidiary, North Fork Bank (the "Bank"),
operates retail banking facilities throughout Suffolk, Nassau, Queens,
Westchester and Rockland Counties, New York. On November 30, 1994, Metro
Bancshares Inc. ("Metro"), the parent company of Bayside Federal Savings Bank
("Bayside"), was merged with and into the Company. The merger has been
accounted for as a pooling-of-interests and, as a result, the financial results
for all current and prior periods reported in the accompanying management's
discussion and analysis include the results for Metro. The Company reports its
financial results on a calendar year basis, whereas Metro had reported its
financial results on a fiscal year basis which ended September 30. The
consolidated financial results for the current year have been adjusted to
conform Metro's year-end with that of the Company. The consolidated financial
results for years prior to 1994 reflect the combination of the Company at and
for the years ended December 31 with Metro at and for the years ended September
30.
The discussion and analysis that follows should be read in conjunction with
the consolidated financial statements and supplementary data contained elsewhere
in this 1994 Annual Report to Shareholders.
GENERAL OVERVIEW
The November 1994 acquisition of Metro Bancshares Inc. increased the
Company's asset size to $2.7 billion from $1.8 billion. Similarly, stockholders'
equity rose to $255 million with the issuance of 8.4 million shares of common
stock in connection with the transaction and the combined earnings results for
1994. The discussion that follows describes the consolidated results of
operations and financial condition of the Company, which includes Metro for all
periods presented.
Net income for 1994 increased to $29.7 million as compared to $25.6 million
in 1993. Net income for 1994 was affected by merger and related restructuring
charges of $14.3 million that were incurred in connection with the Metro
acquisition. The Company incurred securities losses in 1994 associated with the
repositioning of the available-for-sale securities portfolio after giving
consideration to securities acquired in the business combination and to reduce
consolidated exposure to further increases in interest rates. Earnings were
favorably impacted by improvements in net interest margin and a core efficiency
ratio that declined to under 50%. The Company also benefited from the decline
in non-performing assets as overall credit costs decreased substantially.
EARNINGS SUMMARY
In 1994, the Company reported net income of $29.7 million or $1.25 per share,
as compared with $25.6 million or $1.10 per share in 1993 and $9.4 million or
$.48 per share in 1992. The 1994 results were impacted by a $14.3 million
merger and related restructure charge. Net securities losses of $9.2 million
resulted from the repositioning of the Company's available-for-sale portfolio in
light of the current and anticipated interest rate environment and the writedown
of a certain investment security for an other than temporary impairment in
value.
Earnings were positively affected by further strengthening of the Company's
net interest margin to 4.83% on a taxable equivalent basis in 1994 as compared
with 4.53% and 4.12% in 1993 and 1992, respectively. This achievement in 1994
was accomplished during a period of significantly rising interest rates. The
growth in net interest margin increased net interest income to $132.5 million in
1994 as compared with $118.5 million and $105.1 million in 1993 and 1992,
respectively.
The continued and consistent decline in the level of non-performing assets
contributed further to the Company's improved earnings as the provision for loan
losses was reduced to $3.3 million in 1994, compared to $10.3 million in 1993
and $23.8 million in 1992. The Company also reduced its level of other real
estate expenses (primarily maintenance and liquidation costs) to $3.7 million in
1994 from $14.0 million in 1993 and $16.4 million in 1992. The Company's 1994
operating results are discussed in more detail below.
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 Company'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 $14.4
million, or 12.0%, to $134.4 million for 1994, as compared to $120.0 million
earned in 1993. The components of this increase include a $12.5 million
increase in interest income, on a fully taxable equivalent basis, and a $1.9
million decline in interest expense. Net interest income, on a fully taxable
equivalent basis, was $106.6 million in 1992.
Interest income, on a fully taxable equivalent basis, aggregated $205.6
million in 1994, a $12.5 million increase from the $193.1 million earned in
1993. The yield on interest earning assets, on a tax equivalent basis, was
7.39% for 1994 as compared with 7.29% in 1993 and 8.20% in 1992. The increase
in interest income when comparing 1994 to 1993 is attributable to growth in
average interest earning assets of $133.3 million, or 5.0%, to $2.78 billion in
1994, as compared to $2.65 billion in 1993, increases in the prime rate of
interest during 1994, and the impact of higher market interest rates on the
Company's securities portfolio.
Tax equivalent interest earned on the Company's loan portfolio increased
$4.9 million when comparing 1994 to 1993, of which $4.6 million of the increase
is attributable to an increase in average loan balances of $56.6 million to
$1.76 billion in 1994, as compared to $1.70 billion in 1993. The growth in
average loans is principally attributable to increased activity in the Company's
multi-family mortgage business, partially offset by a decline in residential
mortgage, commercial and industrial loans.
Interest earned on the Company's mortgage-backed securities portfolio,
classified in the Company's held-to-maturity and available-for-sale securities
portfolios, increased $3.2 million to $41.0 million in 1994, as compared to
$37.8 million in 1993. Of this increase, $2.3 million is due to an increase in
average mortgage-backed securities of $39.6 million, or 5.9%, to $714.1 million
in 1994, as compared to $674.6 million in 1993, while $.9 million of the
increase is due to an increase in the average yield on mortgage-backed
securities to 5.75% for 1994 from 5.61% for 1993. The yield increase is the
result of increases in market interest rates throughout 1994.
10
<PAGE> 3
Tax equivalent interest earned on the Company's taxable securities increased
$2.8 million to $10.6 million in 1994, compared to $7.8 million in 1993. Average
taxable securities increased $31.8 million to $199.3 million in 1994, as
compared with $167.4 million for 1993. The increase in average taxable
securities consist primarily of short-term U.S. Treasury and certain U.S.
Government Agency obligations.
The Company's strategy with regard to its securities portfolio is to
maintain a short weighted average life so as to minimize its exposure to future
rise in interest rates and to provide a source of cash flows that may be
reinvested at current market interest rates. The weighted average lives of the
Company's held-to-maturity and available-for-sale securities portfolios at
December 31, 1994 were 4.1 years and 3.7 years, respectively.
Interest expense declined to $71.2 million in 1994, reflecting a 3.02% cost
of funds, as compared with $73.1 million, or cost of funds of 3.14% in 1993 and
$105.7 million or 4.41% in 1992. The $1.9 million decline in interest expense
when comparing 1994 to 1993 was achieved despite the rising interest rate
environment that prevailed through 1994. Higher costs of funds associated with
short term borrowings were exceeded by interest reductions in the Company's core
deposit base. Short term borrowings incurred in connection with the Company's
balance sheet leverage strategy were liquidated at year end 1994. Core deposits
are defined as Demand Deposits, Savings, N.O.W., Money Market deposits and
Certificates of Deposit exclusive of Certificates of Deposits greater than
$100,000.
Interest incurred on savings and time deposits declined $6.1 million to
$57.0 million in 1994, as compared to $63.1 million for 1993. The average
balance of these deposits declined $53.9 million, or 2.5%, from the comparable
prior year level. Conversely, average demand deposits increased $54.2 million
for 1994 as compared to 1993. Demand deposits comprised 14.14% of total
deposits at December 31, 1994, as compared to 11.80% for the prior year.
Substantially all demand deposits are attributable to North Fork Bank since
Bayside did not offer such accounts to customers.
Interest incurred on short-term borrowings increased $5.1 million to $11.2
million in 1994, as compared to $6.1 million in 1993. The average balance of
short-term borrowings increased $83.7 million to $260.2 million for 1994, as
compared to $176.5 million during 1993, reflecting the Company's former balance
sheet leverage strategy (see Asset/Liability Management section for further
discussion of this strategy). Of the $5.1 million increase in interest incurred
on short-term borrowings, $3.4 million is attributable to the growth in average
short-term borrowings, and $1.7 million is due to the effects of higher market
interest rates.
The following table sets forth a summary analysis of the relative impact on
net interest income of changes in the average volume of interest earning assets
and interest bearing liabilities and changes in average rates on such assets and
liabilities. Because of the numerous simultaneous volume and rate changes
during the periods analyzed, it is not possible to precisely allocate changes to
volume or rate. 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-accrual loans.
<TABLE>
<CAPTION>
Years Ended December 31, 1994 vs. 1993 1993 vs. 1992
----------------------------------------------------------------------------
(in thousands) CHANGE IN Change in
AVERAGE AVERAGE NET INTEREST Average Average Net Interest
VOLUME RATE INCOME Volume Rate Income
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME FROM EARNING ASSETS:
Interest Earning Deposits $ 10 $ 9 $ 19 $ (323) $ (126) $ (449)
Trading Account Securities - - - (56) - (56)
Taxable Securities* 1,598 1,191 2,789 2,580 (1,604) 976
Non-Taxable Municipals* 1,744 (131) 1,613 659 (758) (99)
Mortgage-Backed Securities 2,259 909 3,168 16,138 (7,990) 8,148
Taxable Loans, including non-accrual loans 5,069 480 5,549 (12,161) (10,222) (22,383)
Non-Taxable Loans* (510) (135) (645) (366) 119 (247)
Federal Funds Sold and Securities
Purchased Under Agreements to Resell (725) 708 (17) (3,442) (1,666) (5,108)
--------------------------------------------------------------------------
Total Interest Income* 9,445 3,031 12,476 3,029 (22,247) (19,218)
--------------------------------------------------------------------------
INTEREST EXPENSE ON LIABILITIES:
Total Savings and Time Deposits (1,777) (4,315) (6,092) (8,217) (26,382) (34,599)
Short-Term Borrowings 3,383 1,672 5,055 4,216 (459) 3,757
Long-Term Borrowings (305) (600) (905) (1,962) 259 (1,703)
--------------------------------------------------------------------------
Total Interest Expense 1,301 (3,243) (1,942) (5,963) (26,582) (32,545)
--------------------------------------------------------------------------
Net Change in Net Interest Income* $ 8,144 $ 6,274 $14,418 $ 8,992 $ 4,335 $ 13,327
==========================================================================
</TABLE>
* Taxable equivalent basis.
11
<PAGE> 4
North Fork Bancorporation, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
NET INTEREST INCOME (CONTINUED)
The following table presents an analysis of net interest income by each major
category of interest earning assets and interest bearing liabilities for the
years ended December 31,
<TABLE>
<CAPTION>
1994 1993
-------------------------------------------------------------------------
AVERAGE AVERAGE Average Average
(dollars in thousands) BALANCE INTEREST RATE Balance Interest Rate
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Interest Earning Deposits $ 811 $ 33 4.07% $ 528 $ 14 2.65%
Trading Account Securities - - - - - -
Taxable Securities* 199,264 10,564 5.30% 167,439 7,775 4.64%
Non-Taxable Municipals* 55,509 3,478 6.27% 27,793 1,865 6.71%
Mortgage-Backed Securities 714,135 41,031 5.75% 674,560 37,863 5.61%
Taxable Loans, net of unearned income &
fees 1,752,083 147,243 8.40% 1,691,750 141,694 8.38%
Non-Taxable Loans* 9,379 1,275 13.59% 13,065 1,920 14.70%
Federal Funds Sold and Securities
Purchased Under Agreements to Resell 50,961 1,971 3.87% 73,734 1,988 2.70%
------------------------ ----------------------
Total Interest Earning Assets* 2,782,142 205,595 7.39% 2,648,869 193,119 7.29%
------------------------ ----------------------
Allowance for Loan Losses (54,720) (65,816)
Cash and Due from Banks 80,616 73,731
Other Non-Interest Earning Assets 125,905 163,707
---------- ----------
Total Assets $2,933,943 $2,820,491
========== ==========
INTEREST BEARING LIABILITIES:
Savings, N.O.W & Money Market Deposits $1,386,052 $ 30,968 2.23% $1,408,306 $ 34,960 2.48%
Time Deposits 678,919 26,071 3.84% 710,574 28,171 3.96%
------------------------ ----------------------
Total Savings and Time Deposits 2,064,971 57,039 2.76% 2,118,880 63,131 2.98%
Short-Term Borrowings 260,225 11,221 4.31% 176,519 6,166 3.49%
Long-Term Borrowings 33,507 2,967 8.85% 36,559 3,872 10.59%
------------------------ ----------------------
Total Interest Bearing Liabilities 2,358,703 71,227 3.02% 2,331,958 73,169 3.14%
------------------------ ----------------------
Rate Spread 4.37% 4.15%
Non-Interest Bearing Deposits 298,994 244,772
Other Non-Interest Bearing Liabilities 31,487 33,416
---------- ----------
Total Liabilities 2,689,184 2,610,146
Stockholders' Equity 244,759 210,345
---------- ----------
Total Liabilities and Stockholders'
Equity $2,933,943 $2,820,491
========== ==========
Net Interest Income* and Net Interest
Margin* 134,368 4.83% 119,950 4.53%
Less: Tax Equivalent Basis Adjustment (1,862) (1,489)
-------- --------
Net Interest Income $132,506 $118,461
======== ========
</TABLE>
<TABLE>
<CAPTION>
1992
-----------------------------------
Average Average
(dollars in thousands) Balance Interest Rate
-----------------------------------
<S> <C> <C> <C>
INTEREST EARNING ASSETS:
Interest Earning Deposits $ 10,988 $ 463 4.21%
Trading Account Securities 1,379 56 4.06%
Taxable Securities* 116,139 6,799 5.85%
Non-Taxable Municipals* 19,714 1,964 9.96%
Mortgage-Backed Securities 407,734 29,715 7.29%
Taxable Loans, net of unearned income &
fees 1,832,515 164,077 8.95%
Non-Taxable Loans* 15,595 2,167 13.90%
Federal Funds Sold and Securities
Purchased Under Agreements to Resell 186,257 7,096 3.81%
-----------------------
Total Interest Earning Assets* 2,590,321 212,337 8.20%
-----------------------
Allowance for Loan Losses (69,716)
Cash and Due from Banks 74,462
Other Non-Interest Earning Assets 187,413
----------
Total Assets $2,782,480
==========
INTEREST BEARING LIABILITIES:
Savings, N.O.W & Money Market Deposits $1,380,211 $ 49,379 3.58%
Time Deposits 905,914 48,351 5.34%
Total Savings and Time Deposits 2,286,125 97,730 4.27%
Short-Term Borrowings 57,568 2,409 4.18%
Long-Term Borrowings 55,190 5,575 10.10%
-----------------------
Total Interest Bearing Liabilities 2,398,883 105,714 4.41%
-----------------------
Rate Spread 3.79%
Non-Interest Bearing Deposits 181,369
Other Non-Interest Bearing Liabilities 33,073
----------
Total Liabilities 2,613,325
Stockholders' Equity 169,155
----------
Total Liabilities and Stockholders' Equity $2,782,480
==========
Net Interest Income* and Net Interest 106,623 4.12%
Margin*
Less: Tax Equivalent Basis Adjustment (1,557)
--------
Net Interest Income $105,066
========
</TABLE>
* Interest income on a tax equivalent basis includes the additional amount of
interest and dividend income that would have been earned if the Company'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 1994; $1.54, $1.58, $1.43 and
$1.03 in 1993; and $1.56, $1.54, $1.41 and $1.03 in 1992.
12
<PAGE> 5
ASSET LIABILITY MANAGEMENT
The Company's primary earnings source is its net interest margin;
therefore the Company devotes significant time and has invested in resources to
assist in the management of interest rate risk and asset quality. The Company's
net interest income is affected by changes in the level of interest rates, the
relationship between rates, the impact of interest rate fluctuations on asset
prepayments and the level and composition of deposits, and the credit quality of
the portfolio. The Company's objectives in its asset/liability management are
to maintain a strong, stable net interest margin, utilize its capital
effectively without taking undue risks and to maintain adequate liquidity.
The Company takes a coordinated approach to the management of its liquidity,
capital and interest rate risk. This risk management process is governed by
policies and limits established by senior management which are reviewed and
approved by the Asset/Liability Committee of the Board of Directors ("ALCO").
ALCO, which is comprised of members of senior management and the Board, meets
periodically to evaluate how changes in market interest rates have impacted the
Company's assets and liabilities, consider how these changes and anticipated
changes have or will impact the net interest margin, capital and liquidity of
the Company and the Bank, and discuss the Company's strategic plans.
The Company's balance sheet structure is primarily short-term in nature with
most assets and liabilities repricing or maturing in less than five years. The
Company monitors the interest rate sensitivity of its asset and liability
positions by examining its near-term sensitivity and its longer term gap
position. The Company utilizes several tools in its management of interest rate
risk, primarily utilizing a sophisticated income simulation model and
complementing this with a traditional gap analysis.
The income simulation model measures the Company's net interest income
sensitivity or volatility to interest rate changes utilizing statistical
techniques that allow the Company to consider various factors which impact net
interest income. These factors include actual maturities, estimated cash
flows, repricing characteristics, deposit growth/retention and, most
importantly, the relative sensitivity of the Company's assets and liabilities to
changes in market interest rates. This relative sensitivity is important to
consider as the Company's core deposit base is not subject to the same degree of
interest rate sensitivity as its assets. The core deposit costs are internally
controlled and in general tend to exhibit less sensitivity to changes in
interest rates than the Company's adjustable rate assets whose yields are based
on external indices and change in concert with market interest rates.
The Company's interest rate sensitivity is determined by identifying the
probable impact of changes in market interest rates on the yields on the
Company's assets and the rates which would be paid on its liabilities. This
modeling technique involves a degree of estimation based on certain assumptions
that management believes to be reasonable. Utilizing this process, management
can project the impact of changes in interest rates on net interest margin. The
Company has established certain limits for the potential volatility of its net
interest margin assuming certain levels of changes in market interest rates with
the objective of maintaining a stable net interest margin under various probable
rate scenarios. The Company can also utilize this technique to stress test its
portfolio to determine the impact of unusual interest rate scenarios on the
Company's results.
The traditional gap analysis is prepared based on the maturity and repricing
characteristics of interest earning assets and liabilities for selected time
bands. The mismatch between repricings or maturities within a time band is
commonly referred to as the "gap" for that period. A positive gap (asset
sensitive), where interest-rate sensitive assets exceed interest-rate sensitive
liabilities, generally will result in an institution's net interest margin
increasing in a rising rate environment and decreasing in a falling rate
environment. A negative gap (liability sensitive) will generally have the
opposite results on an institution's net interest margin. However, the
traditional gap analysis does not assess the relative sensitivity of assets and
liabilities to changes in interest rates. The Company utilizes the gap analysis
to complement its income simulation modeling, primarily focusing on the longer
term structure of the balance sheet.
The Company's asset/liability management process has been successful as the
Company (pre-merger) was able to achieve a relatively stable net interest margin
despite the turbulence in market interest rates over the past three years.
In response to the increase in short-term interest rates and a flattening of
the yield curve during the latter half of 1994, the Company established a formal
strategy to reduce its level of holdings of certain securities. The execution
of this strategy occurred through the sale of certain securities classified as
available-for-sale combined with maturities of securities in the portfolios. The
proceeds were utilized to reduce the Company's reliance on short term
borrowings, principally repurchase agreements and short-term Federal Home Loan
Bank Advances. These liabilities were reduced to $60 million at December 31,
1994 as compared to $255.6 million at December 31, 1993. Deposit liabilities
fund 91.8% of interest earning assets at December 31, 1994.
The Company also terminated the interest rate contracts used to hedge
interest rate exposure associated with the securities sold. The net gain from
the termination of the interest rate contracts of $.9 million has been reflected
in net securities losses during 1994.
13
<PAGE> 6
North Fork Bancorporation, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The following table reflects the repricing of the Company's balance sheet,
or its "gap" position at December 31, 1994:
<TABLE>
<CAPTION>
0-90 91-180 181-365 1-5 Over 5
(dollars in thousands) Days Days Days Years Years Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Interest Earning Deposits $ 748 $ - $ - $ - $ - $ 748
Securities (1) 101,289 115,689 110,724 357,413 93,196 778,311
Loans, net of unearned income & fees (2)(3) 479,817 199,651 359,818 553,207 181,028 1,773,521
----------------------------------------------------------------------
Total Interest Earning Assets $581,854 $315,340 $470,542 $ 910,620 $274,224 $2,552,580
----------------------------------------------------------------------
INTEREST BEARING LIABILITIES:
Savings, N.O.W. and Money Market Deposits (4) $116,520 $116,520 $233,040 $ 859,548 $ - $1,325,628
Time Deposits 181,975 129,171 179,313 194,758 797 686,014
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase 20,000 - - - - 20,000
Other Borrowings 40,000 - - 10,000 - 50,000
Senior Notes Payable - - - 25,000 - 25,000
----------------------------------------------------------------------
Total Interest Bearing Liabilities $358,495 $245,691 $412,353 $1,089,306 $ 797 $2,106,642
----------------------------------------------------------------------
Gap $223,359 $69,649 $58,189 $ (178,686) $273,427
--------------------------------------------------------
Cumulative Difference Between Interest Earning
Assets and Interest Bearing Liabilities $223,359 $293,008 $351,197 $ 172,511 $445,938
========================================================
Cumulative Difference as a Percentage of
Total Assets 8.22% 10.78% 12.92% 6.35% 16.41%
========================================================
</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 estimate of prepayments of
principal.
(3) Excludes non-accrual loans totaling $32.3 million..
(4) Savings, N.O.W. and Money Market Deposits are allocated to specific
time bands in accordance with the proposed rule of Section 305 of
the Federal Deposit Insurance Corporation Improvement Act.
The following are approximate contractual maturities and sensitivities to
changes in interest rates of certain loans, exclusive of non-commercial real
estate mortgages, consumer loans and non-accrual loans as of December 31, 1994:
<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 & Industrial $188,074 $ 29,051 $16,194 $ 233,319
Mortgage Loans-Multifamily 10,512 509,846 2,052 522,410
Mortgage Loans-Commercial 146,481 136,848 44,829 328,158
Mortgage Loans-Construction 10,368 - - 10,368
Land Loans 31,868 3,252 1,030 36,150
-----------------------------------------------------
Total $387,303 $678,997 $64,105 $1,130,405
=====================================================
RATE PROVISIONS:
Amounts with Fixed Interest Rates 37,225 96,018 63,625 196,868
Amounts with Adjustable Interest Rates 350,078 582,979 480 933,537
-----------------------------------------------------
Total $387,303 $678,997 $64,105 $1,130,405
=====================================================
</TABLE>
14
<PAGE> 7
The tables that follow depict the amortized cost, contractual maturities and
approximate weighted average yields (on a tax equivalent basis) of the Company's
held-to-maturity and available-for-sale securities portfolios at December 31,
1994, respectively:
<TABLE>
<CAPTION> U.S.
Held-to-Maturity U.S. Government State &
(dollars in thousands) Treasury Agencies' Municipal
Maturity Securities Yield Obligations Yield Obligations Yield TOTAL Yield
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Within 1 Year $26,377 5.57% $ - -% $32,485 6.05% $ 58,862 5.84%
After 1 But Within 5 Years - - 55 8.05% 15,700 7.27% $ 15,755 7.27%
After 5 But Within 10 Years - - 49,738 5.64% 16,487 7.41% $ 66,225 6.08%
After 10 Years - - 5,000 7.00% - - $ 5,000 7.00%
---------------------------------------------------------------------------------------
Subtotal 26,377 5.57% 54,793 5.77% 64,672 6.69% 145,842 6.14%
Mortgage-Backed Securities - - - - - - 485,650 6.27%
---------------------------------------------------------------------------------------
Total Securities $26,377 5.57% $54,793 5.77% $64,672 6.69% $631,492 6.24%
=======================================================================================
</TABLE>
<TABLE>
<CAPTION>
U.S.
Available-for-Sale U.S. Government State &
(dollars in thousands) Treasury Agencies' Municipal
Maturity Securities Yield Obligations Yield Obligations Yield TOTAL Yield
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Within 1 Year $10,090 5.56% - - - - $ 10,090 5.56%
After 1 But Within 5 Years 9,987 6.28% - - - - 9,987 6.28%
--------------------------------------------------------------------------------------
Subtotal 20,077 5.92% - - - - 20,077 5.91%
Equity Securities - - - - - - 25,839 -
Mortgage-Backed Securities - - - - - - 100,903 6.85%
--------------------------------------------------------------------------------------
Total Securities $20,077 5.92% - - - - $146,819 6.69%
======================================================================================
</TABLE>
The following table presents the composition of the carrying value of the
Company's securities portfolio in each of the last three years at December 31.
<TABLE>
<CAPTION>
(in thousands) 1994 1993 1992
----------------------------------------
<S> <C> <C> <C>
U.S. Treasury Securities $ 46,168 $ 97,243 $ 97,348
U.S. Government Agencies' Obligations 54,793 55,988 50,563
State & Municipal Obligations 64,672 46,265 19,732
Mortgage-Backed Securities 581,674 762,692 478,119
Equity Securities 25,990 9,679 12,365
----------------------------------------
$773,297 $971,867 $658,127
========================================
</TABLE>
The following table shows the classification of the average daily deposits
of the Company for each of the periods indicated:
<TABLE>
<CAPTION>
At December 31, 1994 1993 1992
(in thousands) ---------------------------------------
<S> <C> <C> <C>
Demand Deposits $ 298,994 $ 244,772 $ 181,369
Savings Deposits 1,003,934 1,030,444 987,769
Time Deposits 678,919 710,574 905,914
N.O.W. & Money Market Deposits 382,118 377,862 392,442
---------------------------------------
Total Deposits $2,363,965 $2,363,652 $2,467,494
=======================================
</TABLE>
At December 31, 1994, the remaining maturities of the Company's Certificate
of Deposit in amounts of $100,000 or greater were as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
3 months and less $44,927
3 to 6 months 9,027
6 to 12 months 7,578
One to five years 10,446
Greater than five years -
-------
$71,978
=======
</TABLE>
15
<PAGE> 8
North Fork Bancorporation, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
LIQUIDITY
The objective of the Company's liquidity management is to ensure the
availability of sufficient resources to meet all financial commitments and to
capitalize on opportunities for business expansion. Liquidity management
addresses the Company's ability to meet deposit withdrawals either on demand or
contractual maturity, to repay other borrowings as they mature and to make new
loans and investments as opportunities arise.
The Company's sources of liquidity include dividends from its subsidiaries,
borrowings, and funds available through the capital markets. Dividends from the
Company's bank subsidiary are limited by New York State Banking Department
regulations to the current year's earnings plus the prior two years' retained
net profits. According to the parameters of this regulation, the Bank had $55.4
million of retained earnings available for dividends to the Company as of
December 31, 1994.
The Bank has numerous sources of liquidity including loan and security
principal repayments and maturities, lines of credit with other financial
institutions, the ability to borrow under repurchase agreements utilizing its
unpledged securities portfolio, the sale of securities from its
available-for-sale portfolio, the securitization of loans within the portfolio,
whole loan sales and growth in its core deposit base.
In addition, the Bank has the ability, as a member of the Federal Home Loan
Bank ("FHLB") system, to borrow $190 million on a secured basis, utilizing
mortgage related loans and securities as collateral, for a term ranging from one
day to ten years at both fixed and variable rates. As of December 31, 1994, the
Bank had $50 million in such advances, $10 million which had an original
maturity of greater than one year.
The Company's liquidity position is monitored on a daily basis to ensure the
maintenance of an optimum level and the most cost efficient use of available
funds. Management believes that the Company has sufficient liquidity to meet
its operating requirements.
ASSET QUALITY
Loans, net of unearned income, increased 4.6% to $1.8 billion at December
31, 1994, as compared with $1.7 billion at the prior year end. The loan
portfolio is concentrated primarily in loans secured by real estate in
Metropolitan New York, and to a lesser extent, Westchester and Rockland
Counties, New York. Real estate related loans, which include commercial,
multi-family, and residential mortgages, construction and development loans,
aggregated 82.9% of the total loan portfolio at December 31, 1994. Residential
mortgage loans comprise the largest real estate concentration within the
Company's loan portfolio, aggregating $598.2 million and representing 32.8% of
the total loan portfolio. Multi-family mortgages aggregated $523.5 million,
representing 28.7% of the total loan portfolio at December 31, 1994, a $141.1
million or 36.9% increase from 1993. The multi-family mortgage line of business
was acquired through the 1994 merger with Metro. The multi-family mortgage loan
portfolio is characterized by diversification, safety and yield. Commercial and
industrial 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 $240.6
million at December 31, 1994, a $16.5 million or 6.4% decrease from December 31,
1993. This decline is the result of increased levels of loan satisfactions,
coupled with the lack of quality commercial loan demand within the Company's
marketplace.
The following table delineates the components of the Company's loan
portfolio at December 31,:
<TABLE>
<CAPTION> % OF % of % of
(dollars in thousands) 1994 TOTAL 1993 Total 1992 Total
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loans-Residential $ 598,194 32.81% $ 651,721 37.31% $ 684,105 38.45%
Mortgage Loans-Multi-family 523,510 28.71% 382,419 21.90% 342,414 19.25%
Mortgage Loans-Commercial 336,377 18.45% 336,321 19.26% 310,688 17.46%
Commercial & Industrial 240,635 13.20% 257,151 14.73% 288,114 16.20%
Consumer Loans 72,099 3.95% 61,647 3.53% 73,702 4.14%
Land Loans 37,858 2.08% 37,160 2.13% 50,059 2.81%
Mortgage Loans-Construction 14,601 0.80% 19,828 1.14% 30,080 1.69%
------------------------------------------------------------------------
Total $1,823,274 100.00% $1,746,247 100.00% $1,779,162 100.00%
========================================================================
</TABLE>
<TABLE>
<CAPTION> % of % of
(dollars in thousands) 1991 Total 1990 Total
------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Loans-Residential $ 833,266 42.47% $ 659,472 35.74%
Mortgage Loans-Multi-family 294,102 14.98% 293,930 15.93%
Mortgage Loans-Commercial 315,098 16.05% 311,430 16.87%
Commercial & Industrial 318,670 16.24% 316,582 17.15%
Consumer Loans 98,182 5.00% 114,048 6.18%
Land Loans 48,100 2.45% 89,400 4.84%
Mortgage Loans-Construction 55,235 2.81% 60,716 3.29%
---------- ------- ---------- -------
Total $1,962,653 100.00% $1,845,578 100.00%
========== ======= ========== =======
</TABLE>
Non-performing assets, which include loans past due ninety days and still
accruing interest, non-accrual loans and other real estate, declined 33% to
$47.0 million at December 31, 1994, as compared with $70.2 million at December
31, 1993. Non-performing assets declined 49.7% at December 31, 1993 when
compared to $139.6 million at December 31, 1992. 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 at
December 31, 1994 comprise 1.73% of total assets, as compared with 2.43% and
5.19% at December 31, 1993 and 1992, respectively. The primary components of
the decline in non-performing assets when comparing 1994 and 1993 include $16.4
million in other real estate dispositions and cash collections, $2.5 million in
write-downs of other real estate to current fair value and net loan charge offs
of $10.1 million.
The components of the Company's non-performing assets at December 31, are
detailed below:
<TABLE>
<CAPTION>
(in thousands) 1994 1993 1992 1991 1990
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans 90 Days or More Past Due & Still Accruing $ 1,597 $ 2,265 $ 6,048 $ 7,027 $16,940
Non-Accrual Loans 32,324 41,735 70,395 78,644 53,779
---------------------------------------------------
Total Non-Performing Loans 33,921 44,000 76,443 85,671 70,719
Other Real Estate 13,053 26,215 63,137 78,724 24,795
---------------------------------------------------
Total Non-Performing Assets $46,974 $70,215 $139,580 $164,395 $95,514
===================================================
Restructured, Accruing Loans $37,044 $43,456 $ 50,639 $ 28,132 $20,825
===================================================
</TABLE>
16
<PAGE> 9
Loans are classified as restructured loans when the Company has granted, for
economic or legal reasons related to the borrower's 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 $11.9 million at December 31, 1994.
The following table sets forth the changes in the Company's other real
estate for the years ended December 31,:
<TABLE>
<CAPTION>
(in thousands) 1994 1993 1992 1991 1990
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Year $ 26,215 $ 63,137 $ 78,724 $ 24,795 $ 2,949
Increases:
Foreclosures and Deeds in Lieu of Foreclosure 6,108 10,097 6,359 6,150 16,201
In-Substance Foreclosure 105 6,867 30,001 64,636 13,857
Assumed in Acquisition - - - 7,319 -
Decreases:
Dispositions and Cash Collections (16,357) (43,831) (39,723) (16,166) (8,212)
Gross Write-Downs (2,486) (10,055) (12,224) (8,010) -
Metro Activity for the three
months ended December 31, 1993 (532) - - - -
-------------------------------------------------------
Balance at End of Year $ 13,053 $ 26,215 $ 63,137 $ 78,724 $24,795
=======================================================
</TABLE>
Management determines what it deems to be the appropriate level of the
Company's allowance for loan losses on an ongoing basis by reviewing individual
loans, as well as the composition of and trends in the loan portfolio.
Management considers, among other things, concentrations within segments of the
loan portfolio, delinquency trends, as well as recent charge-off experience and
third party evidentiary matter (such as appraisals) when assessing the degree of
credit risk in the portfolio. Various appraisals and estimates of current value
influence the estimation of the required allowance at any point in time. The
continued and consistent decline in the Company's non-performing assets during
1994 resulted in a reduction in the provision for loan losses when compared with
prior years. The provision for loan losses declined to $3.3 million in 1994,
from $10.3 million in 1993 and $23.8 million in 1992. Net charge-offs declined
to $10.1 million in 1994, or .57% of average net loans, as compared with $23.3
million, or 1.37% of average net loans, for 1993. During 1992, net charge-offs
were $17.9 million or .97% of average net loans. The ratio of the allowance for
loan losses to non-performing loans increased to 147.6% at December 31, 1994, as
compared with 128.5% and 91.0% at December 31, 1993 and 1992, respectively.
While management uses available information in estimating 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 Company's allowance
for loan losses. Such agencies may require the Company to recognize additions
to the allowance based on their judgement of information available to them at
the time of their examinations. Based on current economic conditions,
management considers the allowance at December 31, 1994 adequate to cover the
possible credit losses inherent in the loan portfolio.
17
<PAGE> 10
North Fork Bancorporation, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Transactions in the Allowance for Loan Losses are summarized as follows for
the years ended December 31,:
<TABLE>
<CAPTION>
(dollars in thousands) 1994 1993 1992 1991 1990
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LOANS (NET OF UNEARNED INCOME):
Average Balance $1,761,462 $1,704,815 $1,848,110 $1,860,161 $1,882,240
End of Year 1,805,845 1,725,889 1,753,832 1,929,175 1,803,740
==============================================================
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES:
Balance at Beginning of Year $ 56,556 $ 69,583 $ 63,722 $ 34,051 $ 10,632
LOANS CHARGED-OFF:
Commercial & Industrial $ 7,724 $ 14,362 $ 13,029 $ 19,151 $ 4,439
Mortgage Loans-Commercial 2,989 2,335 2,717 15,776 -
Mortgage Loans-Multi-family 747 5,305 1,221 550 -
Mortgage Loans-Coop Underlying - - - - -
Mortgage Loans-Residential 1,590 2,713 178 475 43
Mortgage Loans-Construction 521 68 - 7,660 4,274
Land Loans 159 1,006 1,174 8,177 2,300
Consumer Loans 727 1,216 2,207 3,217 1,876
--------------------------------------------------------------
Total Charge-Offs $ 14,457 $ 27,005 $ 20,526 $ 55,006 $ 12,932
RECOVERIES OF LOANS CHARGED-OFF:
Commercial & Industrial $ 2,573 $ 2,557 $ 1,097 $ 212 $ 44
Mortgage Loans-Commercial 611 452 156 - -
Mortgage Loans-Multi-family 50 - - - -
Mortgage Loans-Coop Underlying - - - - -
Mortgage Loans-Residential 157 50 125 - -
Mortgage Loans-Construction 293 51 115 41 -
Land Loans 314 60 562 185 -
Consumer Loans 333 508 557 304 383
--------------------------------------------------------------
Total Recoveries $ 4,331 $ 3,678 $ 2,612 $ 742 $ 427
--------------------------------------------------------------
NET LOANS CHARGED-OFF $ 10,126 $ 23,327 $ 17,914 $ 54,264 $ 12,505
Provision for Loan Losses 3,275 10,300 23,775 66,625 35,924
Additional Allowance Acquired in Acquisition - - - 17,310 -
Metro Activity for the Three Months
Ended December 31, 1993 364 - - - -
--------------------------------------------------------------
Balance at End of Year $ 50,069 $ 56,556 $ 69,583 $ 63,722 $ 34,051
==============================================================
Ratio of Net Charge-Offs to Average Loans 0.57% 1.37% 0.97% 2.92% 0.66%
==============================================================
Ratio of Allowance for Loan Losses
to Non-performing Loans 147.60% 128.54% 91.03% 74.38% 48.15%
==============================================================
</TABLE>
The allowance is viewed by management in its entirety to be an adequate
reserve available for potential losses. To comply with regulatory reporting
requirements, management has allocated the allowance for loan losses as shown in
the table below into components by loan type at each year end. By such
allocation, management does not intend to imply that actual future charge-offs
will necessarily follow the same pattern or that any portion of the allowance is
restricted in any way.
<TABLE>
<CAPTION>
PERCENTAGE Percentage Percentage
OF LOANS of Loans of Loans
(dollars in thousands) 1994 TO TOTAL 1993 to Total 1992 to Total
AMOUNT LOANS Amount Loans Amount Loans
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mortgage Loans-Residential $ 1,840 32.81% $ 5,668 37.31% $ 5,114 38.45%
Mortgage Loans-Multi-family 16,811 28.71% 5,781 21.90% 6,968 19.25%
Mortgage Loans-Commercial 12,711 18.45% 20,542 19.26% 16,997 17.46%
Commercial & Industrial 9,716 13.20% 18,120 14.73% 25,030 16.20%
Consumer Loans 1,443 3.95% 901 3.53% 817 4.14%
Land Loans 1,367 2.08% 2,516 2.13% 4,406 2.81%
Mortgage Loans-Construction 458 0.80% 2,153 1.14% 2,752 1.69%
Unallocated 5,723 - 875 - 7,499 -
------------------------------------------------------------------
Total $50,069 100.00% $56,556 100.00% $69,583 100.00%
</TABLE>
<TABLE>
<CAPTION>
Percentage Percentage
of Loans of Loans
(dollars in thousands) 1991 to Total 1990 to Total
Amount Loans Amount Loans
---------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Loans-Residential $ 4,972 42.47% $ 774 35.74%
Mortgage Loans-Multi-family 5,290 14.98% 4,770 15.93%
Mortgage Loans-Commercial 15,178 16.05% 8,026 16.87%
Commercial & Industrial 25,538 16.24% 14,666 17.15%
Consumer Loans 1,337 5.00% 1,112 6.18%
Land Loans 4,861 2.45% 1,710 4.84%
Mortgage Loans-Construction 6,546 2.81% 2,993 3.29%
Unallocated - - - -
------------------------------------------
Total $63,722 100.00% $34,051 100.00%
==========================================
</TABLE>
18
<PAGE> 11
NON-INTEREST INCOME
Non-interest income, exclusive of net securities (losses)/gains, was $19.0
million for 1994, compared with $18.9 million in 1993 and $16.9 million in 1992.
Net securities losses in 1994 were $9.2 million, as compared with net securities
gains of $1.5 million and $9.5 million in 1993 and 1992, respectively. The net
securities losses during 1994 resulted primarily from management's decision to
reduce its securities holdings and short-term borrowings (see Asset/Liability
Management discussion). Net securities losses in 1994 also reflect a writedown
of $3.2 million on an impaired collateralized mortgage obligation received by
Metro as partial satisfaction in a troubled debt loan restructuring entered into
in 1991. Net securities gains aggregated $9.5 million during 1992 and were
realized as a result of the Company's decision to sell certain mortgage-backed
securities classified as held-for-sale to reduce the weighted average life and
duration of the portfolio.
The Company continued to emphasize the diversification and expansion of its
revenue sources to enhance operating results. Through growth in its demand
deposit base, increases in service fees, and the introduction of new products
and services, the Company increased its fees and service charges on deposit
accounts $1.7 million, or 18.6%, during 1994. This compares to an increase of
$1.8 million or 24% during 1993.
Trust and Investment management fees increased 8.1% to $1.8 million for
1994. These increases were offset by a $1.7 million or 41.8% decline in income
from mortgage banking operations, due to higher mortgage interest rates and a
corresponding decrease in the level of refinancing activity.
NON-INTEREST EXPENSE
Non-interest expense for 1994 included a $14.3 million charge incurred in
connection with the merger with Metro. Excluding this charge, non-interest
expense declined $7.8 million, or 9.1%, to $78.1 million in 1994 when compared
to $85.9 million in 1993. The decline is primarily the result of a $10.3
million decrease in other real estate expenses and a $1.3 million decrease in
occupancy and equipment expense. These improvements were partially offset by a
$3.8 million increase in salary and employee benefits primarily attributable to
expenses incurred in connection with Metro's former Stock Appreciation Rights
Plan. The Company's core efficiency ratio, which represents the ratio of other
expenses, net of other real estate costs and other non-recurring charges, to net
interest income on a tax equivalent basis and non-interest income net of
securities gains and losses, improved to 47.97% in 1994 from 51.81% and 58.39%
in 1993 and 1992, respectively. This achievement occurred as core operating
expense levels declined while net interest income and non-interest income
improved.
MERGER AND RELATED RESTRUCTURE CHARGEs
In connection with the merger of Metro, the Company recorded a charge for
merger and related restructuring expenses of $14.3 million. This charge
included $3.0 million in direct merger expenses (primarily legal and
professional fees), $5.9 million in severance related costs, and $5.4 million in
system and facility costs (primarily for the elimination of duplicate
facilities, the write-off of certain property and equipment, the cancellation of
certain contractual obligations and other expenses associated with the merger).
Assuming operating expenses at 1994 levels, annual cost savings are expected
to amount to approximately $11.0 million through the integration of operations
and the achievement of other efficiencies associated with the combination of
certain product lines. The Company, in accordance with its post-merger strategy
to realize its projected cost savings, has recently completed the elimination of
overlapping branch locations and consolidated all data processing and back
office operations. The restructure charge of $1.2 million in 1992 was incurred
in connection with the merger of the Company's subsidiary banks.
INCOME TAXES
The Company provides for income taxes under the asset and liability method.
Under this method, the Company is required to establish deferred tax assets and
liabilities for the temporary differences between the financial reporting basis
and the tax basis of the Company'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 Company's effective tax rate was 36.3% for 1994 as compared to 39.8% and
47.7% for 1993 and 1992, respectively. See Note 9 of notes to consolidated
financial statements.
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%.
19
<PAGE> 12
North Fork Bancorporation, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The following table sets forth the Company's regulatory capital as of
December 31, 1994, under the rules applicable at such date. At such date, the
Company was in compliance with all applicable regulatory requirements.
<TABLE>
<CAPTION>
As of December 31, 1994
(dollars in thousands)
Amount Ratio
----------------------
<S> <C> <C>
Tier 1 Capital $ 235,520 14.94%
Regulatory Requirement 63,042 4.00%
----------------------
Excess $ 172,478 10.94%
======================
Total Risk Adjusted Capital $ 255,595 16.22%
Regulatory Requirement 126,083 8.00%
----------------------
Excess $ 129,512 8.22%
======================
Risk Weighted Assets $1,576,041
==========
</TABLE>
The Company's leverage ratio at December 31, 1994 was 8.40%. The Tier I,
total risk based and leverage capital ratios of the Bank, were 15.48%, 16.75%,
and 8.65%, respectively, at December 31, 1994.
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
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 Company and the Bank are considered well
capitalized.
20
<PAGE> 13
North Fork Bancorporation, Inc. and Subsidiaries
SELECTED STATISTICAL DATA
Quarterly Financial Information
(unaudited)
<TABLE>
<CAPTION>
1994
--------------------------------------------
1ST 2ND 3RD 4TH
(in thousands, except per share amounts) QTR QTR QTR QTR
--------------------------------------------
<C> <C> <C> <C>
Interest Income $48,291 $51,125 $52,302 $52,015
Interest Expense 17,246 17,941 18,266 17,774
--------------------------------------------
Net Interest Income 31,045 33,184 34,036 34,241
Provision/(Benefit) for Loan Losses 1,700 1,200 (375) 750
--------------------------------------------
Net Interest Income after Provision for
Loan Losses 29,345 31,984 34,411 33,491
Non-Interest Income/(Loss) 4,892 4,579 2,841 (2,503)
Non-Interest Expense 19,784 20,697 20,044 31,917
--------------------------------------------
Income/(Loss) Before Income Taxes 14,453 15,866 17,208 (929)
Provision/(Benefit) for Income Taxes 5,682 6,376 6,772 (1,904)
--------------------------------------------
Net Income $ 8,771 $ 9,490 $10,436 $ 975
============================================
Per Share:
Net Income $ 0.37 $ 0.40 $ 0.44 $ 0.04
Common Stock Price Range of the Company
High $ 15.13 $ 15.88 $ 16.63 $ 16.00
Low $ 12.75 $ 13.25 $ 13.50 $ 13.50
</TABLE>
<TABLE>
<CAPTION>
1993
--------------------------------------------
1st 2nd 3rd 4th
(in thousands, except per share amounts) Qtr Qtr Qtr Qtr
--------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $47,588 $47,498 $48,067 $48,477
Interest Expense 18,991 18,364 17,984 17,830
--------------------------------------------
Net Interest Income 28,597 29,134 30,083 30,647
Provision/(Benefit) for Loan Losses 3,750 2,700 2,600 1,250
--------------------------------------------
Net Interest Income after Provision for
Loan Losses 24,847 26,434 27,483 29,397
Non-Interest Income/(Loss) 6,174 4,592 5,260 4,369
Non-Interest Expense 20,633 21,355 21,675 22,270
--------------------------------------------
Income/(Loss) Before Income Taxes 10,388 9,671 11,068 11,496
Provision/(Benefit) for Income Taxes 4,424 3,570 4,494 4,488
--------------------------------------------
Net Income $ 5,964 $ 6,101 $ 6,574 $ 7,008
============================================
Per Share:
Net Income $ 0.27 $ 0.26 $ 0.27 $ 0.30
Common Stock Price Range of the Company
High $ 12.13 $ 13.25 $ 12.38 $ 13.25
Low $ 7.63 $ 9.88 $ 11.13 $ 10.75
</TABLE>
On November 30, 1994, Metro Bancshares Inc. ("Metro") was merged with and into
the Company. The merger has been accounted for as a pooling-of-interests and
as a result, the quarterly selected data above has been retroactively restated
to include Metro.
21
<PAGE> 14
North Fork Bancorporation, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended December 31, 1994 1993 1992
----------------------------------
<S> <C> <C> <C>
(in thousands, except per share amounts)
INTEREST INCOME
Loans (including fee income) $148,050 $142,907 $165,481
Interest Earning Deposits 33 14 463
Federal Funds Sold & Securities Purchased
Under Agreements to Resell 1,971 1,988 7,096
Trading Account Assets - - 56
Mortgage-Backed Securities 41,031 37,863 29,715
U.S. Treasury & Government Agency Securities 9,108 6,801 5,681
State & Municipal Obligations 2,300 1,271 1,338
Other Securities 1,240 786 950
----------------------------------
Total Interest Income 203,733 191,630 210,780
----------------------------------
INTEREST EXPENSE
Savings, N.O.W. & Money Market Deposits 30,968 34,960 49,379
Certificates of Deposit, $100,000 & Over 2,539 1,866 2,924
Other Time Deposits 23,532 26,305 45,427
Short-Term Borrowings 11,221 6,166 2,409
Long-Term Borrowings 2,967 3,872 5,575
----------------------------------
Total Interest Expense 71,227 73,169 105,714
----------------------------------
Net Interest Income 132,506 118,461 105,066
Provision for Loan Losses 3,275 10,300 23,775
----------------------------------
Net Interest Income after
Provision for Loan Losses 129,231 108,161 81,291
----------------------------------
NON-INTEREST INCOME
Fees & Service Charges on Deposit Accounts 11,013 9,287 7,490
Trust & Investment Management Fees 1,800 1,665 1,508
Mortgage Banking Operations 2,358 4,051 3,871
Other Operating Income 3,849 3,935 3,963
Net Securities (Losses)/Gains (9,211) 1,457 9,547
Trading Account Profits & Fees - - 28
----------------------------------
Total Non-Interest Income 9,809 20,395 26,407
----------------------------------
NON-INTEREST EXPENSE
Salaries & Employee Benefits 36,934 33,145 32,110
Occupancy 6,764 6,970 6,802
Equipment 5,314 6,455 6,263
Other Real Estate 3,651 13,971 16,358
FDIC Insurance Premiums 5,476 5,736 5,549
Merger & Related Restructure Charges 14,338 - 1,200
Other Operating Expense 18,495 18,061 19,764
Amortization of Excess of Cost Over
Fair Value of Net Assets Acquired 1,470 1,595 1,616
---------------------------------
Total Non-Interest Expense 92,442 85,933 89,662
---------------------------------
Income Before Income Taxes 46,598 42,623 18,036
Provision for Income Taxes 16,926 16,976 8,609
---------------------------------
Net Income $29,672 $25,647 $ 9,427
=================================
Net Income Per Share $1.25 $1.10 $0.48
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 15
North Fork Bancorporation, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
At December 31,
(in thousands, except per share amounts)
1994 1993
------------------------------
<S> <C> <C>
ASSETS
Cash & Due from Banks $ 67,168 $ 88,456
Interest Earning Deposits 748 290
Federal Funds Sold & Securities Purchased under Agreements
to Resell - 29,175
Securities:
Held-to-Maturity (Fair value $593,110 in 1994;
$778,230 in 1993) 631,492 771,648
Available-for-Sale (Fair value $201,489 in 1993) 141,805 200,219
------------------------------
Total Securities 773,297 971,867
------------------------------
Loans 1,823,274 1,746,247
Less: Unearned Income & Fees 17,429 20,358
Allowance for Loan Losses 50,069 56,556
------------------------------
Net Loans 1,755,776 1,669,333
------------------------------
Premises & Equipment, Net 39,168 40,657
Accrued Income Receivable 19,315 18,832
Other Real Estate 13,053 26,215
Other Assets 27,043 13,311
Excess of Cost over Fair Value of Net Assets Acquired 22,208 26,239
------------------------------
Total Assets $2,717,776 $2,884,375
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand Deposits $331,245 $276,963
Savings, N.O.W. & Money Market Deposits 1,325,628 1,389,515
Certificates of Deposits in Amounts of $100,000 & Over 71,978 51,657
Other Time Deposits 614,036 630,410
------------------------------
Total Deposits 2,342,887 2,348,545
Federal Funds Purchased & Securities Sold Under
Agreements to Repurchase 20,000 255,643
Other Borrowings 50,000 13,000
Senior Notes Payable 25,000 20,000
Accrued Interest & Other Expenses 19,770 14,824
Other Liabilities 5,196 6,053
------------------------------
Total Liabilities $2,462,853 $2,658,065
Stockholders' Equity
Preferred Stock, par value $1.00; authorized
10,000,000 shares, unissued - -
Common stock, par value $2.50; authorized 50,000,000 shares;
issued & outstanding 1994, 23,049,187 shares; 1993,
22,445,679 shares 57,623 56,114
Additional Paid in Capital 94,526 91,473
Retained Earnings 106,186 79,623
Less: Unrealized Loss on Securities Available-for-Sale,
net of taxes (2,871) -
Deferred Compensation (514) (899)
Treasury Stock at cost, 1,945 shares in 1994;
73 shares in 1993 (27) (1)
------------------------------
Total Stockholders' Equity 254,923 226,310
------------------------------
Total Liabilities and Stockholders' Equity $2,717,776 $2,884,375
==============================
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 16
North Fork Bancorporation, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1994 1993 1992
(in thousands) ----------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 29,672 $ 25,647 $ 9,427
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Provision for Loan Losses 3,275 10,300 23,775
Provision for Losses on Real Estate Acquired in
Settlement of Loans 2,486 10,055 12,224
Depreciation and Amortization 5,521 6,855 6,672
Amortization of Excess of Cost Over Fair Value of
Net Assets Acquired 1,470 1,595 1,616
Accretion of Discounts and Net Deferred Loan Fees (1,771) (939) (2,784)
Amortization of Premiums 7,957 10,154 1,479
Net Securities Losses/(Gains) 9,211 (1,457) (9,547)
Proceeds from Sales of Trading Account Securities - - 62,937
Purchases of Trading Account Securities - - (62,909)
Other, Net (14,289) 2,456 15,026
----------------------------------------
Net Cash Provided by Operating Activities 43,532 64,666 57,916
----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sales of Securities Held-to-Maturity - 1,702 14,549
Maturities, Calls and Principal Repayments on
Securities Held-to-Maturity 138,706 413,401 96,238
Purchases of Securities Held-to-Maturity (269,519) (660,071) (492,311)
Proceeds from Sales of Securities Available-for-Sale 272,175 71,519 555,040
Maturities and Principal Repayments on
Securities Available-for-Sale 150,831 49,967 15,115
Purchases of Securities Available-for-Sale (106,008) (199,197) (367,767)
Loans Originated and Principal Repayments
on Loans and Other Real Estate Owned, Net (120,191) (38,927) 96,721
Proceeds from Sales of Real Estate Acquired
in Settlements of Loans 15,586 27,993 33,296
Proceeds from the Sale of Loans 28,801 60,736 4,058
Purchases of Loans - (14,320) -
Purchases of Premises and Equipment, Net (3,250) (3,841) (3,307)
---------------------------------------
Net Cash Provided by/(Used in) Investing Activities 107,131 (291,038) (48,368)
---------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 17
North Fork Bancorporation, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1994 1993 1992
(in thousands) ----------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Decrease in Deposits (3,601) (56,332) (116,293)
Proceeds from the Issuance of Senior Notes Payable 25,000 - -
Repayments of Senior Notes Payable (20,000) (20,000) -
Net (Decrease)/Increase in Short-Term and Other Borrowings (199,054) 226,322 8,231
(Purchase)/Sale of Treasury Shares (35) (45) 269
Common Stock Sold for Cash 3,696 19,260 7,320
Dividends Paid to Shareholders (7,030) (2,364) (1,518)
---------------------------------------
Net Cash (Used in)/Provided by Financing Activities (201,024) 166,841 (101,991)
---------------------------------------
Net (Decrease)/Increase in Cash and Cash Equivalents (50,361) (59,531) (92,443)
Metro Activity for the Three Months Ended December 31, 1993 356 - -
Cash and Cash Equivalents at Beginning of Year 117,921 177,452 269,895
Cash and Cash Equivalents at End of Year $ 67,916 $ 117,921 $ 177,452
=======================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid/(Received) During the Period for:
Interest Expense $ 72,101 $ 74,357 $ 107,938
=======================================
Income Taxes $ 24,747 $ 14,671 $ (1,780)
=======================================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Securities Transferred to Available-for-Sale Upon
Adoption of SFAS 115 $ 275,200 - -
Real Estate Acquired in Settlement of Loans and
In-Substance Foreclosures $ 6,213 $ 16,964 $ 36,360
=======================================
Loans to Facilitate the Sale of Other Real Estate $ 10,907 $ 14,075 $ 15,459
=======================================
Securities Received in Exchange for Residential
Mortgage Loans - - $ 24,706
=======================================
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 18
North Fork Bancorporation, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY
Three Years Ended December 31, 1994
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Additional Unrealized
Common Paid in Retained Securities Deferred
Stock Capital Earnings Gains/(Losses) Compensation
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1992 $47,858 $73,392 $48,360 ($276) ($2,149)
Net Income - - 9,427 - -
Cash Dividends ( Metro Pre-Merger $.33 per share) (1) - - (1,518) - -
Sale of Common Stock (1,006,362 shares) 2,578 4,742 - - -
Issuance of Warrants (742,500 shares) - 185 - - -
Deferred Compensation Activity:
Restricted Stock Awards (11,500 shares) - (66) - - (68)
Amortization of Restricted Stock Awards - - - - 341
Removal of Restrictions on
Restricted Stock Awards (1,000 shares) - - - - 10
Forfeiture of Restricted Stock Awards (5,500 shares) - (62) - - 92
Amortization of Other Deferred Compensation Plans - - 75 - 314
Purchase of Treasury Stock (1,302 shares) - - - - -
Sale of Treasury Stock (50,753 shares) - (308) - - -
Fractional Share Adjustment - - (2) - -
Net Change in Unrealized Depreciation on
Certain Marketable Equity Securities - - - 251 -
------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992 50,436 77,883 56,342 (25) (1,460)
Net Income - - 25,647 - -
Cash Dividends ( Metro Pre-Merger $.50 per share) (1) - - (2,364) - -
Sale of Common Stock (1,617,031 shares) 4,061 11,192 - - -
Exercise of Warrants (646,975 shares) 1,617 2,390 - - -
Deferred Compensation Activity:
Restricted Stock Awards (8,000 shares) - 18 - - (102)
Amortization of Restricted Stock Awards - - - - 306
Removal of Restrictions on
Restricted Stock Awards (4,500 shares) - - - - 22
Forfeiture of Restricted Stock Awards (1,034 shares) - (10) - - 21
Amortization of Other Deferred Compensation Plans - - - - 314
Purchase of Treasury Stock (3,926 shares) - - - - -
Fractional Share Adjustment - - (2) - -
Net Change in Unrealized Depreciation on
Certain Marketable Equity Securities - - - 25 -
------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 56,114 91,473 79,623 - (899)
Unrealized Gain on Securities Available-for-Sale, net
of taxes at January 1, 1994 - - - 2,241 -
Net Income - - 29,672 - -
Cash Dividends (The Company $.35 per share) - - (5,882) - -
Cash Dividends ( Metro Pre-Merger $.81 per share) (1) - - (4,125) - -
Sale of Common Stock (419,717 shares) 1,056 2,377 - - -
Exercise of Warrants (176,616 shares) 442 390 - - -
Deferred Compensation Activity:
Restricted Stock Awards (10,000 shares) 12 55 - - (122)
Amortization of Restricted Stock Awards - - - - 209
Removal of Restrictions on
Restricted Stock Awards (1,000 shares) - - - - 4
Forfeiture of Restricted Stock Awards (4,334 shares) - (12) - - 29
Amortization of Other Deferred Compensation Plans - 247 61 - 265
Purchase of Treasury Stock (2,538 shares) - - - - -
Fractional Share Adjustment (1) (4) - - -
Metro Net Income for the Three Months Ended
December 31, 1993 - - 6,837 - -
Adjustment to Unrealized Gain/(Loss) on Securities
Available-for-Sale, net of taxes - - - (5,112) -
------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 $57,623 $94,526 $106,186 $(2,871) $(514)
==================================================================
<CAPTION>
Treasury
Stock Total
-----------------------
<S> <C> <C>
BALANCE, JANUARY 1, 1992 ($710) $166,475
Net Income - 9,427
Cash Dividends ( Metro Pre-Merger $.33 per share) (1) - (1,518)
Sale of Common Stock (1,006,362 shares) - 7,320
Issuance of Warrants (742,500 shares) - 185
Deferred Compensation Activity:
Restricted Stock Awards (11,500 shares) 134 -
Amortization of Restricted Stock Awards - 341
Removal of Restrictions on
Restricted Stock Awards (1,000 shares) - 10
Forfeiture of Restricted Stock Awards (5,500 shares) (30) -
Amortization of Other Deferred Compensation Plans - 389
Purchase of Treasury Stock (1,302 shares) (7) (7)
Sale of Treasury Stock (50,753 shares) 584 276
Fractional Share Adjustment - (2)
Net Change in Unrealized Depreciation on
Certain Marketable Equity Securities - 251
----------------------
BALANCE, DECEMBER 31, 1992 (29) 183,147
Net Income - 25,647
Cash Dividends ( Metro Pre-Merger $.50 per share) (1) - (2,364)
Sale of Common Stock (1,617,031 shares) - 15,253
Exercise of Warrants (646,975 shares) - 4,007
Deferred Compensation Activity:
Restricted Stock Awards (8,000 shares) 84 -
Amortization of Restricted Stock Awards - 306
Removal of Restrictions on
Restricted Stock Awards (4,500 shares) - 22
Forfeiture of Restricted Stock Awards (1,034 shares) (11) -
Amortization of Other Deferred Compensation Plans - 314
Purchase of Treasury Stock (3,926 shares) (45) (45)
Fractional Share Adjustment - (2)
Net Change in Unrealized Depreciation on
Certain Marketable Equity Securities - 25
----------------------
BALANCE, DECEMBER 31, 1993 (1) 226,310
Unrealized Gain on Securities Available-for-Sale, net
of taxes at January 1, 1994 - 2,241
Net Income - 29,672
Cash Dividends (The Company $.35 per share) - (5,882)
Cash Dividends ( Metro Pre-Merger $.81 per share) (1) - (4,125)
Sale of Common Stock (419,717 shares) - 3,433
Exercise of Warrants (176,616 shares) - 832
Deferred Compensation Activity:
Restricted Stock Awards (10,000 shares) 67 12
Amortization of Restricted Stock Awards - 209
Removal of Restrictions on
Restricted Stock Awards (1,000 shares) - 4
Forfeiture of Restricted Stock Awards (4,334 shares) (58) (41)
Amortization of Other Deferred Compensation Plans - 573
Purchase of Treasury Stock (2,538 shares) (35) (35)
Fractional Share Adjustment - (5)
Metro Net Income for the Three Months Ended
December 31, 1993 - 6,837
Adjustment to Unrealized Gain/(Loss) on Securities
Available-for-Sale, net of taxes - (5,112)
----------------------
BALANCE, DECEMBER 31, 1994 $(27) $254,923
======================
</TABLE>
See accompanying notes to consolidated financial statements.
(1) Represent Metro's dividends per share based upon pre-merger shares
outstanding.
26
<PAGE> 19
North Fork Bancorporation, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
North Fork Bancorporation, Inc. (the "Company") is a bank holding company
organized in 1980 under the laws of the State of Delaware and is registered
under the Bank Holding Company Act of 1956, as amended. The Company, through
its bank subsidiary, North Fork Bank (the "Bank") provides bank and bank-related
services. On November 30, 1994, Metro Bancshares Inc. ("Metro"), the parent
company of Bayside Federal Savings Bank ("Bayside"), was merged with and into
the Company (see note 2(a)). The merger was accounted for as a
pooling-of-interests and, as a result, the Company's consolidated financial
statements have been retroactively restated for all reporting periods to include
the consolidated accounts of Metro. The following is a summary of the Company's
significant accounting and reporting policies:
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
and its Bank and non-bank subsidiaries and have been prepared in conformity with
generally accepted accounting principles and prevailing practices within the
financial services industry. The Company reports its financial results on a
calendar year basis, whereas Metro had reported its financial results on a
fiscal year basis which ended September 30. The consolidated financial results
for the current year have been adjusted to conform Metro's year-end with that of
the Company. The consolidated financial results for years prior to 1994 reflect
the combination of the Company at and for the years ended December 31 with Metro
at and for the years ended September 30.
(b) TRADING ACCOUNT ACTIVITIES
Trading account assets are stated at market value. Realized and unrealized
gains and losses on trading account activities are reflected in other income as
trading account profits and fees.
(c) SECURITIES
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115"). Securities that the Company has the positive
intent and ability to hold to maturity are classified as held-to-maturity and
are carried at amortized cost, adjusted for amortization of premiums and
discounts. Debt securities that may be sold in response to or in anticipation
of changes in interest rates and resulting prepayment risk, or other factors,
and marketable equity securities, are classified as available-for-sale and
carried at fair value. The unrealized gains and losses on these securities are
reported, net of applicable taxes, as a separate component of stockholders'
equity. Management determines the appropriate classification of securities at
the time of purchase.
Prior to the adoption of SFAS 115, securities held-to-maturity were carried
at amortized cost, adjusted for amortization of premiums and discounts.
Securities held-for-sale were carried at the lower of amortized cost or fair
value with any valuation adjustment reflected in the current period's results of
operations. Marketable equity securities were carried at the lower of cost or
fair value, with any net unrealized losses reflected as a separate component of
stockholders' equity.
Interest income on securities, including amortization of premiums and
accretion of discounts, is recognized using the level yield method over the
lives of the individual securities. Realized gains and losses on sales of
securities are computed using the specific identification method. The cost
bases of individual held-to-maturity and available-for-sale securities are
reduced through writedowns to reflect other-than-temporary impairments in value.
In accordance with SFAS 115, cash flows from purchases, maturities and sales
of available-for-sale securities have been classified as cash flows from
investing activities, and such activity for prior periods has been similarly
reclassified.
(d) LOANS
Loans are generally carried at the principal amount outstanding, net of
unearned income and net deferred loan fees. Mortgage loans held-for-sale are
valued at the lower of aggregate cost or market value. Interest income is
recognized using the interest method or a method that approximates a level rate
of return over the loan term. Unearned income and net deferred loan fees are
accreted into interest income over the loan term as a yield adjustment.
(e) NON-ACCRUAL LOANS
Loans are placed on non-accrual status when, in the opinion of management,
there is doubt as to the collectibility of interest or principal, or when
principal and interest is past due 90 days or more and the loan is not well
secured and in the process of collection. Interest and fees previously accrued,
but not collected, are reversed and charged against interest income at the time
a loan is placed on non-accrual status. Interest payments received on
non-accrual loans are recorded as reductions of principal if, in management's
judgment, principal repayment is doubtful. Loans may be reinstated to an accrual
or performing status if future payments of principal and interest are reasonably
assured and the loan has demonstrated performance.
Loans are classified as restructured loans when the Company has granted, for
economic or legal reasons related to the borrower's financial difficulties, a
concession to the borrower that it would not otherwise consider. Generally, this
occurs when the cash flows of the borrower are insufficient to service the loan
under its original terms.
27
<PAGE> 20
North Fork Bancorp9ration, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(f) ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on a periodic analysis of the loan
portfolio and reflects an amount which, in management's judgement, is adequate
to provide for possible loan losses in the existing portfolio. In evaluating the
portfolio, management takes into consideration numerous factors, such as present
and potential risks of the loan portfolio, loan growth, prior loss experience
and current economic conditions. The allowance is maintained at a level
considered by management to be adequate to cover reasonably foreseeable loan
losses. While management uses available information to estimate possible loan
losses, future additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Company's allowance
for loan losses. Such agencies may require the Company to recognize additions to
the allowance based on their judgment of information available to them at the
time of their examinations.
(g) PREMISES AND EQUIPMENT, NET
Premises and equipment, including leasehold improvements, are stated at
cost, net of accumulated depreciation and amortization. Depreciation and
amortization are computed using the straight-line method over the estimated
useful life of the owned asset and, for leasehold improvements, over the
estimated useful life of the related asset or the lease term, whichever is
shorter.
(h) OTHER REAL ESTATE
Other real estate consists of property acquired through foreclosure or deed
in lieu of foreclosure and loans classified as in- substance foreclosures. Loans
are classified as in-substance foreclosures when the Company has substantively
assumed all incidents of ownership of the underlying collateral. Other real
estate is carried at the lower of the recorded amount of the loan or the fair
value of the property based on the current appraised value adjusted for
estimated disposition costs. Prior to foreclosure, the recorded amount of the
loan is written down, if necessary, to the fair value of the real estate to be
acquired by a charge to the allowance for loan losses.
Subsequent to foreclosure, gains and losses on the periodic revaluation of
real estate acquired, and gains and losses on the disposition of such
properties, are credited or charged to other real estate expense. Net costs of
maintaining and operating other real estate are expensed as incurred.
(i) INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" (SFAS 109) in 1993. Under the asset and liability
method of SFAS 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred taxes of a change in tax rates is recognized in income in the period
the change occurs. Deferred tax assets are reduced, through a valuation
allowance, if necessary, by the amount of such benefits that are not expected to
be realized based on current available evidence.
Prior to 1993, deferred income taxes were provided for items of income or
expense that are reported in different periods for financial statements and
income tax purposes, in accordance with Accounting Principles Board Opinion
No.11. The Company files consolidated income tax returns with its subsidiaries.
Tax expenses (benefits) are allocated among members in the consolidated group.
(j) RETIREMENT AND BENEFIT PLANS
The Company has a non-contributory defined benefit pension plan covering
substantially all employees. Annual pension cost is provided over the
employee's expected service life utilizing the projected unit cost actuarial
method. Supplemental retirement benefits are provided for selected employees
where income tax limitations have been placed on the amount of retirement
benefits otherwise earned.
Post retirement and post employment benefits are recorded on an accrual
basis with an annual provision that considers an actuarially determined future
obligation.
(k) EARNINGS PER SHARE
Earnings per share is computed by dividing net income by the weighted-
average number of common shares and common stock equivalents outstanding during
the period after retroactively restating for common shares issued in connection
with the Metro acquisition. Common shares and common stock equivalents
outstanding are based on the combined weighted average shares of the Company's
and Metro's common stock outstanding during the period. (See Note 2(a))
(l) EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
The excess of cost over fair value of net assets acquired is being amortized
on a straight-line basis over a period not exceeding twenty-five years.
(m) STATEMENT OF CASH FLOWS
For purposes of the Consolidated Statement of Cash Flows, cash and cash
equivalents includes those amounts included in the Balance Sheet captions - Cash
and Due from Banks, Interest Earning Deposits, Federal Funds Sold and Securities
Purchased Under Agreements to Resell, all of which have an initial maturity of
less than 90 days.
(n) OFF BALANCE-SHEET INSTRUMENTS
The Company enters into interest rate contracts, including interest rate
caps, floors and swap agreements, as part of its asset/liability management of
interest rate exposure. These instruments are entered into as hedges against
interest rate risk and are designated against certain assets and liabilities.
The premium paid or received for any of these instruments is amortized over the
term of the agreement. These instruments are accounted for on an accrual basis
in the interest income or expense category of the related hedged asset or
liability. If the asset or liability being hedged is disposed of, the market
value of the interest rate contract is included in the determination of the gain
or loss from disposition.
28
<PAGE> 21
NOTE 2 - BUSINESS COMBINATIONS
(a) METRO BANCSHARES INC.
On November 30, 1994, the Company acquired Metro in a transaction accounted
for under the pooling-of-interests method of accounting. Pursuant to the merger
agreement, the Company issued 1.645 shares of common stock for each share of
Metro's common stock outstanding (8,440,746 common shares issued) and reserved
for issuance 739,038 common shares for Metro's outstanding stock options as of
the acquisition date. Metro had consolidated total assets, deposits, and
shareholders' equity of $964.3 million, $832.5 million, and $84.7 million,
respectively, at November 30, 1994. The Company's previously reported
components of consolidated income and the amounts reflected in the accompanying
consolidated statements of income for the years ended December 31, are as
follows:
<TABLE>
<CAPTION>
(in thousands)
Net Interest Income 1993 1992
---- ----
<S> <C> <C>
As Previously Reported $ 77,353 $ 71,162
Metro 41,108 33,904
-------- --------
Combined $118,461 $105,066
======== ========
Net Income
As Previously Reported $ 15,097 $ 1,730
Metro 10,550 7,697
-------- --------
Combined $ 25,647 $ 9,427
======== ========
</TABLE>
Metro's reporting period had been as of and for the year ended September 30
whereas the Company utilizes a calendar year basis. Metro's financial results
for 1994 have been conformed to the calendar year reporting period of the
Company. All prior year consolidated financial results combine the Company
with Metro utilizing their respective fiscal reporting periods. As a result,
Metro's operating results for the three month period ended December 31, 1993
have been set forth separately as a component of consolidated stockholders'
equity and are not included in the Company's consolidated statements of income.
The following is a summary of Metro's results of operations and cash flows
for the three months ended December 31, 1993:
(in thousands)
STATEMENT OF INCOME DATA:
<TABLE>
<S> <C>
Net Interest Income $ 10,745
--------
Income Before Cumulative Effect of
Accounting Change 3,137
Cumulative Effect of Change in
Accounting for Income Taxes (Note 9) 3,700
--------
Net Income $ 6,837
========
STATEMENT OF CASH FLOWS DATA:
Cash Provided by Operating Activities $ 9,510
Cash Used by Investing Activities (12,093)
Cash Provided by Financing Activities 2,939
--------
Net Increase in Cash & Cash Equivalents $ 356
========
</TABLE>
In connection with the merger, the Company recorded a charge for merger and
related restructuring expenses of $14.3 million. This charge included $3.0
million in direct merger expenses, primarily legal and professional fees, $5.9
million in severance related costs, and $5.4 million in system and facility
costs associated with the elimination of duplicate facilities, the write-off
of certain property and equipment, the cancellation of certain contractual
obligations and other expenses associated with the merger. Approximately $6.9
million of this expense was paid by December 31, 1994 with substantially all of
the remaining cash payments to be made during 1995 with the completion of the
integration of Metro's business.
(b) GREAT NECK BANCORP.
In January 1995, the Company announced that it had entered into an
agreement to acquire Great Neck Bancorp ("Great Neck") for cash consideration
of approximately $6.5 million. Great Neck is the parent company of Bank of
Great Neck, a Long Island based commercial bank. The total assets to be
acquired approximate $110 million exclusive of certain designated assets
aggregating approximately $15 million which will be retained by the selling
shareholders. The transaction, which will be accounted for as a purchase, is
subject to regulatory approval and is expected to close in the second quarter
of 1995.
NOTE 3 - SECURITIES
On January 1, 1994, the Company adopted SFAS 115, which expands the use of
fair value accounting for certain debt and equity securities, while retaining
the use of the amortized cost method of accounting for investments in debt
securities that the Company has the positive intent and ability to hold to
maturity. The adoption of SFAS 115 had no impact on reported net income, but
increased stockholders' equity by $2.2 million, on a net of tax basis, at
January 1, 1994.
29
<PAGE> 22
North Fork Bancorporation, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
HELD-TO-MATURITY SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value of held-to-maturity securities were as follows at December
31.
<TABLE>
<CAPTION>
1994
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
-------------------------------------------------------
<S> <C> <C> <C> <C>
(in thousands)
U.S. Treasury Securities $ 26,377 2 (2) $ 26,377
U.S. Government Agencies' Obligations 54,793 - (4,462) 50,331
State & Municipal Obligations 64,672 217 (2,100) 62,789
Mortgage-Backed Securities 485,650 93 (32,130) 453,613
Equity Securities - - - -
-------------------------------------------------------
$631,492 312 (38,694) $593,110
=======================================================
</TABLE>
<TABLE>
<CAPTION>
1993
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(in thousands) COST GAINS (LOSSES) VALUE
-------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 97,243 731 - $ 97,974
U.S. Government Agencies' Obligations 55,988 370 (72) 56,286
State & Municipal Obligations 46,265 654 (40) 46,879
Mortgage-Backed Securities 562,473 7,225 (2,564) 567,134
Equity Securities 9,679 278 - 9,957
-------------------------------------------------------
$771,648 9,258 (2,676) $778,230
=======================================================
</TABLE>
AVAILABLE-FOR-SALE SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of available-for-sale securities were as follows at
December 31,
<TABLE>
<CAPTION>
1994
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(in thousands) COST GAINS (LOSSES) VALUE
-------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 20,077 6 (292) $ 19,791
Mortgage-Backed Securities 100,903 111 (4,990) 96,024
Equity Securities 25,839 284 (133) 25,990
-------------------------------------------------------
$146,819 401 (5,415) $141,805
=======================================================
<CAPTION>
1993
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(in thousands) COST GAINS (LOSSES) VALUE
-------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities - - - -
Mortgage-Backed Securities 200,219 1,817 (547) 201,489
Equity Securities - - - -
-------------------------------------------------------
$200,219 1,817 (547) $201,489
=======================================================
</TABLE>
Mortgage-backed securities classified as held-to-maturity included $92.8
million and $88.5 million in collateralized mortgage obligations at December
31, 1994 and 1993, respectively. Mortgage-backed securities classified as
available-for-sale included $1.0 million in collateralized mortgage obligations
at December 31, 1994.
The amortized cost and estimated fair value of securities at December 31,
1994, by contractual maturity, are presented below. Expected maturities will
differ from contractual maturities because issuers may have the right to call or
prepay obligations without call or prepayment penalties.
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
Amortized Fair Amortized Fair
(in thousands) Cost Value Cost Value
---------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 58,862 $ 58,730 $ 10,090 $ 10,069
Due after one year through five years 15,755 15,154 9,987 9,722
Due after five years through ten years 66,225 60,895 - -
Due after ten years 5,000 4,718 - -
---------------------------------------------------
Subtotal 145,842 139,497 20,077 19,791
Mortgage-Backed Securities 485,650 453,613 100,903 96,024
Equity Securities - - 25,839 25,990
---------------------------------------------------
$631,492 $593,110 $146,819 $141,805
===================================================
</TABLE>
The prepayment of mortgage-backed securities ("MBS") including
collateralized mortgage obligations ("CMO") is actively monitored through the
Company's portfolio management function. The Company typically invests in MBS's
with stable cash flows and relatively short duration, thereby limiting the
impact of interest rate fluctuations on the portfolio. Management regularly
performs simulation testing to assess the impact that interest and market rate
changes would have on its MBS portfolio.
Proceeds from the sales of available-for-sale securities were $272.2 million
in 1994. Net losses from available-for-sale securities sold totaled $9.2
million in 1994. These amounts include gross gains of $2.5 million and gross
losses of $8.5 million on sales of securities available-for-sale. In addition,
net securities losses for 1994 contained a charge of $3.2 million to reduce the
carrying value of a certain CMO, received by Metro in 1991 as a partial
settlement in a troubled debt restructuring. Proceeds from the sale of
securities were $73.2 million and $569.6 million in 1993 and 1992, respectively.
Gross realized gains were $1.4 million and $11.3 million in 1993 and 1992,
respectively. Gross realized losses were $1.8 million in 1992 with no
significant losses in 1993.
At December 31, 1994, held-to-maturity securities carried at $127.8
million and available-for-sale securities carried at $17.1 million,
respectively, were pledged for various purposes as required by law and to secure
securities sold under agreements to repurchase and other borrowings. At
December 31, 1993, securities carried at $299.2 million and held-for-sale
securities carried at $50.2 million were similarly pledged as collateral.
30
<PAGE> 23
NOTE 4 - LOANS
The composition of the loan portfolio is summarized as follows as of
December 31.
<TABLE>
<CAPTION>
PERCENTAGE Percentage
(dollars in thousands) 1994 OF TOTAL 1993 of Total
--------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Loans-Residential $ 598,194 32.81% $ 651,721 37.31%
Mortgage Loans-Multi-family 523,510 28.71% 382,419 21.90%
Mortgage Loans-Commercial 336,377 18.45% 336,321 19.26%
Commercial & Industrial 240,635 13.20% 257,151 14.73%
Consumer Loans 72,099 3.95% 61,647 3.53%
Land Loans 37,858 2.08% 37,160 2.13%
Mortgage Loans-Construction 14,601 0.80% 19,828 1.14%
--------------------------------------------------------
Total $1,823,274 100.00% $1,746,247 100.00%
Less:
Unearned Income and Fees 17,429 20,358
Allowance for Loan Losses 50,069 56,556
---------- ----------
Net Loans $1,755,776 $1,669,333
</TABLE>
The Company's loan portfolio is principally located in the metropolitan New
York area. The risk inherent in this portfolio is dependent not only upon
regional and general economic stability which affects property values, but also
the financial well-being and creditworthiness of the borrowers. The portfolio
is concentrated in real estate related loans, comprising 82.8% of the portfolio
at December 31, 1994.
In order to minimize the credit risk related to this concentration, the
Company utilizes prudent underwriting standards as well as diversifying the type
and locations of real estate projects underwritten. The Company's multi-family
lending line of business was acquired from Metro and includes loans on various
diversified apartment complexes. Multi-family loans are dependent, in large
part, on sufficient income to cover operating expenses and may be affected by
government regulation, such as rent control regulations, which could impact the
future cash flows of the property. Most multi-family loans are not fully self
amortizing, therefore, the principal outstanding is not significantly reduced
prior to their contractual maturity.
The commercial mortgage portfolio contains loans secured by industrial
developments, professional office buildings, retail stores and shopping centers.
Land loans are loans to finance the acquisition of vacant land for future
residential and commercial development. Construction loans are loans to finance
the construction of industrial developments and single-family subdivisions.
The Company's underwriting standards include various limits on the loan
to value ratios based on type of property, and the Company carefully considers
among other things, the creditworthiness of the borrower, the location of the
real estate, the condition and value of the security property, the quality of
the organization managing the property, and the viability of the project
including occupancy rates, tenants and lease terms. The Company's underwriting
standards require appraisals and periodic inspections of the properties as well
as ongoing monitoring of operating results.
Included in Mortgage Loans - Residential at December 31, 1994 and 1993
were loans held for sale of $.6 million and $5.5 million, respectively. The
Company receives fee income for servicing mortgage loans. Mortgages serviced for
others aggregated $442.0 million and $532.3 million as of December 31, 1994 and
1993, respectively.
Non-performing assets include loans ninety days past due and still accruing,
non-accrual loans and other real estate. Other real estate includes property
acquired through foreclosure or deeds in lieu of foreclosure and loans
classified as in-substance foreclosures.
The Company's non-performing assets at December 31 consisted of the
following:
<TABLE>
<CAPTION>
(in thousands) 1994 1993
--------------------
<S> <C> <C>
Loans Ninety Days Past Due and Still Accruing $ 1,597 $ 2,265
Non-Accrual Loans 32,324 41,735
--------------------
Non-Performing Loans 33,921 44,000
Other Real Estate 5,361 11,326
In-Substance Foreclosures 7,692 14,889
--------------------
Non-Performing Assets $46,974 $70,215
====================
</TABLE>
The largest concentration of non-performing loans are those secured by real
estate aggregating $26.0 million, or 76.6% of non- performing loans, at December
31, 1994.
Interest foregone on non-accrual loans and other real estate, or the amount
of income that would have been earned had those loans remained performing,
aggregated $4.5 million, $5.6 million and $15.4 million in 1994, 1993 and 1992,
respectively.
31
<PAGE> 24
North Fork Bancorporation, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Restructured loans were $37.0 million and $46.2 million at December 31, 1994
and 1993, respectively. Restructured loans on a non-accrual basis at December
31, 1994 and 1993 were $2.2 million and $2.7 million, respectively. The amount
of interest income recorded on restructured loans was approximately $3.0
million, $3.2 million and $3.6 million in 1994, 1993 and 1992, respectively. The
difference between income included in the Company's results of operations under
the restructured terms and that amount which would have been recognized had
these loans performed in accordance with their original terms was $.8 million,
$.9 million and $2.2 million in 1994, 1993 and 1992, respectively.
The Company had no commitment to lend additional funds to borrowers whose
loans are non-performing or whose terms have been restructured at December 31,
1994.
Statement of Financial Accounting Standards No. 114 "Accounting by Creditors
for the Impairment of a Loan" (SFAS 114), as amended by Statement of Financial
Accounting Standards No. 118 "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures" (SFAS 118), which is effective for fiscal
years beginning after December 15, 1994, and is to be applied prospectively,
requires that impaired loans within the scope of the statement be measured based
on the present value of expected future cash flows discounted at the loan's
effective interest rate, observable market prices or the fair value of the
underlying collateral. The implementation of SFAS 114, as amended by SFAS 118,
will not have a material effect on the Company's financial position or results
of operations.
Loans to related parties include loans to directors and their related
companies, and executive officers of the Company and any of its subsidiaries.
Such loans are made in the ordinary course of business on substantially the same
terms as loans to other individuals and businesses of comparable risks.
The following analysis depicts the activity of related party loans for 1994:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Balance at December 31, 1993 $ 640
New Loans and Additional Disbursements 292
Repayments (257)
-----
Balance at December 31, 1994 $ 675
=====
</TABLE>
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
A summary of changes in the allowance for loan losses is shown below for the
years ended December 31:
<TABLE>
<CAPTION>
(in thousands) 1994 1993 1992
------------------------------------
<S> <C> <C> <C>
Balance at Beginning of Year $ 56,556 $ 69,583 $ 63,722
Provisions for Loan Losses 3,275 10,300 23,775
Recoveries Credited to the Allowance 4,331 3,678 2,612
------------------------------------
64,162 83,561 90,109
Losses Charged to the Allowance (14,457) (27,005) (20,526)
Metro Activity for the Three Months
Ended December 31, 1993 364 - -
------------------------------------
Balance at December 31, $ 50,069 $ 56,556 $ 69,583
====================================
</TABLE>
NOTE 6 - PREMISES AND EQUIPMENT
The following is a summary of premises and equipment at December 31:
<TABLE>
<CAPTION>
(in thousands) 1994 1993
----------------------
<S> <C> <C>
Land $ 9,299 $ 9,328
Bank Premises 24,908 22,822
Leasehold Improvements 6,723 6,964
Equipment 31,049 33,658
----------------------
71,979 72,772
Accumulated Depreciation and Amortization (32,811) (32,115)
----------------------
$ 39,168 $ 40,657
======================
</TABLE>
32
<PAGE> 25
NOTE 7 - SHORT TERM BORROWINGS
Federal funds purchased and securities sold under agreements to repurchase
and related information is summarized as follows at and for the years ended
December 31:
<TABLE>
<CAPTION>
(dollars in thousands) 1994 1993 1992
-----------------------------------
<S> <C> <C> <C>
Federal Funds Purchased
Period End Balance $ 20,000 - -
Maximum Amount Outstanding at Any Month End 25,000 - -
Average Outstanding Balance 5,032 28 -
Weighted Average Interest Rate Paid 5.47% 3.10% -
Weighted Average Interest Rate at Year End 6.00% - -
Securities Sold Under Agreements to Repurchase
Period End Balance - $255,643 $ 28,200
Maximum Amount Outstanding at Any Month End 322,876 325,779 116,188
Average Outstanding Balance 239,656 176,491 57,568
Weighted Average Interest Rate Paid 4.25% 3.49% 4.18%
Weighted Average Interest Rate at Year End - 3.41% 5.04%
</TABLE>
Federal Home Loan Bank Advances with original maturities less than one year
were $40.0 million at December 31, 1994 with a weighted average interest rate of
5.63%.
The Company's bank subsidiary has arrangements with various correspondent
banks providing short-term credit for regulatory liquidity requirements. These
lines of credit aggregated $70.0 million at December 31, 1994.
NOTE 8 - LONG TERM BORROWINGS
(dollars in thousands)
(a) Senior Notes Payable at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1,994 1,993
--------------------
<S> <C> <C>
Senior Notes Payable
7.56% Senior Note due April 20, 1999 $25,000 $ -
10.08% Senior Note due March 28, 1995 - 20,000
====================
(b) Federal Home Loan Bank Borrowings at December 31:
Federal Home Loan Bank of New York Notes Payable
10.00% due April 28, 1999 $10,000 $10,000
9.50% due January 29, 1994 - 3,000
--------------------
$10,000 $13,000
====================
</TABLE>
During 1994, the Company issued a $25.0 million 7.56% Senior Note (the
"Note") due April 20, 1999. The Note imposes certain restrictions on the
Company. These restrictions include, but are not limited to, the maintenance of
certain capital levels, limitations on the payment of dividends and limitations
on the repurchase of common stock. The Company is in compliance with the
covenants of the Note at December 31, 1994. A portion of the Note proceeds were
used to prepay the $20.0 million 10.08% Senior Note due March 28, 1995. As a
result of this prepayment, the Company incurred a prepayment penalty of $.9
million, which is reflected in non-interest expense.
NOTE 9 - INCOME TAXES
The Company provides for income taxes beginning in 1993 under the asset and
liability method required by SFAS 109. Under this method, the Company is
required to establish deferred tax assets and liabilities for the temporary
differences between the financial reporting basis and the tax basis of the
Company'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 adoption
of SFAS 109 did not have a material impact on the Company's results of
operations.
Metro's adoption of SFAS 109, effective October 1, 1993, resulted in an
additional $6.1 million deferred tax assets (net of a $.5 million valuation
allowance) recorded as a $2.4 million reduction in the excess cost over fair
value of net assets acquired and a $3.7 million credit to income reflected as a
cumulative effect of an accounting change. The cumulative effect credited to
income resulting from Metro's adoption of SFAS 109 is included in the results of
operations for the three months ended December 31, 1993, which is reported as an
adjustment to retained earnings in the Company's Consolidated Statement of
Changes in Stockholders' Equity. Metro's adoption of SFAS 109 did not have a
material impact on the Company's results of operations. Accordingly, Metro's
adoption of SFAS 109 has not been conformed with the Company's adoption in the
restated consolidated financial statements.
33
<PAGE> 26
North Fork Bancorporation, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of the Company's consolidated income tax provision for the
years ended December 31, 1994 and 1993 under SFAS 109 is as follows:
<TABLE>
<CAPTION>
(in thousands) 1994 1993
---------------------
<S> <C> <C>
Current Tax Expense $22,268 $15,539
Deferred Tax Expense (exclusive of the effects of the
components listed below) 1,508 2,922
Adjustment to Deferred Tax Assets and Liabilities
for Enacted Changes in Tax Rates - (193)
Change in Valuation Allowance (6,850) (1,292)
---------------------
Income Tax Provision $16,926 $16,976
=====================
</TABLE>
The components of the Company's consolidated income tax provision/(benefit)
for the year ended December 31, 1992 is as follows:
<TABLE>
<CAPTION>
(in thousands) 1992
-------
<S> <C>
Current:
Federal $ 9,671
State and Local 3,476
-------
Total Current 13,147
Deferred:
Federal (4,408)
State and Local (130)
-------
Total Current (4,538)
-------
Total $ 8,609
=======
</TABLE>
Under the method of providing for income taxes used prior to SFAS 109,
deferred income taxes resulted from temporary differences in the recognition of
revenue and expense for tax and financial statement purposes. The sources of
these differences and the tax effect of each for the year ended December 31,
1992 is as follows:
<TABLE>
<CAPTION>
(in thousands) 1992
-------
<S> <C>
Bad Debt Deduction for Tax Purposes Under
Book Provision $(1,988)
Recapture of Tax Bad Debt Reserve (1,016)
Other Real Estate Valuation Allowance (640)
Deferred Compensation (66)
Tax Deferred Loan Fees (337)
Depreciation for Tax Purposes Under
Book Depreciation (834)
Accrued Expenses (84)
State and Local Income Taxes, Net of Federal Income Tax 784
Other, net (357)
-------
Total $(4,538)
=======
</TABLE>
The total tax expense for the years ended December 31, differed from the
amount computed by applying the Federal income tax rate to income before income
taxes as a result of the following:
<TABLE>
<CAPTION>
(in thousands) 1994 1993 1992
----------------------------------
<S> <C> <C> <C>
Federal Income Tax Expense at Statutory Rates 35.0% 34.9% 34.0%
Increase/(Reduction) Resulting from:
Tax Exempt Interest, net (2.1) (1.8) (4.6)
State and Local Income Taxes, Net of Federal Income Tax 9.3 4.6 11.1
Accretion/Amortization of Purchase Accounting
Premiums and Discounts (0.5) (0.5) (2.0)
Amortization of Excess Cost Over Fair Value of
Net Assets Acquired 1.2 1.3 3.1
Nondeductible Merger & Related Restructure Charges 0.7 - 0.4
Federal Bad Debt Deduction less than Financial
Statement Provision - 2.5 3.5
Recapture of Tax Bad Debt Reserve Due to Merger 7.3 - -
Change in Valuation Allowance (14.7) (2.7) -
Other, net 1.1 1.5 2.2
----------------------------------
Effective Tax Rate 36.3% 39.8% 47.7%
==================================
</TABLE>
Prior to the merger, Metro was entitled to a special bad debt deduction for
additions to the tax bad debt reserves established for the purposes of absorbing
losses. As provided under the Internal Revenue Code, the statutory percentage
used to calculate the federal bad debt deduction was 8% of taxable income. No
provision for federal income tax had been made with respect to these allocations
of income to bad debt deductions for tax purposes only. As a result of the
merger, however, these amounts are required in accordance with the Internal
Revenue Code to be recaptured for tax purposes only at the Company's current
corporate tax rate. Included in the 1994 provision for income taxes is $3.5
million related to this bad debt recapture.
34
<PAGE> 27
The components of the Company's net deferred tax asset at December 31, 1994
and 1993 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1994 1993
---------------------
<S> <C> <C>
Deferred Tax Assets
Allowance for Loan Losses $20,985 $18,626
Unrealized Loss on Securities Available-for-Sale 2,143 -
Excess of Tax Basis Over Book Basis-Other Real Estate 58 472
Deferred Compensation and Other Employee Benefit Plans 1,615 1,267
Other, net 7,261 2,493
---------------------
Gross Deferred Tax Asset $32,062 $22,858
Valuation Allowance (3,391) (9,710)
---------------------
Deferred Tax Asset $28,671 $13,148
=====================
Deferred Tax Liability
Savings Bank Tax Bad Debt Recapture ($5,873) ($4,576)
Excess of Book Basis Over Tax Basis, Premises & Equipment (496) (1,096)
Other, net (2,004) (763)
---------------------
Gross Deferred Tax Liability ($8,373) ($6,435)
---------------------
Net Deferred Tax Asset $20,298 $6,713
=====================
</TABLE>
The valuation allowance for deferred tax assets as of the January 1, 1993
adoption of SFAS 109 was approximately $11.0 million, which approximated
previously unrealized potential tax benefits and a reserve equivalent to the
potential New York State tax benefit. The net changes in the total valuation
allowance for the years ended December 31, 1994 and 1993 were decreases of $6.9
million and $1.3 million, respectively. The decrease in the valuation
allowance relates to the portion of the total gross deferred tax asset for
which realization has occurred or for which realization is currently deemed
more likely than not to occur. In 1993, the Company realized New York State
benefits which were not previously recognized. During 1994, the Company
further reduced the valuation allowance due to the improved earnings potential
and the continued strengthening of the quality of assets. The Company continued
to fully reserve for a portion of the potential New York benefit due to
uncertainties of realization since state and local law does not provide for the
utilization of net operating loss carryforwards or carrybacks.
NOTE 10 - RETIREMENT AND OTHER EMPLOYEE BENEFITS PLANS
RETIREMENT PLAN
The Company maintains a retirement plan (the "Plan") covering substantially
all of its employees. Benefits under the plan are computed using a career
average formula. Under the career average formula, participants accrue a
benefit each year equal to five percent of their annual compensation, as
defined, plus a rate of interest based on one-year Treasury Bill rates,
credited quarterly. Plan assets are invested in a diversified portfolio of
fixed income securities, mutual funds and equity securities. The Company
contributes to the Plan an amount sufficient to meet Employee Retirement Income
Security Act ("ERISA") funding standards. Metro did not maintain a retirement
plan and as such the following table contains information regarding the
Company's pre-merged Plan. Subsequent to the merger, all former Metro
employees meeting plan requirements became eligible for participation in the
Plan.
The following table sets forth the funded status of the Plan, and amounts
recognized in the accompanying consolidated financial statements.
<TABLE>
<CAPTION>
December 31, 1994 1993
(in thousands) ----------------------
<S> <C> <C>
Actuarial Present Value of Accumulated Benefit Obligation:
Vested Benefits ($15,025) ($15,691)
Non-Vested Benefits (315) (566)
======================
Projected Benefit Obligation for Service Rendered to Date ($15,340) ($16,257)
Plan Assets at Fair Value 14,376 16,279
----------------------
Plan Assets (Less than)/in Excess of Projected Benefit Obligation (964) 22
Unrecognized Net Asset Value Existing at Plan Year End (458) (521)
Unrecognized Net Loss 3,845 3,562
Prior Service Cost (3,037) (3,279)
----------------------
Accrued Pension Cost ($614) ($216)
======================
</TABLE>
<TABLE>
<CAPTION> 1994 1993 1992
-------------------------------
For the Years Ended December 31,
(in thousands)
<S> <C> <C> <C>
Net Periodic Pension Expense Included the Following Components:
Service Cost-Benefits Earned During the Year $710 $613 $1,102
Interest Cost on Projected Benefit Obligations 1,188 1,115 1,400
Net Amortization and Deferral (1,685) (639) (1,366)
-------------------------------
213 1,089 1,136
Less Actual Return on Plan Assets (184) 1,079 800
-------------------------------
Net Periodic Pension Expense $397 $10 $336
===============================
</TABLE>
35
<PAGE> 28
North Fork Bancorporation, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The weighted average discount rate utilized to determine the projected
benefit obligation and net periodic pension expense was 8.50% for 1994, 7.50%
for 1993 and 8.50% for 1992. The assumed rate of future compensation increases
was 4.50% for 1994 and 1993 and 5.50% for 1992. The expected long-term rate of
return on Plan assets was 8.50% for 1994, 1993 and 1992.
On January 1, 1993, the Company adopted a supplemental retirement plan
which restores to specified senior executives the full level of retirement
benefits they would have been entitled to receive absent the ERISA provision
limiting maximum payouts under tax qualified plans. The actuarial present value
of the accumulated benefit obligation and the projected benefit obligation was
$162 thousand at December 31, 1994 and $181 thousand at December 31, 1993. The
projected benefit obligation exceeded the fair value of the plan assets by $162
thousand at December 31, 1994 and $80 thousand at December 31, 1993. Net
periodic pension expense incurred in 1994 and 1993 for the supplemental
retirement plan was $40 thousand and $31 thousand, respectively. The weighted
average discount rate utilized to determine the projected benefit obligation
and net periodic pension expense was 8.50% for 1994 and 7.50% for 1993. The
assumed rate of future compensation increases was 4.50% for 1994 and 5.50% for
1993. The expected long-term rate of return on plan assets was 8.50% for 1994
and 7.00% for 1993.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care and life insurance benefits to
eligible retired employees. Benefits received range between 0% and 100% of
coverage premiums based on an employee's age, years of service and retirement
date. Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106 "Accounting for Postretirement Benefits Other than
Pensions" ("SFAS 106"), whereas Metro adopted effective October 1, 1993, which
resulted in a change in the method of accounting for postretirement health care
and life insurance benefits from a pay-as-you-go basis to an accrual basis.
Under SFAS 106, the expected cost of postretirement benefits other than
pensions is actuarially determined and accrued ratably over the employee's
period of service. The Accumulated Postretirement Benefit Obligation ("APBO")
existing at January 1, 1993 of $4.1 million for the Company and at October 1,
1993 of $.9 million for Metro, is being amortized over 20 years in accordance
with SFAS 106. The Company's Plan for its postretirement benefit obligation is
unfunded.
The following table sets forth information related to the Company's
postretirement benefit obligations at December 31,
<TABLE>
<CAPTION>
(in thousands) 1994 1993
------------------
<S> <C> <C>
Retirees and beneficiaries $3,725 $4,116
Active & Fully eligible active plan participants 1,436 655
------------------
APBO 5,161 4,771
Unrecognized Transition Obligation 4,608 3,922
Unrecognized Net Loss 255 817
------------------
Accrued Postretirement Benefit Obligation $298 $32
==================
</TABLE>
The weighted average discount rate utilized to determine the accumulated
postretirement benefit obligation was 8.50% for 1994 and 7.50% for 1993. The
assumed rate of future compensation increases was 4.50% for 1994 and 1993.
In measuring the APBO, a 7.50% annual trend rate for health care costs for
persons over the age of 65, and 8.60% annual trend rate for health care costs
for those persons under the age of 65, was assumed for the year ended December
31, 1994. These rates are assumed to decline ratably to 6.0% for those persons
over the age of 65 and to 6.10% for those persons under the age of 65, through
2021, and remain at that level thereafter. If the assumed health care cost
trend rate changed by 1%, the APBO at December 31, 1994 would change by 16%.
The effect of a 1% change in the cost trend rate on the service and interest
cost components of net periodic postretirement benefits expense would be a
change of 14%.
The net periodic postretirement benefits expense for the years ended
December 31 were comprised of the following:
<TABLE>
<CAPTION>
(in thousands) 1994 1993
------------------
<S> <C> <C>
Service cost (benefits for service during the year) $115 $39
Interest cost on APBO 396 325
Amortization of Transition Obligation 263 208
------------------
Net Periodic Postretirement Benefits Expense $774 $572
==================
</TABLE>
SAVINGS PLAN
The Company maintains a savings plan under section 401(k) of the Internal
Revenue Code, covering substantially all current full-time and certain
part-time employees. Newly hired employees can elect to participate in the
savings plan after completing one year of service. Under the provisions of the
savings plan, employee contributions are partially matched by the Company.
This matching is fully vested for employees participating at the inception date
of the plan, the matching vests for all other plan participants 25% per year
beginning the second year of participation. Participant account balances are
invested at the direction of the participant into one or more investment funds,
including a fund which invests in shares of the Company's common stock. Metro
also had a qualified 401(k) savings plan for its employees in which Metro
matched a portion of the employee's contribution. Upon merger, all Metro plan
participants became fully vested in their account balances. Subject to
approval by various agencies, the Metro plan will be merged into the Company's
plan with the Company's plan being the successor plan. The total savings plan
expense for the plans was $.8 million, and $.8 million, and $.4 million for the
years ended 1994, 1993 and 1992, respectively.
36
<PAGE> 29
NOTE 11 - STOCKHOLDERS' EQUITY AND COMMON STOCK PLANS
In December 1991, the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA") became law. FDICIA imposes a number of mandatory
supervisory measures on banks and thrift institutions. Among other matters,
FDICIA established five capital zones or classifications (well-capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized). Such classifications are used by the FDIC and
other bank regulatory agencies to determine matters ranging from each
institution's semi-annual FDIC deposit insurance premium assessments, to
approvals of applications authorizing institutions to grow their asset size or
otherwise expand business activities or to acquire other depository and
non-depository institutions.
Banks are generally required to maintain, for regulatory compliance and
reporting purposes, regulatory defined minimum Leverage and Risk-Based Capital
Ratio levels at least 5% and 8%, respectively.
The Company and North Fork Bank are considered well capitalized in
accordance with the requirements of FDICIA.
At December 31, 1994, the Company had 535,974 warrants outstanding with an
exercise price of $6.50 per share, which expire in March 1995. In addition,
the Company had 456,884 warrants outstanding with an exercise price of $4.70
per share which expire in June 1995.
INCENTIVE STOCK OPTION PLAN
In 1985 the Company adopted the Incentive Stock Option Plan. Under the
Plan, 360,000 shares of the Company's common stock were reserved for issuance
to key employees. Options are awarded by a committee appointed by the Board of
Directors. The plan provides that the option price shall not be less than the
fair market value of the stock on the date the option is granted. All options
are exercisable upon the grant for a period of ten years. At December 31, 1994,
389 shares remain authorized and unissued.
LONG TERM INCENTIVE PLAN
In 1987, the Company adopted the Long Term Incentive Plan. The plan
provides for two types of awards, non-qualified stock options and restricted
stock, to be granted either separately or in combination. Awards are granted to
employees by the Compensation and Stock Committee of the Board of Directors
("Compensation Committee"). The maximum aggregate number of shares of common
stock which may be issued by the Company under the plan, either as restricted
stock awards or non-qualified stock options, is 400,000 shares. Restricted
stock awarded under the plan may not be sold, assigned, transferred, pledged,
hypothecated or otherwise disposed of, except by will or the laws of descent
and distribution for a certain period of time after the date of award. The
restrictions on 33 1/3% of such shares shall lapse on the date which is exactly
5 years from the date of grant, the restrictions on 33 1/3% of such shares
shall lapse on the date which is exactly 6 years from the date of grant and the
restrictions on the final 33 1/3% of such shares shall lapse on the date which
is exactly 7 years from the date of grant. The value of the awards is reflected
as deferred compensation at fair market value of the shares at the date of
grant, and amortized as additional compensation expense over the period the
restrictions lapse. Notwithstanding the foregoing, the Compensation Committee,
in its sole discretion, may accelerate the removal of any or all restrictions.
If the Company is a party to a merger, consolidation, sale of substantially all
assets or similar transaction and, as a result, the common stock of the Company
is exchanged for stock of another corporation, cash or other consideration, all
restrictions on restricted stock awarded under the plan and then outstanding
will lapse and cease to be effective, as of the day on which such corporate
change is consummated. At December 31, 1994, no shares remain authorized and
unissued.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Dividend Reinvestment and Stock Purchase Plan provides the Company's
stockholders with a method of investing cash dividends and/or optional cash
payments in additional common stock of the Company. Under the plan, as amended
in November 1992, cash dividends and/or optional cash payments can be used to
purchase the Company's common stock at 95% of the average market value of the
stock for the ten trading days preceding the day of purchase. The discount can
be revised by the Board of Directors at its discretion. The amount of optional
cash payment allowed in any month is restricted requiring a minimum optional
cash payment of $200 per month and a maximum optional cash payment for
participants owning more than 200 shares of $1.00 for each share previously
owned or $25,000, whichever is less. The monthly maximum can be exceeded with
prior written approval from the Company. At December 31, 1994, 551,191 shares
remain authorized and unissued.
1994 KEY EMPLOYEE STOCK PLAN
In December 1993, the Company segregated 700,000 shares of common stock to
establish a long term incentive plan for officers and other key employees of
the Company. The plan provides for three types of awards, incentive stock
options, non-qualified stock options and restricted stock, to be granted either
separately or in combination by the Compensation Committee. The purpose of this
plan is to encourage those key employees to acquire and maintain an interest in
the value of the Company's common stock and therefore additional incentive to
work for the continued success of the Company. At December 31, 1994, 403,500
shares remain authorized and unissued.
37
<PAGE> 30
North Fork Bancorporation, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EXECUTIVE MANAGEMENT COMPENSATION PLAN
In 1989, the Company adopted the Executive Management Compensation Plan.
The plan provides for two types of awards, non- qualified stock options and
restricted stock, to be granted either separately or in combination. Awards are
granted to executive officers of the Company and its subsidiaries by the
Compensation Committee. The maximum aggregate number of shares of common stock
which may be issued by the Company under the plan, either as restricted stock
awards or non-qualified stock options is 460,000 shares. Each non-qualified
stock option awarded under the plan shall vest and become exercisable with
respect to 20% of the shares subject to the option on the first anniversary of
the date of grant. Thereafter, each option shall vest and become exercisable
with respect to an additional 20% of the original shares subject to the option
on each consecutive anniversary of the date of grant. Restricted stock awarded
under the plan contains similar restrictions as those issued under the Company's
Long Term Incentive Plan. The right to grant awards under the plan will
terminate upon the earlier of December 31, 1999, or the issuance of a number of
shares equal to the maximum aggregate number reserved for issuance under the
plan. At December 31, 1994, 350 shares remain authorized and unissued.
SHAREHOLDERS' RIGHTS PLAN AND CHANGE-IN-CONTROL ARRANGEMENT
On February 29, 1989, the Company declared a dividend distribution of one
preferred stock purchase right for each outstanding share of common stock to
stockholders of record at the close of business on March 13, 1989. Each right
entitles the holder, following the occurrence of certain events, to purchase a
unit, consisting of one one-hundredth of a share of Series A Junior
Participating Preferred Stock, at a purchase price of $70 per unit, subject to
adjustment. The rights will become exercisable and transferable apart from the
common stock 10 days after the public announcement that a person or group has
acquired 20% or more of the outstanding shares of common stock, 10 business
days following the commencement of a tender or exchange offer that would result
in a person or group beneficially owning 25 % or more of the outstanding shares
of common stock, or 10 days after the Board of Directors has determined that
any person has become the beneficial owner of a substantial amount (defined as
10% or greater) of the outstanding shares of common stock and that such
beneficial ownership is adverse to the Company in certain specified respects.
Rights held by such an acquiring person or persons may thereafter become void.
Under certain circumstances, a right may become a right to purchase common
stock or assets of the Company or common stock of an acquiring corporation at a
substantial discount. Under certain circumstances, the Company may redeem the
rights for $.01 per right. The rights will expire at the close of business on
March 13, 1999 unless earlier redeemed or exchanged by the Company.
In 1994, the Company entered into arrangements with certain key executive
officers that provide for the payment of a multiple of base salary, should a
change-in-control, as defined, of the Company occur. These payments are
limited under guidelines for deductibility pursuant to Internal Revenue Service
regulations. Also, in connection with a potential change-in-control the
Company adopted performance plans in which substantially all employees could
participate in a cash distribution. The amount of the performance plan cash
fund is established when a change-in-control transaction exceeds industry
averages and achieves an above average return for shareholders. A limitation is
placed on the amount of the fund and no performance pool is created if the
transaction does not exceed industry averages.
METRO STOCK PLANS - PRE MERGER
Metro maintained several incentive stock option plans for its officers,
directors and key employees. Generally, these plans granted options to
individuals at a price equivalent to the fair market value of the stock at the
date of grant and were exercisable over a ten year period from the date of
grant. At the merger date there were 385,884 options exercisable at $3.90 per
share and 63,379 options exercisable at $17.38 per share. Pursuant to the
merger agreement, these options were converted into 739,038 options on the
Company's stock at exercise prices of $2.38 or $10.57 based on the merger
exchange ratio of 1.645. These options, which are convertible into the
Company's common shares, are set forth separately in the following table. At
December 31, 1994, 627,729 options remained outstanding. Also, Metro had a
Stock Appreciation Rights Plan (SAR) under which key employees received the
cash equivalent of the difference between the market value of the stock at the
date of grant and the measurement date. Participants under the plan became
fully vested at the merger date. Compensation expense recorded for these
SAR's in 1994, 1993 and 1992 was $2.0 million, $1.0 million and $.5 million,
respectively.
The following is a summary of the activity in the Company's common stock
plans for the three year period ended December 31, 1994. The table does not
reflect the activity of the Metro Plans pre-merger. For the period from
October 1, 1991 through November 30, 1994, Metro issued 104,260 options while
31,468 options were exercised, based upon the merger exchange ratio of 1.645.
38
<PAGE> 31
<TABLE>
<CAPTION>
Restricted
Exercise Stock Grant
Options Price Awards Price
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1991 745,931 $4.44 - $25.13 128,900 $ 7.75 - $23.25
Granted 40,500 $5.44 - $ 8.31 11,500 $ 5.44 - $ 7.94
Exercised (8,200) $4.44 - $ 6.88 - -
Forfeited (157,900) $6.88 - $23.25 (5,500) $14.69 - $20.75
Vested - - (11,758) $20.75 - $23.25
Removal of Restrictions Accelerated - - (1,000) $ 5.69
--------- --------
Outstanding at December 31, 1992 620,331 $ 5.44 - $25.13 122,142 $ 5.44 - $23.25
Granted 184,500 $ 7.94 - $12.69 8,000 $12.69
Exercised (15,650) $ 6.88 - $ 8.81 - -
Forfeited (30,350) $ 8.81 - $20.75 (1,034) $15.94 - $20.75
Vested - - (22,397) $ 5.81 - $23.25
Removal of Restrictions Accelerated - - (4,500) $ 7.94
--------- --------
Outstanding at December 31, 1993 758,831 $ 5.44 - $25.13 102,211 $ 5.44 - $23.25
Metro Options Outstanding at November 30, 1994 739,038 $ 2.38 - $10.57 - -
Granted 315,000 $10.57 - $15.75 10,000 $11.75 - $12.69
Exercised (167,009) $ 2.38 - $12.69 - -
Forfeited (31,700) $10.25 - $20.75 (4,334) $10.25 - $19.06
Vested - - (11,735) $13.94 - $19.06
Removal of Restrictions Accelerated - - (1,000) $12.25
--------- --------
OUTSTANDING AT DECEMBER 31, 1994 1,614,160 $ 2.38 - $25.13 95,142 $ 5.44 - $23.25
========= ========
</TABLE>
NOTE 12 - PARENT COMPANY ONLY
CONDENSED FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS DECEMBER 31,
<TABLE>
<CAPTION>
(in thousands) 1,994 1,993
--------------------
<S> <C> <C>
ASSETS
Deposits with Bank Subsidiary $ 2,186 $ 2,781
Deposits with Other Financial Institutions 125 109
Securities Purchased Under Agreements to Resell with Other Institutions - 2,175
Securities Purchased Under Agreements to Resell with Bank Subsidiary 7,500 7,600
Securities Available-for-Sale (Fair Value 1993,$1,093) 8,554 964
Investment in Subsidiaries 258,344 229,190
Receivables from Bank Subsidiary 72 46
Other Assets 747 1,477
Excess of Cost Over Fair Value of Net Assets Acquired 8,171 8,610
--------------------
Total $285,699 $252,952
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Senior Notes Payable $ 25,000 $ 20,000
Capital Note Payable to Bank Subsidiary - 3,250
Other Liabilities 5,776 3,392
Stockholders' Equity 254,923 226,310
--------------------
Total $285,699 $252,952
====================
</TABLE>
39
<PAGE> 32
North Fork Bancorporation, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------
(in thousands)
CONDENSED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,
<S> <C> <C> <C>
INCOME
Dividends from Bank Subsidiary $8,300 $2,600 $2,218
Management Fees from Bank Subsidiary - - 10,200
Other 345 298 201
Net Securities Gains/( Losses) 1,109 (295) (136)
-----------------------------
Total Income 9,754 2,603 12,483
-----------------------------
EXPENSE
Interest on Long-Term Borrowings 1,966 2,582 4,201
Interest on Capital Note Payable to Bank Subsidiary 129 363 363
Salaries and Employee Benefits 172 328 4,281
Occupancy & Equipment Expense 73 82 980
Merger & Related Restructure Charge 1,122 - -
Prepayment Penalty-Senior Notes Payable 877 - -
Other Expenses 1,297 1,606 6,199
Amortization of Excess of Cost Over Fair Value of Net Assets Acquired 440 440 440
-----------------------------
Total Expenses 6,076 5,401 16,464
-----------------------------
Income/(Loss) before Income Taxes and Equity in Undistributed
Earnings of Subsidiaries 3,678 (2,798) (3,981)
Income Tax Benefit (1,388) (2,227) (2,232)
Equity in Undistributed Earnings/(Losses) of Subsidiaries
Bank Subsidiary 24,296 26,323 11,443
Non-Bank Subsidiaries 310 (105) (267)
-----------------------------
Net Income $29,672 $25,647 $9,427
=============================
</TABLE>
<TABLE>
<CAPTION>
(in thousands) 1994 1993 1992
------------------------------
CONDENSED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $29,672 $25,647 $9,427
Adjustments to Reconcile Net Income to Net Cash
Provided by/(Used in) by Operating Activities:
Depreciation and Amortization 245 410 370
Amortization of Excess of Cost Over Fair Value of Net Assets Acquired 440 440 440
Equity in Undistributed Earnings of Subsidiaries (24,606) (26,218) (11,176)
Net (Gain)/Loss on Sales of Securities (1,109) 295 136
Other, Net 1,236 (1,990) 4,825
------------------------------
Net Cash Provided by/(Used in) Operating Activities 5,878 (1,416) 4,022
------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sales of Securities Available-for-Sale 3,819 17 -
Additional Investments in Bank Subsidiary - - (167)
Purchases of Securities Availabe-for-Sale (10,266) - -
Purchases of Premises and Equipment, Net - - (39)
-----------------------------
Net Cash (Used in)/Provided by Investing Activities (6,447) 17 (206)
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Senior Notes Payable 25,000 - -
Prepayment of Senior Notes Payable (20,000) (20,000) -
Repayment of Other Borrowings (3,250) 174 (13)
Treasury Shares (Purchased)/Sold, Net (35) (45) 269
Common Stock Sold 3,696 19,260 7,320
Dividends Paid (7,030) (2,364) (1,518)
-----------------------------
Net Cash (Used in)/Provided by Financing Activities (1,619) (3,323) 6,058
-----------------------------
Net (Decrease)/Increase in Cash and Cash Equivalents (2,188) (4,722) 9,874
Cash and Cash Equivalents at Beginning of Year 12,665 17,387 7,513
Metro Activity for the Three Months Ended December 31, 1993 (666) - -
-----------------------------
Cash and Cash Equivalents at End of Year $9,811 $12,665 $17,387
=============================
</TABLE>
40
<PAGE> 33
Dividends from the Bank to the parent company are limited by the
regulations of the New York State Banking Department to the Bank's current
year's earnings plus the prior two years' retained net profits. Based on the
parameters of this regulation, the Bank's dividend capability at January 1,
1995 includes 1995 earnings plus approximately $55.4 million of prior years'
retained net profits.
The Bank, through various acquisitions by the Company of financial
institutions which had previously converted from a mutual to a stock form
savings bank, maintains liquidation accounts for each. Upon conversion, a
liquidation account is established for the benefit of all eligible account
holders who continue to maintain their deposits at the bank. In the event of a
complete liquidation, each eligible account holder would be entitled to their
interest in the liquidation account on a priority basis. The remaining
aggregate balance in the liquidation accounts were $14.0 million and $17.3
million at December 31, 1994 and 1993, respectively.
NOTE 13 - OTHER COMMITMENTS AND CONTINGENT LIABILITIES
(a) OFF-BALANCE SHEET RISKS
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Such financial instruments are reflected in the Company's
consolidated financial statements when and if proceeds associated with the
commitments are disbursed. The Company's exposure to credit loss in the event
of nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is represented by
the contractual notional amount of those instruments. The Company uses the same
credit policies in making commitments and conditional obligations as it does
for on-balance sheet financial instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customers creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary, by the Company upon extension of credit is based
on management's credit evaluation of the counterparty. Collateral held varies
but may include accounts receivable, inventory, property, plant and equipment,
and income-producing properties.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
During 1993, the Company utilized certain off-balance sheet instruments,
with an aggregate notional value of $99 million, as hedges against interest
rate risk associated with certain securities available-for-sale. These
instruments included an interest rate swap, an interest rate cap and a floor.
During 1994, the Company terminated its interest rate swap and cap contracts at
a net gain of $.9 million.
The notional principal amount of the Company's off-balance sheet financial
instruments at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
CONTRACT OR NOTIONAL Contract or Notional
AMOUNT Amount
(IN THOUSANDS) (in thousands)
--------------------------------------------
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $124,050 $95,910
Standby letters of credit 13,933 16,261
</TABLE>
(b) LEASE COMMITMENTS
At December 31, 1994, the Company was obligated under a number of
non-cancelable leases for land and buildings that expire at various dates
through August 2014. Minimum annual rental commitments , exclusive of taxes
and other charges, under non-cancelable leases are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31 : Minimum
(in thousands) Rentals
---------
<S> <C>
1995 $2,034
1996 1,750
1997 1,713
1998 1,028
1999 710
Thereafter 2,693
</TABLE>
Total rent expense for the years ended December 31, 1994, 1993 and 1992
amounted to $2.3 million, $2.0 million and $2.0 million, respectively.
(C) OTHER MATTERS
The Bank is required to maintain balances with the Federal Reserve Bank of
New York for reserve and clearing requirements. These balances averaged $9.9
million in 1994.
Because of the nature of their activities, the Company and its subsidiaries
are subject to certain pending and threatened legal actions which arise out of
the normal course of business. The Company believes that the resolution of any
pending or threatened litigation will not have a material adverse effect on its
financial condition or results of operations.
41
<PAGE> 34
North Fork Bancorporation, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 "Disclosure about Fair
Value of Financial Instruments" ("SFAS 107) requires that the Company disclose
estimated fair values for its financial instruments. Fair value estimates are
made at a specific point in time, based on relevant market information and
information about the financial instrument. SFAS 107 has no effect on
financial position or results of operations in the current year or any future
period. Furthermore, the fair values disclosed under SFAS 107 are not
representative of the Company's total value.
When quoted market prices are not available, SFAS 107 permits using the
present value of anticipated future cash flows. In that regard, the estimated
fair value will be influenced by prepayment and discount rate assumptions.
Such method may not provide the actual amount that would be realized in the
ultimate sale of the financial instrument. Fair value estimates, methods and
assumptions are set forth below.
CASH, CASH EQUIVALENTS, AND SECURITIES
The carrying amounts for cash and cash equivalents are reasonable estimates
of fair value. The fair value of securities is estimated based on quoted
market prices as published by various quotation services or if quoted market
prices are not available, on dealer quotes. The following table presents the
carrying value and estimated fair value of cash, cash equivalents, and
securities at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
------------------------------------------------------
CARRYING ESTIMATED Carrying Estimated
(in thousands) AMOUNT FAIR VALUE Amount Fair Value
------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $ 67,916 $ 67,916 $ 117,921 $ 117,921
Securities Held-to-Maturity 631,492 593,110 771,648 778,230
Securities Available-for-Sale 141,805 141,805 200,219 201,489
------------------------------------------------------
Total Cash, Cash Equivalents and Securities $841,213 $802,831 $1,089,788 $1,097,640
======================================================
</TABLE>
LOANS
Certain homogeneous categories of loans have been valued on a pooled basis
using market prices for securities backed by loans with similar
characteristics. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit risks. For potential
problem loans, which include non-performing loans, the present value result is
separately discounted consistent with management's assumptions in evaluating
the adequacy of the allowance for loan losses. The following table presents
the carrying value and estimated fair value of the Company's loan portfolio as
of December 31, 1994 and 1993.
<TABLE>
<CAPTION>
1994 1993
------------------------------------------------------
CARRYING ESTIMATED Carrying Estimated
(in thousands) AMOUNT FAIR VALUE Amount Fair Value
------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Loans $1,823,274 $1,739,569 $1,746,247 $1,795,785
======================================================
</TABLE>
DEPOSIT LIABILITIES AND BORROWINGS
The carrying amount for demand deposits, savings, N.O.W., money market
accounts and borrowings with a term of 90 days or less are reasonable estimates
of fair value. Fair value for certificates of deposit and longer term
borrowings are estimated by discounting the future cash flows using the rates
currently offered for deposits and borrowings of similar remaining maturities.
The following table presents the carrying value and estimated fair value of the
Company's deposits and borrowings as of December 31, 1994 and 1993.
<TABLE>
<CAPTION>
1994 1993
------------------------------------------------------
CARRYING ESTIMATED Carrying Estimated
(in thousands) AMOUNT FAIR VALUE Amount Fair Value
------------------------------------------------------
<S> <C> <C> <C> <C>
Demand Deposits $ 331,245 $ 331,245 $ 276,963 $ 276,963
Savings, N.O.W. and Money Market 1,325,628 1,325,628 1,389,515 1,389,515
Certificates of Deposit 686,014 672,135 682,067 690,161
Borrowings with terms of 90 days or less 60,000 60,000 255,643 255,643
Borrowings with terms greater than 90 days 35,000 33,678 33,000 37,917
------------------------------------------------------
Total Deposit Liabilities and Borrowings $2,437,887 $2,422,686 $2,637,188 $2,650,199
------------------------------------------------------
</TABLE>
42
<PAGE> 35
COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT, AND UNUSED LINES OF
CREDIT
The fair value of standby letters of credit is based on fees currently
charged for similar agreements or the estimated cost to terminate them or
otherwise settle the obligations with the counterparties. Commitments to
extend credit are short term in nature and as such their estimated fair value
approximates the contractual obligation. The estimated fair value of lines of
credit, which are variable rate, approximates the contractual obligation. The
contractual amount and estimated fair value for commitments to extend credit and
standby letters of credit written at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------------------------------------
CARRYING ESTIMATED Carrying Estimated
(in thousands) AMOUNT FAIR VALUE Amount Fair Value
------------------------------------------------------
<S> <C> <C> <C> <C>
Commitments to Extend Credit $124,050 $124,050 $95,910 $95,910
Standby Letters of Credit 13,933 13,933 16,261 16,261
------------------------------------------------------
Total Commitments and Standby Letters of
Credit
$137,983 $137,983 $112,171 $112,171
======================================================
</TABLE>
INTEREST RATE CAP, FLOOR AND SWAP AGREEMENTS
The Company had entered into a variety of interest rate contracts including
interest rate caps, floors and swaps to hedge against interest rate risk.
During 1994, the Company terminated its interest rate swap and cap contract.
The interest rate contracts had a notional value of $99.0 million with a
positive net market value of $67.0 thousand as of December 31, 1994.
43
<PAGE> 36
North Fork Bancorporation, Inc. and Subsidiaries
INDEPENDENT AUDITORS' REPORT LLP
KPMG Peat Marwick LLP
To the Stockholders and Board of Directors of North Fork Bancorporation, Inc.:
We have audited the accompanying consolidated balance sheets of North Fork
Bancorporation, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1994. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of North Fork
Bancorporation, Inc. and subsidiaries at December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Notes 1, 3, 9 and 10 to the consolidated financial
statements, the Company adopted the provisions of Statements of Financial
Accounting Standards No. 109, Accounting for Income Taxes, No. 106,
Postretirement Benefits Other Than Pensions, and No. 115, Accounting for
Certain Investments in Debt and Equity Securities, at various dates during the
periods covered by the consolidated financial statements.
/s/ KPMG PEAT MARWICK LLP
Jericho, New York
January 20, 1995
44
<PAGE> 37
North Fork Bancorporation, Inc. and Subsidiaries
REPORT OF MANAGEMENT
The management of North Fork Bancorporation, Inc. is responsible for the
preparation and integrity of the consolidated financial statements and all
other information whether audited or unaudited in this annual report. The
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and, where necessary, are based on
management's best estimates and judgments. The financial information contained
elsewhere in this annual report is consistent with that in the consolidated
financial statements.
North Fork Bancorporation, Inc.'s independent auditors have been engaged to
perform an audit of the consolidated financial statements in accordance with
generally accepted auditing standards and the independent auditors' report
expresses their opinion as to the fair presentation of the consolidated
financial statements in conformity with generally accepted accounting
principles.
North Fork Bancorporation, Inc. maintains an internal control structure that
provides reasonable assurance that its accounting and administrative procedures
and reporting practices are of the highest quality and integrity. Because of
inherent limitations in any internal control structure, there can be no
absolute assurance that errors or irregularities will not occur. Nevertheless,
management believes that this structure provides reasonable assurance that
assets are safeguarded and reliable financial records are maintained for
preparing financial statements. An internal audit function is maintained to
continually evaluate the adequacy and effectiveness of such internal controls,
policies and procedures.
The Board of Directors pursues its oversight role for the financial
statements through the Audit Committee, which is composed entirely of outside
directors. The Audit Committee meets periodically with management, the
internal auditors and the independent auditors, to discuss the internal control
structure and accounting, auditing and financial reporting matters. The Audit
Committee reviews and approves the scope of internal and external audits, as
well as recommendations made with respect to the internal control structure by
the independent and internal auditors and the various regulatory agencies.
/s/ John Adam Kanas
John Adam Kanas
Chairman, President and Chief Executive Officer
/s/ Daniel M. Healy
Daniel M. Healy
Executive Vice President and Chief Financial Officer
45
<PAGE> 1
EXHIBIT 21 SUBSIDIARIES OF REGISTRANT
North Fork Bank
North Fork Leasing Corp.
North Fork Capital Corp.
Compass Investment Services Corp.
North Interim
AcuData Service Corp. (inactive)
SUBSIDIARIES OF NORTH FORK BANK
NFB Development Corp.
Cutchco Corp.
First Settlers Corp.
Howard Enterprises, Inc. (inactive)
Clare Elm Corp (inactive)
North Fork Information Services, Inc. (inactive)
North Fork Loan Service Corp. (inactive)
Long Island Mortgage Corp. (inactive)
Unifed Management Corp. (inactive)
CPS Service Corp. (inactive)
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<PAGE> 1
EXHIBIT 23 ACCOUNTANTS CONSENT
The Stockholders and Board of Directors
North Fork Bancorporation, Inc.:
We consent to the incorporation by reference in the Registration Statements
(Nos. 2-80676, 2-80677, 2-99984, 33-14903, 33-34372, 33-52504, 33-53467 and
33-56743) on Form S-8 and (Nos. 2-80166, 33-42294 and 33-53058) on Form S-3 of
North Fork Bancorporation, Inc. of our report dated January 20, 1995. Relating
to the consolidated balance sheets of North Fork Bancorporation, Inc. and
subsidiaries as of December 31, 1994 and 1993 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1994, which report is
incorporated by reference in the December 31, 1994 Annual Report on Form 10-K
of North Fork Bancorporation, Inc.
Our report refers to a change in the methods of accounting as discussed in the
notes to those statements.
KPMG PEAT MARWICK LLP
Jericho, New York
March 28, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
FINANCIAL DATA SCHEDULE - NORTH FORK BANCORPORATION, INC. FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1994 (COMMISSION FILE # 1-10458).
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
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<INT-BEARING-DEPOSITS> 748
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 141,805
<INVESTMENTS-CARRYING> 631,492
<INVESTMENTS-MARKET> 593,110
<LOANS> 1,823,274
<ALLOWANCE> 50,069
<TOTAL-ASSETS> 2,717,776
<DEPOSITS> 2,342,887
<SHORT-TERM> 60,000
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<COMMON> 57,623
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<TOTAL-LIABILITIES-AND-EQUITY> 2,717,776
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