<PAGE> 1
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, 1996
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.)
275 BROAD HOLLOW ROAD, MELVILLE, NEW YORK 11747
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) (516) 844-1004
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 18, 1997, there were 32,907,596 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 18, 1997)
held by non-affiliates was approximately $1,349,211,000.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
specified parts of this Annual Report:
North Fork Bancorporation, Inc. 1996 Annual Report to Shareholders -
Parts I, II and IV.
North Fork Bancorporation, Inc. 1997 Definitive Proxy Statement - Part III
CAUTIONARY STATEMENT UNDER FEDERAL SECURITIES LAWS: The information
contained in this Annual Report on Form 10-K and in certain sections of the
Registrant's 1996 Annual Report to Shareholders incorporated herein by reference
contains forward-looking statements that are based on management's beliefs,
certain assumptions made by management and current expectations, estimates and
projections about the Registrant's financial condition and results of
operations. Words such are "expects," "believes," "should," "plans," "will,"
"estimates," and variations of such words and similar expressions are intended
to identify such forward-looking statements. These statements are not guarantees
of future performance and involve certain risks and uncertainties that are
difficult to quantify or, in some cases, to identify. Therefore, actual outcomes
and results may differ materially from what is expected or forecasted in such
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, changes in economic and market
conditions, including unanticipated fluctuations in interest rates, effects of
state and federal regulation and risks inherent in banking operations. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Registrant undertakes no obligation
to revise or update these forward-looking statements to reflect the occurrence
of unanticipated events.
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PART I
ITEM 1 BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
North Fork Bancorporation, Inc. (the "Registrant"), with its
administrative headquarters located in Melville, 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. The Registrant's sole
subsidiary bank, North Fork Bank (the "Bank"), operates eighty-two full-service
retail banking facilities located in the metropolitan New York area.
On December 31, 1996, North Side Savings Bank ("North Side") was merged
with and into the Bank. North Side had $1.6 billion in total assets, $1.2
billion in deposit liabilities, $124.4 million in capital and operated seventeen
full-service banking locations in the New York counties of Bronx, Queens, Nassau
and Suffolk. The Registrant issued approximately 7.5 million shares of common
stock in connection with this merger, which was accounted for under the
pooling-of-interests method of accounting. Accordingly, the Registrant's
consolidated financial statements include the consolidated results of North
Side.
In March 1996, the Bank completed its purchase of the domestic
commercial banking business of Extebank ("Extebank"). Extebank had approximately
$388 million in total assets, $200 million in net loans, $348 million in deposit
liabilities, $30 million in capital and operated eight full-service banking
locations in the metropolitan New York area, including Manhattan. Additionally,
in March 1996 the Bank acquired ten Long Island branches of First Nationwide
Bank, and assumed $572 million of deposit liabilities for which it paid a
deposit premium of 6.35%.
In July 1995, the Registrant consummated its purchase of Great Neck
Bancorp, parent holding company of Bank of Great Neck, a Long Island based
commercial bank ("Great Neck"). Great Neck had net assets of $91 million,
including $49.4 million in net loans and $90.3 million in deposits, which was
merged into the Bank.
In November 1994, Metro Bancshares Inc. ("Metro"), parent holding
company of Bayside Federal Savings Bank ("Bayside"), was merged with and into
the Registrant. Simultaneously, Bayside was merged with and into the Bank.
Bayside had approximately $1.0 billion in total assets, $.9 billion in deposit
liabilities, $83.5 million in capital, and operated thirteen full-service
banking locations in Queens, Nassau and Suffolk Counties. The merger was
accounted for under the pooling-of-interests method of accounting.
North Fork Bank itself is the result of the 1992 merger of the
Registrant's two banking subsidiaries, the North Fork Bank & Trust Company
("Bank & Trust"), which was the Registrant's original subsidiary bank, and
Southold Savings Bank ("Southold"), which the Registrant acquired by merger in
1988. In 1992, Bank & Trust was merged with and 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.
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Additionally, the Registrant has several 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, 1996.
DESCRIPTION OF BUSINESS
The Registrant, through its bank subsidiary, provides a variety of
banking and financial services to middle market and small business
organizations, local governmental units, and retail customers in the
metropolitan New York area. 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 major commercial banks headquartered in
New York State. The Bank also competes with other independent commercial banks
in its marketplace for loans and deposits; with local savings and loan
associations and savings banks for deposits and mortgage loans; with credit
unions for deposits and consumer loans; with insurance companies and money
market funds for deposits; and with local consumer finance organizations and the
financing affiliates of consumer goods manufacturers (especially automobile
manufacturers) for consumer loans. 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 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" (pages 19-20) in Management's Discussion
and Analysis and "Note 14 - Regulatory Matters" (pages 42-43) of the
Registrant's 1996 Annual Report to Shareholders included as Exhibit 13 herewith
and incorporated herein by reference.
As of December 31, 1996, the Registrant and its consolidated
subsidiaries had approximately 1,275 full-time equivalent employees.
ITEM 2 PROPERTIES
The executive and administrative offices of the Registrant and the Bank
are located at 275 Broad Hollow Road, Melville, New York 11747. The Registrant
currently leases 63,000 square feet of the building, representing approximately
60% of the building's rentable space.
The Bank maintains its data processing and operations center in a
44,900 square foot owned facility, located at 9025 Main Road, Mattituck, New
York 11952.
At December 31, 1996, the Bank owned 44 of its branch banking offices
(see "Note 6 - Premises and Equipment" (page 34) of the Registrant's 1996 Annual
Report to Shareholders included as Exhibit 13 herewith and incorporated herein
by reference) and leased 38 branch banking offices under various lease
arrangements expiring at various times through 2016 (see "Note 15 - Other
Commitments and Contingent Liabilities (b) Lease Commitments" (page 43) of the
Registrant's 1996 Annual Report to Shareholders included as Exhibit 13 herewith
and incorporated herein by reference). The Bank also is obligated under several
other leases for facilities which are either used in conducting banking and
non-banking activity, or have been vacated by the Bank as a result of its
consolidation of operations following its recent mergers and acquisitions. The
facilities owned or occupied under lease by the Registrant and the Bank are
considered by management to be well located and suitably equipped to serve as
banking and financial services facilities.
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ITEM 3 LEGAL PROCEEDINGS
Following the announcement on July 15, 1996 that the Registrant had
entered into an agreement and plan of merger with North Side Savings Bank
providing for the merger of North Side and a wholly-owned subsidiary of the
Registrant (the "Merger"), two alleged stockholders of North Side filed
purported class action lawsuits in the Supreme Court of the State of New York,
County of New York, against North Side, the members of the North Side Board of
Directors and the Registrant. The plaintiffs allege, among other things, that
the North Side board of Directors breached their fiduciary duties owed by them
to plaintiffs and that the Registrant has aided and abetted such alleged
breaches of fiduciary duty in connection with the Merger. The plaintiffs are
seeking, among other things, unspecified damages, out of pocket expenses,
including their legal fees and certain equitable relief. As previously
disclosed, the Merger was consummated on December 31, 1996. As a result of the
Merger, the wholly-owned subsidiary of the Registrant has assumed all
liabilities of North Side and the Registrant, pursuant to the Merger Agreement,
has agreed to indemnify the former members of the North Side Board of Directors.
The Registrant believes that all allegations contained in the
complaints are baseless, entirely without merit and intends to contest them
vigorously. The Registrant has moved to dismiss the plaintiff's complaints on
the grounds that, among other reasons, such complaints fail to state a cause of
action.
Additional information required by this item is set forth under the
caption "Note 15 - Other Commitments and Contingent Liabilities (c) Other
Matters" (page 43) in the Registrant's 1996 Annual Report to Shareholders
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
18, 1996 to approve the merger with North Side Savings Bank. The Registrant's
stockholders approved the merger with 17,485,369 affirmative votes cast, 82,896
negative votes cast and 64,380 votes abstaining.
ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age, position and business experience during the past five years of
each of the executive officers of the Registrant as of January 1, 1997, 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 A. Kanas 50 Chairman, President and Chief Executive Officer of the
Registrant and the Bank, throughout the past 5 years.
John Bohlsen 54 Vice Chairman of the Registrant and the Bank. Mr. Bohlsen also
has been President of The Helm Development Corp., a real estate
company, throughout the past 5 years.
Thomas M. O'Brien 46 Vice Chairman of the Registrant and the Bank (since January
1997). Mr. O'Brien was Chairman, President and Chief
Executive Officer of North Side Savings Bank, throughout the
preceding 5 years.
Daniel M. Healy 54 Executive Vice President and Chief Financial Officer of the
Registrant (since 3/92). Previously, Mr. Healy was a partner
with the accounting firm of KPMG Peat Marwick LLP.
</TABLE>
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PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Registrant's common stock is traded on the New York Stock Exchange
under the symbol NFB. As of March 18, 1997, there were approximately 5,487
shareholders of record of the Registrant's common stock.
During 1996, the Registrant declared dividends of $.20 per share for
the first, second and third quarters, respectively, and $.25 per share for the
fourth quarter. During 1995, the Registrant declared dividends of $.125 per
share for the first and second quarters, respectively, and $.15 per share for
the third and fourth quarters, respectively (dividends declared are exclusive of
dividends declared by North Side prior to its December 31, 1996 merger into
North Fork Bank).
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 22), "Note 8 - Other Borrowings"
(page 35), and "Note 14 - Regulatory Matters" (page 42) of the Registrant's 1996
Annual Report to Shareholders included herewith as Exhibit 13 and incorporated
herein by reference.
ITEM 6 SELECTED FINANCIAL DATA
The information required by this item is set forth in "Selected
Financial Data" (page 9) of the Registrant's 1996 Annual Report to Shareholders
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 10-21) of the Registrant's 1996 Annual Report
to Shareholders included herewith as Exhibit 13 and incorporated herein by
reference.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information is set forth in the Registrant's 1996
Annual Report to Shareholders included herewith as Exhibit 13 and incorporated
herein by reference:
Unaudited Consolidated Quarterly Financial Information (page 22);
the Consolidated Financial Statements (pages 23-27); the Notes to the
Consolidated Financial Statements (pages 28-44); the Independent Auditors'
Report (page 45); and the Report of Management (page 45).
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on
accounting and financial disclosure as defined in Item 304 of Regulation S-K.
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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 22, 1997, which is incorporated herein
by reference, and in Part I of this report under the caption Item 4A "Executive
Officers of the Registrant".
ITEM 11 EXECUTIVE COMPENSATION
The information required by this item is set forth under the
captions "Compensation of Directors" (pages 6 - 7), "Executive Compensation"
(pages 7-21), and "Retirement Plans" (page 22) in the Registrant's Definitive
Proxy Statement for its Annual Meeting of Stockholder's to be held April 22,
1997, 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 2-5) in the Registrant's Definitive Proxy
Statement for its Annual Meeting of Stockholder's to be held April 22, 1997,
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
23) in the Registrant's Definitive Proxy Statement for its Annual Meeting of
Stockholders to be held April 22, 1997, which is incorporated herein by
reference.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The consolidated financial statements, including notes thereto, and
financial schedules of the Registrant, required in response to this item
as set forth in response to Part II, Item 8 of this Annual Report are
incorporated herein by reference to the Registrant's 1996 Annual Report to
Shareholders filed herewith as Exhibit 13.
<TABLE>
<CAPTION>
1. Financial Statements Page No.
--------------------- --------
<S> <C> <C>
Consolidated Statements of Income 23
Consolidated Balance Sheets 24
Consolidated Statements of Cash Flows 25-26
Consolidated Statements of Changes 27
in Stockholders' Equity
Notes to Consolidated Financial Statements 28-44
Report of Independent Public Accountants 45
</TABLE>
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2. Financial Statement Schedules
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.
3. Exhibits
The exhibits listed on the Exhibit Index page of this Annual Report are
incorporated herein by reference or filed herewith as required by Item 601
of Regulation S-K (each management contract or compensatory plan or
arrangement listed therein is identified).
(b) Current Report on Form 8-K filed during the fourth quarter of 1996 is as
follows:
On October 10, 1996, the Registrant filed a current report stating that it
had issued a press release regarding the third quarter and year-to-date
1996 financial results.
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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.
BY:/s/ John A. Kanas
---------------------
JOHN A. KANAS
President and Chief Executive Officer
Dated: March 25, 1997
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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 25, 1997
- - ----------------------------- Chief Executive Officer,
John A. Kanas and Chairman of the Board
(Principal Executive Officer)
/s/ Daniel M. Healy Executive Vice President and March 25, 1997
- - ---------------------------- Chief Financial Officer
Daniel M. Healy (Principal Accounting Officer)
/s/ John Bohlsen Director March 25, 1997
- - ----------------------------- Vice Chairman of the Board
John Bohlsen
/s/ Thomas M. O'Brien Director March 25, 1997
- - ----------------------------- Vice Chairman of the Board
Thomas M. O'Brien
/s/ Irvin L. Cherashore Director March 25, 1997
- - -----------------------------
Irvin L. Cherashore
/s/ Allan C. Dickerson Director March 25, 1997
- - -----------------------------
Allan C. Dickerson
/s/ Lloyd A. Gerard Director March 25, 1997
- - -----------------------------
Lloyd A. Gerard
/s/ James F. Reeve Director March 25, 1997
- - -----------------------------
James F. Reeve
/s/ James H. Rich, Jr. Director March 25, 1997
- - -----------------------------
James H. Rich, Jr.
/s/ George H. Rowsom Director March 25, 1997
- - -----------------------------
George H. Rowsom
/s/ Raymond W. Terry, Jr. Director March 25, 1997
- - -----------------------------
Raymond W. Terry, Jr.
/s/ Dr. Kurt R. Schmeller Director March 25, 1997
- - -----------------------------
Dr. Kurt R. Schmeller
</TABLE>
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- - ------ ----------- ----------------
<S> <C> <C>
2.1 Stock Purchase Agreement Previously filed on Form 10-K
dated as of September 19, 1995, for the year ended December 31,
among North Fork Bank and 1995 dated 3/26/96, as Exhibit 2.1
Banco Exterior de Espana, S.A. and incorporated herein by reference.
2.2 Asset Purchase and Sale Agree- Previously filed on Form 10-K for
ment dated as of September 28, the year ended December 31, 1995
1995, among North Fork Bank dated 3/26/96, as Exhibit 2.2 and
and First Nationwide Bank. incorporated herein by reference.
2.3 Agreement and Plan of Merger Previously filed as Exhibit 2.1 in
by and among North Fork Current Report on Form 8-K dated
Bancorporation, Inc, merger 7/15/96, and incorporated herein by
bank, and North Side Savings reference.
Bank, dated as of July 15, 1996.
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 10-K for the year
ation, as amended, effective ended December 31, 1993 dated 3/9/94,
7/28/92. as Exhibit 3(b) 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.
10.1 North Fork Bancorporation, Inc. Previously filed with post-effective
Dividend Reinvestment and Stock Amendment #1 to the Registrant's
Purchase Plan, as amended. registration statement on Form S-3
dated 5/16/95 (Registration No.
33-54222) and incorporated herein
by reference.
10.2(a) North Fork Bancorporation, Inc. Previously filed on Form S-8 dated 12/1/82
1982 Incentive Stock Option Plan. (Registration No. 2-99984) and incorporated
herein by reference.
10.3(a) 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.
</TABLE>
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EXHIBIT INDEX (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- - ------ ----------- ----------------
<S> <C> <C>
10.4(a) 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(a) 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(a) North Fork Bancorporation, Inc. Previously filed on Form S-8 dated 9/28/92
401(k) Retirement Savings Plan, (Registration No. 33-52504) as amended by
as amended. Exhibit 4 to the Registrant's Registration
Statement on Form S-8 dated 2/2/96
(Registration No. 333-00675) and
incorporated herein by reference.
10.7(a) North Fork Bancorporation, Inc. Previously filed on Form S-8 dated 5/4/94
1994 Key Employee Stock Plan. (Registration No. 33-53467), as amended by
the filing of Form S-8 dated 6/7/96 (Registra-
tion No. 333-05513) and incorporated
herein by reference.
10.8(a) 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 herein by reference.
Option Plan, the Secondary 1993
Stock Option Plan, and the
Secondary 1993 Incentive Stock
Option Plan resulting from the
merger with Metro Bancshares Inc.
10.9(a) North Fork Bancorporation, Inc. Previously filed on Form S-8 dated 12/31/96
Long-Term Incentive Capital (Registration No. 333-19047) and incorporated
Accumulation Plan resulting herein by reference.
from the merger with North Side
Savings Bank.
10.10(a) North Fork Bancorporation, Inc. Previously filed on Form 10-K for the year
Performance Plan. ended December 31, 1994 dated 3/28/95,
as Exhibit 10.9 and incorporated herein by
reference.
</TABLE>
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EXHIBIT INDEX (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD
- - ------ ----------- ------
<S> <C> <C>
10.11(a) Form of Change-in-Control Previously filed as Exhibit 10.2 to the
Agreement, as entered into Quarterly Report on Form 10-Q for the
between North Fork Bancorpor- quarter ended March 31, 1995, and in-
ation, Inc. and each of John A. corporated herein by reference.
Kanas, John Bohlsen and Daniel
M. Healy, each dated December
20, 1994.
10.12(a) Form of Change-in-Control Filed herewith.
Agreement, as entered into
between North Fork Bancorpora-
tion, Inc. and Thomas M. O'Brien
dated December 31, 1996.
10.13(a) Form of Employment Agreement, Filed herewith.
as entered into between North
Fork Bancorporation, Inc. and
Thomas M. O'Brien, dated
December 31, 1996.
11 Statement re: Computation of Filed herewith
earnings per share.
13 All portions of the Registrant's Filed herewith
1996 Annual Report to Share-
holders that are incorporated
herein by reference.
21 Subsidiaries of Registrant. Filed herewith
22 Registrant's Definitive Proxy Previously filed on 3/13/97 Pursuant to
Statement for its Annual Meeting Section 14(a) of the Securities Exchange
of Stockholders. Act of 1934 and incorporated herein by
reference.
23 Accountants' Consent. Filed herewith.
27 Financial Data Schedule. Only included in electronic filing
</TABLE>
(a) Management contract or compensatory plan or arrangement.
13
<PAGE> 1
EXHIBIT 10.12(a)
CHANGE-IN-CONTROL AGREEMENT
CHANGE-IN-CONTROL AGREEMENT (the "Agreement"), dated as of December 31,
1996, between North Fork Bancorporation, Inc., a Delaware corporation with its
principal place of business at 275 Broad Hollow Road, Melville, New York 11747
("Parent"), and Thomas M. O'Brien (the "Executive").
WHEREAS, Parent, North Fork Bank, a New York-chartered commercial bank
("NFB"), and North Side Savings Bank, a New York-chartered stock form savings
bank (the "Bank"), have entered into an Agreement and Plan of Merger, as
amended, dated July 15, 1996 (the "Merger Agreement"); and
WHEREAS, the Executive is presently Chairman, President and Chief
Executive Officer of the Bank; and
WHEREAS, after the consummation of the transactions contemplated by the
Merger Agreement, the Executive will serve as Vice Chairman of each of Parent
and NFB, and will provide valuable services to Parent and its subsidiaries; and
WHEREAS, the Executive has requested certain assurances in the event of
a change in control of Parent during the term of his employment by Parent; and
WHEREAS, Parent wishes to create an environment which will encourage
the Executive to render best efforts on Parent's behalf in the event such a
change in control occurs or is proposed; and
WHEREAS, the Board of Directors of Parent (the "Board") has approved
and authorized the negotiation, delivery and execution of this Agreement on the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, Parent and the Executive hereby agree
as follows:
1. Term of Agreement. This Agreement shall
<PAGE> 2
commence on the date (the "Commencement Date") of commencement Period
established under Section 2 of the Employment Agreement, dated as of December
31, 1996, between Parent and the Executive and shall continue in effect until
the earlier of:
(i) the normal expiration date, which shall be the third
anniversary of the Commencement Date; provided, however, that commencing on
the first anniversary of the Commencement Date, and annually on such month
and day in each succeeding year thereafter (the "Renewal Date"), the normal
expiration date for purposes of this subsection (i) shall automatically be
modified and extended to become the third anniversary of such Renewal Date,
unless at least sixty (60) days prior to any such Renewal Date the Board,
upon the affirmative vote of a majority of its members, shall have voted
not to renew this Agreement, in which event the normal expiration date for
purposes of this subsection (i) shall not be further extended but shall
remain the normal expiration date in effect at the time of such
non-renewal; or
(ii) the date of discontinuation of the employment of the
Executive with Parent and its subsidiaries, including by virtue of the
death, disability, retirement at normal retirement age, voluntary
resignation, or termination for any cause or no cause of the Executive;
provided, however, that if a change in control of Parent shall occur prior to
the normal expiration date under (i) above or the date of discontinuation of
employment under (ii) above, the provisions of Section 2 shall apply and this
Agreement shall not expire until completion of the Exercise Period as defined in
Section 2 and the performance by Parent of the last obligation required to be
performed by it under Section 2.
2. Severance Compensation.
(a) If a Change in Control (as defined in subsection (c)
below) shall occur during the term of this Agreement and, at any time during the
period beginning on the date of the Change in Control and ending on the date
which is two (2) years after the date of Change in Control (the "Exercise
Period"), the employment of the Executive with Parent and its subsidiaries is
terminated, either
<PAGE> 3
because the Executive voluntarily elects to terminate such employment or because
the Executive is involuntarily terminated by Parent or its subsidiaries, then
the Executive shall be entitled to receive from Parent, and Parent shall deliver
to the Executive, within thirty (30) days after the effective date of such
voluntary or involuntary termination of employment, a lump sum cash payment (the
"Severance Payment") in an amount equal to:
(i) 299% of the "base amount" of the Executive's compensation at
the time of such Change in Control (as defined in and determined under
Section 280G of the Internal Revenue Code of 1986 (the "Code"), as the same
may be amended from time to time), minus
(ii) the present value of all other payments and benefits
received or receivable by the Executive from Parent or its subsidiaries,
under any other contract or plan, that are contingent upon such Change in
Control within the meaning of and as calculated pursuant to Section 280G of
the Code, exclusive of (y) any payments received or receivable by the
Executive under Parent's Performance Plan (or any successor thereof), and
(z) the value, determined in accordance with Section 280G, of any
acceleration, incident to or in connection with such Change in Control, of
the exercisability of any options or rights to acquire stock of Parent or
any securities related to or derivative of the stock of Parent or the
market price or other value thereof, or of the vesting of any restricted
shares of stock of Parent.
Notwithstanding the foregoing or any other provision of this
Agreement, the Executive shall not be entitled to receive any Severance Payment
or any other benefits under this Agreement following a Change in Control if
Parent shall terminate the Executive for Cause as defined in (and limited by)
Section 3 of this Agreement.
(b) For purposes of Section 2(a) above, the Executive shall be deemed
to have been involuntarily terminated by Parent or its subsidiaries other than
for Cause immediately following a Change in Control, if a Change in Control
occurs and, prior to such Change in Control, the Executive's employment with
Parent or its subsidiaries has been terminated at the direction or upon the
recommendation or urging of any entity unaffiliated
<PAGE> 4
with Parent that is a party to any transaction relating to or constituting such
Change in Control or any person, including an executive officer or director, in
a position of authority with respect to any such entity. In such event, this
Agreement shall be deemed not to have expired for purposes of Section 1 upon the
termination of the Executive's employment before the Change in Control.
(c) For purposes of this Section 2, a "Change in Control" of Parent
shall be deemed to have occurred as of the first date that any of the following
events occurs:
(i) There shall be consummated (A) a consolidation, merger or
stock-for-stock exchange involving either Parent or the securities of
Parent, in which the persons holding all voting securities of Parent
immediately prior to such consummation own, as a group, immediately after
such consummation, voting securities of Parent (or, if Parent 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 Parent (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, or (B) a sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all of the assets of Parent and its subsidiaries, on a
consolidated basis, to a party which is not controlled by or under common
control with Parent;
(ii) Any individual, corporation (other than Parent),
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, as the
result of any one or more securities transactions (including gifts and
stock repurchases, but excluding transactions described in subsection
(i) above), of securities of Parent possessing twenty-five percent
(25%) or more of the voting power for the election of directors of
Parent; or
<PAGE> 5
(iii) "Approved Directors" shall constitute less than a
majority of the entire Board of Directors of the company, with
"Approved Directors" defined to mean the members of the Board of
Directors of Parent as of the date of this Agreement and any
subsequently elected members of such Board who shall be nominated or
approved by a majority of the Approved Directors on the Board prior to
such election.
(d) The Executive shall not be required, as a condition to receiving
the Severance Payment provided for under Section 2(a) hereof, to forfeit any
right to receive amounts or distributions under, or to forfeit any participation
in, any plan or program of Parent in effect at the time of such termination of
employment (including broad-based severance plans of Parent), or to mitigate the
amount of any such Severance Payment by seeking other employment or gainful
pursuit following the termination of his employment with Parent. Parent shall
not be permitted to offset against the amount of any such Severance Payment,
except as specifically permitted in the calculation thereof under Section 2(a)
or as further provided in Section 2(h) hereof, (w) the amount of any
compensation or income earned by the Executive as the result of his subsequent
employment by any other employer or subsequent self-employment, (x) the amount
of any retirement, insurance or similar benefits subsequently received by the
Executive, (y) the amount of any payments previously or subsequently made by
Parent or its subsidiaries to the Executive or persons or entities affiliated
with the Executive for services rendered or goods provided, or (z) any amounts
owed or payable or claimed to be owed or payable by the Executive to Parent or
any affiliate of Parent.
(e) Regardless of any Severance Payment made to the Executive under
Section 2(a) of this Agreement following the termination of the Executive's
employment, in the event Parent shall have committed any breach of any other
agreement or contract with the Executive, Parent also shall pay to the Executive
any and all damages resulting from such breach, including liquidated damages, if
so provided under the relevant agreement or contract.
(f) Regardless of any Severance Payment made to the Executive under
Section 2(a) of this Agreement following the termination of the Executive's
employment, Parent also shall pay to the Executive following such termination
<PAGE> 6
of employment any amounts or benefits then payable or distributable to the
Executive under any employee stock plan or agreement, any supplemental executive
retirement plan or agreement, and any other employee benefit plan or agreement.
(g) The status of the Executive or any individual related to the
Executive as a participant in any individual or group health or insurance plan
or program of Parent or its subsidiaries in which the Executive was
participating as of the date of termination of employment of the Executive shall
not be affected by any Severance Payment made to the Executive under Section
2(a) of this Agreement.
(h) If the Executive becomes entitled to receive payment of any amount
under Section 2(a) of this Agreement that, in and of itself or in conjunction
with any other amounts paid or payable to the Executive (whether by Parent or
otherwise) following or in connection with such Change in Control, would, if
paid, be considered an "excess parachute payment" as defined in Section 280G of
the Code, then such payment hereunder will be reduced in amount to the extent,
but only to the extent, necessary to ensure that such payment, when paid, will
no longer be considered such an "excess parachute payment, excluding, however,
for purposes of all calculations under this Section 2(h) those payments and
values excluded under Sections 2(a)(ii)(y) and (z), above.
3. Termination For Cause. Following a Change in Control, Parent may
terminate the Executive's employment under this Agreement for "Cause" upon ten
(10) days' written notice, and in such event, the Executive will not be entitled
to receipt of any Severance Payment or any other benefits specifically provided
under this Agreement. During such ten days written notice period, the Executive
may not voluntarily terminate his employment. Termination for "Cause" for
purposes of this Section 3 shall mean termination of employment of the Executive
by a two-thirds (2/3) vote of the entire Board of Directors of Parent or the
entire board of directors of the particular subsidiary of Parent employing the
Executive, expressly for one or more of the following causes, as evidenced in a
certified resolution of such Board:
(i) willful misconduct by the Executive that is materially
injurious to the financial condi-
<PAGE> 7
tion of Parent or the particular subsidiary; or
(ii) conviction of the Executive with no further possibility
of appeal of a felony under applicable state or federal banking or
financial institution laws, or the agreement of the Executive to plead
guilty to any such felony; or
(iii) failure by the Executive adequately to perform the
duties of the Executive, as communicated to the Executive with
specificity by a senior corporate authority (which, in the case of the
Chief Executive Officer, shall be the Board of Directors), after
express notice of such failure to perform and a 30-day opportunity to
cure such failure.
4. Benefits Following Change in Control. Following a Change in Control
of Parent, pending termination of the Executive's employment or expiration of
the Exercise Period:
(i) The Executive shall be entitled to receive from Parent or
its subsidiaries such personal or group health and insurance benefits
as the Executive may have been receiving as of the date of the Change
in Control;
(ii) The Executive shall be entitled to participate in and/or
receive allocations under any and all employee benefit plans or
programs or employee stock purchase plans or programs as are being
maintained by Parent or its subsidiaries as of the date of the Change
in Control and which cover or permit participation by key employees
such as the Executive; and
(iii) The Executive shall be entitled to continue to receive
such other benefits, goods or services as are being received by the
Executive as of the date of the Change in Control, including any
additional insurance coverage then being received and any access to
Parent-owned or leased vehicles and Parent-funded club memberships as
is then being provided.
5. Non-competition. If the Executive receives a Severance Payment
under Section 2(a), the Executive shall not, during the one (1) year period
following re-
<PAGE> 8
ceipt of such Severance Payment, without the express prior approval of the
Board, become an officer, employee, agent, partner or director of, or serve as a
consultant for, any other business in substantial competition with Parent or any
of its subsidiaries in any one or more geographical areas (no such individual
area being larger than a county) in which Parent or such subsidiary is then
conducting material business. It is the intention of the parties to restrict the
activities of the Executive under this Section 5 only to the extent necessary
for the protection of the legitimate business interests of Parent.
6. Indemnification. Parent shall indemnify the Executive from and
against all legal fees and expenses necessarily and reasonably incurred by the
Executive in connection with any action, suit or proceeding brought by the
Executive or Parent for the enforcement, performance or construction of this
Agreement, unless the Executive shall have been wholly unsuccessful, on the
merits or otherwise, in such action, suit or proceeding. Upon obtaining
appropriate assurances of repayment, where appropriate, Parent may advance such
fees and expenses to the Executive to the extent permitted by applicable law.
7. Withholding. Any amount to be distributed to or on behalf of the
Executive as a Severance Payment under this Agreement will be reduced by the
amount, if any, required to be withheld by Parent or its subsidiaries pursuant
to any governmental law or regulation with respect to taxes or similar
provisions.
8. Amendment; Waiver; Termination. No amendment, modification or
waiver of any provision of this Agreement shall be effective unless in a writing
signed by the party against whom such provision as amended or modified or such
waiver is sought to be enforced. Failure to insist upon strict compliance with
any of the terms or conditions of the Agreement shall not be deemed a waiver of
such term or condition. This Agreement shall terminate as provided in Section 1
hereof or upon earlier agreement of the parties; provided, however, that
Sections 5 and 6 of this Agreement shall survive such termination for one (1)
and five (5) years, respectively.
9. Successors; Binding Agreement. This Agreement shall be binding upon
and inure to the benefit of Parent and its successors and assigns. Parent will
require any successor (whether direct or indirect, by acqui-
<PAGE> 9
sition, merger, consolidation, corporate reorganization or otherwise) to all or
substantially all the assets or the business of Parent to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
Parent would be required to perform it if no such succession had taken place. In
the event the Executive shall die after becoming entitled to receive, but prior
to receiving, any Severance Payment or any other amounts or benefits receivable
hereunder, payment thereof shall be made by Parent to the beneficiary designated
by the Executive to receive such amounts hereunder or, if none such, to the
beneficiary designated by the Executive for purposes of the group life insurance
plan of Parent in which the Executive shall have participated at the time of
termination of employment or, if none such, to the estate of the Executive.
10. State Law. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of New York.
11. Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect to the
maximum extent permitted by law.
12. Counterparts. This Agreement may be executed in one or more
counterparts.
13. Notices. Any communication to a party required or permitted under
this Agreement, including any notice, direction, designation, consent,
instruction, objection or waiver, shall be in writing and deemed to have been
given at such time as it is delivered personally, or five (5) days after mailing
if mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to Parent:
North Fork Bancorporation, Inc.
275 Broad Hollow Road
Melville, New York 11747
Attn: Corporate Secretary
<PAGE> 10
If to the Executive:
Thomas M. O'Brien
275 Broad Hollow Road
Melville, New York 11747
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date and year first above written.
NORTH FORK BANCORPORATION, INC.
By: /s/ John Adam Kanas
-------------------------
Name: John Adam Kanas
Title: Chairman,President &
Chief Executive Officer
Thomas M. O'Brien
/s/ Thomas M. O'Brien
---------------------
<PAGE> 1
EXHIBIT 10.13(a)
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of December 31, 1996, between North Fork
Bancorporation, Inc., a Delaware corporation with its principal place of
business at 275 Broad Hollow Road, Melville, New York 11747 ("Parent"), and
Thomas M. O'Brien (the "Executive").
WHEREAS, Parent, North Fork Bank ("NFB") and North Side Savings Bank, a
New York-chartered stock form savings bank (the "Bank"), have entered into an
Agreement and Plan of Merger, as amended, dated July 15, 1996 (the "Merger
Agreement"), providing for the merger of the Bank with and into NFB (the
"Merger"); and
WHEREAS, after the consummation of the transaction contemplated by the
Merger Agreement, Parent wishes the Executive to serve as Vice Chairman of each
of Parent and NFB and the Executive wishes to serve in such capacities; and
WHEREAS, the Board of Directors of Parent (the "Board") has approved
and authorized the negotiation, delivery and execution of this Agreement on the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, Parent and the Executive hereby agree
as follows:
1. Employment. Parent hereby agrees to employ the Executive, and the
Executive hereby accepts such employment, on the terms and conditions
hereinafter set forth.
2. Term. The period of employment of the Executive by Parent hereunder
(the "Employment Period") shall commence on the date specified by the Executive
in the written notice by which he notifies Parent of his intention to accept
employment hereunder ("Notice of Acceptance"), which date shall not be more than
10 business days following delivery of the Notice of Acceptance, and shall end
on the third anniversary thereof, unless sooner terminated as provided herein.
The Notice of Acceptance shall be given within the time period and in
<PAGE> 2
the manner specified in the Merger Agreement.
3. Position and Duties. During the Employment Period, the Executive
shall serve as the Vice Chairman of each of Parent and NFB and shall report
directly to Parent's Chief Executive Officer. The Executive shall have such
responsibilities and authority as may from time to time be assigned to the
Executive by the Chief Executive Officer provided that such responsibilities and
authority are consistent with the Executive's positions as Vice Chairman of
Parent and NFB. The Executive agrees to devote substantially all of his working
time and efforts to the performance of his duties for Parent and NFB.
Notwithstanding the foregoing sentence, the Executive may serve as a member of
the board of directors of such business, community and charitable organizations
of which he is a member on the first day of the Employment Period or as he may
thereafter disclose to the Board and he may engage in personal business and
investment activities for his own account, but none of such activities will be
deemed a breach of this Agreement.
4. Place of Performance. In connection with the Executive's employment
hereunder, the Executive's principal place of employment shall be located at
Parent's principal headquarters in Melville, New York, except for reasonably
required travel on business of Parent and its subsidiaries.
5. Compensation and Related Matters.
(a) Base Salary. As compensation for the performance by the
Executive of his obligations hereunder, during the Employment Period, Parent
shall pay the Executive a base salary at the rate of $325,000 per annum or such
higher rate as the Board may determine ("Base Salary"); provided, however, that,
in any event, such annual rate shall be substantially equivalent to the annual
rate of any other Vice-Chairman of Parent; and provided further, however, that
at no time shall such annual rate be less than fifty percent (50%) of the annual
rate of base salary payable to the Chief Executive Officer of Parent. Base
Salary shall be paid in approximately equal installments in accordance with
Parent's customary payroll practices. Base Salary may be increased from time to
time in accordance with the normal business practices of Parent and, if so
increased, shall not thereafter during the Employment Period be decreased.
Compensation of the Executive by salary payments (includ-
<PAGE> 3
ing any increased salary payments) shall not be deemed exclusive and shall
neither prevent the Executive from participating in any other compensation or
benefit plan of Parent or its subsidiaries nor in any other way limit or reduce
any other obligation of Parent hereunder.
(b) Bonuses. During the Employment Period, the Executive shall be
eligible to receive such annual bonus (the "Annual Bonus") as the Board, in its
discretion, may provide; provided, however, that, in any event, such Annual
Bonus shall be substantially equivalent to the annual bonus, if any, granted to
any other Vice-Chairman of Parent; and provided further, however, that if there
is not any other Vice-Chairman of Parent, such Annual Bonus shall be in an
amount consistent with recent past practice for other Vice-Chairmen of Parent in
proportion to the Chief Executive Officer of Parent; and provided further,
however, that the first annual bonus Executive shall be eligible to receive
shall be in respect of Parent's fiscal year ended December 31, 1997.
(c) Expenses. Parent shall promptly reimburse the Executive for
all reasonable business expenses incurred during the Employment Period by the
Executive in performing services hereunder, including all expenses of travel,
living, and entertainment expenses suitable to the Executive's position while
traveling on business or at the request of and in the service of Parent or NFB,
provided that such expenses are incurred and reasonably substantiated and
documented in accordance with the policies and procedures established by Parent
as applied to senior executive officers of Parent and its subsidiaries.
(d) Other Benefits. The Executive shall be entitled to participate in
all of the employee benefit plans and arrangements maintained currently or in
the future by Parent or its subsidiaries for its employees generally, in
accordance with the terms of such plans and arrangements (including without
limitation each pension and retirement plan, life insurance and
health-and-accident plan and arrangement, medical insurance plan, disability
plan and vacation plan and any and all stock options, restricted stock,
appreciation rights, phantom
<PAGE> 4
stock, stock unit or other stock-based plans), subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements as applied to any other Vice-Chairman of Parent. Parent shall
not make any changes in such plans or arrangements that would adversely affect
Executive's rights or benefits thereunder unless such changes occur pursuant to
an across-the-board program applicable to substantially all employees of Parent
and its subsidiaries. Nothing paid to the Executive under any plan or
arrangement presently in effect or made available in the future shall be deemed
to be in lieu of the salary payable to the Executive pursuant to subsection (a)
of this Section 5.
(e) Services Furnished. During the Employment Period, Parent
shall furnish the Executive with office space, stenographic assistance and such
other facilities and services as shall be suitable to the Executive's position
and adequate for the performance of his duties as set forth in Section 3 hereof.
The Parent shall provide to the Executive for his exclusive use an automobile
owned or leased by the Parent and appropriate to his position, to be used in the
performance of his duties hereunder, including commuting to and from his
personal residence. Parent shall reimburse the Executive for all expenses
associated with his business use of such automobile in accordance with Section
5(c).
(f) Vacation. The Executive shall be entitled to four (4) weeks
of vacation annually, to be taken at such times and intervals as shall be
determined by the Executive with the approval of Parent, which approval shall
not be unreasonably withheld.
6. Offices. (a) Promptly following the first day of the Employment
Period, Parent shall take such actions as are necessary to cause the Executive
to be elected to serve as a member of the board of directors of NFB, and shall
take such further actions as shall be necessary from time to time to cause the
Executive to be re-elected to serve as a member of the board of directors of NFB
for the duration of the Employment Period. Promptly following the first day of
the Employment Period, Parent shall take such actions as are necessary to
<PAGE> 5
create a vacancy in the class of its Board having a term expiring in 1999 and to
cause the Executive to be elected or appointed to fill such vacancy. From time
to time thereafter, Parent shall use its best efforts to cause the Executive to
be nominated for re-election as a member of the Board for the duration of the
Employment Period.
The Executive agrees to serve in such positions and to receive as compensation
for such service such compensation (if any) as the Parent or NFB, as applicable,
pays for service as a director to other directors who are also executive
officers. The Executive also agrees, if requested by Parent, to serve as a
director, and on any committee of directors, of any of the subsidiaries of
Parent or NFB and in one or more executive positions of any of Parent's
subsidiaries and to receive compensation therefor (if any) on substantially the
same terms and conditions applicable to other senior officers of the Parent
appointed to similar positions.
7. Termination. The Executive's employment hereunder may be terminated,
in which case the Employment Period shall terminate, under the circumstances set
forth below:
(a) Death. The Executive's employment hereunder shall terminate upon
his death.
(b) Disability. If, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent from the
full-time performance of his duties hereunder for 90 days (which need not be
consecutive) during any period of 120 days, and within thirty (30) days after
written Notice of Termination (as defined in Section 8) is given shall not have
returned to the performance of his duties hereunder on a full-time basis, Parent
may terminate the Executive's employment hereunder for "Disability."
(c) Parent for Cause. Parent may terminate the Executive's
employment hereunder for Cause. For purposes of this Agreement, Parent shall
have "Cause" to terminate the Executive's employment hereunder upon the willful
engaging by the Executive in conduct which is demonstrably and materially
injurious to Parent or a subsidiary thereof, monetarily or otherwise. For
purposes of this Section 7(c), no act or failure to act on the Executive's part
shall be considered "willful" unless
<PAGE> 6
done or omitted to be done by the Executive in bad faith and without reasonable
belief that the Executive's action or omission was in the best interest of
Parent and its subsidiaries.
(d) Executive for Cause. The Executive may terminate his employment
hereunder for Cause. For purposes of this Agreement, Executive shall have
"Cause" to terminate his employment hereunder in the event of any material
breach of this Agreement by Parent which breach shall not have been cured by
Parent within 30 days following written notice to Parent or which breach, by its
nature, cannot be cured. The Executive's right to terminate his employment
hereunder for Cause shall not be affected by his incapacity due to physical or
mental illness.
(e) Other than for Cause. Parent may terminate the Executive's
employment other than for Cause, subject to the provisions of Section 8(d)
hereof.
8. Compensation upon Certain Terminations or
During Disability.
(a) Disability. During any period that the Executive fails to
perform his duties hereunder as a result of incapacity due to physical or mental
illness ("Disability Period"), the Executive shall continue to receive his full
Base Salary at the rate in effect at the beginning of such period, reduced by
any compensation payable to the Executive under Parent's disability plan, as in
effect during such period, until his employment is terminated pursuant to
Section 7(b) then: (i) during the period commencing on the date of termination
and ending on the date on which the Executive becomes eligible for long-term
disability benefits under a group long-term disability plan maintained by Parent
or one of its subsidiaries ("Benefit Eligibility Date") (or, if earlier, the
third anniversary of the commencement of the Employment Period), Parent shall
continue to pay the Executive (or, in the event of his death, his estate) his
Base Salary (at the rate in effect at the time Notice of Termination is given,
without giving effect to any purported reduction in Base Salary in violation of
this Agreement), at the same time and in the same manner as if
<PAGE> 7
the Executive's employment had continued; and (ii) at the Benefit Eligibility
Date, Parent shall pay to the Executive (or, in the event of his death, his
estate) a lump sum payment in an amount equal to the aggregate Base Salary that
would have been paid to the Executive during the period beginning on the Benefit
Eligibility Date and ending on the third anniversary of the commencement of the
Employment Period if his employment continued during such period, minus the
aggregate long-term disability benefits payable to the Executive under the
aforementioned long-term disability plan during the same period.
(b) Death. In the event the Executive's employment is terminated by
reason of his death, Parent shall pay to the Executive's estate, within thirty
(30) days following the date of death, a lump sum payment equal to the aggregate
payments of Base Salary (at the rate in effect immediately prior to the
Executive's death) that would have been made to the Executive through the third
anniversary of the commencement of the Employment Period had such Employment
Period not been earlier terminated.
(c) By Parent for Cause. If the Executive's employment shall be
terminated by Parent for Cause, then Parent shall pay the Executive his Base
Salary (at the rate in effect at the time Notice of Termination is given,
without giving effect to any purported reduction in Base Salary in violation of
this Agreement) through the date of termination of employment, and Parent shall
have no additional obligations to the Executive under this Agreement except as
set forth in subsection (e) of this Section 8.
(d) By Parent other than for Cause or by Executive for Cause.
Subject to the proviso set forth in Section 15 hereof, if the Executive's
employment shall be terminated by Parent other than for Cause or by the
Executive for Cause, then Parent shall pay to the Executive, as promptly as
practicable and in any event within five (5) business days after termination of
employment, a lump sum payment equal to the product of (i) 130% and (ii) the
aggregate payments of Base Salary (at the rate in effect at the time Notice of
Termination is given, without regard to any purported reduction in Base Salary
in violation of this Agreement) that would have been made to the Executive
through the third anniversary of the commencement of the Employment Period had
such Employment
<PAGE> 8
Period not been earlier terminated.
(e) Compensation Plans. Following any termination of the Executive's
employment, Parent shall pay the Executive all unpaid amounts, if any, to which
the Executive is entitled as of the date of termination of employment under any
compensation plan or program of Parent, at the time such payments are due and
furnish to the Executive and his dependents and beneficiaries such non-cash
benefits as are available to them as a result of the Executive's status as a
former employee of Parent or its subsidiaries, subject to and on the same terms
and conditions generally applicable to other former senior executive officers of
Parent or its subsidiaries. In the event of the Executive's termination of
employment for any reason other than a termination by Parent for Cause, Parent
shall also furnish to the Executive and his spouse and dependents, through the
third anniversary of the commencement of the Employment Period (or until the
Executive has access to substantially similar coverage through a new employer),
continued group health, major medical and hospitalization insurance coverage on
the same terms and conditions that would have applied if his employment had
continued during this period and to the Executive, through the third anniversary
of the commencement of the Employment Period or until his earlier death,
continued group life and disability insurance coverage on the same terms and
conditions that would have applied if his employment had continued during such
period and he had earned Base Salary at the rate in effect at the time Notice of
Termination is given, without giving effect to any purported reduction in Base
Salary in violation of this Agreement.
9. Notice of Termination. Any purported termination of the
Executive's employment (other than by reason of death) shall be communicated by
written Notice of Termination from one party hereto to the other party hereto.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the date of termination (which shall in no event be earlier
than the date of delivery of the Notice of Termination) the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. Further, a Notice of
Termination for Cause is required to include a copy of a resolution
<PAGE> 9
duly adopted by the affirmative vote of not less than three-quarters (3/4) of
the entire membership of the Board at a meeting of the Board which was called
and held for the purpose of considering such termination (after reasonable
notice to the Executive and an opportunity for the Executive, together with the
Executive's counsel, to be heard before the Board) finding that, in the good
faith opinion of the Board, the Executive was guilty of conduct set forth in the
definition of Cause herein, and specifying the particulars thereof in detail.
10. Indemnification; Legal Fees. (a) During the Employment Period and
for a minimum period of six (6) years thereafter, Parent shall cause the
Executive to be covered by and named as an insured under any policy or contract
of insurance obtained by it or any of its subsidiaries to insure their
respective directors and officers against personal liability for acts or
omissions in connection with service as an officer or director of Parent or such
subsidiaries or service in other capacities at their request. The coverage
provided to the Executive pursuant to this section 10(a) shall be of the same
scope and on the same terms and conditions as the most favorable coverage (if
any) provided to any other current or former officer or director of Parent or
any of its subsidiaries.
(b) To the maximum extent permitted under applicable law, during
the Employment Period and for a minimum period of six (6) years thereafter,
Parent shall indemnify the Executive against and hold him harmless from any
costs, liabilities, losses and exposures to the fullest extent and on the most
favorable terms and conditions that similar indemnification is offered to any
current or former director or officer of Parent or any subsidiary thereof.
(c) Parent shall indemnify the Executive for all legal fees and
expenses incurred by the Executive in contesting or disputing any termination of
the Executive's employment or in seeking to obtain or enforce any right or
benefit provided by this Agreement unless such fees and expenses are determined
by a court of competent jurisdiction to have been incurred as a result
<PAGE> 10
of the Executive's bad faith. Such payments shall be made within thirty (30)
days after the Executive's request for payment accompanied with such evidence of
fees and expenses incurred as Parent reasonably may require.
11. Successors; Binding Aqreement.
(a) Parent's Successors. Parent shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of Parent to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that Parent would be required to perform it if no such succession had
taken place. Failure of Parent to obtain such assumption and agreement prior to
the effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from Parent in the same amount and
on the same terms as he would be entitled to hereunder if he terminated his
employment for Cause. As used in this Agreement, "Parent" shall mean Parent as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this Section
11 or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
(b) The Executive's Successors. This Agreement and all rights of the
Executive hereunder shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts would still be payable to him hereunder if he had
continued to live, all such amounts unless otherwise provided herein shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the
Executive's estate.
12. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer of Parent as may be
specifically designated by the Board or its compensation committee. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision
<PAGE> 11
of this Agreement to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. This Agreement shall
be binding on all successors to Parent. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of New York without regard to its conflicts of law principles. Any
payments provided for hereunder shall be paid net of any applicable withholding
required under federal, state or local law. The compensation and benefits
payable to the Executive under this Agreement shall be in lieu of any other
severance benefits to which the Executive may otherwise be entitled upon his
termination of employment under any severance plan, program, policy or
arrangement of Parent or it subsidiaries, other than the Change in Control
Agreement entered into by and between Parent and the Executive, dated December
31, 1996 (the "Change in Control Agreement"). Any covenant or agreement
contained herein which by its terms shall apply in whole or in part after the
termination of the Employment Period shall survive such termination in
accordance with its terms.
13. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
15. Entire Agreement. This Agreement, together with the Change in
Control Agreement, sets forth the entire agreement of the parties hereto in
respect of the
<PAGE> 12
subject matter contained herein and supersedes all prior agreements, promises,
covenants, arrangements, communications, representations or warranties, whether
oral or written, by any officer, employee or representative of any party hereto;
and any prior agreement of the parties hereto in respect of the subject matter
contained herein is hereby terminated and cancelled; provided, however, that
this Agreement shall not apply to any termination of the Executive's employment
to which the Change in Control Agreement applies.
16. Notices.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to the Executive:
Thomas M. O'Brien
North Fork Bancorporation, Inc.
275 Broad Hollow Road
Melville, New York 11747
copy to
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. Edward Bright, Esq.
If to Parent:
North Fork Bancorporation, Inc.
275 Broad Hollow Road
Melville, New York 11747
Attention: Chief Executive Officer
<PAGE> 13
17. No Set-off
Parent's obligation to make payments hereunder or otherwise to perform
its obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which Parent may have
against the Executive or others. In no event shall the Executive be obligated to
seek other employment or take any other actions by way of mitigation of the
amounts and benefits due to the Executive under any of the provisions of this
Agreement.
<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
NORTH FORK BANCORPORATION, INC.
By: /s/ John Adam Kanas
------------------
Name : John Adam Kanas
Title: Chairman, President &
Chief Executive Officer
Thomas M. O'Brien
/s/ Thomas M. O'Brien
--------------------
<PAGE> 1
EXHIBIT 11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
<S> <C>
Net Income $ 62,442
Weighted Average Equivalent
Shares Outstanding:
Average Outstanding Shares 31,820,010
Common Stock Equivalents (1) 318,636
Weighted Average Equivalent Shares 32,138,646
Earnings Per Share $ 1.94
</TABLE>
(1) Represents options.
14
<PAGE> 1
SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA FOR EACH OF THE YEARS IN THE FIVE YEAR PERIOD ENDED
DECEMBER 31, 1996 ARE SET FORTH BELOW. THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO AS OF DECEMBER 31, 1996 AND 1995 AND FOR EACH OF
THE YEARS IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 1996 ARE INCLUDED
ELSEWHERE HEREIN. ALL PRIOR YEARS' FINANCIAL INFORMATION HAS BEEN CONFORMED TO
THE CURRENT YEAR PRESENTATION.
<TABLE>
<CAPTION>
(in thousands, except ratios and per share amounts) 1996 1995 (1) 1994 (1) 1993 (1) 1992 (1)
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest Income (tax equivalent basis) (2) ..... $ 409,125 $ 334,462 $ 296,924 $ 290,534 $ 331,211
Interest Expense ............................... 174,361 140,399 112,576 117,153 175,937
---------------------------------------------------------------
Net Interest Income (tax equivalent basis) . 234,764 194,063 184,348 173,381 155,274
Less: Tax Equivalent Basis Adjustment .......... 3,818 1,970 1,862 1,489 1,557
---------------------------------------------------------------
Net Interest Income ........................ 230,946 192,093 182,486 171,892 153,717
Provision for Loan Losses ...................... 6,800 11,825 6,825 26,608 34,612
Non-Interest Income ........................... 29,245 23,010 21,674 21,868 20,161
Net Securities Gains/(Losses) .................. 1,878 6,734 (9,189) 1,321 10,111
Other Real Estate Expense ...................... 753 1,255 4,929 25,246 17,696
Merger Related Restructure Charges ............. 21,613 -- 14,338 -- 1,200
SAIF Recapitalization Charge ................... 8,350 -- -- -- --
Other Non-Interest Expense ..................... 112,281 91,565 99,338 117,316 101,605
---------------------------------------------------------------
Income Before Income Taxes .................. 112,272 117,192 69,541 25,911 28,876
Provision for Income Taxes ..................... 49,830 49,850 26,502 13,015 14,378
---------------------------------------------------------------
Net Income .................................. $ 62,442 $ 67,342 $ 43,039 $ 12,896 $ 14,498
===============================================================
AVERAGE BALANCE SHEET DATA:
Securities ..................................... 2,386,493 1,874,624 1,832,327 1,675,583 1,242,146
Loans, net ..................................... 2,778,663 2,358,636 2,313,419 2,288,712 2,581,547
Total Assets ................................... 5,518,016 4,470,920 4,417,627 4,315,839 4,360,516
Total Deposits ................................. 4,373,570 3,634,149 3,600,686 3,671,336 3,897,054
Federal Funds Purchased & Securities Sold Under
Agreements to Repurchase .................... 610,960 350,393 378,198 220,120 82,791
Other Borrowings ............................... 38,934 36,397 49,044 36,559 55,190
Stockholders' Equity ........................... 431,376 389,095 338,826 304,108 267,239
BALANCE SHEET DATA AT DECEMBER 31:
Securities ..................................... 2,157,506 2,235,339 1,766,235 1,782,271 1,454,235
Loans, net ..................................... 3,171,525 2,400,282 2,303,920 2,128,808 2,419,107
Total Assets ................................... 5,750,527 4,890,866 4,258,827 4,268,034 4,178,229
Total Deposits ................................. 4,469,510 3,739,720 3,538,768 3,633,619 3,736,054
Federal Funds Purchased & Securities Sold Under
Agreements to Repurchase .................... 621,789 642,369 246,875 255,643 50,476
Other Borrowings ............................... 35,000 35,000 75,000 33,000 53,000
Company-Obligated Mandatorily Redeemable Capital
Securities of Subsidiary Trust .............. 99,637 -- -- -- --
Stockholders' Equity ........................... 457,531 426,129 355,921 314,263 282,886
PER SHARE:
Net Income (3) ................................. $ 1.94 $ 2.09 $ 1.38 $ 0.42 $ 0.54
Cash Dividends (4) ............................. 0.85 0.55 0.35 -- --
Book Value at December 31 ...................... 14.10 13.19 11.68 10.55 10.30
Market Price at December 31 .................... 35.63 25.25 13.75 12.88 8.13
SELECTED RATIOS:
Return on Average Total Assets (3) ............. 1.13% 1.51% 0.97% 0.30% 0.33%
Return on Average Stockholders' Equity (3) ..... 14.48% 17.31% 12.70% 4.24% 5.43%
Core Efficiency Ratio (5) ...................... 42.53% 42.18% 48.22% 55.97% 57.92%
Net Interest Margin ............................ 4.50% 4.56% 4.38% 4.26% 3.74%
Average Stockholders' Equity to Average Assets . 7.82% 8.70% 7.67% 7.05% 6.13%
Tier I Capital Ratio ........................... 15.12% 15.64% 14.44% 12.25% 9.59%
Risk Adjusted Capital Ratio .................... 16.38% 16.90% 15.71% 13.52% 10.85%
Leverage Ratio ................................. 8.61% 8.25% 7.73% 6.56% 5.79%
Allowance for Loan Losses/Non-Performing Loans . 265% 151% 109% 89% 46%
Non-Performing Assets to Total Assets .......... .39% .92% 1.62% 2.26% 5.02%
AVERAGE EQUIVALENT SHARES OUTSTANDING .......... 32,139 32,216 31,156 30,563 26,988
NUMBER OF BRANCH OFFICES OF THE COMPANY ........ 82 67 63 52 54
</TABLE>
- - ----------
(1) On December 31, 1996, North Side Savings Bank ("North Side") was merged
with and into the Company. On November 30, 1994, Metro Bancshares Inc.
("Metro") was merged with and into the Company. These mergers have been
accounted for as pooling-of-interests transactions and, accordingly,
the financial results for all periods reported have been retroactively
restated to include North Side (See Note 2(a) of the Notes to
Consolidated Financial Statements) and Metro.
(2) 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 City, and Federal income taxes yielding the same after tax income.
(3) Net income per share exclusive of the nonrecurring SAIF
Recapitalization and Merger Related Restructure charges was $2.66 for
1996. The return on average total assets and the return on average
stockholders' equity, as adjusted for the aforementioned charges, would
have been 1.55% and 19.85%, respectively.
(4) Cash dividends do not reflect dividends declared by North Side and
Metro prior to their respective merger dates.
(5) The core efficiency ratio is defined as the ratio of non-interest
expense net of other real estate expenses and other non-recurring
charges, to net interest income on a taxable equivalent basis and other
non-interest income net of net securities gains/(losses).
9
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 $5.8 billion commercial bank holding
company. The Company's primary subsidiary, North Fork Bank (the "Bank"),
operates through 82 full-service retail banking facilities located in the
metropolitan New York area. On December 31, 1996, North Side Savings Bank
("North Side"), was merged with and into the Company. The merger has been
accounted for as a pooling-of-interests transaction. Accordingly, the financial
results for all prior periods reported in the accompanying management's
discussion and analysis include the results of North Side. The Company reports
its financial results on a calendar year basis, whereas North Side 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 North Side's year-end with that of the Company. The consolidated results
for years prior to 1996 reflect the combination of the Company at and for the
years ended December 31 with North Side at and for the years ended September 30.
Certain North Side financial information has been reclassified to conform with
that of the Company.
In March 1996, the Bank completed its purchases of the domestic commercial
banking business of Extebank ("Extebank") and ten Long Island branch locations
of First Nationwide Bank ("First Nationwide"). These transactions have been
accounted for under the purchase method of accounting, and accordingly, the
Company's consolidated results of operations only reflect activity subsequent to
the acquisition dates.
The discussion and analysis that follows should be read in conjunction with
the consolidated financial statements and supplementary data contained elsewhere
in this 1996 Annual Report to Shareholders.
OVERVIEW
The year was highlighted with the Company consummating three strategic
in-market acquisitions, culminating with its December 31, 1996 merger with North
Side. North Side had $1.6 billion in total assets, $1.2 billion in deposit
liabilities, $124.4 million in capital and operated through seventeen
full-service banking locations in the New York counties of the Bronx, Queens,
Nassau and Suffolk. The Company issued 7.5 million shares of common stock in
connection with the merger. In March 1996, the Bank completed its purchase of
the domestic commercial banking business of Extebank. Extebank had approximately
$388 million in total assets, $200 million in net loans, $348 million in deposit
liabilities, $30 million in capital, and operated through eight branch locations
in the metropolitan New York area, including Manhattan. Additionally, in March
1996 the Bank acquired ten Long Island branches of First Nationwide Bank, and
assumed $572 million in deposit liabilities for which it paid a deposit premium
of 6.35%. The combined assets and deposits acquired in these acquisitions were
$2.6 billion and $2.1 billion, respectively.
In recent years, merger and acquisition activity has become an important
component of the Company's longer term growth strategy. The Company will
consider an acquisition opportunity if it meets specific criteria associated
with earnings enhancements, market place penetration and deployment of existing
capital. The March 1996 purchases of Extebank and the First Nationwide branches
achieved the desired objectives in that they were immediately accretive to
earnings, expanded the Company's geographic presence in its primary markets and
represented an efficient use of capital. Similar results are anticipated from
the North Side transaction in 1997.
The Company enhanced its Tier I capital through the issuance of $100 million
of 8.70% Capital Pass-Through Securities on December 31, 1996. The Company's
total risk adjusted capital and leverage ratios at December 31, 1996 improved to
16.38% and 8.61%, respectively.
During 1996, the Company's loan portfolio grew to $3.2 billion, a 32%
increase over year end 1995. This level of growth was achieved through (i) the
acquisition of $200 million in net loans from Extebank, (ii) the purchase of
approximately $150 million in residential mortgage loans through North Side, and
(iii) strong loan demand in virtually all loan categories.
Multi-family mortgage loans, which represent 30% of total loans, increased
39% during 1996 and outpaced other loan categories in terms of new originations.
Overall asset quality improved as the level of non-performing assets declined
50.4% to $22.2 million at December 31, 1996, as compared with $44.8 million at
December 31, 1995, resulting in the allowance for loan losses to non-performing
loans improving to 265% at December 31, 1996, as compared to 151% at December
31, 1995. At December 31, 1996, the Company's total shares outstanding were 32.4
million with a market capitalization of approximately $1.2 billion. Also, cash
dividends increased during the year to $1 per share on an annualized basis.
EARNINGS SUMMARY
In 1996, the Company reported net income of $62.4 million or $1.94 per
share, as compared with $67.3 million or $2.09 per share in 1995. Net income and
earnings per share for the year were impacted by the recognition of
non-recurring charges for merger and related restructuring costs of $21.6
million and $8.4 million for the recapitalization of the Savings Association
Insurance Fund ("SAIF").
Net income and earnings per share exclusive of the aforementioned
non-recurring charges, less the related tax effect, would have been $85.6
million, or $2.66 per share in 1996. Return on average total assets and return
on average stockholders' equity, excluding these charges, would have been 1.55%
and 19.85%, respectively for 1996, as compared to 1.51% and 17.31%, respectively
for 1995.
NET INTEREST INCOME
Net interest income, which represents the difference between interest earned
on interest earning assets and interest incurred on interest bearing
liabilities, is the Company's primary source of earnings. Net interest income is
affected by the level and composition of assets, liabilities and equity, as well
as changes in market interest rates.
Net interest income increased $38.8 million to $230.9 million in 1996, as
compared to $192.1 million in 1995. The components of this increase include a
$72.8 million increase in interest income which was partially offset by a $34.0
million increase in interest expense.
10
<PAGE> 3
Interest income increased 21.9% to $405.3 million in 1996 from $332.5
million in 1995. This increase is attributable to the $960.4 million or 22.5%
increase in average interest earning assets to $5.2 billion, as compared to $4.3
billion during 1995. The rise in the level of interest earning assets was due
principally to the Extebank and First Nationwide acquisitions and the investment
of the liquidity generated through the increased level of borrowings. Average
mortgage-backed securities increased $453.1 million or 29.0% to $2.0 billion
during 1996, as compared to $1.6 billion during 1995. This increase resulted
from the investment of the cash proceeds received in the aforementioned
acquisitions.
Average loans increased $420.0 million or 17.8% to $2.8 billion during 1996,
when compared to $2.4 billion during 1995. This level of growth was achieved
through the acquisition of approximately $200 million in loans from Extebank,
North Side's purchase of $150 million in residential mortgage loans and strong
loan demand during the second half of 1996. The corresponding yield on average
loans of 8.87% during 1996 was unchanged from 1995.
Interest expense increased to $174.4 million in 1996, reflecting a 3.99%
average cost of funds, as compared with $140.4 million or 3.91% in 1995. This
increase resulted from a $781.8 million increase in the level of interest
bearing liabilities, due principally to the aforementioned acquisitions and
increased levels of borrowings, and a modest rise in the Company's overall cost
of funds due to relative changes in composition of the funding base.
Average total savings and time deposits increased $518.7 million or 16.2% to
$3.7 billion during 1996, when compared to $3.2 billion during 1995. This
increase is principally attributable to customer deposit liabilities assumed in
the recently completed acquisitions.
The Company continued to demonstrate its ability to grow demand deposits as
average balances increased $220.7 million or 51.0% to $653.8 million during 1996
as compared to $433.1 million during 1995. Demand deposits acquired from
Extebank were approximately $105 million. At December 31, 1996, demand deposits
represented 16.4% of total deposits as compared to 13.1% at December 31, 1995.
The Company's overall cost of funds during 1996 was negatively impacted by
the increased level of borrowings under repurchase agreements. Average Federal
Funds Purchased and Securities Sold Under Agreements to Repurchase increased
74.4% to $611.0 million, as compared with $350.4 million in 1995. The impact of
this increase was offset in part by a decline in the corresponding yield on
these borrowings to 5.70% during 1996, from 5.97% during 1995.
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 loans net of unearned income and
fees, include non-accrual loans.
<TABLE>
<CAPTION>
Years Ended December 31, 1996 VS. 1995 1995 VS. 1994
-----------------------------------------------------------------
(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 ................. $ 113 $ (30) $ 83 $ 61 $ 37 $ 98
Taxable Securities ........................ 498 (367) 131 (1,830) 1,992 162
Non-Taxable Municipals .................... 3,602 21 3,623 (114) 414 300
Mortgage-Backed Securities ................ 30,441 1,813 32,254 4,446 13,050 17,496
Loans, net of unearned income & fees ...... 37,386 (75) 37,311 3,654 16,931 20,585
Federal Funds Sold and Securities
Purchased Under Agreements to Resell ... 1,400 (139) 1,261 (2,068) 965 (1,103)
-----------------------------------------------------------------
Total Interest Income .................. 73,440 1,223 74,663 4,149 33,389 37,538
-----------------------------------------------------------------
INTEREST EXPENSE ON LIABILITIES:
Total Savings and Time Deposits ........... 23,103 (3,141) 19,962 3,576 20,261 23,837
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase ......... 14,883 (1,015) 13,868 (1,264) 5,996 4,732
Other Borrowings .......................... 205 (73) 132 (1,023) 277 (746)
-----------------------------------------------------------------
Total Interest Expense ................. 38,191 (4,229) 33,962 1,289 26,534 27,823
-----------------------------------------------------------------
Net Change in Net Interest Income ......... $35,249 $ 5,452 $40,701 $ 2,860 $ 6,855 $ 9,715
=================================================================
</TABLE>
- - ----------
(1) The above table is presented on a taxable equivalent basis.
11
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS (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>
1996 1995 1994
------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
(DOLLARS IN THOUSANDS ) BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Interest Earning Deposits ............... $ 4,222 $ 220 5.21% $ 2,126 $ 137 6.44% $ 1,011 $ 39 3.86%
Taxable Securities ...................... 267,441 16,865 6.31% 259,624 16,734 6.45% 289,893 16,572 5.72%
Non-Taxable Municipals .................. 104,668 7,401 7.07% 53,724 3,778 7.03% 55,509 3,478 6.27%
Mortgage-Backed Securities .............. 2,014,384 135,462 6.72% 1,561,276 103,208 6.61% 1,486,925 85,712 5.76%
Loans, net of unearned income & fees .... 2,778,663 246,520 8.87% 2,358,636 209,209 8.87% 2,313,419 188,624 8.15%
Federal Funds Sold and Securities
Purchased Under Agreements to Resell ... 50,482 2,657 5.26% 24,098 1,396 5.80% 66,741 2,499 3.74%
-------------------- --------------------- --------------------
Total Interest Earning Assets .......... 5,219,860 409,125 7.84% 4,259,484 334,462 7.85% 4,213,498 296,924 7.05%
-------- --------- -------
Allowance for Loan Losses ............... (57,301) (62,207) (65,697)
Cash and Due from Banks ................. 141,648 99,941 95,220
Other Non-Interest Earning Assets (2) ... 213,809 173,702 174,606
---------- ---------- ----------
Total Assets ........................... $5,518,016 $4,470,920 $4,417,627
========== ========== ==========
INTEREST BEARING LIABILITIES:
Savings, N.O.W & Money Market Deposits .. $1,980,540 $ 45,129 2.28% $1,838,922 $ 44,155 2.40% $2,135,201 $47,226 2.21%
Time Deposits ........................... 1,739,192 91,309 5.25% 1,362,092 72,321 5.31% 1,130,340 45,413 4.02%
-------------------- --------------------- --------------------
Total Savings and Time Deposits ........ 3,719,732 136,438 3.67% 3,201,014 116,476 3.64% 3,265,541 92,639 2.84%
Federal Funds Purchased & Securities Sold
Under Agreements to Repurchase ......... 610,960 34,796 5.70% 350,393 20,928 5.97% 378,198 16,196 4.28%
Other Borrowings ........................ 38,934 3,127 8.03% 36,397 2,995 8.23% 49,044 3,741 7.63%
-------------------- --------------------- --------------------
Total Interest Bearing Liabilities ..... 4,369,626 174,361 3.99% 3,587,804 140,399 3.91% 3,692,783 112,576 3.05%
-------- --------- -------
Rate Spread ............................. 3.85% 3.94% 4.00%
Non-Interest Bearing Deposits ........... 653,838 433,135 335,145
Other Non-Interest Bearing Liabilities .. 63,176 60,886 50,873
---------- ---------- ----------
Total Liabilities ...................... 5,086,640 4,081,825 4,078,801
Stockholders' Equity .................... 431,376 389,095 338,826
---------- ---------- ----------
Total Liabilities and Stockholders'
Equity .............................. $5,518,016 $4,470,920 $4,417,627
========== ========== ==========
Net Interest Income and Net Interest
Margin (1) ............................. 234,764 4.50% 194,063 4.56% 184,348 4.38%
Less: Tax Equivalent Basis Adjustment ... (3,818) (1,970) (1,862)
-------- --------- -------
Net Interest Income .................... $230,946 $ 192,093 $182,486
======== ========= ========
</TABLE>
- - ----------
(1) The above table is presented on a taxable equivalent basis.
(2) Unrealized gains/(losses) on available-for-sale securities are recorded
in other non-interest earning assets.
ASSET/LIABILITY MANAGEMENT
The Company's primary earnings source is the net interest margin, which is
affected by changes in the level of interest rates, the relationship between
rates, the impact of interest rate fluctuations on asset prepayments, the level
and composition of deposits, and the credit quality of the portfolio.
Management's asset/liability objectives are to maintain a strong, stable net
interest margin, to utilize its capital effectively without taking undue risks
and to maintain adequate liquidity.
The Company's risk assessment program includes a coordinated approach to the
management of liquidity, capital and interest rate risk. This risk assessment
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, comprised of members of senior management and the
Board, meets periodically to evaluate the impact of changes in market interest
rates on assets and liabilities, net interest margin, capital and liquidity, and
to evaluate the Company's strategic plans.
The balance sheet structure is primarily short-term with most assets and
liabilities repricing or maturing in less than five years. Management monitors
the sensitivity of net interest income by utilizing a dynamic simulation model
complemented by traditional gap analysis. This model measures net interest
income sensitivity and volatility to interest rate changes. This model involves
a degree of estimation based on certain assumptions that management believes to
be reasonable. Factors considered include actual maturities, estimated cash
flows, repricing characteristics, deposit growth/retention and, primarily, the
relative sensitivity of assets and liabilities to changes in market interest
rates. Utilizing this process, management can project the impact of changes in
interest rates on net interest income. This relative sensitivity is important to
consider since the Bank's core deposit base is not subject to the same degree of
interest rate sensitivity as its assets. Core deposit costs are internally
controlled and generally exhibit less sensitivity to changes in interest
12
<PAGE> 5
rates than the adjustable rate assets whose yields are based on external indices
and change in concert with market interest rates. Management has established
certain limits for the potential volatility of net interest income, assuming
certain levels of change in market interest rates with the objective of
maintaining a stable level of net interest income under various probable rate
scenarios.
The traditional gap analysis is prepared based on the maturity and repricing
characteristics of interest earning assets and liabilities for selected time
periods. The mismatch between repricings or maturities within a time period 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 the 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 the net
interest margin. However, the traditional gap analysis does not assess the
relative sensitivity of assets and liabilities to changes in interest rates.
Management utilizes the gap analysis to complement its income simulation
modeling, primarily focusing on the longer term structure of the balance sheet.
Prior to completing the Extebank and First Nationwide acquisitions,
management had initiated a program whereby anticipated transaction proceeds were
pre-invested by purchasing principally mortgage-backed securities, with the
expectation that over time the composition of interest earning assets would
shift to higher yielding loans. These purchases were initially funded through
short-term borrowings at a positive spread of approximately 100 basis points.
During 1996, management successfully executed this strategy as loans net of
unearned income represented 58.2% of total interest earning assets at December
31, 1996, as compared to 51.4% at December 31, 1995. Additionally, during 1996
management took advantage of the existing interest rate environment and
leveraged its capital by increasing interest earning assets through the purchase
of both residential mortgage loans and investment securities. These purchases
were funded through a combination of short-term and long-term borrowings. The
net cost of these borrowings as compared to the acquired assets provided a
positive interest spread with nominal additional interest rate risk.
Management's strategy for the securities portfolios is to maintain a
short-weighted average life to minimize the exposure to future rises in interest
rates and to provide cash flows that may be reinvested at current market
interest rates. The combined weighted average lives of the held-to-maturity and
available-for-sale securities portfolios at December 31, 1996 was 4.9 years.
The following table reflects the repricing of the balance sheet, or "gap"
position at December 31, 1996:
<TABLE>
<CAPTION>
(dollars in thousands ) 0-90 91-180 181-365 1-5 OVER 5
INTEREST EARNING ASSETS: DAYS DAYS DAYS YEARS YEARS TOTAL
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Deposits .................... $ 2,298 $ -- $ -- $ -- $ -- $ 2,298
Federal Funds Purchased & Securities Sold
Under Agreements to Repurchase ........... 115,000 -- -- -- -- 115,000
Securities (1) ............................... 218,823 173,388 294,363 1,076,411 398,182 2,161,167
Loans, net of unearned income & fees (2) (3) . 654,174 184,837 341,580 1,443,392 529,797 3,153,780
-----------------------------------------------------------------------------
Total Interest Earning Assets .......... $ 990,295 $ 358,225 $ 635,943 $2,519,803 $ 927,979 $5,432,245
-----------------------------------------------------------------------------
INTEREST BEARING LIABILITIES:
Savings, N.O.W. and Money Market Deposits (4) $ 193,470 $ 193,470 $ 386,940 $1,200,690 $ -- $1,974,570
Time Deposits ................................ 641,397 361,363 324,057 432,410 806 1,760,033
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase .... 201,289 126,000 -- 294,500 -- 621,789
Other Borrowings ............................. -- -- -- 35,000 -- 35,000
-----------------------------------------------------------------------------
Total Interest Bearing Liabilities ..... $ 1,036,156 $ 680,833 $ 710,997 $1,962,600 $ 806 $4,391,392
-----------------------------------------------------------------------------
Gap .......................................... $ (45,861) $(322,608) $ (75,054) $ 557,203 $ 927,173
-----------------------------------------------------------------
Cumulative Difference Between Interest Earning
Assets and Interest Bearing Liabilities $ (45,861) $(368,469) $(443,523) $ 113,680 $1,040,853
-----------------------------------------------------------------
Cumulative Difference as a Percentage of
Total Assets ............................ (.80)% (6.41)% (7.71)% 1.98% 18.10%
-----------------------------------------------------------------
</TABLE>
- - ----------
Notes: (1) Based upon (a) contractual maturity, (b) repricing date, if
applicable, and (c) projected repayments of principal based upon
experience. Amounts exclude the unrealized gains/(losses) on
securities available-for-sale.
(2) Based upon (a) contractual maturity, (b) repricing date, if
applicable, and (c) management's estimate of principal
prepayments.
(3) Excludes non-accrual loans totaling $17.7 million.
(4) Estimated 60% of Money Market Deposit run-off in less than one year
with the remaining balance withdrawn evenly through year three.
Estimated 60% of Savings and NOW deposit run-off in the first two
years with remaining balance withdrawn evenly through five years.
13
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
The tables that follow depict the amortized cost, contractual maturities and
approximate weighted average yields (on a tax equivalent basis) of the
held-to-maturity and available-for-sale securities portfolios at December 31,
1996, respectively:
<TABLE>
<CAPTION>
HELD-TO-MATURITY U.S.
State & Government
(dollars in thousands) Municipal Agencies' Other
Maturity Obligations Yield Obligations Yield Securities Yield Total Yield
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Within 1 Year ............... $ 13,047 6.87% $ -- -- $ 6 9.24% $ 13,053 6.87%
After 1 But Within 5 Years... 25,739 7.04% 115 8.87% 1,419 7.97% 27,273 7.09%
After 5 But Within 10 Years.. 82,486 7.11% 2,486 8.74% 11,330 7.05% 96,302 7.10%
After 10 Years .............. 673 7.27% -- -- -- -- 673 7.27%
------------------------------------------------------------------------------------------------
Subtotal ................ 121,945 7.03% 2,601 8.75% 12,755 7.15% 137,301 7.08%
Mortgage-Backed Securities... -- -- -- -- -- -- 1,162,814 6.76%
------------------------------------------------------------------------------------------------
Total Securities ........ $121,945 7.03% $2,601 8.75% $12,755 7.15% $1,300,115 6.79%
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE FOR SALE (1) U.S.
U.S. Government
(dollars in thousands) Treasury Agencies'
Maturity Securities Yield Obligations Yield Total Yield
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Within 1 Year ................ $10,028 5.99% $ 5,002 5.61% $ 15,030 5.86%
After 1 But Within 5 Years ... 29,810 5.99% 89,260 7.02% 119,070 6.76%
After 5 But Within 10 Years .. 19,647 5.78% - - 19,647 5.78%
Due After 10 Years ........... 19,275 6.24% - - 19,275 6.24%
-----------------------------------------------------------------
Subtotal ................. 78,760 6.00% 94,262 6.95% 173,022 6.56%
Equity Securities ............ - - - - 39,728 7.44%
Mortgage-Backed Securities ... - - - - 648,302 7.38%
-----------------------------------------------------------------
Total Securities ......... $78,760 6.00% $94,262 6.95% $861,052 7.21%
=================================================================
</TABLE>
- - ----------
(1) Amounts exclude unrealized gains/(losses) reflected as a separate
component of stockholders' equity, net of taxes.
The following table presents the composition of the carrying value of the
securities portfolio in each of the last three years at December 31,
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
----------------------------------
<S> <C> <C> <C>
Mortgage-Backed Securities ............ $1,809,639 $1,912,579 $1,440,374
State & Municipal Obligations ......... 121,945 60,725 64,672
U.S. Government Agencies' Obligations.. 95,852 121,617 131,224
U.S. Treasury Securities .............. 76,990 20,143 46,400
Equity Securities ..................... 40,325 61,611 25,990
Other Securities ...................... 12,755 58,664 57,575
----------------------------------
$2,157,506 $2,235,339 $1,766,235
==================================
</TABLE>
14
<PAGE> 7
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 leases and non-accrual loans as of December
31, 1996:
<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:
Mortgage Loans-Multi-family ................................ $116,278 $ 728,408 $111,183 $ 955,869
Mortgage Loans-Commercial .................................. 223,441 314,725 93,667 631,833
Commercial & Industrial .................................... 274,676 54,338 12,062 341,076
Construction & Land Loans .................................. 45,427 1,880 -- 47,307
------------------------------------------------------------
Total ................................................. $659,822 $1,099,351 $216,912 $1,976,085
============================================================
RATE PROVISIONS:
Amounts with Fixed Interest Rates .......................... $ 52,960 $ 454,137 $207,399 $ 714,496
Amounts with Adjustable Interest Rates ..................... 606,862 645,214 9,513 1,261,589
------------------------------------------------------------
Total ................................................. $659,822 $1,099,351 $216,912 $1,976,085
============================================================
</TABLE>
The following table shows the classification of the average daily deposits
for each of the last three years ended December 31,
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
Demand Deposits .............................................................. $ 653,838 $ 433,135 $ 335,145
Savings Deposits ............................................................. 1,470,781 1,437,412 1,662,736
N.O.W. & Money Market Deposits ............................................... 509,759 401,510 472,465
Time Deposits ................................................................ 1,739,192 1,362,092 1,130,340
--------------------------------------------
Total Deposits ............................................................. $4,373,570 $3,634,149 $3,600,686
============================================
</TABLE>
At December 31, 1996, the remaining maturities of certificate of deposits in
amounts of $100,000 and over were as follows:
<TABLE>
<CAPTION>
(in thousands) 1996
----------
<S> <C>
3 months and less ............................................................................................ $ 231,475
3 to 6 months ................................................................................................ 34,362
6 to 12 months ............................................................................................... 29,644
One to five years ............................................................................................ 48,094
Greater than five years ...................................................................................... 238
----------
$ 343,813
==========
</TABLE>
15
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
LIQUIDITY
The objective of 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 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
Bank are limited by New York State Banking Department regulations to the current
year's earnings plus the prior two years' retained net profits. Pursuant to this
regulation, the Bank had $55.6 million of retained earnings available for
dividends to the Company as of January 1, 1997.
On December 31, 1996, the Company further enhanced its liquidity position
and regulatory capital ratios with the issuance of $100 million of 8.70% Capital
Trust Pass-through Securities ("Capital Securities") and received cash proceeds
of $99.6 million. These securities, which mature on December 15, 2026, are
non-callable at any time in whole or in part prior to December 15, 2006, except
in certain circumstances. They may be redeemed annually thereafter, in whole or
in part, at declining premiums to maturity. These Capital Securities were rated
"BB+" by Standard & Poor's Rating Service and "baa3" by Moody's Investors
Service, Inc. and qualify as Tier 1 capital under regulatory guidelines. The net
cash proceeds from the issuance of these Capital Securities were invested by the
Company in short-term repurchase agreements with the Bank, thereby providing the
Bank with additional liquidity.
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.
The Bank has the ability, as a member of the Federal Home Loan Bank ("FHLB")
system, to borrow $390 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, 1996, the Bank had $10
million in such advances with an original maturity of greater than one year.
The Company's and the Bank's liquidity positions are monitored daily to
ensure the maintenance of an optimum level and efficient use of available funds.
Management believes that the Company and Bank have sufficient liquidity to meet
their operating requirements.
LOAN PORTFOLIO
The loan portfolio is concentrated primarily in loans secured by real estate
in the New York metropolitan area. Loans outstanding totaled $3.2 billion at
December 31, 1996, an increase of $774.8 million or 32.0% from the 1995 year end
levels of $2.4 billion. Approximately $200 million of this increase was acquired
from Extebank. Extebank's loan portfolio was comprised primarily of commercial
and industrial loans and commercial mortgage loans. Aggregate loan growth during
1996 consisted of a 39.1% increase in multi-family mortgage loans to $956.7
million, a 91.1% increase in consumer loans and leases to $219.1 million, a
35.0% increase in commercial mortgage loans to $635.0 million, a 39.7% increase
in commercial and industrial loans to $347.4 million, and a 16.3% increase in
residential mortgage loans to $986.0 million at December 31, 1996. Management
anticipates that in the near term the loan portfolio growth will be driven by
multi-family lending, residential mortgage lending and consumer loans.
The following table represents the components of the loan portfolio at
December 31,
<TABLE>
<CAPTION>
(dollars in thousands ) 1996 1995 1994 1993 1992
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage Loans-Residential... $ 985,983 31% $ 848,060 35% $ 935,524 40% $ 865,477 40% $1,046,133 43%
Mortgage Loans-Multi-family.. 956,718 30% 687,671 28% 554,276 24% 421,133 20% 407,870 17%
Mortgage Loans-Commercial ... 635,042 20% 470,479 20% 448,751 19% 462,058 21% 493,846 20%
Commercial & Industrial ..... 347,437 11% 248,662 10% 245,436 11% 262,907 12% 295,639 12%
Consumer Loans and Leases ... 219,127 7% 114,669 5% 75,377 3% 67,669 3% 83,418 3%
Construction and Land Loans.. 49,779 1% 49,759 2% 64,314 3% 77,324 4% 120,466 5%
----------------------------------------------------------------------------------------
Total ..................... $3,194,086 100% $2,419,300 100% $2,323,678 100% $2,156,568 100% $2,447,372 100%
========================================================================================
</TABLE>
16
<PAGE> 9
ASSET QUALITY
At December 31, 1996, non-performing assets, which includes loans past due
90 days and still accruing interest, non-accrual loans and other real estate,
declined $22.6 million or 50.4% to $22.2 million, in comparison to $44.8 million
at December 31, 1995. This reduction was achieved principally through the bulk
sales of approximately $18 million in non-performing assets for cash.
Non-performing loans at December 31, 1996 consisted of $7.3 million in
commercial loans, $5.1 million in residential mortgages, $4.1 million in
commercial mortgages, $2.5 million in construction and land loans, $.8 million
in multi-family mortgages, and $.5 million in consumer loans and leases.
The components of non-performing assets and restructured, accruing loans are
detailed below at December 31, 1996,
<TABLE>
<CAPTION>
( in thousands ) 1996 1995 1994 1993 1992
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans Ninety Days Past Due and Still Accruing ... $ 2,596 $ 1,088 $ 1,597 $ 2,265 $ 6,048
Non-Accrual Loans ............................... 17,745 36,411 54,376 73,939 176,514
----------------------------------------------------
Non-Performing Loans .......................... 20,341 37,499 55,973 76,204 182,562
Other Real Estate ............................... 1,898 7,320 13,230 20,115 27,491
----------------------------------------------------
Non-Performing Assets ......................... $22,239 $44,819 $69,203 $96,319 $210,053
====================================================
Restructured, Accruing Loans .................... $13,734 $41,316 $43,659 $49,028 $ 59,278
====================================================
</TABLE>
Loans are classified as restructured loans when management has granted, for
economic or legal reasons related to the borrower's financial difficulties,
concessions to the customer that it would not otherwise consider. Generally,
this occurs when the cash flow of the borrower is insufficient to service the
loan under its original terms. Loans restructured are reported as such in the
year of restructuring. In subsequent reporting periods, if the loan was
restructured to yield a market rate of interest, is performing in accordance
with the restructure terms and management expects such performance to continue,
the loan is then removed from its restructured status. Restructured, accruing
loans declined $27.6 million to $13.7 million at December 31, 1996, as compared
with $41.3 million at December 31, 1995. The decline in the level of
restructured accruing loans was achieved through principal repayments,
maturities and renewals at market terms, and the satisfaction of the performance
requirements on certain of these loans during 1996. At December 31, 1996, the
portfolio of restructured, accruing loans is comprised primarily of loans which
have demonstrated performance in accordance with the terms of their restructure
agreements, however, did not yield a market rate of interest at the time of
restructuring.
Management determines what it deems to be the appropriate level of the
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.
There has been significant growth in the loan portfolio over the past two
years from both originations and acquisitions. Loan growth through originations
has principally been in multi-family lending and consumer loans and leases.
These loans generally are for $1 - $2 million and are secured by properties
located in working class neighborhoods with a strong demand for such housing. To
mitigate credit risk, management utilizes prudent underwriting standards,
including loan-to-value ratios of 70% or less, and monitors operating results
and value of collateral carefully.
Consumer loan growth represents the growth of the auto loan business,
principally new car loans originated through an expanded dealer network. The
credit risk in auto lending is dependent upon the creditworthiness of the
borrower and the value of the collateral. the average loan originated is
generally between $10 - $20 thousand for periods ranging from 24 - 48 months.
The Company accepts substantially only "A" rated paper or higher, which are
borrowers without past credit history problems.
A substantial portion of the loan portfolio is adjustable rate and the
credit risk inherent in the loans will increase with an increase in the
underlying indices.
During 1996, the provision for loan losses was $6.8 million as compared to
$11.8 million in 1995. Net charge-offs in 1996 aggregated $12.8 million, or .46%
of average net loans, as compared with $16.9 million or .72% of average net
loans during 1995. The allowance for loan losses at year end 1996 was $53.9
million, or 265% of non-performing loans and 1.70% of net loans. This compares
to an allowance for loan losses of $56.6 million, or 151% of non-performing
loans, or 2.36% of net loans at December 31, 1995. 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 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. Based on current economic conditions, management considers the
allowance for loan losses at December 31, 1996 adequate to cover the possible
credit losses inherent in the loan portfolio.
17
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Transactions in the Allowance for Loan Losses are summarized as follows for
the years ended December 31,
<TABLE>
<CAPTION>
(dollars in thousands) 1996 1995 1994 1993 1992
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LOANS (NET OF UNEARNED INCOME & FEES):
Average Balance ................................................. $2,778,663 $2,358,636 $2,313,419 $2,288,712 $2,581,547
End of Year ..................................................... 3,171,525 2,400,282 2,303,920 2,128,808 2,419,107
==============================================================
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES:
Balance at Beginning of Year .................................... $ 56,627 $ 61,247 $ 67,670 $ 84,595 $ 76,322
LOANS CHARGED-OFF:
Commercial & Industrial ......................................... $ 2,623 $ 3,215 $ 8,319 $ 14,913 $ 14,566
Mortgage Loans-Commercial ....................................... 6,048 4,779 3,889 9,536 3,112
Mortgage Loans-Multi-family ..................................... 548 3,910 1,601 13,373 4,334
Mortgage Loans-Residential ...................................... 3,998 2,915 1,785 4,973 428
Construction and Land Loans ..................................... 1,237 5,631 2,031 2,970 3,875
Consumer Loans and Leases ....................................... 971 401 822 1,726 2,805
--------------------------------------------------------------
Total Charge-Offs ............................................ $ 15,425 $ 20,851 $ 18,447 $ 47,491 $ 29,120
RECOVERIES OF LOANS CHARGED-OFF:
Commercial & Industrial ......................................... $ 544 $ 1,377 $ 2,621 $ 2,563 $ 1,098
Mortgage Loans-Commercial ....................................... 513 1,660 611 452 156
Mortgage Loans-Multi-family ..................................... 724 100 55 81 --
Mortgage Loans-Residential ...................................... 97 233 495 50 129
Construction and Land Loans ..................................... 284 94 624 133 677
Consumer Loans and Leases ....................................... 448 450 429 679 721
--------------------------------------------------------------
Total Recoveries ............................................ $ 2,610 $ 3,914 $ 4,835 $ 3,958 $ 2,781
NET LOANS CHARGED-OFF .............................................. $ 12,815 $ 16,937 $ 13,612 $ 43,533 $ 26,339
Provision for Loan Losses .......................................... 6,800 11,825 6,825 26,608 34,612
Additional Allowance Acquired in Purchase Acquisitions ............. 3,092 492 -- -- --
North Side Net Activity for the Three Months ended
December 31, 1995 ................................................ 190 -- -- -- --
Metro Net Activity for the Three Months Ended December 31, 1993 .... -- -- 364 -- --
--------------------------------------------------------------
Balance at End of Year ............................................. $ 53,894 $ 56,627 $ 61,247 $ 67,670 $ 84,595
==============================================================
Ratio of Net Charge-Offs to Average Loans .......................... .46% .72% .59% 1.90% 1.02%
==============================================================
Ratio of Allowance for Loan Losses to Non-performing Loans ......... 265% 151% 109% 89% 46%
==============================================================
</TABLE>
Management considers the entire allowance for loan losses to be adequate,
however, 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. Through 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.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
(dollars in thousands) 1996 TO TOTAL 1995 TO TOTAL 1994 TO TOTAL 1993 TO TOTAL 1992 TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage Loans-Residential ...... $ 2,929 31% $ 2,893 35% $ 3,783 40% $ 6,397 40% $ 7,146 43%
Mortgage Loans-Multi-family ..... 17,606 30% 16,611 28% 18,087 24% 7,401 20% 12,272 17%
Mortgage Loans-Commercial ....... 16,075 20% 15,885 20% 16,083 19% 23,808 21% 23,729 20%
Commercial and Industrial ....... 9,188 11% 9,575 10% 10,139 11% 18,830 12% 25,456 12%
Consumer Loans and Leases ....... 1,965 7% 1,925 5% 1,514 3% 1,117 3% 1,266 3%
Construction and Land Loans ..... 1,138 1% 2,048 2% 6,548 3% 6,286 4% 8,441 5%
Unallocated ..................... 4,993 -- 7,690 -- 5,093 -- 3,831 -- 6,285 --
---------------------------------------------------------------------------------------------
Total ......................... $53,894 100% $56,627 100% $61,247 100% $67,670 100% $84,595 100%
=============================================================================================
</TABLE>
18
<PAGE> 11
NON-INTEREST INCOME
Non-interest income, exclusive of net securities gains, was $29.2 million in
1996, compared with $23.0 million in 1995. Net securities gains in 1996 were
$1.9 million as compared with net securities gains of $6.7 million in 1995.
Fees and service charges on deposit accounts increased $4.5 million, or
38.3% to $16.3 million during 1996 as compared to $11.8 million during 1995.
With the access to new markets through recent acquisitions, the number of demand
deposit accounts has doubled since December 31, 1994. The Company has been
successful in converting single service relationship accounts acquired into full
service relationships. At December 31, 1996, demand deposits comprise 16.4% of
total deposits as compared to 13.1% at December 31, 1995.
Broker commissions and trust fees increased 56.2% to $5.6 million during
1996, as compared to $3.6 million during 1995, reflecting continued growth in
the core business of the Company's broker/dealer subsidiary (Compass Investment
Services Corp), and the expanded number of retail outlets through which it
operates resulting from the aforementioned acquisitions.
Net securities gains recognized during 1996 were principally due to the
Company selling its equity investments in certain financial institutions. These
gains were partially offset by securities losses recognized on the repositioning
of the Company's available-for-sale securities portfolio in connection with the
North Side merger.
The recent mergers and acquisitions have provided the Company with
approximately 250,000 new customer relationships and 33 additional retail
outlets. This expansion coupled with new products and services developed during
the year should result in increased fee income during 1997.
NON-INTEREST EXPENSE
Non-interest expense increased $20.2 million, or 22% in 1996, exclusive of
the non-recurring merger and related restructuring charge of $21.6 million and
the Savings Association Insurance Fund ("SAIF") recapitalization charge of $8.4
million, to $113.0 million as compared with $92.8 million for 1995. For further
discussions regarding the merger and related restructuring charge and the SAIF
recapitalization charge, see footnotes 2(a) and 14, respectively, to the
accompanying financial statements.
The increase in non-interest expense during 1996 reflects the increased
operating costs and the amortization of the intangible assets associated with
the Company's purchase acquisitions of Extebank and First Nationwide during the
first quarter of 1996. This increase was partially offset by a $2.6 million
reduction in FDIC insurance premiums during 1996 (At December 31, 1996,
approximately $1.2 billion of the Company's deposit liabilities were insured
under the Savings Association Insurance Fund) and a modest decline in other real
estate related expenses.
During 1996, management successfully integrated the operations of Extebank
and First Nationwide, and achieved the operating efficiencies and cost savings
originally anticipated. Management expects similar results in 1997 relative to
the North Side transaction as its operations are integrated with those of the
Company.
The Company's core efficiency ratio, which represents the ratio of
non-interest expense, 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, was 42.5% in 1996, 42.2% in 1995, and
48.2% in 1994.
INCOME TAXES
The effective tax rate on income before income taxes was 44.4% for 1996 as
compared to 42.5% and 38.1% for 1995 and 1994, respectively. The increase in the
Company's effective tax rate during 1996 resulted from the non-deductible
amortization of intangible assets created in the Extebank acquisition, the
recognition of certain non-deductible merger related costs and the recapture of
North Side's State and local tax bad debt reserves. These increases were
partially offset through the implementation of certain tax planning strategies
during 1996.
CAPITAL
The Company and the Bank are subject to the risk based capital guidelines
administered by the banking regulatory agencies. 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 banks and bank
holding companies to maintain a minimum ratio of total risk based capital to
total risk weighted assets of 8%, including a minimum ratio of Tier I capital to
total risk weighted assets of 4% and a Tier I capital to average assets of 4%.
Failure to meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary actions by regulators, that, if undertaken,
could have a direct material effect on the Company's financial statements. As of
December 31, 1996, the most recent notification from the federal banking
regulators categorized the Company and the Bank as well capitalized under the
regulatory framework for prompt corrective action. Under the capital adequacy
guidelines, a well capitalized institution must maintain a minimum total risk
based capital to total risk weighted assets ratio of at least 10%, a minimum
Tier I capital to total risk weighted assets ratio of at least 6%, a minimum
leverage ratio of at least 5% and not subject to any written order, agreement or
directive. There are no conditions or events since such notification that
management believes have changed this classification.
19
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
The following table sets forth the Company's regulatory capital at December
31, 1996, under the rules applicable at such date. At such date, management
believes that the Company meets all capital adequacy requirements to which it is
subject.
<TABLE>
<CAPTION>
(dollars in thousands) Amount Ratio
------------------------
<S> <C> <C>
Tier 1 Capital ................................... $ 478,091 15.12%
Regulatory Requirement ........................... 126,475 4.00%
------------------------
Excess ........................................... $ 351,616 11.12%
========================
Total Risk Adjusted Capital ...................... $ 517,791 16.38%
Regulatory Requirement ........................... 252,949 8.00%
------------------------
Excess ........................................... $ 264,842 8.38%
========================
Risk Weighted Assets ............................. $3,161,863
==========
</TABLE>
The Company's leverage ratio at December 31, 1996 was 8.61%. The Tier I,
total risk based and leverage capital ratios of the Bank were 11.09%, 12.34% and
6.30%, respectively, at December 31, 1996. The Company's capital ratios were
favorably impacted by the issuance of $100 million of 8.70% Capital Securities
on December 31, 1996, which under regulatory guidelines, qualify as Tier 1
capital.
RECENT ACCOUNTING DEVELOPMENTS
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES
In June 1996, the FASB issued Statement of Financial Accounting Standard No.
125 ("SFAS 125"), "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities". SFAS 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of a financial-components approach
that focuses on control. Under this approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes the financial assets when control
has been surrendered, and derecognizes liabilities when extinguished. This
statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
The provisions of SFAS 125 are effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996 and is to be applied prospectively. Earlier or retroactive application is
not permitted. Management is currently assessing the financial implications of
implementing SFAS 125 and believes that the adoption will not have a material
adverse effect on its financial condition or results of operations.
20
<PAGE> 13
COMPARISON BETWEEN 1995 AND 1994
EARNINGS SUMMARY
In 1995, the Company reported net income of $67.3 million or $2.09 per
share, as compared with $43.0 million or $1.38 per share for 1994. Return on
average total assets and return on average stockholders' equity were 1.51% and
17.31%, respectively for 1995 as compared with .97% and 12.70%, respectively,
during 1994.
NET INTEREST INCOME
Net interest income increased $9.6 million to $192.1 million in 1995, as
compared to $182.5 million in 1994. The components of this increase include a
$37.4 million increase in interest income, partially offset by a $27.8 million
increase in interest expense. The net interest margin on a tax equivalent basis
improved to 4.56% in 1995 as compared to 4.38% in 1994.
Interest income improved $37.4 million to $332.5 million in 1995, as
compared to $295.1 million in 1994. This improvement resulted from a change in
the mix of interest earning assets to higher yielding loans from lower yielding
investment securities and the impact of higher market interest rates. The yield
on average interest earning assets improved to 7.85% during 1995, as compared to
7.05% during 1994.
Interest expense increased to $140.4 million in 1995, reflecting a 3.91%
average cost of funds, as compared with $112.6 million, or 3.05% in 1994. The
$27.8 million increase is attributable to the impact of higher short-term market
interest rates on the Company's overall cost of funds and the change in the
relative composition of the Company's funding sources.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased $5.0 million to $11.8 million during
1995, as compared to $6.8 million during 1994. Net charge-offs in 1995
aggregated $16.9 million, or .72% of average net loans, as compared with $13.6
million or .59% of average net loans during 1994. The allowance for loan losses
to non-performing loans improved to 151% during 1995 as compared to 109% in
1994. Although the trend of improved asset quality continued during 1995,
management prudently assessed the loan portfolio considering its growth and the
level of charge-offs during the year and increased the provision for loan
losses.
NON-INTEREST INCOME
Non-interest income, exclusive of net securities gains of $6.7 million, was
$23.0 million in 1995 as compared with $21.7 million, exclusive of net
securities losses of $9.2 million in 1994.
Net securities gains recognized during 1995 were principally due to the
Company selling its equity investments in certain financial institutions and the
recognition of a $.9 million recovery on the settlement of a certain
collateralized mortgage obligation that had been written down in 1994. Net
securities losses in 1994 resulted primarily from management's decision to
reduce its securities holdings and short-term borrowings and a $3.2 million
write-down on an impaired collateralized mortgage obligation previously received
by Metro as partial satisfaction in a troubled debt loan restructuring.
Broker commissions and trust fees increased 35.5% to $3.6 million during
1995 as compared to $2.7 million during 1994, reflecting the continued growth at
the Company's broker/dealer subsidiary (Compass Investment Services Corp).
NON-INTEREST EXPENSE
Non-interest expense in 1995 was $92.8 million, compared with $118.6 million
in 1994. Included in the results for 1994 was a $14.3 million merger and related
restructuring charge incurred in connection with the Metro merger. Non-interest
expense during 1995 declined $11.4 million or 11% when compared to 1994 results,
exclusive of the aforementioned restructure charge. This reduction is
attributable to a $3.7 million decrease in other real estate expenses, a $3.0
million reduction in FDIC insurance premiums, a $2.5 million decline in
compensation and employee benefits, and a $2.5 million decline in general and
administrative expenses. The post-merger integration of Metro's operations and
the achievement of other efficiencies associated with the combination of certain
product lines contributed to certain of the aforementioned reductions.
21
<PAGE> 14
SELECTED STATISTICAL DATA
Quarterly Financial Information
<TABLE>
<CAPTION>
(unaudited) 1996 1995
-------------------------------------------------------------------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
(in thousands, except per share amounts) QTR QTR QTR QTR QTR QTR QTR QTR
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income ......................... $93,115 $101,177 $105,800 $105,215 $77,320 $81,111 $83,768 $90,293
Interest Expense ........................ 41,761 43,073 45,843 43,684 30,519 33,822 35,583 40,475
-------------------------------------------------------------------------
Net Interest Income ................... 51,354 58,104 59,957 61,531 46,801 47,289 48,185 49,818
Provision for Loan Losses ............... 1,700 1,700 1,700 1,700 2,850 2,850 2,750 3,375
-------------------------------------------------------------------------
Net Interest Income after Provision for
Loan Losses .......................... 49,654 56,404 58,257 59,831 43,951 44,439 45,435 46,443
Non-Interest Income ..................... 7,614 8,196 9,035 6,278 5,613 5,919 9,113 9,099
Other Non-Interest Expense .............. 24,584 28,791 29,466 30,193 23,383 22,853 21,758 24,826
Merger Related Restructure Charge ....... -- -- -- 21,613 -- -- -- --
SAIF Recapitalization Charge ............ -- -- 8,350 -- -- -- -- --
-------------------------------------------------------------------------
Income Before Income Taxes ............ 32,684 35,809 29,476 14,303 26,181 27,505 32,790 30,716
Provision for Income Taxes .............. 13,961 13,974 11,681 10,214 11,087 11,582 14,000 13,181
-------------------------------------------------------------------------
Net Income ............................ $18,723 $ 21,835 $ 17,795 $ 4,089 $15,094 $15,923 $18,790 $17,535
=========================================================================
PER SHARE:
Net Income ............................ $ 0.57 $ 0.67 $ 0.55 $ 0.13 $ 0.48 $ 0.50 $ 0.58 $ 0.54
Common Stock Price Range of the Company
High ................................ $ 25.88 $ 26.13 $ 32.00 $ 35.88 $ 16.50 $ 18.38 $ 20.75 $ 25.25
Low ................................. $ 23.25 $ 22.88 $ 26.13 $ 30.88 $ 13.63 $ 16.00 $ 17.75 $ 20.75
</TABLE>
On December 31, 1996, North Side Savings Bank ("North Side") was merged with and
into the Company. The merger has been accounted for as a pooling-of-interests
and, accordingly, the quarterly selected data above has been retroactively
restated to include the results of North Side.
22
<PAGE> 15
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended December 31, 1996 1995 1994
(in thousands, except per share amounts) -----------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans ......................................... $245,960 $208,813 $ 188,155
Mortgage-Backed Securities .................... 135,462 103,208 85,712
U.S. Treasury & Government Agency Securities .. 11,398 11,267 11,279
State & Municipal Obligations ................. 4,773 2,488 2,300
Other Securities .............................. 4,837 5,183 5,078
Federal Funds Sold & Securities Purchased
Under Agreements to Resell .............. 2,657 1,396 2,499
Interest Earning Deposits ..................... 220 137 39
-----------------------------
Total Interest Income ......................... 405,307 332,492 295,062
-----------------------------
INTEREST EXPENSE
Savings, N.O.W. & Money Market Deposits ....... 45,129 44,155 47,226
Other Time Deposits ........................... 75,946 62,498 42,197
Certificates of Deposit, $100,000 & Over ...... 15,363 9,823 3,216
Federal Funds Purchased & Securities Sold Under
Agreements to Repurchase ................... 34,796 20,928 16,196
Other Borrowings .............................. 3,127 2,995 3,741
-----------------------------
Total Interest Expense ..................... 174,361 140,399 112,576
-----------------------------
Net Interest Income ........................ 230,946 192,093 182,486
Provision for Loan Losses ..................... 6,800 11,825 6,825
-----------------------------
Net Interest Income after
Provision for Loan Losses .............. 224,146 180,268 175,661
-----------------------------
NON-INTEREST INCOME
Fees & Service Charges on Deposit Accounts .... 16,303 11,788 11,966
Broker Commissions & Trust Fees ............... 5,638 3,609 2,663
Mortgage Banking Operations ................... 2,202 2,662 2,424
Other Operating Income ........................ 5,102 4,951 4,621
Net Securities Gains/(Losses) ................. 1,878 6,734 (9,189)
-----------------------------
Total Non-Interest Income .................. 31,123 29,744 12,485
-----------------------------
NON-INTEREST EXPENSE
Compensation & Employee Benefits .............. 55,741 45,494 47,967
Occupancy ..................................... 11,809 8,945 9,117
Equipment ..................................... 6,910 5,661 6,226
Amortization of Intangible Assets ............. 6,364 1,688 1,543
FDIC Insurance Premiums ....................... 3,106 5,737 8,725
Other Real Estate ............................. 753 1,255 4,929
Merger Related Restructure Charges ............ 21,613 -- 14,338
SAIF Recapitalization Charge .................. 8,350 -- --
Other Operating Expense ....................... 28,351 24,040 25,760
-----------------------------
Total Non-Interest Expense .................. 142,997 92,820 118,605
-----------------------------
Income Before Income Taxes .................... 112,272 117,192 69,541
Provision for Income Taxes .................... 49,830 49,850 26,502
-----------------------------
Net Income ................................. $ 62,442 $ 67,342 $ 43,039
=============================
EARNINGS PER SHARE ......................... $ 1.94 $ 2.09 $ 1.38
=============================
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 16
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
At December 31, 1996 1995
(in thousands, except per share amounts) -------------------------
<S> <C> <C>
ASSETS
Cash & Due from Banks .................................................... $ 150,365 $ 118,006
Interest Earning Deposits ................................................ 2,298 2,003
Federal Funds Sold & Securities Purchased under Agreements to Resell ..... 115,000 28,800
Securities:
Available-for-Sale .................................................... 857,391 1,150,510
Held-to-Maturity (Fair value $1,293,472 in 1996; $1,075,481 in 1995) .. 1,300,115 1,084,829
-------------------------
Total Securities ................................................... 2,157,506 2,235,339
-------------------------
Loans .................................................................... 3,194,086 2,419,300
Less: Unearned Income & Fees .......................................... 22,561 19,018
Allowance for Loan Losses ................................... 53,894 56,627
-------------------------
Net Loans .............................................. 3,117,631 2,343,655
-------------------------
Premises & Equipment ..................................................... 65,530 60,385
Accrued Income Receivable ................................................ 37,392 35,631
Intangible Assets ........................................................ 82,073 27,893
Other Real Estate ........................................................ 1,898 7,320
Other Assets ............................................................. 20,834 31,834
-------------------------
Total Assets .......................................................... $ 5,750,527 $ 4,890,866
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand Deposits .......................................................... $ 734,907 $ 488,156
Savings, N.O.W. & Money Market Deposits ................................. 1,974,570 1,813,382
Other Time Deposits ...................................................... 1,416,220 1,223,863
Certificates of Deposit, $100,000 & Over ................................. 343,813 214,319
-------------------------
Total Deposits ........................................................ 4,469,510 3,739,720
Federal Funds Purchased & Securities Sold Under
Agreements to Repurchase .............................................. 621,789 642,369
Other Borrowings ......................................................... 35,000 35,000
Accrued Expenses & Other Liabilities ..................................... 67,060 47,648
-------------------------
Total Liabilities ..................................................... $ 5,193,359 $ 4,464,737
Company-Obligated Mandatorily Redeemable Capital
Securities of Subsidiary Trust ........................................ $ 99,637 $ --
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; 32,599,504 shares in 1996; 32,344,918 shares in 1995 ............ 81,499 80,862
Additional Paid in Capital ............................................... 180,809 175,617
Retained Earnings ........................................................ 206,895 167,379
Unrealized Gains/(Losses) on Securities Available-for-Sale, net of taxes . (2,633) 4,509
Deferred Compensation .................................................... (5,193) (1,585)
Treasury Stock at cost; 153,289 shares in 1996; 36,187 shares in 1995 .... (3,846) (653)
-------------------------
Total Stockholders' Equity ............................................ 457,531 426,129
-------------------------
Total Liabilities and Stockholders' Equity ............................ $ 5,750,527 $ 4,890,866
=========================
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 17
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994
(in thousands) ---------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ........................................................... $ 62,442 $ 67,342 $ 43,039
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Provision for Loan Losses ............................................ 6,800 11,825 6,825
Provision for Losses on Real Estate Acquired in
Settlement of Loans .............................................. 985 353 2,486
Depreciation and Amortization ........................................ 8,377 5,850 6,725
Amortization of Intangible Assets .................................... 6,364 1,688 1,543
Accretion of Discounts and Net Deferred Loan Fees .................... (3,797) (4,021) (1,771)
Amortization of Premiums ............................................. 9,938 9,556 19,055
Proceeds from Sales of Trading Account Securities .................... -- 40,920 --
Purchases of Trading Account Securities .............................. -- (40,853) --
Net Securities (Gains)/Losses ........................................ (1,878) (6,734) 9,189
Other, Net ........................................................... 29,093 10,182 6,944
---------------------------------
Net Cash Provided by Operating Activities ........................ 118,324 96,108 94,035
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities, Redemptions, Calls and Principal Repayments on
Securities Held-to-Maturity ...................................... 134,640 229,299 504,906
Purchases of Securities Held-to-Maturity ............................. (235,939) (87,631) (269,519)
Proceeds from Sales of Securities Available-for-Sale ................. 634,588 103,510 272,175
Maturities and Principal Repayments on
Securities Available-for-Sale .................................... 338,524 132,352 150,831
Purchases of Securities Available-for-Sale ........................... (824,248) (812,271) (666,937)
Loans Originated and Principal Repayments
on Loans and Other Real Estate Owned, Net ........................ (467,743) (92,890) (22,077)
Proceeds from Sales of Real Estate Acquired
in Settlements of Loans .......................................... 8,664 16,826 18,228
Purchases of Loans ................................................... (161,777) -- (208,932)
Proceeds from the Sale of Loans ...................................... 35,729 22,070 34,003
Purchases of Premises and Equipment, Net ............................. (5,413) (11,263) (3,261)
Purchase Acquisitions, Net of Cash Paid .............................. 595,650 10,868 --
---------------------------------
Net Cash Provided by/(Used in) Investing Activities .............. 52,675 (489,130) (190,583)
---------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (Decrease)/Increase in Deposits .................................. (206,825) 110,116 (92,794)
Proceeds from the Issuance of Company-Obligated Mandatorily
Redeemable Capital Securities of Subsidiary Trust ................. 99,637 -- --
Net Increase in Borrowings ........................................... 11,130 355,494 27,821
Purchase of Treasury Shares .......................................... (22,566) (1,316) (35)
Common Stock Sold for Cash ........................................... 28,906 11,723 4,239
Dividends Paid to Shareholders ....................................... (23,174) (15,435) (7,605)
Proceeds from the Issuance of Senior Notes Payable ................... -- -- 25,000
Repayments of Senior Notes Payable ................................... -- -- (20,000)
---------------------------------
Net Cash (Used in)/Provided by Financing Activities .............. (112,892) 460,582 (63,374)
---------------------------------
Net Increase/(Decrease) in Cash and Cash Equivalents ............. 58,107 67,560 (159,922)
North Side Activity for the Three Months Ended December 31, 1995 ..... 60,747 -- --
Metro Activity for the Three Months Ended December 31, 1993 .......... -- -- 356
Cash and Cash Equivalents at Beginning of Year ....................... 148,809 81,249 240,815
---------------------------------
Cash and Cash Equivalents at End of Year ............................. $ 267,663 $ 148,809 $ 81,249
=================================
</TABLE>
See accompanying notes to consolidated financial statements
25
<PAGE> 18
CONSOLIDATED STATEMENTS OF CASH FLOWS, (CONTINUED)
<TABLE>
<CAPTION>
For the Years Ended December 31, 1996 1995 1994
(in thousands) ----------------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Period for:
Interest Expense ............................................... $178,392 $130,386 $113,450
----------------------------
Income Taxes ................................................... 20,669 39,696 27,166
----------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Real Estate Acquired in Settlement of Loans ........................ 3,869 11,745 8,158
----------------------------
Loans to Facilitate the Sale of Other Real Estate .................. 2,138 7,696 10,907
----------------------------
</TABLE>
During March 1996, the Company acquired the domestic commercial banking business
of Extebank and assumed $572 million in deposit liabilities from First
Nationwide Bank. In connection with these acquisitions, the following assets
were acquired and liabilities assumed:
<TABLE>
<S> <C>
Fair Value of Assets Acquired ..................................... $919,496
Intangible Assets ................................................. 61,623
Cash Paid for the Common Stock .................................... (47,000)
--------
Liabilities Assumed ............................................... $934,119
========
</TABLE>
In 1995, the Company acquired all the outstanding common stock of Great Neck
Bancorp for cash and other consideration. In connection with this acquisition,
the following assets were acquired and liabilities assumed:
<TABLE>
<S> <C>
Fair Value of Assets Acquired ..................................... $105,483
Intangible Assets ................................................. 5,948
Cash Paid for the Common Stock .................................... (8,512)
Other Non-Monetary Consideration .................................. (11,695)
--------
Liabilities Assumed ............................................... $ 91,224
========
</TABLE>
26
<PAGE> 19
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Three Years Ended December 31, 1996
(Dollars in thousands, except per share amounts)
Additional Unrealized
Common Paid in Retained Securities
Stock Capital Earnings Gains/(Losses)
-------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 .............................. $ 72,771 $ 156,107 $ 86,861 $ ( 11)
Unrealized Gain on Securities Available-for-Sale,
net of taxes at January 1, 1994 ................... -- -- -- 2,241
Net Income ............................................ -- -- 43,039 --
Cash Dividends (The Company $.35 per share) ........... -- -- (5,882) --
Cash Dividends of Acquired Businesses (1) ............. -- -- (4,700) --
North Side Payment of 5% Stock Dividend
(333,975 shares) (2) .............................. 835 3,603 (4,438)
Issuance of Common Stock (489,026 shares) ............. 1,229 2,758 -- --
Exercise of Warrants (176,616 shares) ................. 442 390 -- --
Deferred Compensation Activity:
Restricted Stock Activity, net (4,666 shares) ..... 12 43 -- --
Amortization of Other Deferred Compensation Plans . -- 247 61 --
Purchase of Treasury Stock (2,538 shares) ............. -- -- -- --
Metro Fractional Share Adjustment ..................... (1) (4) -- --
Metro Net Income for the Three Months Ended
December 31, 1993 ................................. -- -- 6,837 --
Adjustment to Unrealized Gains/(Losses) on Securities
Available-for-Sale, net of taxes .................. -- -- -- (5,537)
-------------------------------------------------
Balance, December 31, 1994 ............................ $ 75,288 $ 163,144 $ 121,778 $(3,307)
Net Income ............................................ -- -- 67,342 --
Cash Dividends (The Company $.55 per share) ........... -- -- (13,648) --
Cash Dividends-North Side Pre-Merger .................. -- -- (3,209) --
North Side Payment of 5% Stock Dividend
(354,214 shares) (2) .............................. 886 3,998 (4,884) --
Issuance of Common Stock (887,758 shares) ............. 2,218 4,952 -- --
Exercise of Warrants (987,857 shares) ................. 2,470 3,138 -- --
Deferred Compensation Activity:
Restricted Stock Activity, net (41,598 shares) .... -- 135 -- --
Other Deferred Compensation Plans Activity,
net (56,803 shares) ........................... -- 250 -- --
Purchase of Treasury Stock (75,840 shares) ............ -- -- -- --
Adjustment to Unrealized Gains/(Losses) on Securities
Available for Sale, net of taxes ...................... -- -- -- 7,816
-------------------------------------------------
Balance, December 31, 1995 ............................ $ 80,862 $ 175,617 $ 167,379 $ 4,509
Net Income ............................................ -- -- 62,442 --
Cash Dividends (The Company $.85 per share) ........... -- -- (22,721) --
Cash Dividends-North Side Pre-Merger .................. -- -- (6,039) --
Issuance of Common Stock (1,303,681 shares) ........... 1,574 11,300 -- --
Deferred Compensation Activity:
Restricted Stock Activity, net (131,992 shares) ... -- 1,450 -- --
Amortization of Other Deferred Compensation Plans . -- -- -- --
Purchase of Treasury Stock (922,900 shares) ........... -- -- -- --
North Side Common Stock Retirement (374,996 shares) (3) (936) (7,549) -- --
North Side Fractional Share Adjustment ................ (1) (9) -- --
North Side Net Income for the Three Months Ended
December 31, 1995 ................................. -- -- 5,834 --
Adjustment to Unrealized Gains/(Losses) on Securities
Available-for-Sale, Net of taxes ................ -- -- -- (7,142)
-------------------------------------------------
BALANCE, DECEMBER 31, 1996 ............................ $ 81,499 $ 180,809 $ 206,895 $(2,633)
=================================================
</TABLE>
<TABLE>
<CAPTION>
Three Years Ended December 31, 1996
(Dollars in thousands, except per share amounts)
Deferred Treasury
Compensation Stock Total
-----------------------------------
<S> <C> <C> <C>
Balance, January 1, 1994 .............................. $(1,464) $ (1) $ 314,263
Unrealized Gain on Securities Available-for-Sale,
net of taxes at January 1, 1994 ................... -- -- 2,241
Net Income ............................................ -- -- 43,039
Cash Dividends (The Company $.35 per share) ........... -- -- (5,882)
Cash Dividends of Acquired Businesses (1) ............. -- -- (4,700)
North Side Payment of 5% Stock Dividend
(333,975 shares) (2) .............................. --
Issuance of Common Stock (489,026 shares) ............. -- -- 3,987
Exercise of Warrants (176,616 shares) ................. -- -- 832
Deferred Compensation Activity:
Restricted Stock Activity, net (4,666 shares) ..... 119 9 183
Amortization of Other Deferred Compensation Plans . 390 -- 698
Purchase of Treasury Stock (2,538 shares) ............. -- (35) (35)
Metro Fractional Share Adjustment ..................... -- -- (5)
Metro Net Income for the Three Months Ended
December 31, 1993 ................................. -- -- 6,837
Adjustment to Unrealized Gains/(Losses) on Securities
Available-for-Sale, Net of Taxes .................. -- -- (5,537)
-----------------------------------
Balance, December 31, 1994 ............................ $ (955) $ (27) $ 355,921
Net Income ............................................ -- -- 67,342
Cash Dividends (The Company $.55 per share) ........... -- -- (13,648)
Cash Dividends-North Side Pre-Merger .................. -- -- (3,209)
North Side Payment of 5% Stock Dividend
(354,214 shares) (2) .............................. -- -- --
Issuance of Common Stock (887,758 shares) ............. -- -- 7,170
Exercise of Warrants (987,857 shares) ................. -- -- 5,608
Deferred Compensation Activity:
Restricted Stock Activity, net (41,598 shares) .... (712) 690 113
Other Deferred Compensation Plans Activity,
net (56,803 shares) ........................... 82 -- 332
Purchase of Treasury Stock (75,840 shares) ............ -- (1,316) (1,316)
Adjustment to Unrealized Gains/(Losses) on Securities
Available for Sale, net of taxes .................. -- -- 7,816
-----------------------------------
Balance, December 31, 1995 ............................ $(1,585) $ (653) $ 426,129
Net Income ............................................ -- -- 62,442
Cash Dividends (The Company $.85 per share) ........... -- -- (22,721)
Cash Dividends-North Side Pre-Merger .................. -- -- (6,039)
Issuance of Common Stock (1,303,681 shares) ........... -- 16,477 29,351
Deferred Compensation Activity:
Restricted Stock Activity, net (131,992 shares) ... (4,174) 2,896 172
Amortization of Other Deferred Compensation
Plans ......................................... 566 -- 566
Purchase of Treasury Stock (922,900 shares) ........... -- (22,566) (22,566)
North Side Common Stock Retirement (374,996
shares)(3) ........................................ -- -- (8,485)
North Side Fractional Share Adjustment ................ -- -- (10)
North Side Net Income for the Three Months Ended
December 31, 1995 ................................. -- -- 5,834
Adjustment to Unrealized Gains/(Losses) on Securities
Available-for-Sale, net of taxes ................ -- -- (7,142)
-----------------------------------
Balance, December 31, 1996 ............................ $(5,193) $ (3,846) $ 457,531
===================================
</TABLE>
See accompanying notes to consolidated financial statements.
(1) Represents dividends declared by North Side and Metro prior to mergers.
(2) Represents North Side's stock dividends as adjusted for the exchange
ratio of 1.556.
(3) Reflects the retirement of North Side common shares previously held by
the Company.
27
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
North Fork Bancorporation, Inc. (the "Company"), a bank holding company
organized in 1980 under the laws of the State of Delaware, is registered under
the Bank Holding Company Act of 1956, as amended. The Company, through its bank
subsidiary, North Fork Bank (the "Bank") provides a variety of banking and
financial services to middle market and small business organizations, local
governmental units, and retail customers in the metropolitan New York area. In
December 1996, North Side Savings Bank ("North Side"), was merged with and into
the Company (see Note 2(a)). The merger was accounted for as a
pooling-of-interests and, accordingly, the Company's consolidated financial
statements include the consolidated accounts of North Side for all periods
reported. In 1994, Metro Bancshares Inc. ("Metro") was merged with and into the
Company in a pooling-of-interests transaction.
The following is a summary of the Company's significant accounting and
reporting policies:
(a) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company,
and its Bank and non-bank subsidiaries. The Company reports its financial
results on a calendar year basis, whereas North Side 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 North
Side's year-end with that of the Company. The consolidated financial results for
years prior to 1996 reflect the combination of the Company at and for the years
ended December 31 with North Side at and for the years ended September 30.
Certain North Side financial information has been reclassified to conform with
that of the Company.
In December 1996, North Fork Capital Trust I ("Capital Trust"), a
wholly-owned business trust subsidiary of the Company, was formed. Capital Trust
exists for the exclusive purpose of issuing Capital Trust Pass-through
Securities (Capital Securities) and using the proceeds to acquire Junior
Subordinated Debt Securities issued by the Company. The financial statements of
Capital Trust are reflected in the Company's consolidated financial statements
with the Capital Securities treated as a minority interest.
The accounting and reporting policies of the Company are in conformity with
generally accepted accounting principles and prevailing practices within the
financial services industry. The preparation of financial statements in
conformity with generally accepted accounting principles requires that
management make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Such estimates are subject to change in
the future as additional information becomes available or previously existing
circumstances are modified. Actual results could differ from those estimates.
(b) STATEMENT OF CASH FLOWS
For purposes of the Consolidated Statement of Cash Flows, cash and cash
equivalents includes Cash and Due from Banks, Interest Earning Deposits, Federal
Funds Sold and Securities Purchased Under Agreements to Resell, with an initial
maturity of less than 90 days. Cash flows from purchases, maturities and
principal repayments, and sales of available-for-sale securities are classified
as cash flows from investing activities.
(c) SECURITIES AND TRADING ACCOUNT ASSETS
Securities that the Company has the positive intent and ability to hold to
maturity are classified as held-to-maturity and carried at amortized cost. 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. Debt and
equity securities that are purchased and held principally for the purpose of
selling them in the near term are classified as trading account assets and
reported at fair value. Management determines the appropriate classification of
securities at the time of purchase and at each reporting date management
reassesses the appropriateness of the classification.
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 write-downs to reflect other-than-temporary impairments in value.
(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 AND RESTRUCTURED 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 a demonstrated period of performance.
Loans are classified as restructured loans when the Company has granted, for
economic or legal reasons related to the borrower's financial difficulties,
concessions 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. Loans restructured are reported as such in the
year of restructuring. In subsequent reporting periods, if the loan was
restructured to yield a market rate of interest, is performing in accordance
with the restructure terms, and management expects such performance to continue,
the loan is then removed from restructured status.
28
<PAGE> 21
(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 judgment, 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,
current economic conditions and periodic examinations conducted by regulatory
agencies. 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 adverse changes in economic conditions.
(g) PREMISES AND EQUIPMENT
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. Premises and equipment are periodically reviewed for possible
impairment when events or changes in circumstances may affect the underlying
basis of the assets.
(h) OTHER REAL ESTATE
Other real estate consists of property acquired through foreclosure or deed
in lieu of foreclosure. 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.
(i) INCOME TAXES
The Company provides for income taxes under the asset and liability method
whereby 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.
The Company files consolidated income tax returns with substantially all of
its subsidiaries. Tax expenses or benefits are generally allocated among members
in the consolidated group based on a separate return basis.
(j) RETIREMENT AND BENEFIT PLANS
The Company has a non-contributory defined benefit pension plan covering
substantially all full-time employees. Annual pension cost is provided over the
employee's expected service life utilizing the projected unit cost actuarial
method. North Side maintained a non-contributory defined benefit plan covering
substantially all full-time employees. Benefits under this plan are based on
years of service and the highest level of compensation during a specific period.
Supplemental retirement benefits are provided for selected employees where
income tax limitations have been placed on the amount of retirement benefits
otherwise earned.
Postretirement and postemployment 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 North Side acquisition. Common shares and common
stock equivalents outstanding are based on the combined weighted average shares
of the Company's and North Side's common stock outstanding during the period.
On February 25, 1997, the Company's Board of Directors approved a
two-for-one common stock split, subject to the approval of an increase in the
Company's authorized common stock to 200 million shares from 50 million shares
by its shareholders at its Annual Stockholders' meeting. If the proposal is
approved, the new shares will be distributed on May 15, 1997 to shareholders of
record on April 25, 1997.
(l) INTANGIBLE ASSETS
Intangible assets consist of goodwill and core deposit intangibles
associated with purchase acquisitions. The Company records at its cost the
assets acquired less liabilities assumed in purchase acquisitions. The acquired
assets and liabilities assumed are recorded at fair value. The excess of the
Company's cost over the fair value of the net assets acquired is recorded as an
intangible asset. The Company's cost includes the consideration paid, the direct
costs of the acquisition, such as legal and investment banking fees, and
qualifying costs to exit certain activities and to terminate employees related
to the acquisition. Indirect and general expenses relating to the acquisition
are expensed as incurred.
Goodwill is amortized on a straight line basis over the estimated periods to
be benefited ranging from fifteen to twenty-five years. Core deposit intangibles
are amortized on an accelerated method over the estimated benefit period which
approximates fourteen years. Intangible assets are reviewed for possible
impairment when events or changes in circumstances may affect the underlying
basis of the assets.
29
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(m) OFF BALANCE-SHEET INSTRUMENTS
Periodically, the Company enters into interest rate contracts, including
interest rate caps, floors and swap agreements, as part of its management of
interest rate exposure. These instruments are entered into as hedges against
interest rate risk and are designated against specific assets and liabilities.
To qualify as a hedge, the instrument must be designated as a hedge and
effective in reducing the market risk of an existing asset, liability or firm
commitment. Effectiveness of the hedge is evaluated on an initial and ongoing
basis using statistical calculations of correlation. 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. At December 31, 1996 and 1995, the Company had no contracts or
agreements outstanding.
NOTE 2 - BUSINESS COMBINATIONS
(a) POOLING-OF-INTERESTS
On December 31, 1996, North Side Savings Bank was merged with and into the
Company in a transaction accounted for under the pooling-of-interests method of
accounting. Pursuant to the merger agreement, the Company issued 1.556 shares of
common stock for each share of North Side's common stock outstanding (7,551,130
common shares issued) and simultaneously retired 374,996 shares of North Side's
common stock previously held by the Company, as adjusted, and reserved for
issuance 174,021 common shares for North Side's outstanding stock options as of
the merger date. North Side had $1.6 billion in total assets, $1.2 billion in
deposit liabilities, and $124.4 million in capital at December 31, 1996. 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) 1995 1994
-------------------------
<S> <C> <C>
Net Interest Income
As Previously Reported ................... $141,236 $132,506
North Side ................................ 50,857 49,980
-------------------------
Combined .................................. $192,093 $182,486
=========================
Net Income
As Previously Reported .................... $ 52,235 $ 29,672
North Side ................................ 15,107 13,367
-------------------------
Combined .................................. $ 67,342 $ 43,039
=========================
</TABLE>
North Side's reporting period had been as of and for the year ended
September 30, whereas the Company utilizes a calendar year basis. North Side's
financial results for 1996 have been conformed to the calendar year reporting
period of the Company. All prior year consolidated financial results combine the
Company with North Side utilizing its respective fiscal reporting period. As a
result, North Side's operating results for the three-month period ended December
31, 1995 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 North Side's results of perations and cash
flows for the three months ended December 31, 1995:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
STATEMENT OF INCOME DATA:
Net Interest Income ..................................... $12,495
-------
Net Income .............................................. $ 5,834
=======
STATEMENT OF CASH FLOWS DATA:
Cash Provided by Operating Activities ................... $10,237
Cash Provided by Investing Activities ................... 72,090
Cash Used in Financing Activities ....................... (21,580)
-------
Net Increase in Cash & Cash Equivalents ................. $60,747
=======
</TABLE>
In connection with the merger, on December 20, 1996, the Company consummated
a public offering of 600,000 shares of common stock, which were previously held
in treasury, at a price of $33.875 per share and rescinded its previously
announced share repurchase program.
Additionally, the Company in connection with the merger recorded a pre-tax
charge for merger and related restructuring costs of $21.6 million. This charge
included $4.5 million in direct merger expenses, primarily investment banking
and other professional fees; $9.0 million in severance and other employee
related costs; $6.9 million in facility and system 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; and $1.2 million in credit costs. At
December 31, 1996, $13.3 million of the merger and related restructuring charge
is included in other liabilities. It is anticipated that the amount of this
charge will be substantially paid in 1997.
(b) PURCHASE ACQUISITIONS
On March 15, 1996, the Bank completed its purchase of the domestic
commercial banking business of Extebank ("Extebank") for which it paid $47
million in cash. At March 15, 1996, Extebank had approximately $388 million in
total assets, $200 million in net loans, $348 million in deposit liabilities,
$30 million in capital, and operated through eight branch locations in the New
York metropolitan area, including Manhattan.
30
<PAGE> 23
On March 23, 1996, the Bank completed its acquisition of ten banking
branches of First Nationwide Bank ("First Nationwide") located on Long Island,
and assumed $572 million of customer deposit liabilities for which it paid a
deposit premium of 6.35%. Assets acquired, consisting primarily of cash, totaled
$529 million.
These transactions have been accounted for under the purchase method of
accounting, and accordingly, the Company's consolidated results of operations
only reflect activity subsequent to the acquisition dates.
The intangible assets created from the aforementioned purchase transactions
aggregated approximately $62 million, of which $38 million is attributable to
the First Nationwide transaction, including $23 million in core deposit
intangibles, and $24 million is attributable to the Extebank transaction.
Acquisition costs incurred in connection with these purchase transactions which
consist principally of investment banking, professional fees, severance and
employee related costs, facilities and other acquisition related costs,
aggregated approximately $9.0 million, net of taxes. The intangible assets
associated with these transactions are currently being amortized using various
methods over periods not exceeding 15 years for financial reporting purposes.
The intangible assets created in the First Nationwide transaction are being
amortized on a straight line basis over 15 years for tax purposes.
The following table sets forth the unaudited pro forma combined condensed
results of operations for the years ended December 31, 1996 and 1995, and
assumes that the foregoing purchase transactions had been consummated as of
January 1, 1996 and 1995, respectively. Although separate financial information
had historically been prepared for Extebank, such financial information for 1995
included certain international operations. Accordingly, since only the domestic
commercial banking business was acquired, certain estimates and assumptions have
been utilized in determining the pro forma adjustments applied to the historical
results of 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 information
had historically been prepared. Therefore, subjective estimates have been
utilized in determining the pro forma adjustments applied to the historical
results of operations of the Company. The historical results of operations of
the Company include the results of operations of North Side. These pro forma
results are not necessarily indicative of the results that would have been
achieved had these acquisitions occurred on the dates indicated or that may
occur in the future.
<TABLE>
<CAPTION>
1996 1995
------------------
<S> <C> <C>
(in thousands, except per share amounts) (Unaudited)
Net Interest Income ................................................... $236,421 $220,299
Provision for Loan Losses ............................................. 7,021 14,865
------------------
Net Interest Income after Provision for Loan Losses ................... 229,400 205,434
Non-Interest Income ................................................... 32,534 37,408
Non-Interest Expense, exclusive of Amortization of Intangible Assets 142,576 118,654
Amortization of Intangible Assets ..................................... 7,783 6,326
------------------
Income before Income Taxes ......................................... 111,575 117,862
Provision for Income Taxes ......................................... 49,404 50,624
------------------
Net Income ............................................................ $ 62,171 $ 67,238
==================
Earnings Per Share .................................................... $ 1.93 $ 2.09
==================
</TABLE>
(a) Specific assumptions utilized for Extebank are as follows: 1) Extebank's
historical statement of operations for the year ended December 31, 1995 included
certain international operations of Extebank. The historical statement of
operations for Extebank was 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 January 1, of each year at the Company's average federal funds
sold rate in effect during each of the periods presented (5.26% and 5.80% for
the years ended December 31, 1996 and 1995, respectively); 3) the intangible
asset associated with this transaction is 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 for each year. The pro
forma adjustments do not reflect any possible cost savings to be derived from
the acquisition such as the elimination of redundant operations and personnel
reductions.
(b) Specific assumptions utilized for First Nationwide are as follows: 1)
the assets acquired, principally cash, are assumed to be invested in
mortgage-backed securities at the beginning of each period presented using the
average rates in effect during such periods (6.72% and 6.61% for the years ended
December 31, 1996 and 1995, respectively); 2) the actual interest bearing
deposit liabilities acquired 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 extrapolation of actual operating results subsequent
to consummation; 4) the intangible assets associated with this transaction are
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 each year. The pro forma adjustments do not reflect any
possible cost savings from the acquisition such as branch operating efficiencies
which may be realized in the future.
Weighted average shares outstanding utilized in the calculations of pro
forma earnings per share were 32,138,646 and 32,216,031, which represented the
Company's restated weighted average shares outstanding for the years ended
December 31, 1996 and 1995, respectively, giving effect to the North Side
merger.
NOTE 3 - SECURITIES
HELD-TO-MATURITY SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair values of held-to-maturity securities were as follows at December
31,
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------------------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
(in thousands) COST GAINS (LOSSES) VALUE COST GAINS (LOSSES) VALUE
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-Backed Securities .. $1,162,814 $ 3,490 $ (9,994) $1,156,310 $ 932,571 $ 3,085 $ (11,566) $ 924,090
State & Municipal Obligations 121,945 583 (864) 121,664 60,725 448 (474) 60,699
U.S. Government Agencies'
Obligations ............... 2,601 -- -- 2,601 62,837 13 (264) 62,586
Other Securities ............ 12,755 144 (2) 12,897 28,696 -- (590) 28,106
----------------------------------------------------------------------------------------------------
$1,300,115 $ 4,217 $ (10,860) $1,293,472 $1,084,829 $ 3,546 $ (12,894) $1,075,481
====================================================================================================
</TABLE>
31
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1995, $574 thousand in held-to-maturity securities were redeemed at
a gain of $355 thousand.
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>
1996 1995
---------------------------------------------------------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
(in thousands) COST GAINS (LOSSES) VALUE COST GAINS (LOSSES) VALUE
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-Backed Securities .......... $648,302 $ 2,648 $ (4,125) $ 646,825 $ 976,044 $ 5,287 $ (1,323) $ 980,008
U.S. Government Agencies' Obligations 94,262 -- (1,011) 93,251 58,926 55 (201) 58,780
U.S. Treasury Securities ............ 78,760 93 (1,863) 76,990 19,989 154 -- 20,143
SBA Securities ...................... -- -- -- -- 29,500 468 -- 29,968
Equity Securities ................... 39,728 721 (124) 40,325 58,017 4,184 (590) 61,611
---------------------------------------------------------------------------------------------
$861,052 $ 3,462 $ (7,123) $ 857,391 $1,142,476 $10,148 $ (2,114) $1,150,510
=============================================================================================
</TABLE>
In November 1995, the Financial Accounting Standards Board released a
special report, "A Guide to Implementation of SFAS 115", which allowed for a
one-time redesignation of securities out of the held-to-maturity category
without the otherwise required reevaluation of other securities in that
category. As a result, the Company transferred $325.8 million (fair value of
approximately $324.9 million) in securities from held-to-maturity to
available-for-sale.
Mortgage-backed securities ("MBS") classified as held-to-maturity included
$699.8 million and $262.6 million in collateralized mortgage obligations ("CMO")
at December 31, 1996 and 1995, respectively. Mortgage-backed securities
classified as available-for-sale included $31.6 million and $240.7 million in
CMO's at December 31, 1996 and 1995. These CMO securities, collateralized by
either U.S. Government agency MBS's or whole loans, are principally conservative
current pay sequentials or PAC structures with a current weighted average life
of 4.2 years.
The amortized cost and estimated fair value of securities at December 31,
1996, by contractual maturity, are presented in the table below. Expected
maturities will differ from contractual maturities since 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 .............. $ 13,053 $ 13,096 $ 15,030 $ 15,055
Due after one year through five years 27,273 27,502 119,070 118,073
Due after five years through ten years 96,302 95,909 19,647 18,913
Due after ten Years .................. 673 655 19,275 18,200
-------------------------------------------
Subtotal ........................... 137,301 137,162 173,022 170,241
Mortgage-Backed Securities .......... 1,162,814 1,156,310 648,302 646,825
Equity Securities .................... -- -- 39,728 40,325
-------------------------------------------
$1,300,115 $1,293,472 $861,052 $857,391
===========================================
</TABLE>
The prepayment of MBS's, including CMO's, is actively monitored through the
portfolio management function. Management 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.
The proceeds, gross realized gains and gross realized losses on the sale of
securities available-for-sale were as follows at December 31,
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Proceeds from Sales .................... $ 634,588 $ 103,510 $ 272,175
===================================
Gross Realized Gains ................... 4,491 6,728 2,489
Gross Realized Losses .................. (2,613) (349) (11,678)
-----------------------------------
Net Realized Gains/(Losses) ............ $ 1,878 $ 6,379 $ (9,189)
===================================
</TABLE>
Gross realized gains in 1996 and 1995 resulted principally from the sale of
equity positions in certain financial institutions. At December 31, 1996,
held-to-maturity securities carried at $358.0 million and available-for-sale
securities carried at $603.5 million were pledged for various purposes as
required by law and to secure securities sold under agreements to repurchase and
other borrowings. At December 31, 1995, held-to-maturity securities carried at
$473.8 million and available-for-sale securities carried at $416.0 million were
similarly pledged as collateral.
32
<PAGE> 25
NOTE 4 - LOANS
The composition of the loan portfolio is summarized as follows at December
31,
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
(dollars in thousands) 1996 OF TOTAL 1995 OF TOTAL
----------------------------------------------
<S> <C> <C> <C> <C>
Mortgage Loans-Residential . $ 985,983 31% $ 848,060 35%
Mortgage Loans-Multi-family 956,718 30% 687,671 28%
Mortgage Loans-Commercial .. 635,042 20% 470,479 20%
Commercial & Industrial .... 347,437 11% 248,662 10%
Consumer Loans and Leases .. 219,127 7% 114,669 5%
Construction and Land Loans 49,779 1% 49,759 2%
----------------------------------------------
Total ................... $3,194,086 100% $2,419,300 100%
Less:
Unearned Income & Fees .... 22,561 19,018
Allowance for Loan Losses . 53,894 56,627
---------- ----------
Net Loans ............. $3,117,631 $2,343,655
========== ==========
</TABLE>
The 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. Loans outstanding totaled $3.2
billion at December 31, 1996, an increase of $774.8 million or 32% from the 1995
year end levels of $2.4 billion, of which approximately $200 million was
acquired from Extebank. Extebank's loan portfolio was comprised primarily of
commercial loans and commercial mortgages. Aggregate loan growth during 1996
consisted of a 39.1% increase in multi-family mortgage loans to $956.7 million,
a 91.1% increase in consumer loans and leases to $219.1 million, a 35% increase
in commercial mortgage loans to $635.0 million, a 39.7% increase in commercial
and industrial loans to $347.4 million, and a 16.3% increase in residential
mortgage loans to $986.0 million at December 31, 1996.
To minimize the credit risk related to the portfolio's real estate
concentration, management utilizes prudent underwriting standards as well as
diversifying the type and locations of loan placements. The multi-family lending
business includes loans on various types and geographically diverse apartment
complexes. Multi-family mortgages are dependent largely 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 mortgages do not fully amortize. Therefore, the
principal outstanding is not significantly reduced prior to contractual
maturity. The residential mortgage portfolio is comprised primarily of first
mortgage loans on owner occupied 1-4 family residences located in the
metropolitan New York area. The commercial mortgage portfolio contains loans
secured by professional office buildings, retail stores, shopping centers and
industrial developments. Land loans are loans to finance the acquisition of
vacant land for future residential and commercial development. Construction
loans principally finance the construction of industrial developments and
single-family subdivisions. Commercial and industrial loans consist primarily of
loans to small and medium size businesses. Consumer loans and leases represent
credit to individuals for household, family, and other personal expenditures and
consist primarily of loans and leases to finance new and used automobiles.
The Company's real estate underwriting standards include various limits on
the loan to value ratios based on type of property, and management 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. Additionally, the
underwriting standards require appraisals and periodic inspections of the
properties as well as ongoing monitoring of operating results.
Mortgage loans serviced for others aggregated $427.2 million and $474.3
million as of December 31, 1996 and 1995, respectively.
NON-PERFORMING ASSETS
Non-performing assets include loans ninety days past due and still accruing,
non-accrual loans and other real estate. Other real estate consists of property
acquired through foreclosure or deeds in lieu of foreclosure. Non-performing
assets declined $22.6 million or 50.4% to $22.2 million at December 31, 1996, as
compared to $44.8 million at December 31, 1995. This reduction was achieved
principally through the bulk sales of approximately $18 million in
non-performing assets for cash.
Non-performing assets at December 31, consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
------------------
<S> <C> <C>
Loans Ninety Days Past Due and Still Accruing ........... $ 2,596 $ 1,088
Non-Accrual Loans ....................................... 17,745 36,411
------------------
Non-Performing Loans .................................. 20,341 37,499
Other Real Estate ........................................ 1,898 7,320
------------------
Non-Performing Assets ................................. $22,239 $44,819
==================
</TABLE>
Non-performing loans at December 31, 1996 consisted of $7.3 million in
commercial loans, $5.1 million in residential mortgages, $4.1 million in
commercial mortgages, $2.5 million in construction and land development loans,
$.8 million in multi-family mortgages and $.5 million in consumer loans and
leases.
Interest foregone on non-accrual loans, or the amount of income that would
have been earned had those loans remained performing, aggregated $2.4 million,
$3.8 million and $3.8 million in 1996, 1995, and 1994, respectively.
33
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RESTRUCTURED LOANS
Restructured, accruing loans were $13.7 million and $41.3 million at
December 31, 1996 and 1995, respectively. Restructured loans on non-accrual
status at December 31, 1996 and 1995 were $.1 million and $1.8 million,
respectively. The decline in the level of restructured, accruing loans was
achieved through principal repayments, maturities and renewals at market terms,
and the satisfaction of the performance requirements on certain of these loans
during 1996. The amount of interest income recorded on restructured loans was
approximately $1.0 million, $3.1 million and $3.6 million in 1996, 1995 and
1994, respectively. The difference between income included in the 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
$.4 million, $1.7 million and $1.5 million in 1996, 1995 and 1994, respectively.
The Company had no commitments to lend additional funds to borrowers whose
loans are non-performing or whose terms have been previously restructured at
December 31, 1996.
RELATED PARTY LOANS
Loans to related parties include loans to directors and their related
companies and executive officers of the Company and 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. Related party
loans aggregated $1.5 million and $1.4 million at December 31, 1996 and 1995,
respectively.
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) 1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
Balance at Beginning of Year ......................................................... $56,627 $61,247 $67,670
Provisions for Loan Losses ........................................................... 6,800 11,825 6,825
Recoveries Credited to the Allowance ................................................. 2,610 3,914 4,835
-------------------------------------
66,037 76,986 79,330
Losses Charged to the Allowance ...................................................... (15,425) (20,851) (18,447)
Additional Allowance Acquired in Purchase Acquisitions ............................... 3,092 492 -
North Side Net Activity for the Three Months Ended December 31, 1995 ................. 190 - -
Metro Net Activity for the Three Months Ended December 31, 1993 ...................... - - 364
-------------------------------------
Balance at End of Year ............................................................... $53,894 $56,627 $61,247
=====================================
</TABLE>
As of December 31, 1996, $10.3 million of loans were impaired within the
scope of SFAS 114 and were carried on a non-accrual basis. Approximately 87% of
these loans were measured for impairment using the fair value of collateral,
while the remaining 13% were measured using the present value of the expected
future cash flows discounted at the loan's effective rate. As a result of these
measurements, approximately $2.0 million of these loans required valuation
allowances, totaling $75 thousand, which are included within the overall
allowance for loan losses at December 31, 1996. Residential mortgages and
consumer loans and leases outside the scope of SFAS 114 are collectively
evaluated for impairment. Average impaired loans during 1996 were approximately
$17.0 million, and the amount of cash basis interest income recognized on these
loans was $.8 million.
As of December 31, 1995, $22.5 million of loans were impaired within the
scope of SFAS 114 and were carried on a non-accrual basis. Approximately 87% of
these loans were measured for impairment using the fair value of collateral,
while the remaining 13% were measured using the present value of the expected
future cash flows discounted at the loan's effective rate. As a result of these
measurements, approximately $5.9 million of these loans required valuation
allowances, totaling $1.1 million, which were included within the overall
allowance for loan losses at December 31, 1995. Average impaired loans during
1995 were approximately $27.0 million, and the amount of cash basis interest
income recognized on these loans was $1.1 million.
NOTE 6 - PREMISES AND EQUIPMENT
The following is a summary of premises and equipment at December 31,
<TABLE>
<CAPTION>
(in thousands) 1996 1995
---------------------
<S> <C> <C>
Land .................................................. $ 15,599 $ 13,725
Bank Premises ......................................... 40,861 40,655
Leasehold Improvements ................................ 13,915 8,803
Equipment ............................................. 44,278 40,567
---------------------
114,653 103,750
Accumulated Depreciation and Amortization ............. (49,123) (43,365)
---------------------
$ 65,530 $ 60,385
=====================
</TABLE>
34
<PAGE> 27
NOTE 7 - FEDERAL FUNDS PURCHASED & SECURITIES SOLD UNDER AGREEMENTS TO
REPURCHASE
The following is a summary of federal funds purchased and securities sold
under agreements to repurchase at and for the years ended December 31,
<TABLE>
<CAPTION>
(dollars in thousands) 1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
Federal Funds Purchased
Period End Balance .......................................... $ -- $ -- $ 20,000
Maximum Amount Outstanding at Any Month End ................. 90,000 60,000 25,000
Average Outstanding Balance ................................. 34,756 11,133 5,032
Weighted Average Interest Rate Paid ......................... 5.51% 5.89% 5.47%
Weighted Average Interest Rate at Year End .................. -- -- 6.00%
Securities Sold Under Agreements to Repurchase - Short Term
Period End Balance .......................................... $201,289 $428,369 $226,875
Maximum Amount Outstanding at Any Month End ................. 541,126 645,869 561,701
Average Outstanding Balance ................................. 314,267 275,455 373,166
Weighted Average Interest Rate Paid ......................... 5.36% 5.95% 4.26%
Weighted Average Interest Rate at Year End .................. 5.42% 5.84% 4.99%
Securities Sold Under Agreements to Repurchase - Long Term
Period End Balance .......................................... $420,500 $214,000 $ --
Maximum Amount Outstanding at Any Month End ................. 420,500 214,000 --
Average Outstanding Balance ................................. 261,937 63,805 --
Weighted Average Interest Rate Paid ......................... 6.13% 6.06% --
Weighted Average Interest Rate at Year End .................. 5.96% 5.97% --
</TABLE>
At December 31, 1996, securities sold under agreements to repurchase,
classified as short term in the above table, have remaining maturities less than
90 days. At December 31, 1996, securities sold under agreement to repurchase,
classified as long-term in the above table, have remaining maturities ranging
from one to five years.
Qualifying repurchase agreements are treated as financings and the
obligations to repurchase securities sold are reflected as a liability in the
balance sheet. The dollar amount of securities underlying the agreements remains
in the asset accounts, although the securities underlying the agreements are
delivered to the brokers who arranged the transactions. In certain instances,
the broker may have sold, loaned, or disposed of the securities to other parties
in the normal course of their operations, and have agreed to resell to the
Company substantially similar securities at the maturity of the agreements.
NOTE 8 - OTHER BORROWINGS
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, limitations on
the repurchase of common stock, and additionally, the Note contains certain
prepayment penalties. At December 31, 1996, the Company was in compliance with
the covenants of the Note.
At December 31, 1996 and 1995, the Company had $10 million in long-term
Federal Home Loan Bank advances outstanding. These advances bear an interest
rate of 10% and mature on April 28, 1999.
During 1996, the Company had entered into short-term borrowing arrangements
with Federal Home Loan Bank. At December 31, 1996 and 1995, there were no
amounts outstanding. Average borrowings during 1996 were $3.9 million at a
weighted average interest rate of 5.70%. The maximum outstanding at any month
end during 1996 was $50 million.
The Bank has arrangements with various correspondent banks providing
short-term credit for regulatory liquidity requirements. These lines of credit
aggregated $145.0 million and $135.0 million at December 31, 1996 and 1995,
respectively.
NOTE 9 - COMPANY-OBLIGATED MANDATORILY REDEEMABLE CAPITAL SECURITIES OF
SUBSIDIARY TRUST
On December 31, 1996, the Company issued through its wholly-owned statutory
business trust subsidiary, Capital Trust, $100 million of 8.70% Capital Trust
Pass-Through Securities ("Capital Securities") and received proceeds of $99.6
million. The cost of the issuance, consisting principally of underwriting
discounts and professional fees of approximately $1.4 million, was borne by the
Company. Capital Trust was formed on December 23, 1996 with an initial
capitalization in common stock of $3.1 million and for the exclusive purpose of
issuing the Capital Securities and using the proceeds to acquire Junior
Subordinated Debt Securities ("Debt Securities") issued by the Company. The Debt
Securities are due at maturity on December 15, 2026, are non-callable at any
time in whole or in part prior to December 15, 2006, except in certain
circumstances, but may be redeemed annually thereafter, in whole or in part, at
declining premiums to maturity. Similarly, the Capital Securities are subject
contemporaneously with the redemption features of the Debt Securities. The
Company has the right to defer payments of interest on the Debt Securities from
time to time for a period not exceeding ten consecutive semi-annual periods.
The Capital Securities qualify as Tier I capital for regulatory capital
purposes. The costs associated with the issuance have been capitalized and are
being amortized using the straight-line method to maturity.
35
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - INCOME TAXES
The components of the consolidated income tax provision is shown below for
the years ended December 31,
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
-------------------------------
<S> <C> <C> <C>
Current Tax Expense ......................... $44,384 $41,285 $28,527
Deferred Tax Expense ........................ 5,446 8,565 4,825
Change in Valuation Allowance ............... - - (6,850)
-------------------------------
Income Tax Provision ........................ $49,830 $49,850 $26,502
===============================
</TABLE>
The following table reconciles the statutory U.S. Federal tax rate to the
effective tax rate on income before income taxes for the years ended December
31,
RECONCILIATION OF STATUTORY RATE TO EFFECTIVE RATE
<TABLE>
<CAPTION>
1996 1995 1994
---------------------
<S> <C> <C> <C>
Federal Income Tax Expense at Statutory Rates ...................... 35.00% 35.00% 35.00%
Increase/(Reduction) Resulting from:
State and Local Income Taxes, Net of Federal Income Tax Benefit 6.49 8.11 8.55
Tax Exempt Interest, net ....................................... (1.67) (.88) (1.47)
Nondeductible Merger Related Restructure Charges ............... 2.73 - .50
Accretion/Amortization of Purchase Accounting
Premiums and Discounts ....................................... .15 (.01) .10
Amortization of Intangible Assets .............................. .96 .50 .39
Recapture of Tax Bad Debt Reserve Due to Metro Merger .......... - - 4.22
Change in Valuation Allowance .................................. - - (9.85)
Other, Net ..................................................... .72 (.18) .67
---------------------
Effective Income Tax Rate .......................................... 44.38% 42.54% 38.11%
=====================
</TABLE>
The components of the net deferred tax asset are included in "Other Assets"
in the accompanying consolidated balance sheets at December 31, and are as
follows:
<TABLE>
<CAPTION>
(in thousands) 1996 1995
-------------------------
<S> <C> <C>
Deferred Tax Assets
Allowance for Loan Losses ..................................... $ 20,955 $ 23,215
Unrealized Loss on Securities Available-for-Sale .............. 1,986 --
Excess of Tax Basis Over Book Basis-Other Real Estate ......... 559 567
Deferred Compensation and Other Employee Benefit Plans ........ 3,059 2,437
Deductible Merger Related Restructure Charges ................. 3,633 979
Other ......................................................... 1,665 2,467
-------------------------
Gross Deferred Tax Asset .................................... $ 31,857 $ 29,665
Valuation Allowance ........................................... (4,567) (4,567)
-------------------------
Deferred Tax Asset .......................................... $ 27,290 $ 25,098
=========================
Deferred Tax Liability
Tax Bad Debt Recapture ........................................ $( 2,682) $( 4,185)
Unrealized Gain on Securities Available-for-Sale ............. -- (3,525)
Excess of Book Basis Over Tax Basis, Premises & Equipment ..... (1,767) (1,325)
Other ......................................................... (1,840) (1,547)
-------------------------
Gross Deferred Tax Liability ................................ $( 6,289) $(10,582)
-------------------------
Net Deferred Tax Asset ..................................... $ 21,001 $ 14,516
=========================
</TABLE>
During 1996, the Company's valuation allowance remained at $4.6 million as
it continues to reserve for a portion of the New York State and City deferred
tax assets due to uncertainties of realization since state and city law do not
provide for the utilization of net operating loss carryforwards or carrybacks.
Management anticipates that the realization of the net deferred tax asset of
$21.0 million at December 31, 1996 is more likely than not, based on existing
carryback ability, available tax planning strategies and projected future
taxable income.
NOTE 11 - RETIREMENT AND OTHER EMPLOYEE BENEFITS PLANS
RETIREMENT PLANS
The Company maintains a retirement plan (the "Plan") covering substantially
all of its full-time employees. 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. The
following table sets forth the funded status of the Plan, and amounts recognized
in the accompanying consolidated financial statements.
36
<PAGE> 29
<TABLE>
<CAPTION>
(in thousands) 1996 1995
-------------------
<S> <C> <C>
Actuarial Present Value of Accumulated Benefit Obligation:
Vested Benefits ........................................ $(20,874) $(17,676)
Non-Vested Benefits .................................... (1,933) (452)
-------------------
Accumulated Benefit Obligation ............................ (22,807) (18,128)
Effect of Projected Future Compensation Levels ............ (230) (400)
-------------------
Projected Benefit Obligation .............................. (23,037) (18,528)
Plan Assets at Fair Value ................................. 22,978 18,344
-------------------
Plan Assets Less than Projected Benefit Obligation ........ (59) (184)
Unrecognized Net Asset Value Existing at Plan Year End .... (330) (394)
Unrecognized Net Loss ..................................... 3,314 4,573
Unrecognized Prior Service Cost ........................... (2,536) (2,787)
-------------------
Prepaid Pension Cost ...................................... $ 389 $ 1,208
===================
</TABLE>
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
-------------------------
<S> <C> <C> <C>
Components of Net Periodic Pension Expense:
Service Cost-Benefits Earned During the Year ... $ 991 $ 834 $ 710
Interest Cost on Projected Benefit Obligation .. 1,297 1,268 1,188
Net Amortization and Deferral .................. 470 1,630 (1,685)
-------------------------
$2,758 $3,732 $ 213
Less Actual Return on Plan Assets ................ 2,089 2,954 (184)
-------------------------
Net Periodic Pension Expense .................. $ 669 $ 778 $ 397
=========================
Assumptions Used in Actuarial Computations were:
Weighted Average Discount Rate ............... 7.75% 7.25% 8.50%
Rate of Increase in Future Compensation Levels 4.50% 4.50% 4.50%
Expected Long-Term rate of Return on Assets .. 8.50% 8.50% 8.50%
</TABLE>
North Side maintained a retirement plan covering substantially all of its
full-time employees, subject to certain limitations. Benefits under this plan
are based on years of service and the highest level of compensation during a
specific period. Subject to approval by various agencies, the North Side plan
will be merged into the Company's plan with the Company's plan being the
successor plan.
The following table sets forth the funded status of the North Side plan, and
amounts recognized in the accompanying consolidated financial statements at the
valuation dates of September 30.
<TABLE>
<CAPTION>
(in thousands) 1996 1995
-------------------------
<S> <C> <C>
Actuarial Present Value of Accumulated Benefit Obligation:
Vested Benefits ............................................. $(15,701) $(14,057)
Non-Vested Benefits ......................................... (542) (542)
-------------------------
Accumulated Benefit Obligation ................................. (16,243) (14,599)
Effect of Projected Future Compensation Levels ................. (1,355) (1,352)
-------------------------
Projected Benefit Obligation ................................... (17,598) (15,951)
Plan Assets at Fair Value ...................................... 21,802 18,768
-------------------------
Plan Assets in Excess of Projected Benefit Obligation .......... 4,204 2,817
Unrecognized Net Liability Existing at Plan Year End ........... 2,011 465
Unrecognized Net Gain .......................................... (5,958) (2,922)
Unrecognized Prior Service Cost ................................ (120) (268)
-------------------------
Prepaid Pension Cost ........................................... $ 137 $ 92
=========================
</TABLE>
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Components of Net Periodic Pension Expense:
Service Cost-Benefits Earned During the Year ......... $ 450 $ 412 $ 512
Interest Cost on Projected Benefit Obligation ........ 1,155 1,145 1,109
Net Amortization and Deferral ........................ (193) (82) (60)
-----------------------------------------
$ 1,412 $ 1,475 $ 1,561
Less Actual Return on Plan Assets ...................... 1,457 1,261 1,340
-----------------------------------------
Net Periodic Pension (Credit)/Expense ............... $( 45) $ 214 $ 221
=========================================
Assumptions Used in Actuarial Computations were:
Weighted Average Discount Rate ..................... 7.50% 8.25% 7.00%
Rate of Increase in Future Compensation Levels ..... 5.50% 6.00% 5.50%
Expected Long-Term rate of Return on Assets ........ 8.00% 8.00% 8.00%
</TABLE>
37
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company maintains 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, which are
unfunded, was $45 thousand at December 31, 1996 and $164 thousand at December
31, 1995. Net periodic pension expense incurred in 1996, 1995 and 1994, for the
supplemental retirement plan was $11 thousand, $33 thousand and $40 thousand,
respectively. The weighted average discount rate utilized to determine the
projected benefit obligation was 7.75% for 1996, 7.25% for 1995 and 8.50% for
1994. The assumed rate of future compensation increases was 4.50% for 1996,
1995, and 1994.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care and life insurance benefits to
eligible retired employees. Health care benefits received range between 0% and
100% of coverage premiums based on an employee's age, years of service and
retirement date. Participants who retire after November 1, 1992 are responsible
for all premium increases after 1997. The Company's plan for its postretirement
obligation is unfunded.
The following table sets forth information related to the Company's
postretirement benefit obligations at December 31,
<TABLE>
<CAPTION>
(in thousands) 1996 1995
-------------------
<S> <C> <C>
Accumulated Post Retirement Benefit Obligation
Retirees and Beneficiaries Eligible for Benefits ........ $ 6,413 $ 6,719
Active Employees Fully Eligible for Benefits ........... 1,278 1,149
-------------------
Accumulated Post Retirement Benefit Obligation ..... 7,691 7,868
Unrecognized Transition Obligation ...................... (3,298) (3,506)
Unrecognized Prior Service Cost ......................... 684 723
Unrecognized Net Loss ................................... (1,885) (2,229)
-------------------
Accrued Post Retirement Benefit Obligation .............. $ 3,192 $ 2,856
===================
</TABLE>
The weighted average discount rate utilized to determine the accumulated
postretirement benefit obligation was 7.75% and 7.25% in 1996 and 1995,
respectively. The assumed rate of future compensation increases was 5.50% for
both years. The weighted average discount rate utilized to determine the net
periodic postretirement benefits expense was 7.25% and 8.50% for 1996 and 1995,
respectively.
In measuring the APBO, an 8.00% annual trend rate for health care costs was
assumed for the year ended December 31, 1996. These rates are assumed to decline
ratably to 5.5% through 2010, and remain at that level thereafter. However, for
retirees after November 1, 1992, no increases in the annual trend rate are
assumed for after 1997. If the assumed health care cost trend rate changed by
1%, the APBO at December 31, 1996 would change by 6.5%. The effect of a 1%
change in the health care cost trend rate on the service and interest cost
components of net periodic postretirement benefits expense would be a change
of 6.3%.
The net periodic postretirement benefits expense for the years ended
December 31, consisted of the following:
<TABLE>
<CAPTION>
(in thousands) 1996 1995 1994
---------------------------------------
<S> <C> <C> <C>
Service Cost (Benefits Earned During the Year) .......................................... $ 85 $ 73 $ 159
Interest Cost on Accumulated Post Retirement Benefit Obligation ......................... 561 528 640
Amortization of Transition Obligation, Net Loss and Unrecognized Prior Service Cost ..... 258 154 263
---------------------------------------
Net Periodic Post Retirement Benefits Expense ........................................ $ 904 $ 755 $ 1,062
=======================================
</TABLE>
401-(k) 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,
however, 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. North
Side also had a qualified 401(k) savings plan for its employees in which North
Side matched a portion of the employee's contribution. Upon merger, all North
Side plan participants became fully vested in their account balances. Subject to
receipt of a favorable determination letter from the Internal Revenue Service,
the North Side plan will be merged into the Company's plan with the Company's
plan being the successor plan. The aggregate expense of the plans was $1.2
million, and $1.0 million, and $1.1 million for the years ended 1996, 1995 and
1994, respectively.
NOTE 12 - COMMON STOCK PLANS
1987 LONG TERM INCENTIVE PLAN
The plan provided for two types of awards, non-qualified stock options and
restricted stock, to be granted either separately or in combination. Awards were
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 could have been issued under the plan, either as restricted
stock awards or non-qualified stock options, was 400,000 shares. The value of
restricted stock awarded under the plan 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 years the restrictions lapse, which is
generally 33 1/3% per year from years five to seven after the grant date. The
Compensation Committee, in its sole discretion, may also 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 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, 1996, no shares
remain unissued.
38
<PAGE> 31
1989 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 by the Compensation Committee. The maximum
aggregate number of shares of common stock which may be issued 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 1987 Long Term Incentive Plan. The Compensation Committee, in
its sole discretion, may also 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 is exchanged
for stock of another corporation, cash or other consideration, all restrictions
on unvested options outstanding and 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. 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, 1996, 2,618 shares remain authorized and
unissued.
1994 KEY EMPLOYEE STOCK PLAN
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. Awards are granted to employees by the
Compensation Committee. In 1996, shareholders approved an amendment to the Plan
to increase the number of shares issuable thereunder from 700,000 to 1,200,000
shares, with no more than 400,000 authorized for restricted stock. Restricted
stock awarded under the plan contains similar restrictions as those under the
1987 Long Term Incentive Plan. The Compensation Committee, in its sole
discretion, may also 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 is exchanged for stock
of another corporation, cash or other consideration, all restrictions on
unvested options outstanding and 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, 1996, 317,967 shares
remain authorized and unissued.
METRO STOCK PLANS - PRE-MERGER
Metro maintained several incentive stock option and non-qualified 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. Pursuant to the merger agreement, options
outstanding under these plans were converted into 739,038 options on the
Company's stock at exercise prices of $2.38 and $10.57 based on the merger
exchange ratio of 1.645. At December 31, 1996, 13,748 options at an exercise
price of $2.38 remained outstanding. Also, Metro had a Stock Appreciation Rights
Plan (SAR) under which participants became fully vested at the date of merger.
Compensation expense recorded for these SAR's in 1994 was $2.0 million.
NORTH SIDE STOCK PLANS - PRE-MERGER
North Side maintained several incentive stock option and non-qualified stock
option plans for its officers 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. Options awarded under the plans vested and became
exercisable with respect to 20% of the shares per year beginning on the first
anniversary of each grant and were exercisable over a ten year period from the
date of grant. Pursuant to the merger agreement, options outstanding under these
plans were converted into 174,021 options on the Company's stock at exercise
prices ranging from $5.55 and $18.64 based on the merger exchange ratio of
1.556. Also, North Side had a Management Development and Recognition Plan (the
"Plan") under which key employees participated in awards in the form of common
stock held in trusts by the Plan for the benefit of participants pending the
vesting of such shares. Participants under the Plan became fully vested at the
merger date. Compensation expense recognized under the Plan was $566 thousand in
1996, $94 thousand in 1995 and $100 thousand in 1994.
The following is a summary of the activity in the stock option plans for the
three year period ended December 31, 1996.
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS (1) PRICE OPTIONS PRICE OPTIONS PRICE
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year ..... 1,349,452 $ 12.88 2,044,853 $ 10.13 1,782,295 $ 8.66
Granted .............................. 551,092 $ 26.45 80,132 $ 13.94 521,856 $ 13.13
Exercised ............................ (610,371) $ 12.06 (716,167) $ 4.74 (225,944) $ 4.32
Canceled ............................. (10,827) $ 15.27 (59,366) $ 17.94 (33,354) $ 17.71
--------------------------------------------------------------------------------------------
Outstanding at end of year ........... 1,279,346 $ 19.09 1,349,452 $ 12.88 2,044,853 $ 10.13
============================================================================================
Options exercisable at year end ...... 1,044,012 $ 17.04 1,021,593 $ 13.23 1,530,413 $ 9.32
============================================================================================
</TABLE>
- - ----------
(1) Includes 1995 performance awards that were granted in January 1996 and
1996 performance awards that were granted in December 1996.
39
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of the information concerning currently
outstanding and exercisable options as of December 31, 1996:
<TABLE>
<CAPTION>
Options Options
Outstanding Exercisable
- - --------------------------------------------------------------- ---------------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Options Remaining Exercise Options Exercise
Prices Outstanding Life Price Exercisable Price
- - --------------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
$2.38 - $14.75 471,935 6.7 $ 11.18 470,435 $ 11.18
$15.00 - $24.44 577,111 5.4 $ 19.72 502,977 $ 20.14
$27.06 - $34.00 230,300 10.0 $ 33.73 70,600 $ 34.00
- - --------------------------------------------------------------- ---------------------------
$2.38 - $34.00 1,279,346 6.7 $ 19.09 1,044,012 $ 17.04
=============================================================== ===========================
</TABLE>
The following is a summary of the activity in the restricted stock plans for
the three-year period ended December 31, 1996:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
GRANT GRANT GRANT
SHARES PRICE SHARES PRICE SHARES PRICE
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year ...... 132,904 $ 17.38 95,142 $ 16.14 102,211 $ 16.88
Granted ............................... 152,400 $ 31.05 58,600 $ 18.00 10,000 $ 12.22
Vested ................................ (21,312) $ 19.14 (3,836) $ 16.83 (12,735) $ 18.79
Canceled .............................. (2,500) $ 16.57 (17,002) $ 12.71 (4,334) $ 16.07
---------------------------------------------------------------------------------------
Outstanding at year end .............. 261,492 $ 25.21 132,904 $ 17.38 95,142 $ 16.14
=======================================================================================
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for its
plans. Accordingly, no compensation expense has been recognized for its
stock-based compensation plans other than for restricted stock awards. Had
compensation expense for the Company's stock option plans been determined based
upon the fair value at the grant date for awards under these plans consistent
with the methodology prescribed under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", the Company's net
income and earnings per share would have been reduced by approximately $3.2
million, or $.10 per share in 1996 and $68 thousand, with no earnings per share
impact in 1995. The fair value of the options granted during 1996 and 1995 were
estimated at $9.30 and $4.66, respectively, on the date of grant using the
Black-Scholes option-pricing model. The following assumptions were used in
calculating the fair value of the options granted during 1996: dividend yield
2.75%, volatility of 42.8%, risk-free interest rate of 5.80%, no assumed
forfeiture and an expected life of six years. The following assumptions were
used in calculating the fair value of the options granted during 1995: dividend
yield 2.75%, volatility of 40%, risk-free interest rate of 7.27%, no assumed
forfeiture and an expected life of six years.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Dividend Reinvestment and Stock Purchase Plan provides stockholders with
a method of investing cash dividends and/or optional cash payments in additional
common stock. Under the plan, cash dividends and/or optional cash payments can
be used to purchase common stock without brokerage commission. 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 of $15,000 regardless of the number of shares owned. At December
31, 1996, 341,723 shares remain authorized and unissued.
SHAREHOLDERS' RIGHTS PLAN AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company maintains a shareholder rights plan. Each right under the plan
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.
The Company has 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.
40
<PAGE> 33
NOTE 13 - PARENT COMPANY ONLY
CONDENSED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(in thousands)
CONDENSED BALANCE SHEETS DECEMBER 31, 1996 1995
------------------------
<S> <C> <C>
ASSETS
Deposits with Bank Subsidiary ............................................ $ 771 $ 330
Deposits with Other Financial Institutions ............................... 160 234
Securities Purchased Under Agreements to Resell with Bank Subsidiary ..... 148,000 10,000
Securities Available-for-Sale ............................................ 10,871 9,248
Investment in Subsidiaries ............................................... 428,336 429,893
Intangible Assets ........................................................ 7,291 7,731
Other Assets ............................................................. 1,773 755
------------------------
Total Assets .......................................................... $597,202 $458,191
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Junior Subordinated Debt Securities (See Note 9) ........................ $102,737 $ --
Senior Notes Payable ..................................................... 25,000 25,000
Dividends Payable ........................................................ 8,112 3,726
Other Liabilities ........................................................ 3,822 3,336
Stockholders' Equity ..................................................... 457,531 426,129
------------------------
Total Liabilities & Stockholders' Equity ............................. $597,202 $458,191
========================
</TABLE>
<TABLE>
<CAPTION>
(in thousands)
CONDENSED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
INCOME
Dividends from Subsidiaries ............................................ $ 70,839 $ 4,210 $ 8,875
Net Securities Gains ................................................... 2,685 5,041 1,109
Other .................................................................. 1,113 745 345
----------------------------------------
Total Income .......................................................... 74,637 9,996 10,329
----------------------------------------
EXPENSE
Interest on Borrowings ................................................. 1,913 1,901 2,095
Compensation and Employee Benefits ..................................... 495 113 172
Amortization of Intangible Assets ...................................... 440 440 440
Merger Related Restructure Charge ...................................... -- -- 1,122
Prepayment Penalty-Senior Notes Payable ................................ -- -- 877
Other Expenses ......................................................... 1,000 1,149 1,370
----------------------------------------
Total Expenses ........................................................ 3,848 3,603 6,076
----------------------------------------
Income before Income Taxes and Equity in Undistributed Earnings
of Subsidiaries ................................................ 70,789 6,393 4,253
Income Tax (Benefit)/Expense ........................................... (52) 1,022 (1,388)
Equity in Undistributed Earnings of Subsidiaries
Bank Subsidiary ...................................................... (7,867) 61,886 37,088
Non-Bank Subsidiaries ................................................ (532) 85 310
----------------------------------------
Net Income .......................................................... $ 62,442 $ 67,342 $ 43,039
========================================
</TABLE>
41
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income .............................................................. $ 62,442 $ 67,342 $ 43,039
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and Amortization ......................................... 487 147 245
Amortization of Intangible Assets ..................................... 440 440 440
Equity in Undistributed Earnings of Subsidiaries ...................... 8,399 (61,971) (37,398)
Net Securities Gains .................................................. (2,685) (5,041) (1,109)
Other, Net ............................................................ (359) 479 1,236
-------------------------------------------
Net Cash Provided by Operating Activities .......................... 68,724 1,396 6,453
-------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sales of Securities Available-for-Sale .................. 16,083 20,963 3,819
Purchases of Securities Available-for-Sale ............................ (23,822) (16,152) (10,266)
Investment in Capital Trust ........................................... (3,100) -- --
-------------------------------------------
Net Cash (Used in)/Provided by Investing Activities ................. (10,839) 4,811 (6,447)
-------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Treasury Shares ........................................... (22,566) (1,316) (35)
Common Stock Sold for Cash ............................................ 23,485 11,297 3,696
Dividends Paid to Shareholders ........................................ (23,174) (15,435) (7,605)
Proceeds from the Issuance of Junior Subordinate Debt Securities ...... 102,737 -- --
Proceeds from the Issuance of Senior Notes Payable .................... -- -- 25,000
Repayments of Senior Notes Payable .................................... -- -- (20,000)
Repayment of Other Borrowings ......................................... -- -- (3,250)
-------------------------------------------
Net Cash Provided by/(Used in) Financing Activities ................. 80,482 (5,454) (2,194)
-------------------------------------------
Net Increase/(Decrease) in Cash and Cash Equivalents ................ 138,367 753 (2,188)
Cash and Cash Equivalents at Beginning of Year .......................... 10,564 9,811 12,665
Metro Activity for the Three Months Ended December 31, 1993 ............. -- -- (666)
-------------------------------------------
Cash and Cash Equivalents at End of Year ................................ $ 148,931 $ 10,564 $ 9,811
===========================================
</TABLE>
NOTE 14 - REGULATORY MATTERS
The Company and the Bank are subject to the risk based capital guidelines
administered by the banking regulatory agencies. 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 banks and bank
holding companies to maintain a minimum ratio of total risk based capital to
total risk weighted assets of 8%, including a minimum ratio of Tier 1 capital to
total risk weighted assets of 4% and a Tier 1 capital to average assets of 4%.
Failure to meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary actions by regulators, that, if undertaken,
could have a direct material effect on the Company's financial statements. As of
December 31, 1996, the most recent notification from the federal banking
regulators categorized the Company and the Bank as well capitalized under the
regulatory framework for prompt corrective action. Under the capital adequacy
guidelines, a well capitalized institution must maintain a minimum total risk
based capital to total risk weighted assets ratio of at least 10%, a minimum
Tier 1 capital to total risk weighted assets ratio of at least 6%, a minimum
leverage ratio of at least 5% and is not subject to any written order, agreement
or directive. There are no conditions or events since such notifications that
management believes have changed this classification.
The following table sets forth the Company's regulatory capital at December
31, 1996, under the rules applicable at such date. At such date, management
believes that the Company meets all capital adequacy requirements to which it is
subject.
<TABLE>
<CAPTION>
(dollars in thousands) Amount Ratio
--------------------
<S> <C> <C>
Tier 1 Capital ......................... $ 478,091 15.12%
Regulatory Requirement ................. 126,475 4.00%
--------------------
Excess ................................. $ 351,616 11.12%
====================
Total Risk Adjusted Capital ............ $ 517,791 16.38%
Regulatory Requirement ................. 252,949 8.00%
--------------------
Excess ................................. $ 264,842 8.38%
====================
Risk Weighted Assets ................... $3,161,863
==========
</TABLE>
The Company's leverage ratio at December 31, 1996 was 8.61%. The Tier 1,
total risk based and leverage capital ratios of the Bank were 11.09%, 12.34% and
6.30%, respectively, at December 31, 1996.
Dividends from the Bank to the 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. The Bank's dividend capability at January
1, 1997, pursuant to the regulations, was $55.6 million.
On September 30, 1996, Legislation was passed that empowered the Federal
Deposit Insurance Corporation to impose a special assessment on "SAIF-Assessable
Deposits" of depository institutions in order to recapitalize the Savings
Association Insurance Fund ("SAIF"). Certain of the Bank's deposit liabilities
acquired in previous thrift acquisitions are insured under the SAIF fund (SAIF
insured deposits at December 31, 1996 were
42
<PAGE> 35
approximately $1.2 billion). As a result of maintaining deposits in the SAIF,
the Bank is considered an OAKAR institution and, therefore, qualified for a
reduced one-time special assessment rate of 52.6 basis points per $100 of
insured SAIF assessable deposits as of March 31, 1995. During the third quarter
of 1996, the Bank recognized a non-recurring one-time charge of $8.4 million.
NOTE 15 - 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 consolidated
financial statements when and if proceeds associated with the commitments are
disbursed. The 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. Management uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
financial instruments.
Commitments to extend credit 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.
Management evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary, 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 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.
The notional principal amount of the off-balance sheet financial
instruments at December 31, are as follows:
<TABLE>
<CAPTION>
1996 1995
CONTRACT OR NOTIONAL Contract or Notional
(in thousands) AMOUNT Amount
----------------------------------------------
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk :
Commitments to extend credit ..................................... $306,310 $192,977
Standby letters of credit ........................................ 16,892 13,468
</TABLE>
(b) LEASE COMMITMENTS
At December 31, 1996, the Company was obligated under a number of
non-cancelable leases for land and buildings that expire at various dates
through August 2016. 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>
1997 .......................................................... $4,362
1998 .......................................................... 3,709
1999 .......................................................... 2,960
2000 .......................................................... 2,308
2001 .......................................................... 2,049
Thereafter .......................................................... 9,839
</TABLE>
Rent expense for the years ended December 31, 1996, 1995 and 1994 amounted
to $3.5 million, $2.5 million and $2.4 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 $37.4
million in 1996.
The Company and its subsidiaries are subject to certain pending and
threatened legal actions which arise out of the normal course of business.
Management 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.
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 was $13.7 million and $15.9 million at
December 31, 1996 and 1995, respectively.
NOTE 16 - 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 the
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 total value of the Company.
If quoted market prices are not available, SFAS 107 permits using the
present value of anticipated future cash flows to estimate fair value.
Accordingly, the estimated fair value will be influenced by prepayment and
discount rate assumptions. This 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.
43
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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,
<TABLE>
<CAPTION>
1996 1995
-------------------------------------------------------------
CARRYING ESTIMATED Carrying Estimated
(in thousands) AMOUNT FAIR VALUE Amount Fair Value
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents ....................... $ 267,663 $ 267,663 $ 148,809 $ 148,809
Securities Held-to-Maturity ..................... 1,300,115 1,293,472 1,084,829 1,075,481
Securities Available-for-Sale ................... 857,391 857,391 1,150,510 1,150,510
-------------------------------------------------------------
Total Cash, Cash Equivalents and Securities ... $2,425,169 $2,418,526 $2,384,148 $2,374,800
=============================================================
</TABLE>
LOANS
Fair values are estimated for portfolios of loans with similar financial
characteristics. The fair value of performing loans is calculated by discounting
the estimated cash flows through its expected maturity or repricing using the
current rates at which similar loans would be made to borrowers with similar
credit risks. For non-performing loans, the present value 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 the estimated fair value of the loan portfolio as of December 31, 1996
and 1995.
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------------------------
CARRYING ESTIMATED Carrying Estimated
(in thousands) AMOUNT FAIR VALUE Amount Fair Value
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Loans .... $3,194,086 $3,170,157 $2,419,300 $2,402,038
==============================================================
</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
deposits and borrowings as of December 31,
<TABLE>
<CAPTION>
1996 1995
-------------------------------------------------------------
CARRYING ESTIMATED Carrying Estimated
(in thousands) AMOUNT FAIR VALUE Amount Fair Value
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Demand Deposits ................................ $ 734,907 $ 734,907 $ 488,156 $ 488,156
Savings, N.O.W. and Money Market ............... 1,974,570 1,974,570 1,813,382 1,813,382
Certificates of Deposit ........................ 1,760,033 1,777,680 1,438,182 1,450,459
Borrowings with terms of 90 days or less ....... 201,289 201,289 428,369 428,369
Borrowings with terms greater than 90 days ..... 455,500 456,635 249,000 250,337
-------------------------------------------------------------
Total Deposit Liabilities and Borrowings ... $5,126,299 $5,145,081 $4,417,089 $4,430,703
=============================================================
</TABLE>
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
These financial instruments generally are not sold or traded, and estimated
fair values are not readily available. However, the fair value of commitments to
extend credit and standby letters of credit is based on fees currently charged
to enter into similar agreements with comparable credit risks and the current
creditworthiness of the counterparties. Commitments to extend credit issued by
the Company are generally short-term in nature and, if drawn upon, are issued
under current market terms and conditions for credits with comparable risks.
At December 31, 1996 and 1995, there was no significant unrealized
appreciation or depreciation on these financial instruments.
INTEREST RATE CAP, FLOOR AND SWAP AGREEMENTS
The Company had no interest rate swap or cap contracts outstanding at
December 31, 1996 and 1995.
NOTE 17 - ACCOUNTING DEVELOPMENTS
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES
In June 1996, the FASB issued Statement of Financial Accounting Standard
No. 125 ("SFAS 125"), "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities". SFAS 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. Under this approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
the financial assets when control has been surrendered, and derecognizes
liabilities when extinguished. This statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings.
The provisions of SFAS 125 are effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996 and is to be applied prospectively. Earlier or retroactive application is
not permitted. Management is currently assessing the financial implications of
implementing SFAS 125 and believes that the adoption will not have a material
adverse effect on its financial condition or results of operations.
44
<PAGE> 37
INDEPENDENT AUDITORS' REPORT
[LOGO] 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, 1996 and 1995, 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,
1996. 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, 1996 and 1995, the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in the notes to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity
Securities, and SFAS No. 114, Accounting by Creditors for Impairment of a Loan,
as amended by SFAS No. 118, Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures, at various dates during the periods
covered by the consolidated financial statements.
KPMG PEAT MARWICK LLP
New York, New York
January 21, 1997
REPORT OF MANAGEMENT
Management of North Fork Bancorporation, Inc. is responsible for the
preparation, content 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 judgment. The financial information contained
elsewhere in this annual report is consistent with that contained 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 accordance 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> 38
CORPORATE INFORMATION
EXECUTIVE INFORMATION
John Adam Kanas
Chairman, President & Chief Financial Officer
John Bohlsen
Vice Chairman
Thomas M. O'Brien
Vice Chairman
Daniel M. Healy
Executive Vice President & Chief Financial Officer
Anthony J. Abate
Senior Vice President & Corporate Secretary
BOARD OF DIRECTORS
John Adam Kanas, Chairman
John Bohlsen, Vice Chairman
Thomas M O'Brien, Vice Chairman
Allan C. Dickerson
Irvin L. Cherashore
Lloyd A. Gerard
James F. Reeves
James H. Rich, Jr.
George H. Rowsom
Dr. Kurt Schmeller
Raymond W. Terry, Jr.
EXECUTIVE OFFICES
275 Broad Hollow Road
Melville, N.Y. 11764
SHAREHOLDER INFORMATION
INVESTOR RELATIONS
Shareholders seeking information about North Fork Bancorporation or the annual
report pursuant to Section 112 of the FDIC Improvement Act of 1991 are directed
to contact the Corporate Secretary's office, North Fork Bancorporation, Inc.,
275 Broad Hollow Road, Melville, New York 11747, (516) 298-5000.
SHAREHOLDER ACCOUNT INQUIRIES
Shareholders who wish to change the name, address or ownership of stock,
consolidate accounts, eliminate duplicate mailings or replace lost certificates
or dividend checks, should contact the Stock Registrar and Transfer Agent at the
address and phone number listed.
DIVIDEND SERVICES
Dividend Reinvestment Plan--The Dividend Reinvestment Plan provides shareholders
with a convenient means to acquire additional shares of stock through
reinvesting dividends and/or making optional cash payments without a brokerage
commission or service charges.
Direct Deposit of Cash Dividends--Direct deposit provides a safe, timesaving
method of receiving cash dividends. Shareholders can automatically have their
dividends deposited on the date of payment into a checking, savings, or money
market account at any financial institution which provides Automated Clearing
House services.
Information regarding these services can be obtained by contacting the Transfer
Agent or North Fork's Corporate Secretary's Office.
STOCK REGISTRAR AND TRANSFER AGENT
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, New Jersey 07303-2500
(201) 324-0313
E-mail Address: [email protected]
STOCK LISTING
North Fork Bancorporation, Inc. is traded on
the New York Stock Exchange under the symbol
NFB. Newspaper stock listings: North Fork Bcp or
NO FK BC.
ANNUAL MEETING
The annual meeting of shareholders will be held
on Tuesday, April 22, 1997, 10:00 a.m. at the
Marriott Windwatch Hotel, 1717 Motor Parkway,
Hauppauge, New York 11788.
46
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
- - --------------------------
North Fork Bank
North Fork Leasing Corp. (inactive)
North Fork Capital Corp.
North Fork Capital Trust I
Compass Investment Services Corp.
SUBSIDIARIES OF NORTH FORK BANK
- - -------------------------------
NFB Properties, Inc.
NFB Development Corp.
Cutchco Corp.
First Settlers Corp.
Claire Elm Corp.
Howard Enterprises, Inc. (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)
East Quogue Health & Racquet Club, Inc. (inactive)
BFS Service Corp. (inactive)
Bay Abstract (inactive)
Compass Food Service Corp.
Shinnecock Mist Corp.
Rock Properties, Ltd.
North Side Capital Corp.
Semper Paratus Inc. (inactive)
Kent Road Development Corp (inactive).
The North Ski Holding Corp.
Annandale Associates, Inc. (inactive)
NS 138 Holding Corp.
BSSN, Inc. (inactive)
NS Harold Realty Corp. (inactive)
NS 806 Holding Corp. (inactive)
NS 160 Holding Corp.
NS 1513 Holding Corp. (inactive)
138 Seeley Real Estate Corp. (inactive)
NS Hilltop Holding Corp.
NS Sprout Brook Holding Corp.
NS 18 Holding Corp. (inactive)
NS 48 Holding Corp. (inactive)
NS 30 Holding Corp.
NS 114 Holding Corp. (inactive)
NS Mir Holding Corp.
NS 43 Holding Corp.
NS 10 Holding Corp. (inactive)
15
<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,
333-05513, 333-00675, 333-19047 and 33-56743) on Form S-8 and (Nos. 33-42294 and
33-54222) on Form S-3 of North Fork Bancorporation, Inc. of our report dated
January 21, 1997 relating to the consolidated balance sheets of North Fork
Bancorporation, Inc. and subsidiaries as of December 31, 1996 and 1995 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,
1996, which report appears in the December 31, 1996 Annual Report on Form 10-K
of North Fork Bancorporation, Inc.
Our report refers to various changes in accounting as discussed in the notes
to those statements.
KPMG PEAT MARWICK LLP
New York, New York
March 25, 1997
16
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 150,365
<INT-BEARING-DEPOSITS> 2,298
<FED-FUNDS-SOLD> 115,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 857,391
<INVESTMENTS-CARRYING> 1,300,115
<INVESTMENTS-MARKET> 1,293,472
<LOANS> 3,194,086
<ALLOWANCE> 53,894
<TOTAL-ASSETS> 5,750,527
<DEPOSITS> 4,469,510
<SHORT-TERM> 201,289
<LIABILITIES-OTHER> 166,697
<LONG-TERM> 455,500
0
0
<COMMON> 81,499
<OTHER-SE> 376,032
<TOTAL-LIABILITIES-AND-EQUITY> 5,750,527
<INTEREST-LOAN> 245,960
<INTEREST-INVEST> 156,470
<INTEREST-OTHER> 2,877
<INTEREST-TOTAL> 405,307
<INTEREST-DEPOSIT> 136,438
<INTEREST-EXPENSE> 174,361
<INTEREST-INCOME-NET> 230,946
<LOAN-LOSSES> 6,800
<SECURITIES-GAINS> 1,878
<EXPENSE-OTHER> 142,997
<INCOME-PRETAX> 112,272
<INCOME-PRE-EXTRAORDINARY> 112,272
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,442
<EPS-PRIMARY> 1.94
<EPS-DILUTED> 1.94
<YIELD-ACTUAL> 4.50
<LOANS-NON> 17,745
<LOANS-PAST> 2,596
<LOANS-TROUBLED> 13,734
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 56,627
<CHARGE-OFFS> 15,425
<RECOVERIES> 2,610
<ALLOWANCE-CLOSE> 53,894
<ALLOWANCE-DOMESTIC> 53,894
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,993
</TABLE>
