SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
AMENDMENT NO. 1
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) - March 15, 1996
NORTH FORK BANCORPORATION, INC.
(Exact name of Registrant as specified in its charter)
Delaware 1-10458 36-3154608
(State or other (Commission (IRS Employer
jurisdiction File Number) Identification No.)
of incorporation)
275 Broad Hollow Road 11747
Melville, New York (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (516) 844-1004
The Registrant hereby amends and restates Item 7, Financial
Statements, Pro Forma Financial Information and Exhibits of its
Current Report on Form 8-K dated March 15, 1996 in its entirety
as set forth herein.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
EXTEBANK DOMESTIC COMMERCIAL BANKING BUSINESS
The audited financial statements of Extebank as of, and
for the years ended, December 31, 1995 and 1994 are submitted
herewith as Exhibit 99 and are incorporated herein by reference.
LONG ISLAND BRANCHES OF FIRST NATIONWIDE
The Assets and liabilities of First Nationwide assumed
by North Fork Bank do not constitute a "business" which has
continuity for which historical financial statements would be
relevant. Consequently, such historical financial statements are
not required and have not been provided herein.
(b) Pro Forma Financial Information.
The following pro forma financial information is being
filed under cover of this amendment to the Current Report: Pro
forma financial information with respect to the Registrant giving
effect to the purchase of Extebank and the purchase of assets and
assumption of liabilities of the ten (10) Long Island banking
branches of First Nationwide, as required pursuant to Article 11
of Regulation S-X. The pro forma financial information presented
includes available Guide 3 disclosure for the deposits acquired.
UNAUDITED CONDENSED PRO FORMA FINANCIAL INFORMATION
The following pro forma condensed financial information has been
prepared giving effect to: (i) the purchase of the domestic
commercial banking business of Extebank. A description of the
Extebank transaction, which was consummated on March 15, 1996, is
set forth in Item 2(A) to the Form 8-K Current Report, dated as
of March 15, 1996; and (ii) the purchase of assets and assumption
of liabilities in connection with the acquisition of the ten (10)
Long Island banking branches of First Nationwide. A description
of the First Nationwide transaction, which was consummated on
March 23, 1996, is set forth in Item 2(B) to the Form 8-K Current
Report, dated as of March 15, 1996.
The following pro forma condensed financial information is
required pursuant to Article 11 of Regulation S-X and has been
prepared as if these transactions had taken place on January 1,
1995 for the unaudited pro forma combined condensed consolidated
statement of operations for the year ended December 31, 1995 and
on January 1, 1996 for the unaudited pro forma combined condensed
consolidated statement of operations for the quarter ended March 31, 1996.
The pro forma condensed financial information set forth in
tabular form for North Fork Bancorporation, Inc. and subsidiaries
(the "Company") includes the historical amounts reflected in the
financial statements for the date or period indicated, purchase
accounting adjustments to such amounts reflecting those adjust-
ments made by the Company which arose from the transactions and
the application of such adjustments as if the transactions had
occurred as of the dates referenced above, together with the
resulting pro form amounts. This pro forma condensed financial
information is prepared based upon the assumptions set forth in
the notes thereto. The pro forma condensed financial information
also includes the historical amounts reflected in the financial
statements of Extebank for the date or period indicated, the
elimination of its international operations during 1995, and the
relevant purchase accounting adjustments.
The pro forma condensed financial information is not intended to
be indicative of the results of operations or the financial
condition which would have been attained had the acquisition been
consummated at either of the foregoing dates or which may be
attained in the future. The estimates and assumptions used by
management are subject to change in the future as additional
information becomes available or previously existing circumstanc-
es are modified. Actual results could differ from those esti-
mates. In addition, numerous factors, including factors outside
the Company's control such as the general level of interest rates
and regional economic conditions may significantly affect the actual
results of the Company. These statements should be read in conjunction
with the Company's 1995 Annual Report on Form 10-K and the Company's
Form 10-Q for the period ended March 31, 1996, which are incorporated
herein by reference.
<TABLE>
<CAPTION>
NORTH FORK BANCORPORATION, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
Historical Pro Forma Pro Forma Pro Forma Combined
(dollars in thousands, North Fork Historical Extebank Adjustments Adjustments Pro Forma
except per share amounts) Bancorporation, Extebank Int'l Extebank First Results
Inc. Operations Nationwide
______________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Interest Income . . . . . . $226,398 $58,421 ($26,799) ($3,135) $33,963 $288,848
Interest Expense . . . . . 85,162 30,479 (20,385) - 25,169 120,425
_______________________________________________________________________________
Net Interest Income . . 141,236 27,942 (6,414) (3,135) 8,794 168,423
_______________________________________________________________________________
Provision For Loan Losses. . 9,000 3,040 - - - 12,040
Net Interest Income After ______________________________________________________________________________
Provision for Loan
Losses . . . . . . . . 132,236 24,902 (6,414) (3,135) 8,794 156,383
______________________________________________________________________________
Non-Interest Income
Fees & Service Charges on
Deposit Accounts . . . 10,840 1,451 (35) - 2,481 14,737
Other Operating Income . 10,102 2,867 (952) - 1,154 13,171
Net Security Gains . . . 6,379 1,130 - - - 7,509
______________________________________________________________________________
Total Non-Interest Income 27,321 5,448 (987) - 3,635 35,417
______________________________________________________________________________
Non-Interest Expense
Compensation & Employee
Benefits . . . . . . . 34,633 10,463 (1,376) - 2,368 46,088
Occupancy & Equipment . 11,458 4,718 (586) - 1,399 16,989
Amortization of Intangibles. 1,667 - - 1,543 3,080 6,290
Other Operating Expense. . 21,085 11,001 (2,180) - 859 30,765
______________________________________________________________________________
Total Non-Interest
Expense. . . . . . 68,843 26,182 (4,142) 1,543 7,706 100,132
______________________________________________________________________________
Income Before Income
Taxes. . . . . . . . 90,714 4,168 (3,259) (4,678) 4,723 91,668
Provision for Income
Taxes. . . . . . . . 38,479 1,587 (1,382) (1,329) 2,003 39,358
______________________________________________________________________________
Net Income . . . . . . $52,235 $2,581 ($1,877) ($3,349) $2,720 $52,310
==============================================================================
Earnings Per Share . . $2.13 $2.13
See accompanying notes to the unaudited pro forma condensed financial statements.
</TABLE>
<TABLE>
<CAPTION>
NORTH FORK BANCORPORATION, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
Historical Pro Forma Pro Forma Combined
(dollars in thousands North Fork Historical Adjustments Adjustments Pro Forma
except per share amounts) Bancorporation Extebank Extebank First Results
Inc. Nationwide
<S> <C> <C> <C> <C> <C>
Interest Income . . . . . $65,781 $5,666 ($707) $8,641 $79,381
Interest Expense . . . . 27,044 1,964 - 6,258 35,266
_____________________________________________________________
Net Interest Income. . . 38,737 3,702 (707) 2,383 44,115
_____________________________________________________________
Provision For Loan Losses. . 1,500 221 - - 1,721
Net Interest Income After _____________________________________________________________
Provision for Loan
Losses . . . . . . . . 37,237 3,481 (707) 2,383 42,394
_____________________________________________________________
Non-Interest Income
Fees & Service Charges on
Deposit Accounts . . . . 2,983 401 - 620 4,004
Other Operating Income . . . 2,817 209 - 288 3,314
Net Security Gains . . . . 991 - - - 991
_____________________________________________________________
Total Non-Interest
Income . . . . . . . 6,791 610 - 908 8,309
_____________________________________________________________
Non-Interest Expense
Compensation & Employee
Benefits . . . . . . . 9,661 2,189 - 592 12,442
Occupancy & Equipment . . . 3,218 863 - 350 4,431
Amortization of Intangibles. . 468 - 386 774 1,628
Other Operating Expense . . 5,406 1,526 - 215 7,147
______________________________________________________________
Total Non-Interest Expense. 18,753 4,578 386 1,931 25,648
______________________________________________________________
Income Before Income Taxes . 25,275 (487) (1,091) 1,360 25,055
Provision for Income Taxes . 10,850 (508) (303) 584 10,623
______________________________________________________________
Net Income . . . . . . . . $14,425 $21 ($790) $776 $14,432
==============================================================
Earnings Per Share . . $0.58 $0.58
See accompanying notes to the unaudited pro forma condensed financial statements.
</TABLE>
NORTH FORK BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1) ASSUMPTIONS FOR PRO FORMA INFORMATION
The Pro Forma Combined Condensed Consolidated Statements of Operations
of North Fork Bancorporation, Inc. and Subsidiaries (the "Company")
at December 31, 1995 and March 31, 1996 have been prepared as if
the acquisition of the domestic commercial banking business of
Extebank ("Extebank") and the acquisition of the ten (10) Long
Island banking branches of First Nationwide Bank, a Federal
Savings Bank ("First Nationwide") had been consummated at January
1, 1995 and January 1, 1996, respectively. Although separate
financial data had historically been prepared for Extebank, such
financial information also included certain international opera-
tions. Accordingly, since only the domestic commercial banking
business was acquired by North Fork Bank, certain estimates and
assumptions have been utilized in determining the pro forma
adjustments applied to the historical results of the operations
of Extebank. The First Nationwide branch acquisition, which
consisted principally of cash and customer deposit liabilities,
did not constitute a distinct business entity for which separate
financial data had historically been prepared. Therefore,
subjective estimates have been utilized in determining the pro
forma adjustments applied to the historical audited results of
the operations of the Company.
A) EXTEBANK COMMERCIAL DOMESTIC BANKING BUSINESS
Specific assumptions utilized: 1) Extebank's historical state-
ments of operations for the period ended December 31, 1995
included certain international operations of Extebank. The
historical statement of operations for Extebank were adjusted to
reflect the elimination of the international operations; 2)
Interest earning assets have been reduced by the transaction
purchase price and additional costs incurred in connection with
the consummation of the transaction. These cash outlays are
assumed to have been incurred as of the beginning of the
respective pro forma periods at the Company's average Federal
Funds sold rate in effect during each of the period presented
(5.90% and 5.32% for the periods ended December 31, 1995 and
March 31, 1996, respectively); 3) the intangible assets associated
with this transaction are currently being amortized for financial
reporting purposes on a straight line basis over fifteen years;
and 4) income taxes have been provided using the Company's
effective tax rate. The pro forma adjustments do not reflect
any possible cost savings to be derived from the elimination of
redundant operations.
B) LONG ISLAND BRANCHES OF FIRST NATIONWIDE BANK
Specific assumptions utilized: 1) the assets acquired, princi-
pally cash, are assumed to be invested in certain investment
securities at the beginning of each period using the average
rates in effect during such periods (6.42% and 6.57% for the
periods ending December 31, 1995 and March 31, 1996, respective-
ly); 2) the actual interest bearing deposit liabilities assumed
are assumed to have been acquired at the beginning of each period
using consummation date fair values and are reflected during the
periods using the average rates in effect at the consummation
date (weighted average cost of funds of 4.40%); 3) non-interest
income and non-interest expense amounts are based upon an extrap-
olation of one month's actual operating results subsequent to
consummation; 4) the intangible assets associated with this
transaction are currently being amortized over periods not
exceeding fifteen years for both financial reporting and tax
purposes; and 5) income taxes have been provided using the
Company's effective tax rate for the pro forma periods. The pro
forma adjustments do not reflect any possible cost savings from
branch operating efficiencies which may be affected in the
future.
The historical cost basis of the assets acquired and liabilities
assumed in the aforementioned transactions approximates the
estimated fair market values thereof.
Weighted average number of common and common stock equivalents
utilized for the calculation of pro forma earnings per share was
24,553,587 million and 25,091,259 million, which represented the
Company's actual weighted average number of common and common
stock equivalents for the year ended December 31, 1995 and for
the three months ended March 31, 1996, respectively.
2. Deposits
Deposit balances assumed as of March 23, 1996 from the acquisition
of the First Nationwide branches are summarized as follows:
Percentage Weighted
of Total Average
(dollars in thousands) Balance Deposits Rate
N.O.W. and Checking Accounts . $65,152 11.39% 0.71%
Savings Accounts . . . . . . . 45,817 8.01% 2.25%
Money Market Accounts . . . . . 112,992 19.75% 3.23%
Certificate of Deposit Accounts 348,051 60.85% 5.75%
_______________________________
Total . . . . . . . . . . . $572,012 100.00% 4.40%
===============================
The remaining term of certificate of deposit accounts at March 23,
1996 are summarized as follows:
Percentage of
(dollars in thousands) Amount Total
Due within six months . . . . . . . . $119,283 34.27%
Due within six to twelve months . . . 161,326 46.36%
Due within one to two years . . . . . 29,634 8.51%
Due within two to five years . . . . 37,734 10.84%
Due beyond five years . . . . . . . . 74 0.02%
__________________________
Total . . . . . . . . . . . . . . . . $348,051 100.00%
==========================
(c) Exhibits
Exhibit Description Method of Filing
Number
2.1 Stock Purchase Agreement, dated Previously filed on Form
as of September 19, 1995, among 10-K for the year ended
North Fork Bank and Banco Exte- December 31, 1995 dated
rior de Espana, S.A. March 26, 1996, as Exhib-
it 2.1 and incorporated
herein by reference.
2.2 Asset Purchase and Sale Agree- Previously filed on Form
ment dated as of September 28, 10-K for the year ended
1995, among North Fork Bank and December 31, 1995 dated
First Nationwide Bank March 26, 1996, as exhib-
it 2.2 and incorporated
herein by reference.
23 Consent of Arthur Andersen LLP Attached hereto
99 Audited Financial Statements of Attached hereto
Extebank as of, and for the
years ended, December 31, 1995
and 1994.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
Dated: May 31, 1996
NORTH FORK BANCORPORATION, INC.
By: /s/ Daniel M. Healy
______________________________
Daniel M. Healy
Executive Vice President and
Chief Financial Officer
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby
consent to the incorporation by reference in this Regis-
tration Statement (No. 33-53467) on Form S-8 of North
Fork Bancorporation, Inc. of our report dated January 31,
1996, with respect to the balance sheets of Extebank as
of December 31, 1995 and 1994, and the related statements
of operations, shareholder's equity and cash flows for
the years ended December 31, 1995 and 1994, which report
is incorporated by reference in the Form 8-K of North
Fork Bancorporation, Inc. dated March 15, 1996.
/s/ Arthur Andersen LLP
-----------------------
New York, NY
May 30, 1996
[Arthur Andersen LLP Letterhead]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
and Shareholder of Extebank:
We have audited the accompanying balance sheets of
Extebank (a wholly owned subsidiary of Banco Exterior de
Espana, Spain) as of December 31, 1995 and 1994, and the
related statements of operations, shareholder's equity
and cash flows for the years then ended. These financial
statements are the responsibility of the Bank's manage-
ment. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and we perform the audit to obtain reason-
able assurance about whether the financial statements are
free of material misstatement. An audit includes examin-
ing, 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 financial statements referred to
above present fairly, in all material respects, the
financial position of Extebank as of December 31, 1995
and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with gener-
ally accepted accounting principles.
/s/Arthur Andersen LLP
----------------------
New York, New York
January 31, 1996
EXTEBANK
(a wholly owned subsidiary of
Banco Exterior de Espana, Spain)
BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1994
ASSETS 1995 1994
- ---------------------------------------- ------------- -------------
CASH AND DUE FROM BANKS $ 26,596,128 $ 29,828,072
INTEREST BEARING DEPOSITS WITH
BANKS - 393,780,090
INVESTMENT SECURITIES (Notes 1 and 4):
Available-for-sale, at market value 54,346,246 53,291,866
Held-to-maturity (market value
approximating $1,249,000 and
$3,782,000), respectively 1,228,136 3,860,178
------------- -------------
Total investment securities 55,574,382 57,152,044
FEDERAL FUNDS SOLD 120,000,000 10,000,000
LOANS, net (Notes 2, 5 and 6) 219,242,645 335,429,886
BANK PREMISES AND EQUIPMENT,
net (Notes 2 and 7) 4,634,183 6,012,418
ACCRUED INTEREST RECEIVABLE 2,240,496 5,552,363
CUSTOMERS' LIABILITIES ON
ACCEPTANCES 1,847,537 3,102,141
OTHER REAL ESTATE OWNED 1,107,265 2,966,022
OTHER ASSETS 9,450,862 8,038,324
------------- -------------
Total assets $ 440,693,498 $ 851,861,360
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY 1995 1994
- --------------------------------------------- ------------- -------------
LIABILITIES:
Deposits-
Demand deposits-
Domestic $ 121,282,271 $ 123,096,758
Foreign 6,283,714 20,781,642
------------- -------------
Total demand deposits 127,565,985 143,878,400
------------- -------------
Interest bearing and time deposits-
Savings deposits and NOW accounts 56,193,061 71,783,354
Money market accounts 52,796,648 113,077,661
Time deposits in excess of $100,000-
Domestic 40,974,807 32,991,481
Foreign 2,450,551 212,934,584
Other time deposits 43,454,777 34,329,151
------------- -------------
Total interest bearing and time deposits 195,869,844 465,116,231
------------- -------------
Total deposits 323,435,829 608,994,631
------------- -------------
Federal funds purchased - 58,850,000
Correspondent bank sweeps 57,068,308 -
Other borrowed funds (Note 8) 21,559,718 120,782,556
Accrued interest payable 1,509,931 1,135,851
Acceptances outstanding 1,847,537 3,102,141
Obligation under capital lease 829,964 832,280
Other liabilities 4,382,395 3,806,444
------------- -------------
Total liabilities 410,633,682 797,503,903
------------- -------------
COMMITMENTS AND CONTINGENT LIABILITIES
(Note 13)
SHAREHOLDER'S EQUITY:
Common stock ($5.00 par value) 394,597 shares
in 1995 and 619,597 shares in 1994
authorized, issued and outstanding 1,972,985 3,097,985
Surplus 28,021,938 30,958,774
Undivided profits 22,754 20,379,233
Unrealized gains/(losses) on securities
available for-sale, net 42,139 (78,535)
------------- -------------
Total shareholder's equity 30,059,816 54,357,457
Total liabilities and shareholder's ------------- -------------
equity $ 440,693,498 $ 851,861,360
============= =============
The accompanying notes to financial statements are an
integral part of these balance sheets.
EXTEBANK
(a wholly owned subsidiary of
Banco Exterior de Espana, Spain)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
------------ -----------
INTEREST INCOME:
Loans $ 26,844,093 $ 29,035,454
Interest bearing deposits with banks 18,175,489 15,262,937
Federal funds sold 9,346,241 2,019,856
U.S. Treasury securities 3,971,795 2,763,162
State and municipal securities 82,999 117,054
------------ ------------
Total interest income 58,420,617 49,198,463
------------ ------------
INTEREST EXPENSE:
Savings deposits and NOW accounts 1,301,097 1,511,179
Money market accounts 3,052,823 2,853,257
Time deposits in excess of $100,000-
Domestic 2,933,684 1,933,205
Foreign 9,605,674 8,023,545
Other time deposits 2,548,855 1,252,161
------------ ------------
19,442,133 15,573,347
BORROWED FUNDS 11,037,138 7,648,350
------------ ------------
Total interest expense 30,479,271 23,221,697
------------ ------------
Net interest income 27,941,346 25,976,766
PROVISION FOR POSSIBLE LOAN LOSSES 3,040,000 7,000,000
Net interest income after provision ------------ ------------
for possible loan losses 24,901,346 18,976,766
------------ ------------
OTHER INCOME:
Service charges on deposit accounts 1,451,039 1,607,296
Gain on sale of investment securities 1,181,681 80,936
Other operating income 2,867,132 6,061,672
------------ ------------
Total other income 5,499,852 7,749,904
------------ ------------
Income before other expenses 30,401,198 26,726,670
------------ ------------
OTHER EXPENSES:
Salaries 7,473,415 8,207,469
Pension and other employee benefits 2,989,953 2,866,200
Occupancy expense 3,365,651 3,182,966
Furniture and equipment expense 1,351,503 1,239,525
FDIC assessment 477,855 1,085,127
Loss on sale of investment securities 51,520 3,840,116
Other operating expenses 10,523,016 7,710,301
------------ ------------
Total other expenses 26,232,913 28,131,704
------------ ------------
Income (loss) before provision for 4,168,285 (1,405,034)
income taxes
PROVISION FOR INCOME TAXES (Note 9): 1,586,600 494,500
------------ ------------
Net income (loss) $ 2,581,685 $ (1,899,534)
============ ============
The accompanying notes to financial statements are an
integral part of these statements.
<TABLE>
<CAPTION>
EXTEBANK
(a wholly owned subsidiary of
Banco Exterior de Espana, Spain)
STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<S> <C> <C> <C> <C> <C>
Unrealized
Gains (Losses)
on Securities
Common Undivided Available-
Stock Surplus Profits for-Sale Total
----- ------- ------- -------- -----
BALANCE, December 31, 1993 $ 3,097,985 $ 19,156,030 $ 31,281,511 $ - $ 53,535,526
Net income - - (1,899,534) - (1,899,534)
Change in accounting for
investments effective
January 1, 1994 - - - 57,351 57,351
Capital contribution - Parent - 11,802,744 - - 11,802,744
Cash dividend - Parent - - (9,002,744) - (9,002,744)
Unrealized losses on securities
available-for-sale, net - - - (135,886) (135,886)
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1994 3,097,985 30,958,774 20,379,233 (78,535) 54,357,457
Net income - - 2,581,685 - 2,581,685
Capital stock redemption (1,125,000) (2,936,836) - - (4,061,836)
Cash dividend - Parent - - (22,938,164) - (22,938,164)
Unrealized gains on securities
available-for-sale, net - - - 120,674 120,674
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1995 $ 1,972,985 $ 28,021,938 $ 22,754 $ 42,139 $ 30,059,816
============ ============ ============ ============ ============
The accompanying notes to financial statements are an
integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
EXTEBANK
(a wholly owned subsidiary of
Banco Exterior de Espana, Spain)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<S> <C> <C>
1995 1994
--------------- -------------
OPERATING ACTIVITIES:
Net income (loss) $ 2,581,685 $ (1,899,534)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Depreciation and amortization 1,243,113 1,225,430
Net (gain) loss realized on sale of investment securities (1,130,161) 3,759,180
Provision for possible loan losses 3,040,000 7,000,000
(Increase) decrease in accrued interest receivable 3,311,867 (1,110,176)
(Increase) decrease in other real estate owned 1,858,757 (1,655,839)
(Increase) decrease in other assets (1,412,538) 3,697,110
Increase in accrued interest payable 374,080 26,518
Increase in other liabilities 575,951 835,022
------------- -------------
Net cash provided by operating activities 10,442,754 11,877,711
------------- -------------
INVESTING ACTIVITIES:
Net decrease (increase) in interest bearing deposits with banks 393,780,090 (46,405,427)
Proceeds from the sales of investment securities available-for-
sale 68,218,867 56,828,440
Proceeds from maturities of investment securities held-to-
maturity 2,867,000 540,000
Proceeds from maturities of investment securities
available-for-sale 2,000,000 500,000
Purchase of investment securities available-for-sale (69,563,044) (59,934,979)
Purchase of investment securities held-to-maturity (234,000) (2,867,000)
Net decrease in loans 113,147,241 47,967,237
Capital expenditures, net (325,204) (562,413)
------------- -------------
Net cash provided by (used in) investing activities 509,890,950 (3,934,142)
------------- -------------
FINANCING ACTIVITIES:
Net decrease in demand deposits (16,312,415) (6,277,361)
Net decrease in savings, NOW and money market accounts (75,871,306) (26,488,560)
Net (decrease) increase in time deposits (193,375,081) 21,448,965
Increase in correspondent bank sweeps 57,068,308 --
Net (decrease) in other borrowed funds (99,222,838) (44,623,931)
Net (decrease) increase in federal funds purchased/sold (168,850,000) 38,850,000
Capital contribution - Parent -- 11,802,744
Cash dividend - Parent (22,938,164) (9,002,744)
Capital stock redemption (4,061,836) --
Payments from obligations under capital lease (2,316) (2,298)
------------- -------------
Net cash (used in) financing activities (523,565,648) (14,293,185)
------------- -------------
Net (decrease) in cash and equivalents (3,231,944) (6,349,616)
CASH AND DUE FROM BANKS, beginning of year 29,828,072 36,177,688
------------- -------------
CASH AND DUE FROM BANKS, end of year $ 26,596,128 $ 29,828,072
============= =============
The accompanying notes to financial statements are an
integral part of these statements.
</TABLE>
EXTEBANK
(a wholly owned subsidiary of
Banco Exterior de Espana, Spain)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. ORGANIZATION:
General
Extebank (the "Bank") is a New York State chartered commercial
bank wholly owned by Banco Exterior de Espana ("Banco Exterior"
or the "Parent"). Operations of the Bank have included activi-
ties management considered directly related to the operation of a
U.S. domestic community bank as well as other banking activities
identified by Bank management to be international activities in
support of customers of the Parent or made possible due to the
active involvement and support for such operations by the Parent.
Pursuant to enabling regulations, the Bank also had an Interna-
tional Banking Facility ("IBF") which permitted the Bank to
engage in certain types of international transactions, free of
certain regulatory constraints, such as mandatory reserves and
interest rate limitations.
During 1995, Banco Exterior received approval for the formation
of a New York State branch in order to conduct various banking
activities in support of the Parent's international operations.
The new entity, Banco Exterior de Espana - New York Branch (the
"Branch"), commenced operations on October 2, 1995. Upon the
commencement of operations of the Branch, the Branch accepted
transfer of those assets and liabilities, personnel and facili-
ties identified by Bank management as pertaining to the interna-
tional activities (see Note 10 for description of transferred
assets and liabilities).
On September 19, 1995, the Bank entered into a merger agreement
with North Fork Bank ("NFB") stipulating that NFB would acquire
all of the capital stock of the Bank and thereby purchase the
domestic business of the Bank following a transfer of interna-
tional assets and liabilities to the Branch (see Note 10).
In December 1995, following approval from the State of New York
Banking Department and Federal Deposit Insurance Corporation, the
Bank reduced its common stock and surplus accounts by $1,125,00
and $2,936,836, respectively, by redeeming 225,000 shares of its
common stock held by the Parent for $4,061,836. The Bank also
paid a dividend of $22,938,164 out of its undivided profits
account.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of the Bank conform to
generally accepted accounting principles and to general practice
within the banking industry. The following is a description of
the more significant of those policies. The preparation of the
consolidated financial statements requires management to make
estimates and assumptions that affect the reported assets and
liabilities and disclosures of contingent assets and liabilities
at the date of the consolidated balance sheets and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
a. Investment Securities
Available-For-Sale: Effective January 1, 1994, the Bank adopted
Statement of Financial Accounting Standards No. 115 "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS
115"). In connection with the adoption of this pronouncement,
debt and equity securities used as part of the Bank's as-
set/liability management that may be sold in response to changes
in interest rates, prepayments, and other factors have been
classified as available-for-sale. Such securities are reported
at fair value, with unrealized gains and losses excluded from
earnings and reported in a separate component of shareholder's
equity (on an after tax basis). Gains and losses on the disposi-
tion of securities are recognized on the specific identification
method in the period in which they occur.
Held-To-Maturity: Held-to-maturity investment securities are
stated at cost adjusted for accretion of discount or amortization
of premium. The Bank has the intent and ability to hold such
securities until maturity.
b. Loans
Loans are reported as the principal amount outstanding net of
unearned discount and the allowance for possible loan losses.
Unearned discounts on installments loans are recognized as income
over the terms of the loans by using the effective interest
method. Interest on other loans is calculated by using the
simple interest method on the daily balances of the principal
amounts outstanding.
Fees received that represent adjustments to the interest yield
are recognized over the term of the loan.
Recognition of interest income on commercial loans is discontin-
ued when, in the opinion of management, the collection of addi-
tional interest is unlikely (generally non-payment of principal
or interest for a period of ninety days). When such
collectibility is considered unlikely, all interest previously
accrued, but not collected, is reversed against income. Thereaf-
ter, no interest is taken into income unless received in cash and
until such time as the borrower demonstrates the ability to make
future payments of interest and principal as scheduled.
On January 1, 1995, the Bank adopted Statement of Financial
Standards No. 114 ("SFAS 114"), "Accounting by Creditors for
Impairment of a Loan," and Statement of Financial Accounting
Standards No. 118 ("SFAS 118"), "Accounting by Creditors for
Impairment of Loan - Income Recognition and Disclosures." SFAS
114 and 118 address the accounting by creditors for impairment of
certain loans and the recognition of interest income on these
loans and require that impairment of certain loans be measured
based on the present value of expected future cash flows dis-
counted at the loan's effective interest rate or the fair value
of collateral. A loan is considered impaired, based on current
information and events, if it is probable that the Bank will be
unable to collect the scheduled payments of principal and inter-
est when due according to the contractual terms of the loan
agreement.
The adoption of SFAS 114 and 118 on January 1, 1995 did not
materially affect the Bank's financial statements or the amount
of the allowance for loan losses. At December 31, 1995, the Bank
identified all its nonaccrual and restructured loans to be
impaired as defined in SFAS 114 and 118. Interest payments on
nonaccruing impaired loans are recorded as reductions of loan
principal.
c. Allowance for Possible Loan Losses
The allowance for possible loan losses is established based upon
management's evaluation of the risks in the loan portfolio,
general economic conditions and prior loss experience. Loans are
charged against the allowance when management believes that the
collectibility of principal is unlikely. The amount in the
allowance for possible loan losses, in management's judgment, is
adequate to provide for potential loan losses.
d. Foreign Exchange Contracts
Extebank uses foreign currency contracts for trading, investing
and hedging its foreign denominated assets and liabilities.
The Bank marks to market its foreign exchange positions and
recognizes the resulting gains and losses currently in other
operating income. This valuation includes pricing of all foreign
currency spot and forward positions at market rates as of Decem-
ber 31, 1994. The Bank did not have any foreign exchange con-
tracts as of December 31, 1995.
e. Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization,
included in other operating expenses, are computed on the
straight-line method over the estimated useful lives of the
assets or the lesser of the lease term or the useful life of the
related asset for leasehold improvements.
f. Other Real Estate Owned
Other real estate owned consists of real estate acquired by
foreclosure and is carried at the lower of cost or estimated net
realizable value.
g. Statements of Cash Flows
For purposes of reporting cash flows, cash and due from banks
include cash on hand and amounts due from banks. For the years
ended December 31, 1995 and 1994, the Bank paid interest of
$30,105,190 and $23,195,183 and income taxes of $75,925 and
$563,445, respectively.
h. Reclassification
Certain reclassifications have been made to the 1994 financial
statements to conform to the 1995 presentation.
3. RESERVE REQUIREMENTS:
Pursuant to New York State Banking regulations, Extebank main-
tains average reserve balances with the Federal Reserve Bank
which are not available for investment purposes. As of December
31, 1995 and 1994, cash reserves of $7,305,000 and $12,015,000,
respectively, were maintained at the Federal Reserve Bank.
4. INVESTMENT SECURITIES:
A summary of the book values, gross unrealized gains, gross
unrealized losses and market values of investment securities at
December 31, 1995 and 1994 is presented below:
1995
____________________________________________
Amor- Unrealized
tized __________________ Market
Cost Gains Losses Value
______ _____ ______ ______
U.S. Treasury
securities(a) $ 54,276,000 $ 70,000 $ $ 54,346,000
State and municipal
securities(b) 1,228,000 21,000 1,249,000
_____________ _______ _______ ___________
$ 55,504,000 $ 91,000 $ $ 55,595,000
============= ======= ======= ===========
1994
____________________________________________
Amor- Unrealized
tized __________________ Market
Cost Gains Losses Value
______ _____ ______ ______
U.S. Treasury
securities(a) $ 53,430,000 $ - $138,000 $ 53,292,000
State and municipal
securities(b) $ 3,860,000 - 78,000 3,782,000
____________ _______ _______ ___________
$ 57,290,000 $ - $216,000 $ 57,074,000
============ ======= ======= ============
(a) Investments in U.S. Treasury securities represent all of the
Bank's investments categorized as available-for-sale and are
stated at fair market value. The Bank has recorded an
unrealized gain of approximately $42,000 (on an after tax
basis) in adjusting their carrying value of available-for-
sale securities to fair market values as per the require-
ments of SFAS No. 115. This adjustment has been reflected
as a separate component of shareholder's equity on the
balance sheet as of December 31, 1995.
(b) Investments in State and municipal securities represent all
of the Bank's investments categorized as held-to-maturity
and are stated at book value.
The book value and market value of investment securities by
contractual maturity at December 31, 1995 were as follows:
Securities Available-for-Sale
___________________________________
Book Value Market Value
_______________ ______________
Due in one year or less $ 54,276,000 $ 54,346,000
Due after one year through five
years - -
Due after five years through ten
years - -
Due after ten years - -
________________ ______________
$ 54,276,000 $ 54,346,000
================= ==============
Securities Held-to-Maturity
____________________________________
Book Value Market Value
_____________ ____________
Due in one year or less $ 234,000 $ 234,000
Due after one year through five
years - -
Due after five years through ten
years 994,000 1,015,000
Due after ten years - -
_____________ ____________
$ 1,228,000 $ 1,249,000
============= ============
Proceeds from sales of investment securities available-for-sale
during 1995 were $68,218,868. Gross gains of $1,181,681 and
gross losses of $51,519 were realized on these sales.
Proceeds from sales of investment securities during 1994 were
$56,828,440. Gross gains of $80,936 and gross losses of
$3,840,116 were recognized on those sales.
At December 31, 1995 and 1994, securities carried at $54,649,000
and $56,253,000, respectively, were pledged to secure public
deposits and securities sold under agreements to repurchase.
5. LOANS:
Loans as of December 31, 1995 and 1994 consist of the following:
1995 1994
______________ ______________
Commercial and industrial loans $ 114,865,853 $ 163,539,354
Commercial and residential real
estate loans 82,047,110 96,652,878
Loans to individuals for house-
hold, family and other
consumer expenditures 25,622,996 29,174,092
Foreign loans (primarily
participations) - 51,597,010
Other 1,580,173 3,600,787
______________ _____________
Total 224,116,132 344,564,121
Less:
Unearned discount (1,779,892) (1,761,827)
Allowance for possible loan
losses (3,093,595) (7,372,408)
______________ _______________
Net loans $ 219,242,645 $ 335,429,886
============= ==============
At December 31, 1995, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS 114 and
118 totaled $5,496,000, of which $2,593,000 were nonaccrual
loans.
At December 31, 1995, the valuation allowance related to all
impaired loans, totaled $1,320,000 and is included in the allow-
ance for loan losses shown on the balance sheet. The average
recorded investment in impaired loans for the twelve months ended
December 31, 1995 was approximately $7,325,000.
Nonaccrual loans totaled approximately $4,400,000 and $2,300,000
at December 31, 1995 and 1994, respectively. If interest on
those loans had been accrued, the amount of additional interest
would have approximated $267,578 and $151,000 for 1995 and 1994,
respectively.
6. ALLOWANCE FOR POSSIBLE LOAN LOSSES:
Changes in the allowance for possible loan losses for the years
ended December 31, 1995 and 1994 are summarized as follows:
1995 1994
____ ____
Balance, beginning of year $ 7,372,408 $ 8,343,871
Provision charged to expense 3,040,000 7,000,000
Recoveries 1,156,764 941,400
Charge-offs (8,475,577) (8,912,863)
____________ ____________
Balance, end of year $ 3,093,595 $ 7,372,408
=========== ===========
7. BANK PREMISES AND EQUIPMENT:
Bank premises and equipment at December 31, 1995 and 1994 consist
of the following:
1995 1994
____ ____
Land $ 644,943 $ 644,943
Bank premises 2,999,244 2,921,459
Leasehold improvements 3,876,636 3,844,578
Furniture and equipment 8,368,003 9,348,887
___________ ___________
15,888,826 16,759,867
Less-accumulated depreciation
and amortization (11,254,643) (10,747,449)
____________ ____________
$ 4,634,183 $ 6,012,418
Included in bank premises is the cost of a capitalized lease
aggregating $850,000 with accumulated amortization thereon of
$362,723 and $345,724 at December 31, 1995 and 1994, respectively.
8. OTHER BORROWED FUNDS:
Other borrowed funds as of December 31, 1995 and 1994 consist of
the following:
1995 1994
____ ____
Foreign currency borrowing $ - $ 95,306,739
Overnight borrowing 21,559,718 25,475,817
___________ ___________
$ 21,559,718 $120,782,556
============ ============
The average interest rate on foreign currency borrowings and
overnight borrowings for 1995 was 6.05% and 3.83%, respectively,
and for 1994 was 4.43% and 2.41%, respectively.
9. INCOME TAXES:
The components of the provision for income taxes are as follows:
1995 1994
____ ____
Currently payable (receivable)
Federal $ (292,770) $ 505,324
State and local 153,476 253,057
__________ _________
(139,294) 758,381
Deferred 1,725,894 (263,881)
__________ __________
$1,586,600 $ 494,500
========== =========
A reconciliation of the U.S. statutory income tax with the
effective income tax follows:
1995 1994
____ ____
Federal tax expense at statutory rate $ 1,417,200 $ 474,000
Reduction of taxes arising from tax
exempt interest (77,100) (118,500)
State and local taxes, net of
federal benefit 246,500 139,000
___________ __________
$ 1,586,600 $ 494,500
=========== ==========
The Bank computes deferred income taxes based on the difference
between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse. Deferred income
taxes reflect the impact of "temporary differences" between
amounts of assets and liabilities for financial reporting purpos-
es and such amounts as measured by tax laws.
The Bank has a net deferred tax asset of approximately $2,460,000
recorded in other assets in the balance sheet as of December 31,
1995, reflecting temporary differences primarily related to the
allowance for possible loan losses and the liability under the
Bank's Employee Incentive Plan. Deferred taxes in 1994 primarily
reflect these same temporary differences.
From 1991 through 1994, the Bank effected $32.7 million of loan
sales with its Parent. In accordance with SEC guidelines, the
accounting for such sales was based on the estimated fair market
value of such loans, which resulted in the recording of cumula-
tive pretax losses from such sales of approximately $17.0 mil-
lion. These losses were not reflected in the Bank's previously
filed tax returns which are being amended for the periods affect-
ed to claim a refund for overpayment of prior tax. Pending
resolution of such amended tax return filings, the cumulative
statutory tax effect of these additional loan charge offs of
approximately $6.1 million has been reflected as a permanent item
thereby increasing the reported effective tax rate for the year
ended December 31, 1994 and earlier periods.
10. TRANSACTIONS WITH BANCO EXTERIOR DE ESPANA AND AFFILIATES:
The Bank engages in transactions with the Parent and other
affiliates including the purchase or sale of loans or participa-
tions, and the purchase or placement of funds. In 1994, the Bank
sold $10,926,000 of classified loans to its Parent for the
estimated fair value of such loans, resulting in the recognition
of losses on such sales of approximately $2,800,000.
Upon commencement of operations of the Branch, the Bank identi-
fied assets and liabilities which were considered to be more
appropriately managed as part of the Parent's international
business and transferred such to the Branch. Assets and liabili-
ties transferred included: demand, time and money market depos-
its which were transferred with consent of depositors at their
respective outstanding balances; investment securities which were
transferred at their fair market value of $9,678,000; loans which
were transferred at book value which approximated their fair
value of $31,958,000; fixed assets which were transferred at book
value of $36,000; and eighty-three foreign exchange forward
contracts were transferred at the fair market value.
Assets due from or liabilities due to the Bank's Parent or
affiliates at December 31, 1995 and 1994 are summarized below:
1995 1994
____ ____
Parent and affiliate accounts included
in accompanying balance sheets:
Cash and due from banks $ 230,559 $ 120,739
Loans 46,455 1,744,367
Deposit accounts-
Demand 2,479,914 3,533,542
Time and money market - 94,280,576
Federal Funds purchased and other
borrowed funds 11,957,213 130,281,323
Extebank purchases and sells loans and participations with
affiliates throughout the year at the direction of the Bank's
Parent. At December 31, 1995 and 1994, the Bank had outstanding
loans and participations that were purchased of approximately $0
and $10 million, respectively.
Interest and fee income due from or interest expense due to the
Bank's Parent or affiliates for the years ended December 31, 1995
and 1994 is summarized as follows:
1995 1994
____ ____
Parent and affiliate accounts included
in accompanying statement of operations:
Income
Interest and fees on loans $ 137,923 $ 238,273
Expense
Interest on deposits 4,698,924 4,657,083
Interest on other borrowed funds 7,561,573 5,693,654
11. EMPLOYEE BENEFIT PLANS:
The Bank's pension plan, covering all salaried officers and
employees who are 21 years old and have been employed one year,
is a trusteed nonemployee contributory pension plan. The Bank's
funding policy is to contribute amounts deductible for Federal
income tax purposes. The pension plan's assets consist primarily
of guaranteed investment contracts. The plan trustees consist of
three senior management personnel of Extebank and the applicable
insurance companies are the custodians.
Due to the merger agreement which the Bank entered into on
September 19, 1995 with NFB, the plan stopped accruing benefits
on September 30, 1995.
Pension costs include the following components for the plan years
ended September 30, 1995 and 1994:
1995 1994
____ ____
Service cost $ (115,803) $ (182,867)
Interest cost 305,779 303,122
Actual return on plan assets (331,220) (218,723)
Net amortization and deferral (22,693) (22,693)
___________ ___________
$ (163,937) $ (121,161)
========== ===========
The funded status of the pension plan as of September 30, 1995
and 1994 is as follows:
1995 1994
____ _____
Accumulated benefit obligation included
vested benefits of $4,244,534 and
$3,596,606, respectively $ 4,244,534 $3,708,016
========== =========
Projected benefit obligation $ 4,244,534 $4,055,071
Plan assets at fair value 4,245,047 4,014,395
__________ _________
Excess (deficiency) of assets
over projected benefit obligation $ 513 $ (40,676)
========== ==========
Unrecognized loss $ - $ 40,676
Unrecognized net asset (291,827) (317,601)
Unrecognized prior service cost 34,727 37,808
___________ __________
Accrued pension cost $ (257,100) $ (239,117)
=========== ==========
Major assumptions utilized are as follows:
Discount rate:
Preretirement 8.0% 8.0%
Postretirement 7.5% 8.0%
Rate of increase in compensation levels Not applicable 3.5%
Expected long-term rate on plan assets Not applicable 8.0%
The Bank has an employee incentive plan under which key employees
may elect to defer a portion of their compensation and receive
specified future benefits. Pursuant to the terms of the incen-
tive plan, employees are guaranteed a 10% return on salary
deferrals with projected higher returns dependent on continued
employment.
There are no segregated assets for payment of incentive plan
benefits, however, in connection with the incentive plan, the
Bank has purchased, and is beneficiary of, life insurance con-
tracts on its employees.
The accrued liability under the incentive plan (projected benefit
obligation using an 8% discount rate) was approximately
$3,001,000 and $2,935,000 at December 31, 1995 and 1994, respec-
tively. The cash surrender value of the related insurance
contracts approximated $5,892,000 and $5,086,000 at December 31,
1995 and 1994, respectively. The Bank also has a defined contri-
bution retirement plan that qualifies under Section 401(k) of the
Internal Revenue Code. The plan covers all full-time employees
of the Bank who have one year of service and are age twenty-one
or older. Contributions by employees commenced on January 1,
1991. Employer contributions are at the discretion of manage-
ment. During the years ended December 31, 1995 and 1994, the
Bank made no contributions.
12. DIVIDEND RESTRICTIONS:
Dividends paid by the Bank to its Parent are subject to restric-
tions by the Banking regulators. Approval is required by such
regulators for payments by the Bank of amounts that exceed
regulatory defined net profits in any calendar year, combined
with the retained profits for the two preceding years, less any
required transfer to surplus. During December 1995 the Bank
obtained approval for and paid a special dividend of $22,938,164
to its Parent. As of December 31, 1995, the Bank had no retained
earnings available for payment of dividends without prior approval.
13. COMMITMENTS AND CONTINGENT LIABILITIES:
In the normal course of its business, Extebank is party to
various types of financial instruments which involve potential
credit and interest rate risk in excess of the amounts recognized
in its balance sheet. These risks are generally monitored and
controlled in conjunction with Extebank's on-balance sheet
activities.
In meeting its customers' financing needs, the Bank issues
commitments to extend credit, commercial letters of credit and
standby letters of credit. For these types of commitments, the
contractual amounts of the financial instruments represent the
maximum potential credit risk in the event of non-performance by
the counterparty. However, since not all such commitments are
drawn down prior to their expiry, the contractual amounts do not
necessarily represent actual future liquidity and credit risk.
The actual credit risk related to these activities is controlled
by the evaluation of the customer's creditworthiness and the need
for and extent of collateral wherever it is deemed appropriate.
All such lending commitments are considered by management in
determining the adequacy of the allowance for possible loan losses.
As part of its own trading, hedging, investing and liquidity
management activities, Extebank is party to forward contracts
involving the purchase and sale of foreign currencies. Risks
arise from the possible inability of counterparties to meet the
terms of their contracts and from movements in exchange rates.
Extebank controls the credit and rate risks of such transactions
through credit approvals and trading limits monitoring but
generally does not require collateral regarding such transactions.
As of December 31, 1995, Extebank is party to the following
outstanding financial instruments involving off-balance sheet risk:
Notional or
Contract Amount
_______________
Commitments to extend credit $ 11,727,103
Standby letters of credit ($291,178 with
affiliated parties) 4,833,619
Commercial letters of credit ($213,326
with affiliated parties) 3,028,881
____________
$ 19,589,603
===========
In the opinion of management, these items will settle in the
normal course of business and will not have a material effect
upon the financial position of the Bank.
At December 31, 1995, the Bank was obligated under a number of
noncancelable leases for land, buildings and equipment used for
bank purposes. One of these leases has been capitalized while
the others have been accounted for as operating leases. Minimum
rental payments due under these leases are as follows:
Operating Capital
Leases Leases
1996 $ 639,150 $ 109,500
1997 547,995 109,500
1998 388,735 109,500
1999 261,163 109,500
2000 151,510 109,500
Thereafter 563,549 2,591,500
_________ _________
Total minimum
lease payments $2,552,102 $3,139,000
========= =========
Total rental expense for the years ended December 31, 1995 and
1994 was $1,494,154 and $1,397,153, respectively.
The Bank's leases provide that the Bank pay taxes, maintenance,
insurance and certain other operating expenses applicable to
leased premises. In addition, the leases provide certain escala-
tion provisions.
Extebank is a defendant in various lawsuits arising through the
normal course of conducting its business. Where in the opinion
of management and after consultation with legal counsel, manage-
ment believes that a loss arising with respect to legal actions
is reasonably possible, a reserve is recorded to cover
management's estimate of such loss. In the opinion of manage-
ment, settlement of pending legal claims will not have a material
adverse effect on the financial position or future operating
results of the Bank.
14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments" ("SFAS 107"), requires
entities to disclose information about the estimated fair values
of financial instruments. The Bank's financial instruments are
recorded in accordance with generally accepted accounting princi-
ples using several methods, including historical cost, lower of
cost or market value, depending on management's intended business
purpose. The majority of the Bank's financial instruments,
principally loans and deposits, are accounted for following the
historical cost method of accounting. Under the historical cost
method, the carrying value generally represents the amount
received when a liability is incurred or the amount is paid to
acquire an asset less subsequent amortization and allowances that
reflect management's estimation of uncollectible amounts. For
these assets and liabilities, fair values are not readily avail-
able since there are no available trading markets as character-
ized by current exchanges between willing parties. Accordingly,
fair values can only be derived or estimated using various
valuation techniques, such as discounting estimated future cash
flows using discount rates believed to be commensurate with the
risks involved. The determination of estimated future cash flows
and discount rates in inherently subjective and imprecise, and
minor changes in assumptions or estimation methodologies can have
a material effect on these derived or estimated fair values. The
aggregated estimated net fair value of the Bank's financial
instruments excluded the value of long-term client relationships,
the going concern value of an entity as implied by the present
value of all future business opportunities, and the talents of
its employees, which are a component of the Bank's total market
value. Further, valuations are presented as of a specific point
in time and may not be relevant in evaluating the future earnings
potential of the Bank.
The estimated fair values and carrying values at December 31,
1995 and December 31, 1994, the methodologies used and key
assumptions made to estimate fair values were as follows:
Cash and Due from Banks, Federal Funds Sold/
Purchased and Interest-Bearing Deposits With Banks
For these short-term instruments, the carrying amount is a
reasonable estimate of fair value.
Investment Securities
For securities held in the Bank's investment portfolio, fair
value was determined by reference to quoted market prices as of
December 31, 1995 and 1994.
Loans
The fair value of the Bank's loan portfolio is based on the
credit and interest rate characteristics of the individual loans
within each sector of the portfolio. The loan portfolio was
stratified by type, maturity, interest rate, collateral type,
where applicable, and credit quality ratings. The fair valuation
of loans was estimated by discounting scheduled cash flows
through the estimated maturities using discount rates, which in
the opinion of management best reflect current market interest
rates that would be charged on loans (or groups of loans) with
similar characteristics and credit quality. Credit risk concerns
were reflected either by adjusting cash flow forecasts or by
adjusting the discount rate, or by a combination of both. The
maturity of loans originated with attached call options were
assumed to be the call date. Discount rates were determined
without consideration of compensating balance requirements.
Accrued Interest
As accrued interest represents short-term receivables and
payables, the carrying amount is a reasonable estimate of fair
value.
Deposit Liabilities
The fair value of demand deposits, savings accounts, and certain
money market deposits with no stated maturities is the amount
payable on demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is estimated by the
present value of estimated future cash flows using rates current-
ly offered for deposits of similar remaining maturities.
Federal Funds Purchased
For this short-term instrument, the carrying amount is a reason-
able estimate of fair value.
Commitments to Extend Credit, Standby and Commercial Letters of
Credit
The fair value of the commitments to extend credit listed in the
preceding Note 13 "Commitments and Contingent Liabilities" were
estimated to be insignificant as of December 31, 1995 and 1994.
The fair value of commitments to extend credit and standby
letters of credit were valuated using fees currently charged to
enter into similar agreements, taking into account the risk
characteristics of the borrower. Commercial letters of credit
represent short-term commitments for the Bank, for which a fair
value estimate is insignificant.
Commitments to Purchase and Sell Foreign Currencies
The fair value of commitments to purchase and sell foreign
currencies listed in the preceding Note 13 "Commitments and
Contingent Liabilities," is marked to market at year-end for
financial reporting purposes. Market rates are determined using
quotes from brokers and/or dealers for the respective currencies.
The market value of the Bank's foreign exchange commitments as of
December 31, 1995 and 1994 is included in other assets in the
accompanying balance sheets.
The foregoing estimates may not reflect the actual amount that
could be realized if all or substantially all of the financial
instruments were offered for sale. Further, the estimates
employed by management were subjective in nature and were based
upon judgment respective to certain economic scenarios. These
estimates are also subject to uncertainties. Changes in assump-
tions, economic conditions and/or market segments and products
could materially affect future estimates.
The estimated fair values and recorded carrying values of the
Bank's financial instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
________________________ _________________________
Carrying Fair Carrying Fair
Amount Value Amount Value
________ _____ ________ ______
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 26,596,000 $ 26,596,000 $ 29,828,000 $ 29,828,000
Interest bearing deposits
with banks - - 393,780,000 393,780,000
Federal funds sold 120,000,000 120,000,000 10,000,000 10,000,000
Securities available-for-sale 54,346,000 54,346,000 53,292,000 53,292,000
Securities held-to-maturity 1,228,000 1,249,000 3,860,000 3,782,000
Loans 219,243,000 217,838,000 335,430,000 333,881,000
Accrued interest receivable 2,240,000 2,240,000 5,552,000 5,552,000
Financial Liabilities:
Demand and other deposits 323,436,000 323,617,000 608,995,000 608,577,000
Federal funds purchased - - 58,850,000 58,850,000
Correspondent bank
sweeps 57,068,000 57,068,000 - -
Other borrowed funds 21,560,000 21,560,000 120,783,000 120,783,000
Accrued interest payable 1,510,000 1,510,000 1,136,000 1,136,000
</TABLE>
